Disruptive Innovation in Legal Services

Volume 1 • Issue 2 • January 2015
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Finch Solutions

The Innovative Practice:
Technology helps Finch Solutions handle Brazil's outsized legal system

In order to understand Brazil’s premier legal technology providers JBM Advogados and its offshoot Finch Solutions, consider the Brazilian legal system.

In 1988, a peaceful transfer of power brought democracy to the previously military-ruled country. Written into Brazil’s new constitution was a dramatic expansion of legal rights for citizens, particularly in the areas of consumer protection, the environment, and labor and employment. Further tweaks in 1996 cemented the new system’s consumer-friendly code.

Brazilians have taken advantage of those changes—to put it mildly. It’s now one of the most litigious societies in the world. In a country of around 200 million people, there are currently 95 million active lawsuits; 28 million lawsuits passed through its court system in 2012 alone. In keeping with Brazil’s consumer-friendly law, most are small claims brought by consumers, who might sue for something as minor as a cell phone not working, or a mishap like being trapped between two doors of a malfunctioning ATM.

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Image courtesy of Finch Solutions.

Brazilian courts also don’t mandate immediate notification of a suit, meaning parties can be sued and not even know about it. It takes 45 to 90 days for a defendant to be served with notice, a lead time that generates enormous advantage for plaintiffs. The system is so convoluted that cases are often forfeited simply because the defendant didn’t know about them.

These changes in Brazil’s governance have led to an outsized legal industry. The country now has more lawyers per capita than the United States and more than 1,200 law schools. There has been no way to keep up with the massive case load, aside from sheer human effort.

JBM (advogado means lawyer in Portuguese) has developed novel strategies to deal with this onslaught of legal activity. The firm evolved out of Mandaliti Advogados, a traditional practice founded by Renato Mandaliti and his brothers Reinaldo and Rodrigo. The partners at Mandaliti, Renato says, saw the potential for automated, mass-litigation technology to deal with the Brazilian legal system and created a spinoff to focus on it. The new JBM, while formally linked to Mandaliti, operates independently. Together, the two firms’ attorneys number more than 1,100.

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Finch co-founders, Renato Mandaliti and Jose Edgard Bueno.

JBM began to develop the logistics to handle large amounts of cases—thousands per day, tens of thousands per month. It maintains a fleet of 50 cars that travel to court venues to gather information about existing suits. Though 40 percent of suits are now filed digitally in Brazil, the remainder require visits to the courts to gather relevant paperwork.

JBM also developed its own litigation management software to manage the enormous logistical challenges of the legal system. Named Gracco, the system schedules and stores documents for more than 160,000 court visits in 5,000 different venues per month for the firm’s small army of lawyers.

It was a massive investment. “It’s fair to say we’ve put more than 70,000 developing hours into Gracco,” says Renato; the firm also spent about US$10 million. “That 10 million dollars,” Renato says, “we would be happy to have that in our pocket.” But JBM decided as a strategic plan to invest all the profits the firm made.

The latest JBM innovation is a smartphone app that can take pictures of court documents, which are then automatically uploaded to servers at a central processing facility and transmitted to lawyers as necessary throughout the country. Optical character recognition technology means the images are scanned, then automatically transformed into searchable text in the system. “When you deal with masses of information, you need systems [and] software,” Renato says. “You need tools that help you deal with all this information and, more importantly, to transform this information into knowledge.”

Mass litigation and technology

In 2012, the partners of the two firms took their technology efforts a step further and created Finch Solutions. Finch is made up of the previous back office and IT staff of the two firms and has 640 employees. It is not a law firm, but a technology provider to JBM, Mandaliti, and other Brazilian law firms and legal departments.

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Image courtesy of Finch Solutions.

Not only does Gracco manage all of JBM and Mandaliti’s court visits and ongoing cases, but it automatically culls lawsuit updates from the portion of Brazil’s court systems that work digitally. The country has dozens of different jurisdictions, Renato explains—and all have different digital protocols the system has been designed to accommodate. It reduced defaults for one client, a major real estate company, by 40 percent—defaults that were often occurring simply because the client didn’t know about them.

