How is AI Used in Legal Technology?

As software-as-a-service (SaaS) companies scale, the complexity of their legal operations grows. One of the most promising technological advancements reshaping the in-house legal landscape is artificial intelligence (AI). Specifically, AI is revolutionizing contract lifecycle management (CLM) and enterprise legal management (ELM) by helping legal teams automate repetitive tasks, extract key data insights, and ensure compliance -- all with greater speed and accuracy.

What is AI legal technology?

AI legal technology refers to the use of artificial intelligence to automate and enhance various functions within legal operations, particularly around contract management and document review. By leveraging machine learning (ML), natural language processing (NLP), and generative AI (GenAI), legal teams can process large volumes of data more quickly, enabling quicker decision-making and minimizing risks.

The latest Future Ready Lawyer Survey from Wolters Kluwer found that "seventy-six percent of legal professionals in corporate legal departments … are using generative AI at least once a week, with a third of those professionals using it daily."

If you're not using AI to improve your legal processes, it may be time to reassess.

Key benefits of AI in legal technology

Increased efficiency: AI-powered tools can analyze contracts, documents, and legal data at speeds far surpassing traditional methods. For SaaS companies that manage large numbers of contracts, this means that routine tasks like contract review and risk assessment can be automated, saving significant time and effort.
Improved accuracy: AI can spot inconsistencies, risks, and critical clauses within contracts, reducing human error and ensuring that important details don’t go unnoticed. This is particularly important for in-house teams at SaaS companies, where missed contract terms can lead to costly consequences.
Cost savings: By automating time-consuming tasks and reducing the reliance on outside counsel, AI allows legal departments to significantly cut costs. Instead of spending hours manually reviewing contracts or documents, legal teams can focus on higher-value tasks, such as strategic decision-making.
Better compliance and risk management: AI tools can scan contracts for compliance issues, flagging potential risks and ensuring that all contractual obligations are met. This is crucial for SaaS companies, where regulatory requirements and data privacy laws are constantly evolving.
Scalability: As SaaS companies grow, the volume of contracts and legal documents typically increases. AI-based CLM solutions can scale with the business, managing an expanding volume of contracts without a corresponding increase in resources.

AI won't replace lawyers

Despite the media hype, you've no doubt heard (and perhaps some promises made by legal AI software vendors), artificial intelligence is no substitute for an actual lawyer. AI isn't going to replace your legal team, but it will replace big portions of your legal work.

As LinkSquares has said elsewhere, "Many lawyers spend a lot of time hunched over their desks writing contracts, researching case law, reviewing regulations, and a host of several other time-consuming tasks. Tasks that AI can do in a fraction of the time while identifying trends that would be way harder for a human to catch. So, AI will fundamentally change legal work only if you consider tedious tasks 'fundamental' to legal work."

AI won't replace the most vital function a corporate lawyer can provide: understanding the legal risks of any given business strategy or action and advising their company accordingly. But there are a lot of things AI-powered legal technology can do if you understand what it is and how it works.

LinkSquares: Leading the charge in AI-powered legal tech

LinkSquares is a prime example of how AI is transforming the legal industry, offering a powerful AI-powered CLM platform designed to meet the unique needs of in-house legal teams, especially in fast-moving sectors like SaaS.

With LinkSquares, legal teams can:

Streamline contract management by automating routine tasks and freeing up legal professionals to focus on high-value work.
Gain deeper contract insights through AI-powered analytics and reporting that help you optimize contract negotiations, renewals, and compliance.
Mitigate risk by leveraging AI to review and analyze contracts for potential risks, ensuring that your SaaS business is protected from hidden legal issues.
Improve contract visibility by providing easy access to critical contract information, helping you stay on top of key dates, obligations, and renewal deadlines.
Unlock hidden revenue and reduce risk with Smart Values, which extract key financial data and business insights from contracts.

As one LinkSquares customer put it, "It's game-changing for so many reasons. From having a simple and effective fully searchable single point of truth for all contracts (ie as contract repository) to the AI it offers. …. Wish we had signed up for it earlier. It's so easy to use and has amazing functionality, ease of use and 10/10 AI based analytics."

AI technologies driving legal operations

Marketing departments are often a little loose in their usage of the term "artificial intelligence," and several related phrases will appear in product descriptions or media coverage of legal AI -- often used interchangeably. But what do those technical terms really mean? Legal technology is rapidly evolving thanks to three key AI technologies: machine learning (ML), natural language processing (NLP), and generative AI (GenAI). Here's how each of these technologies is being used to improve legal operations, particularly in contract management.

