In a March 18th press release, the SEC announced an agreement by two firms to settle charges and pay $400,000 in total civil penalties. The two investment advisers, Delphia (USA) Inc. and Global Predictions Inc., were found to have made false and misleading statements about their purported use of artificial intelligence (AI). The Director of the SEC’s Division of Enforcement announced a crackdown on those engaging in what he termed “AI washing”. The legal community took notice. So today, we dive into AI washing as it pertains to the legal tech industry.
By now, many in the legal community are familiar with law firm tech enhancements such as APIs for internal firm data bases, case management platforms, and CRMs. In recent years, however, the infusion of artificial intelligence (AI) into legal technology has promised to redefine the landscape of legal practice. Increasingly, this burgeoning innovation has been accompanied by a significant concern: AI washing—the practice where firms exaggerate the capabilities or even the presence of AI in their products. This misrepresentation can lead to disillusionment, undermine trust, and result in a chasm between expectations and reality. Let’s dissect the intricacies of AI washing, illuminating its implications and exploring tangible solutions within the legal tech industry.
Understanding the Facade of AI Washing
AI washing occurs when companies assert that their solutions employ advanced AI technologies without substantial evidence or when the technology is merely rudimentary or non-existent. In the legal sector, where precision and reliability are paramount, the repercussions of inflated AI claims can be particularly acute. Clients may anticipate levels of efficiency and insight that are currently unattainable, leading to dissatisfaction and potential reputational damage for the firms involved.
Perhaps it is the lure of overstated AI capabilities. It’s possible that firms succumb to the draw of AI labeling to gain competitive edge and appeal to technologically savvy clients. This can result, however, in a market where the term “AI” is used liberally and inaccurately, causing confusion and misapprehension about the true nature of the technology. The propensity to overpromise the functionality of AI tools stems from a desire, perhaps, to capitalize on the AI trend rather than deliver substantiated, effective AI solutions.
For example, according to the SEC order in the Delphia case, “Delphia claimed that it ‘put[s] collective data to work to make our artificial intelligence smarter so it can predict which companies and trends are about to make it big and invest in them before everyone else.’ The order [found] that these statements were false and misleading because Delphia did not in fact have the AI and machine learning capabilities that it claimed. The firm was also charged with violating the Marketing Rule, which, among other things, prohibits a registered investment adviser from disseminating any advertisement that includes any untrue statement of material fact.”
What Are the Impacts and Risks of Misguided AI Perceptions?
The consequences of AI washing are not limited to disappointed clientele. It also hampers the adoption of genuine AI by fostering skepticism. Legal professionals may become wary of integrating AI into their workflows, impeding the potential for innovation and advancement in legal processes.
How can companies navigate to find the truth about AI in legal tech? To combat AI washing, transparency is key. Legal tech firms must provide clear, comprehensible information about what their AI can and cannot do. This includes honest portrayals of the AI’s role in the product and its stage of development. Establishing industry standards and benchmarks for what constitutes AI in legal tech is also crucial, promoting an environment of accountability and trust.
Education as a Pillar for AI Adoption
Equally important is the education of legal professionals regarding AI capabilities. With a deeper understanding of AI’s realistic applications, legal practitioners can make more informed decisions and set appropriate expectations when selecting technology solutions. Professional education can serve as a robust foundation for discerning the true value AI brings to legal services.
The path toward authentic AI integration in legal tech requires a concerted effort to eradicate AI washing. Fostering a culture of honesty, substantiated claims, and education can bridge the gap between AI’s perceived and actual abilities. As the legal tech industry matures, the focus must shift from the ostentatious display of AI to its practical, ethical, and responsible implementation. Only then can we unlock the full potential of AI to enhance the legal profession’s efficiency, accuracy, and service quality.
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