Here Is How Big Law Is Preparing to Pay for the AI Onslaught

Welcome back to the Big Law Business column. I’m Roy Strom, and today we look at how much Big Law firms are spending on generative AI. Sign up for Business & Practice, a free morning newsletter from Bloomberg Law.

Big Law firms are spending in the race to deploy generative artificial intelligence—and the rate will explode in coming months and years.

Firms spend $50 to $350 per attorney each month for AI tools, Greg Lambert, chief knowledge services officer at Jackson Walker, estimates. AI adds another 30% in cost to existing tools, he said. So firms may be spending as much as 0.5% of their revenue on AI, he said, stressing it is difficult to know the precise amount.

The estimate might sound a little low, given the explosive impact many expect AI will have on law operations. But firms are still in their early stages with the technology.

“The bottom line is that it is coming,” said Gretta Rusanow, managing director and head of advisory services at Citigroup Inc.’s law firm group. “There are many, many firms who believe firmly that it is going to have a pretty significant impact on the way they work and their leverage models.”

Several firms have been in the testing phase of new products, meaning the full costs of licenses has yet to arrive, Rusanow said.

Those using AI subscription tools have been doing so on a trial basis or with few licenses, law firm chief innovation officers and legal technology consultants told me. Some firms have landed cheap licenses from tech companies in exchange for marketing their use of the tools, they said.

Those trials and sweetheart deals are bound to end soon. The costs will increase significantly when they do—doubling or more in some cases, the officers and consultants said.

Some firms are moving faster than others. Last week, Harvey, one of the buzziest legal AI brands, announced broad relationships with three major law firms: Latham & Watkins, Willkie Farr & Gallagher, and Duane Morris. The company said earlier this month it now generates more than $100 million in annual recurring revenue, noting it works with 42% of the Am Law 100.

A chief innovation officer at a top 50 firm who was not authorized to discuss its spending publicly said his firm was still in the testing and ramp-up phases for numerous AI-related products. When those periods end, the firm is likely to see its costs rise significantly.

Still, at least some tools have become popular enough with lawyers that the firm will “gladly” pay for them, the executive said. The firm will look to find cost savings from traditional legal software-as-a-service vendors.

“AI is a big deal but not yet a big cost,” the executive said. “We know that costs will ramp up in 2026 and 2027.”

In one of the rare efforts to obtain a dollar figure for Big Law spending on generative AI, Citi’s law firm group in a survey this year found firms spent a paltry 0.11% of their revenue on the new technology. Not for long: All of the firms surveyed said they expect gen-AI spending will increase next year.

The current spend figure is “surprisingly low” to Rusanow, but she noted the firms may not have included in their response the extra money they’re coughing up for long-standing legal research tools that have raised costs for new gen-AI features.

Ira Coleman, who leads McDermott Will & Emery, said in a July Bloomberg Law podcast that part of his firm’s rationale for merging with Schulte Roth & Zabel was to scale up in order to pay for AI. He mused about firms spending $30 million a year on the technology. That would equate to about 1.3% of McDermott’s 2024 revenue—more than 10 times the amount law firms told Citi they’re ponying up.

_{Podcast: McDermott Chief Bets on ‘Scale’ With Schulte Merger}

One factor that will dictate law firms’ cost growth is how many AI products they purchase. Most every legal technology vendor now markets some form of an AI product or function.

Firms may limit purchases of firmwide licenses to a small number of general legal AI products, said Ryan McClead, chief executive at legal technology consultancy Sente Advisors.

“When the trials and pilots come to an end, most firms will consolidate on a single general-purpose tool and some very limited licensing for a few practice or department specific tools,” McClead said.

The AI gold rush is on for legal technology vendors. The question for law firms is if—or when—the new technology will break the bank.

Worth Your Time

On Law Schools and AI: Law schools at The University of Chicago, University of Pennsylvania, and Yale are updating and expanding their offerings to better prepare young lawyers for the risks generative AI poses and to let students flex tech muscles while the stakes are low, Elleiana Green reports.

On Big Law and Tech Sales: A dispute between Norton Rose and a technology company it planned to partner with highlights the challenges law firms will face building new tech-focused business lines, I reported with Evan Ochsner.

On Delaware Competition: The chief justice of the Nevada Supreme Court is backing a plan to create a dedicated business court to attract more Delaware companies to reincorporate there, Jennifer Kay reports.

That’s it for this week! Thanks for reading and please send me your thoughts, critiques, and tips.