Machine learning (ML)

Machine learning is a subset of AI that enables systems to learn from data and improve over time without being explicitly programmed. In the context of legal technology, machine learning algorithms can be trained to recognize patterns in contracts, identify recurring risks, and suggest improvements.

How LinkSquares uses machine learning: LinkSquares applies machine learning to analyze contracts and documents with increasing accuracy over time. By continuously learning from previous contract reviews, ML enables the system to automate classification of contract clauses and ensure consistent application of company policies. This capability allows legal teams to handle growing volumes of contracts with greater ease and fewer errors.

Natural language processing (NLP)

Natural language processing (NLP) is a branch of AI focused on enabling machines to understand, interpret, and generate human language. In legal technology, NLP allows AI systems to read and understand complex legal language, making it possible to automate document review, identify key contract terms, and flag potential risks.

How LinkSquares uses natural language processing: LinkSquares leverages NLP to analyze and interpret contracts written in natural language. It scans documents for critical terms, obligations, and clauses, and then extracts this data for faster review and decision-making. With NLP, LinkSquares can also help legal teams understand and track legal language patterns that might signal a risk or a breach of contract, enabling proactive management of compliance and obligations.

Generative AI

Generative AI refers to AI systems that can create new content based on the data they have learned. In legal technology, generative AI is used to automate contract drafting, generating new contract documents based on templates, past contracts, and company-specific language. It can also assist in generating responses to contract queries, speeding up the negotiation and review process.

How LinkSquares uses generative AI: LinkSquares uses generative AI to help legal teams automate the creation of contracts. By drawing from a database of approved contract language, generative AI can draft new documents quickly, ensuring consistency and alignment with company standards. This reduces manual effort, minimizes the risk of human error, and helps legal teams handle more contracts in less time.

Where Do LLMs Fit In?

Large language models (LLMs) are a type of generative AI designed to understand, generate, and transform human language at a scale that was previously unimaginable. LLMs, such as OpenAI’s GPT models (used by Microsoft), Anthropic's Claude (used by Amazon), Meta's LLaMa (user by Facebook), and Alphabet's Gemini (used by Google) have been trained on massive datasets to understand a wide range of topics and generate contextually accurate and human-like responses.

In the legal sector, LLMs are increasingly being leveraged to automate and enhance a variety of processes, including legal research, contract drafting, document review, and contract negotiation. These models can quickly understand the content of legal documents, extract relevant information, and generate insights, all of which significantly enhance legal workflows.

How LinkSquares uses LLMs: Most of the generative AI features found in LinkSquares solutions are powered by LLMs. Whenever LinkSquares software creates tasks or text from a user prompt rather than a preset rule, it's probably done by an LLM.

Probabilistic vs. deterministic AI software in legal tech

When evaluating AI technologies for legal operations, it's important to understand the difference between probabilistic and deterministic AI systems, as this can have a significant impact on the functionality, accuracy, and applicability of the tools you choose.

Probabilistic AI software

Probabilistic AI models operate on the principle of uncertainty, making decisions based on probabilities and statistical inference. These systems are designed to learn from vast datasets and adapt based on new information. They offer flexibility in their decision-making and can handle ambiguous or incomplete data, making them particularly useful for tasks like contract review, risk analysis, and legal research, where the full picture is not always clear.

Advantages of probabilistic AI

Adaptability: Probabilistic models can learn and improve over time by analyzing new data, making them ideal for evolving legal environments.
Handling uncertainty: These models can work with incomplete or imperfect data, which is common in legal work.
Flexibility: Probabilistic systems are well-suited for tasks that require predictions, such as contract risk assessments, where outcomes are not always deterministic.

Disadvantages of probabilistic AI

Potential for inaccuracy: Because these models work with probabilities, there’s always a level of uncertainty. This could lead to less precise results in some cases, including AI hallucination.
Complexity: Probabilistic AI systems require vast amounts of data to train effectively, and they may require ongoing tuning and monitoring to remain accurate.

Deterministic AI software

Deterministic AI models, on the other hand, operate on fixed rules or algorithms and are designed to produce the same output every time given the same input. These models are straightforward and efficient, making them useful for tasks that have clear, established rules or guidelines. In the legal industry, deterministic systems are often used for tasks like document classification, legal compliance checks, and automated document drafting, where outcomes are predictable and rules-based.

