Outsiders often cite law as an industry under threat from artificial intelligence. But the nation’s biggest firms are eager to show off how they’ve embraced the technology.
Sullivan & Cromwell introduced Agreement Analyzer to help review deals; Cooley brought out Go Public, a tool for the S-1 drafting process that precedes an initial public offering; and Ropes & Gray said it was developing an AI tool that could “produce a detailed, issue-level diligence report in hours, not weeks.”
That followed a flood of AI news in the legal world. In the past year, Google and Anthropic have also released AI tools for lawyers, law firms have begun hiring chief AI officers, and industry giants like Kirkland & Ellis have announced big investments in the creation of their own AI systems.
“You’re getting to the point where clients are saying, ‘That’s great that you’re using AI and it’s making you faster, it’s making you more efficient,’” Neill Jakobe, vice chair of Ropes & Gray, told DealBook. But, he said, they want to know, “What does that mean for us?”
Some clients are using AI to make their argument for AI markdowns. Jennifer Leonard, the founder of Creative Lawyers, which advises law firms and corporate legal departments on adapting to AI, said some law firms and their clients have used AI agents to spot line items in bills where AI could have saved hours.
“They literally have struck that out, and say, ‘I want a discount on this. We don’t want to pay for this part of the work anymore,’” she said. “Or, ‘We know you have this new AI tool in-house because we saw your splashy press release.’”
In-house legal teams are often asking their firms to knock 20% to 30% off the bill across the board, said Kyle Poe, who as vice president of legal innovation at the legal software company Legora works with customers to plan for AI use in their business models.
Firms often push back on the requests for steep discounts. They say that AI isn’t necessarily saving that much time — at least not yet — and that the technology is changing the composition of the hours, with less busywork and more substantive analysis.
Pressure from clients is arriving at the same time law firms face new, if still small, competition from so-called AI native law firms, which rely heavily on AI agents and use upfront pricing. Norm AI, a technology company with an affiliated law firm focused on financial services clients, in July raised 1.2 billion valuation from Khosla Ventures, Blackstone and Bain Capital — and now counts those firms among its clients.
Law firms may find themselves in a bind: Using AI to work faster cuts billable hours, yet rates can’t rise fast enough to make up the difference. But not using AI invites your competition to undercut you.
Many close to the legal industry believe that the law firm business model will eventually need to change. Thirty-five percent of the 55 large law firms surveyed by Citi last year said they expected to make changes to their billable hour business models in the next year because of AI, while 65% said they expected to make changes by 2035.
Jeff Bleich, who serves as international special envoy for Anthropic, recently told a room full of legal professionals, “I don’t think the billable hour is the solution, and we’ve known it for a long time.”
There is little immediate need for a revolution: Revenue at large firms grew more than 12% on average during the first six months of the year, while average standard billing rates increased by double digits, according to Wells Fargo.
The billable hour is deeply embedded in every aspect of law firm operations, from insurance to performance management, and few working in the industry expect it to disappear entirely. Billable hours help manage risk for legal matters that require an unpredictable amount of work so that a law firm doesn’t end up charging 400,000, or vice versa.
“Bespoke litigation, major transactions and urgent strategic counseling will remain largely hourly, though with tighter budget disciplines,” researchers at the legal placement firm BCG Attorney Search recently wrote. “Repeatable or portfolio work will increasingly support fixed or hybrid pricing.”
“I expect more firms to price the AI-heavy, repeatable parts of a matter in new ways and keep judgment-heavy work, like strategy, negotiation and advocacy, on the hourly model,” said Leonard, adding that firms have long charged flat fees for discrete work like trademark filings, incorporations and real estate closings.
Law firm leaders say they’re increasingly open to alternative arrangements. “Will things in large law go to more fixed-price, project-based pricing, fixed-fee models? Sure,” Jon Ballis, chair Kirkland & Ellis, said in a July interview. “I think that is already happening a bit, and I think it will continue.”
Jakobe of Ropes & Gray said the firm holds a conversation with clients about AI use at the beginning and end of each project, walking them through where AI was used, what its contribution was and what can be improved. He also said he had become more open to conversations about fixed fees.
“Nobody wants to be the first firm who really leads the way and goes out there,” Poe of Legora said. “They’re trying to prepare for the day where they do need to start to pivot. And they want to be prepared. Basically they want to be able to pull the trigger if and when this happens.”