Last week, I was honored to speak at the Harvard Law School’s 2019 Legal Technology Symposium on the risks associated with adopting innovative legal technology. Many concepts were explored, including adoption drivers, the matrix of risk, misuse and abuses of new technology, and what law firms and legal tech vendors can do to mitigate the risks.
What is evident in a distributed IT world is the fear of a diminishing role for the lawyer and the court system. Many topics, from artificial intelligence to online courts for small claims resolution, showed a shadow growing across the legal landscape. So, law firms and attorneys are worried and driving to adopt new technologies that they see as an avenue to new revenue opportunities.
The Red Queen Effect
Billions of dollars are spent in the U.S. every year on legal tech, and the market is rich with opportunity for legal technology vendors. The harbingers as mentioned above in law firms only underpin the desperate need to adapt to survive and find new competitive advantages. Both for the vendor and firm, more than ever, innovation is key to future success – if not existence.
This drive amplifies the red queen effect – the notion that companies must continuously develop new technology or features or streamline costs to make their product more palatable to law firms looking to place a bet on their innovation-as-competitive advantage. This change creates a petri dish ideal for the growth of misuse and abuse of these emerging technologies and new processes.
In other words, legal technology is accelerating innovation from incremental to exponential.
This rapid change often limits understanding and introduces risk into the ecosystem. However, law firms (and thus their IT leaders) are compelled to meet the business requirements served by innovation while minimizing the risk of adoption.
A simple example is the data breach at Wells Fargo that occurred when an attorney accidentally released the PII data of wealthy clients. This story highlights the increased risk of relying on unfamiliar technology (in this case, eDiscovery) and the potential liability.
As the attorney testified, Wells Fargo was unaware that the search results only showed the first portion of results and assumed this parsed morsel was the complete data set. Instead of distributing one thousand records, 100 times that number were exposed.
Law firms must recognize that parties exist that wish to abuse these technologies and take advantage of user error, misunderstanding or full-on fraud and theft.
The Risks are Real
Earlier this year, we commissioned Spiceworks to survey 600 IT and security decision-makers about their top concerns around their supply chain and the policies or procedures used to mitigate identified vendor risks.
Approximately 60% of organizations have some formalized third-party policies, but completeness and depth varied significantly. Most firms (90%) review their policies at least annually. The substantial majority (81%) consider their policies effective, but this result conflicts with reported breaches attributed to vendors.
Even though the majority of respondents felt confident in the vendor to keep their data safe, nearly half (44%) of firms had experienced a significant, business-altering data breach caused by a vendor. Human error and stolen passwords accounted for 26% of the breaches, while malware played a key role in half of the attacks.
Four Steps to Evaluate Risk
Most firms conduct at least annual audits. Past performance does seem to be an indicator of future risk. For this reason, the majority of firms use at least four steps or mechanisms to evaluate their third-party vendors, including historical review and references:
- 51% contractually obligate vendors to security and privacy practices
- 48% review their vendors’ security and privacy policies and procedures
- 38% obtain evidence of security certification (such as SSAE 16)
- 30% conduct audits or obtain self-assessments of their vendors’ security and privacy policies and procedures, or require customer references
Nearly three-quarters of firms maintain a complete inventory of all third parties with whom they share data. Interestingly, U.K.-based firms do a better job of this, which is likely related to mature privacy laws like GDPR that mandate this type of registry and control. Less than one-third of firms were confident that their vendors notify them when sharing data with additional third parties.
While they consider their policies effective, only a quarter of firms completely agree that their company allocates sufficient resources to manage third-party relationships. Regardless of company size, all firms need to:
- Coordinate responsibilities to prevent the ball from dropping between the players
- Consider obligating security requirements, and cover breach notification that follow GDPR triggers and timelines
- Consider insurance and other forms of indemnification
- Take a look at the New York Department of Financial Services (DFS) Cybersecurity Rules (NYCRR 500) requirements for third-party vendors (section 11) or the National Cyber Security Centre (NCSC) Principles of Supply Chain Security.