Advantages of deterministic AI

Accuracy and consistency: Since deterministic models follow predefined rules, they are highly consistent and reliable in tasks with clear parameters.
Efficiency: These systems are typically faster and require fewer resources compared to probabilistic systems, making them ideal for repetitive tasks like document sorting or template creation.
Simplicity: Deterministic AI models are easier to implement and understand because they are based on clear logic or rules.

Disadvantages of deterministic AI

Limited Flexibility: These systems can struggle with ambiguity and might not be as adaptable in dynamic or evolving scenarios like contract negotiation or complex legal decision-making.
Inability to learn: Unlike probabilistic models, deterministic systems cannot learn from new data or improve over time. This means they may need manual adjustments if the legal landscape changes or new types of contracts are introduced.

How LinkSquares balances probabilistic and deterministic AI

LinkSquares incorporates both probabilistic and deterministic AI models to meet the diverse needs of legal teams. For example:

Probabilistic AI is used in contract analysis and task suggestions, where the AI can create novel content based on past data.
Deterministic AI is applied in tasks like document automation and template-based contract generation, where clear rules and predictable outcomes are essential for accuracy and consistency.

This hybrid approach ensures that legal teams have the best of both worlds -- flexibility and adaptability from probabilistic AI, alongside the efficiency and precision of deterministic systems.

Understanding AI hallucination and its impact on legal technology

As artificial intelligence continues to redefine legal technology, it's important to be aware of potential challenges associated with AI systems -- one of which is AI hallucination. AI hallucination occurs when an AI model generates information or answers that are false, misleading, or not grounded in the input data. While AI has the potential to significantly improve legal workflows, understanding and mitigating hallucination is crucial for maintaining the reliability and accuracy of legal AI tools.

What Is AI hallucination?

AI hallucination refers to situations where a machine learning model, particularly large language models (LLMs), produces responses that seem plausible or realistic but are not based on verifiable data. This can happen when the AI "fills in the gaps" with speculative information, especially when the system encounters ambiguous or incomplete inputs.

In the context of legal technology, AI hallucination can lead to issues such as:

Incorrect contract analysis: An AI model may misinterpret a clause in a contract, presenting inaccurate summaries or conclusions.
Erroneous legal research: The AI could generate and/or cite incorrect or misleading case law, statutes, or legal precedents during research tasks, leading to incorrect recommendations.
Flawed compliance checks: AI may flag or overlook potential compliance risks by generating incomplete or incorrect assessments.

How LinkSquares addresses AI hallucination

At LinkSquares, we recognize the importance of minimizing the risks associated with AI hallucination, especially when dealing with critical legal documents. To mitigate these risks, LinkSquares uses a combination of advanced AI models and thorough validation processes to ensure that outputs are accurate and reliable.

Training on high-quality data: LinkSquares’ AI tools are trained on vast, diverse datasets curated for legal documents and contracts. This helps ensure that the AI can generate more accurate and contextually relevant insights, reducing the likelihood of hallucinations.
Human oversight and validation: While AI is a powerful tool for automating contract review and document analysis, LinkSquares emphasizes the importance of human oversight. Legal professionals can validate AI-generated outputs, ensuring that decisions are backed by reliable, real-world data.
Continuous improvement: LinkSquares is committed to improving its AI models over time. By continually updating and refining the underlying algorithms and training data, the platform works to minimize hallucinations and improve the overall accuracy of the system.

Why hallucination matters in legal tech

In the legal profession, precision and accuracy are paramount. Even minor errors or misleading outputs can result in significant legal and financial consequences. That’s why it's essential for legal teams to be aware of AI hallucination when using AI-driven tools for tasks such as contract review, compliance checks, and legal research.

By choosing AI tools with robust validation processes and the ability to refine outputs based on real-world data, legal teams can minimize the risks of AI hallucination and maximize the benefits of automation.

Best practices for avoiding AI hallucination

Verify outputs: Always cross-check AI-generated insights with trusted sources to ensure their accuracy.
Leverage human expertise: Use AI as a tool to assist in legal decision-making, but rely on legal professionals for final review and judgment.
Keep improving your AI models: Regularly update AI models with new data to enhance their performance and accuracy over time.

AI is transforming the way legal teams operate, but understanding potential pitfalls like AI hallucination is critical to ensuring its responsible use. By working with reliable AI tools such as LinkSquares and combining them with human oversight, legal departments can enjoy the benefits of automation while minimizing risks.

