S BUSINESS INTELLIGENCE AND ANALYTICS

Applying AI to Legal
Contracts – What’s
Possible Now
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Episode summary: This week’s episode explores the

current possibilities in applying natural language
processing for legal contract review. We speak with
Andrew Antos and Nischal Nadhamuni from Klarity, a
Boston-based startup focused on using natural
language processing (NLP) based information
extraction, from non-disclosure agreements (NDAs), in a
live setting.

We delve into the current and future roles of AI and

lawyers with respect to legal contracts. AI is currently
being applied in applications like retroactive analysis and
information identification in legal documents. According
to Andrew and Nishchal, in the future we will see on-
the-fly legal content creation from AI tools and NLP
being applied to most commercial contracting.
Although, one restraint that AI companies presently face
in the legal domain is the lack of access to huge
amounts of publicly available data.

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Guests: Andrew Antos (CEO and Founder) and Nischal

Nadhamuni (Chief Technology Officer & Founder)

Brief recognition: Andrew has a master’s degree from

Harvard Law School. Before founding Klarity, Andrew has
previously served as adviser to the office of the
government of the Czech Republic and as a faculty of
law at Masaryk University in Brno, Czech Republic.
Andrew was also a registered legal trainee for mergers &
acquisitions, intellectual property & licensing at Squire
Patton Boggs in Prague.

Nischal has a Bachelor’s degree in computer science

from Massachusetts Institute of Technology (MIT) and
has interned at Indian e-commerce firm Flipkart and San
Francisco-based drone analytics company, Airware.
 Dan Faggella sitting the MIT Martin Trust Center with the founders of
Klarity Law. They sat down for an interview and were nice enough to
have some coffee and oatmeal to treat Dan’s jet lag!

Big Idea

What Is Possible Today?

Andrew and Nischal believe that current AI applications

in legal contracts can be classified as follows:

1. Retrospective analysis of previously signed legal

documents – In large-organizations which sign many
documents every day, NLP platforms are being
applied to extract metadata.

2. Information extraction from legal contracts.

For information extraction: In a typical use-case for such

an application, a sales representative of a company X
signing an NDA with another company Y, would use an
AI system to need to read and understand the NDA and
renegotiate the contract immediately if required (rather
than having to take the document “back to legal” for
another review, slowing down the pace of closing the
deal).

In this example, the AI tool is first configured to company

X’s policies by feeding in their requirements in a pre-
defined order. The requirements are gathered through a
questionnaire which translates into the configuration of
the AI tool. Legal domain-specific NLP techniques help
the AI ‘read’ the contract and identify location of the
clauses with key data points (like a percentage or a
number) and proactively suggest changes as per the
domain standards (for similar legal contracts).

The information extracted by the AI tool is mapped to

prompted actions. For example, if an NDA is for a 15 year
term (which is above market standard), the AI tool can
prompt suggestions to change the term to a more
reasonable two years or less. Other current examples
would be prompted actions for residual clauses or
unlimited indemnifications.

What Can We Expect in the Future?

Andrew and Nischal add; in general there are two

categories of suggestive actions for legal contracts that
an AI can potentially perform:

1. Cases where a where a quantitative factor (like term

of the agreement or a share percentage) needs to be
changed. Current AI is very capable in identifying and
suggesting change in such factors.

2. Cases where changes in contractual language

(having to rephrase some sentences) is required. This
is a more complex task requiring knowledge of legal
jargon. This is highly nascent and Current NLP
platforms find such tasks very difficult.
Andrew and Nischal see NLP platforms of the future
being applied to a majority of commercial contracting,
though still involving humans in the loop.

Another important application for AI is in smart

contracts (contracts which record the contents into a
blockchain). Although smart contracts are very useful,
on-boarding the contract into a blockchain has many
restrictions in terms of the way the content is organized.
Future NLP platforms would also be ideal in bridging the
on-boarding gap for such smart contracts.

Readers can find out more about how NLP is being

applied in other applications like content marketing and
production here.

Interview Highlights with Klarity

The main questions Andrew and Nischal answered

during our interview are listed below. Listeners can use
the embedded podcast player (at the top of this post) to
jump ahead to sections they might be interested in:

• (3.10) What is possible today in terms of applying AI

to legal contracts?

• (9.31) In what ways does the data need to be

structured (For a given type like NDAs) in order to
reduce the uncertainties with respect to legal jargon?
In cases where the NDA is not ok to sign, what does
the process of re-negotiation entail?

• (17.25) Where do you see legal NLP becoming

ubiquitous in the near future? Where is it likely to be
adopted first by the legal market?

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Header image credit: Adobe Stock

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