Given its increasing data and technological systems, Finch soon saw the possibility for creating legal analytics via artificial intelligence. “When you have massive amounts of data,” Renato says, “you can draw inferences, you can draw a pattern.”

They set to work, developing the Gracco system’s capability to create what Renato calls “structured data.” An initial test of the system—a project analyzing claims for a health care reinsurer—pitted human effort against the artificial intelligence tools. Automated robots collected 70,000 cases possibly relevant to Finch’s reinsurer from Brazil’s regional digital systems; fine-tuning the automated data collection reduced the number to 42,000. A team of 20 lawyers then culled this group to 13,362 relevant judicial decisions.

“From this point, the story has two sides to it. From one side, 20 attorneys work for 45 days,” Renato explains. “Can you imagine 20 lawyers working 45 days to analyze 13,000 decisions? It was a pain.”

On the other side was Gracco’s artificial intelligence, which involved one lawyer training the system for three days. The system produced results 68 percent to 90 percent as accurate as those of the lawyers (who represented 100 percent accuracy). It was enough to prove the concept, and Finch launched a full-scale development of a system capable of complex legal analytics.

The company is now using artificial intelligence to create inductive models that forecast trends and to classify, summarize, and index documents. It can also group documents by characteristics such as ruling, venue, judge, and so on, and perform data analysis techniques for fraud detection.

“Our system can read,” says Jose Edgard Bueno, an attorney and co-founder of Finch along with the Mandaliti brothers. “It can read the legal document and provide an answer based upon what you ask it to do.”

Watson, I presume

If you said that sounds rather Watson-like, you’d be right. (For more about Watson, see “The Pragmatic Innovator” and “Cognitive Computing Will Transform Professions.”)

“What we have developed here–it’s a system that’s simpler than Watson,” Renato notes. “It’s important to say that. Watson is very complex. But we have developed a system … specifically for the legal industry that is capable of performing some of the functions that are performed by Watson.”

Indeed, in summer 2014, IBM sought out Finch for a series of meetings; the two have since signed on to work together. Finch has a nondisclosure agreement with IBM, so Renato can’t share much. But he will say they’re exploring ways to integrate “a Finch layer” with Watson’s tools, with the ultimate goal of providing products and services to the legal industry.

It’s a heady thought. “We are very excited about this,” he says.

Now that the company has invested so much in its basic system, more tools are in the works. Finch envisions an app that can scan legal documents, read them, and provide answers to client questions—a sort of iPhone-like Siri for the legal industry.

And the technology is moving quickly. Renato says Finch will have the app on the market “within five years—no more than that.”

“We have 120 million middle-class people here looking for legal answers,” he says. “That’s what we are looking at.”

‘Quite frankly, I don’t think the legal industry is immune to disruption. It may take years. But it’s already begun.’

The future has arrived

What will happen to lawyers—and their function—with all this technology?

“I still have some problems when I talk to some lawyers,” Renato says ruefully. “They think I’m either lying, or I’m getting crazy. This is a cutting-edge subject for the legal industry. But, quite frankly, I don’t think … the legal industry is immune to disruption.”

“It may take years,” he says. “But it’s already begun. … Of course, we are not saying that lawyers will be banished from the face of the earth—not at all. We are just saying that there will be tools that will help lawyers make better and more efficient decisions. … We are developing tools that are minimizing legal uncertainties.”

After a year and a half of operation, Finch’s revenue has hit US$20 million. And since launch, sources of that revenue have moved toward an almost equal split between JBM and Mandaliti and outside law firm revenue.

The technological innovators, realistic about the unique value Finch offers in Brazil’s Byzantine legal system, expect outside revenue will continue to grow. But they’re also aware of the possibility of encroaching competition. “In Brazil, no other company is close to what we are doing in the legal industry,” Renato says. “For the legal industry, we are ahead of time here. So far.”

And that US$10 million? “Now is the time to get the profits from that. We believe that now is the turning point that we are facing here in the Brazilian system, where technology is claiming a significant role from now on. Those who have that technology will be able to live in a completely different environment. We believe that we made the right decision when we decided to invest that money.”

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Disruptive Innovation in Legal Services Volume 1 • Issue 2 • January 2015

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