AI-powered contract lifecycle management (CLM) software

Contract lifecycle management (CLM) software is at the heart of AI-driven legal technology. CLM tools like LinkSquares offer a suite of AI capabilities that automate key processes across the entire contract lifecycle -- from creation and negotiation to execution and renewal.

Automated contract review and analysis

AI helps legal teams analyze contracts more quickly and more accurately by automatically identifying critical clauses, obligations, and deadlines. LinkSquares, for instance, uses AI to extract valuable data points from contracts, ensuring that in-house legal teams can quickly assess the terms of agreements without wading through lengthy documents. This capability dramatically improves contract review efficiency, allowing legal teams to prioritize the most urgent issues and address potential risks proactively.

LinkSquares’ AI-powered contract review technology further enhances the process by automating key steps traditionally handled manually, such as identifying terms that require negotiation or review. With its AI-driven algorithms, LinkSquares helps identify critical clauses like payment terms, intellectual property provisions, and confidentiality requirements with greater accuracy and speed than ever before.

AI-driven contract search and data extraction

Legal teams often struggle with finding specific contract terms across a growing repository of agreements. AI-powered CLM solutions enable speedier, more efficient contract searches by indexing contracts and automatically extracting relevant data. This capability ensures that you can access any information you need in seconds, saving valuable time.

Contract analytics and reporting

With AI, legal teams gain access to powerful analytics tools that provide insights into their contract portfolio. From identifying trends in contract negotiations to spotting opportunities for cost-saving, these AI-driven reports allow legal departments to make data-backed decisions and optimize their contract strategies.

Smart contract automation

AI can automate the drafting and creation of standard contract templates based on pre-approved clauses, reducing the time spent on manual drafting and allowing your legal team to focus on more complex, strategic matters. This helps companies ensure that contracts are created consistently and in alignment with company policy.

Risk assessment and compliance monitoring

AI tools can flag potential risks and compliance issues within contracts, ensuring that your legal team never misses an important detail. Whether it’s identifying potential penalties for missed deadlines, non-compliant clauses, or unaddressed confidentiality concerns, AI makes it easier to manage risk proactively.

AI-powered contract redlining

Contract redlining is an essential step in the negotiation and review process, where legal teams track and manage changes made to a contract. Traditionally, redlining involves manually comparing multiple versions of a document to identify differences, which can be time-consuming and error-prone. AI is transforming the redlining process by automating much of this work, making it faster and more accurate.

AI-powered contract redlining tools use advanced algorithms to track changes, compare different versions of contracts, and highlight edits automatically. LinkSquares’ AI-driven contract redlining technology simplifies this process by eliminating the need for manual tracking of changes, allowing legal teams to quickly see modifications and ensure that all parties are on the same page.

These features include integrations with key partner systems, including Salesforce, Slack, and Microsoft Word.

Key benefits of AI in contract redlining:

Speed: AI automates the comparison of contract versions, allowing legal teams to quickly spot changes and revisions without manually reviewing each line. This reduces the time spent on redlining and speeds up the overall negotiation process.
Accuracy: AI tools minimize human error by accurately tracking revisions, ensuring that no changes are overlooked. This improves the accuracy of the redlining process, reducing the risk of important clauses being missed or misinterpreted.
Collaboration: AI-powered redlining makes it easier for legal teams to collaborate with external counsel, clients, and business stakeholders. Changes and revisions are automatically tracked, making it easier to see the status of negotiations in real-time.
Version control: AI tools manage multiple contract versions and revisions, automatically identifying which version is the most up-to-date. This ensures that the final contract is based on the most recent agreed-upon terms.

By automating contract redlining, AI enhances the contract negotiation process, enabling legal teams to focus on higher-level strategic tasks rather than getting bogged down in manual edits.

LinkSquares Smart Values: Unlocking deeper insights

One of the most powerful features of LinkSquares’ AI-driven platform is Smart Values. Smart Values use advanced AI technology to enhance the value of contracts by extracting key financial and business information from within legal agreements. They not only track obligations and dates but also help identify hidden revenue opportunities, risks, and potential liabilities. For SaaS companies managing hundreds or even thousands of contracts, Smart Values provide deep insights that can help unlock the full value of your contract portfolio.

Smart Values automatically extract critical contract data, such as effective dates, termination rights, automatic renewals, governing law, and payment terms, and then aggregate this information into easy-to-understand reports. This allows in-house legal teams to assess contracts with greater precision and quickly identify areas where they can optimize revenue, mitigate risks, or renegotiate terms.

Why do Smart Values matter? As this LinkSquares customer put it, "I like that the AI takes a lot of the manual work out of categorizing agreements. As a senior leader, I am more comfortable knowing that when an agreement was imported that it was not up to an internal user to type in key information such as termination dates and that happens automatically through character recognition and AI."

Key features of LinkSquares Smart Values:

Automated contract data extraction: Smart Values automatically pull critical agreement data, including effective dates, termination rights, automatic renewals, governing law, and payment terms, from agreements.
Risk identification: By analyzing contracts, Smart Values flag potential risks, such as missed opportunities for revenue or unfavorable terms that could impact your business.
Simplified reporting: Smart Values transform complex contract data into easy-to-read dashboards and reports that provide insights into your contract portfolio. Legal teams can quickly gain visibility into financial obligations, deadlines, and key contract details.
Strategic insights: Beyond basic compliance, Smart Values help legal teams identify areas for renegotiation, track key business metrics, and uncover opportunities to improve contract performance.

AI-powered project management for legal teams

Effective project management is critical for in-house legal teams, especially in SaaS companies with high contract volume and complex legal workflows. AI can significantly improve project management by helping legal teams prioritize tasks, track progress, and collaborate more productively.

LinkSquares’ AI-powered project management tool, Prioritize, leverages AI to help legal teams focus on the most important and time-sensitive tasks. Rather than managing projects with traditional, manual methods, legal teams can automate task-tracking, monitor deadlines, and gain visibility into their entire legal pipeline.

Benefits of AI-powered project management with Prioritize

Task suggestions: AI algorithms analyze ongoing projects, documents, and deadlines to automatically suggest tasks based on past practices. This ensures that your legal team is always working in the most efficient and standardized manner, reducing bottlenecks and increasing productivity.
Centralized dashboard: Prioritize provides a centralized dashboard where legal teams can manage their workload and track progress across multiple projects. The AI integrates data from across the LinkSquares platform, providing a single view of ongoing contract negotiations, compliance tasks, and other legal projects.
Collaboration enhancement: With AI-powered insights, legal teams can collaborate more effectively by having a clear view of responsibilities, deadlines, and project statuses. Teams can stay aligned and ensure that critical tasks are completed on time, without miscommunication or delays.

By integrating AI into project management, LinkSquares helps legal teams operate more smoothly and efficiently, ensuring that even the most complex legal workflows are managed effectively.

How AI enhances legal operations in SaaS companies

For SaaS companies, the ability to manage complex contracts quickly is crucial to business success. Whether it’s navigating software licensing agreements, customer contracts, or partnership deals, AI-enabled legal technology helps in-house legal teams stay ahead of the curve.

Here’s how AI transforms legal operations specifically for SaaS businesses:

Agile contract negotiation: AI helps speed up contract negotiations by automating the drafting and revision process, allowing legal teams to move quickly and effectively.
Proactive risk management: With AI tools continuously analyzing contracts, legal teams can stay proactive rather than reactive in identifying potential risks related to licensing, intellectual property, or regulatory compliance.
Enhanced collaboration: AI-powered CLM tools provide transparency and enable collaboration between legal, procurement, sales, and other departments, streamlining communication across teams.

Legal AI tools: The best legal AI software for your team

Choosing the right legal AI tools can make a significant difference in the efficiency and effectiveness of your legal operations. Here are a few essential tools powered by AI that every legal team should consider:

LinkSquares Analyze: LinkSquares’ AI-powered contract review and analytics features enable legal teams to quickly review contracts, extract valuable data, and make data-driven decisions. With its Smart Values, LinkSquares helps teams unlock financial insights and optimize their contract portfolio.
LinkSquares Finalize: AI-powered contract redlining capabilities help streamline the contract negotiation process, allowing legal teams to quickly identify changes and track revisions across multiple contract versions.
LinkSquares Prioritize: AI-powered project management tools help legal teams manage tasks, collaborate across departments, and stay on top of deadlines.

By adopting these best legal AI tools, in-house legal teams can improve workflow efficiency, reduce risks, and save costs while maintaining high levels of compliance.

AI has become an invaluable asset in legal technology, allowing in-house legal teams to work more efficiently and effectively, ultimately driving better business outcomes. If you’re ready to see how AI can transform your legal operations, schedule a demo with LinkSquares today.