Legal Engineering by Ross Campbell of OpenLaw

Campbell. I am a legal engineer with OpenLaw, which is a company I'm trying to build a template library that plugs into Ethereum. Um there's been a lot of questions, you know, I'm often asked what is legal engineering? So I thought this talk was as good an as any opportunity to start discussing what I've built been building on OpenLaw and how it relates to Ethereum and some of the opportunities I see there. So, you know, what's legal engineering anyways?

It's basically a transactional attorneys, i.e. corporate lawyers, delivering transactional scripts that effectively mirror deal terms. Now, transactional scripts is kind of a new thing with way to talk about smart contracts. And I saw a very interesting discussion last week between two law professors that are active in the space talking about, you know, what exactly are smart contracts?

Are they legal agreements? If you have a smart contract, you have some sort of privity? No, they're just business optimization tools. They're a they're a way to take legal agreements and reflect them in ways that are automated and more predictable. So transactional script, I think, is a better way to talk about smart contracts, but I digress.

So really, you know, as a corporate attorney that's learning how to code and specifically learning how to code assets, I see the following transaction costs constantly come up with legal fields. Um payments, you know, paying not only attorneys and coders for the deal itself, but also counter-parties paying themselves, Alice paying Bob on the, you know, 10th day of the month. All those fun things, these moving pieces that lawyers and other agents have to keep track of in order for contracts not to go into default. Um recording intentions of parties in a very obvious and durable format. Um this is important for dispute resolution, and it's something that I think is imperfect with how a lot of law firms organize their documents on centralized servers.

We've seen hacks of law firms. We've seen confidential information reach the markets. So we're trying to think like how we, you know, make things more cost-effective quicker, but also secure? And this kind of leads me to blockchain and some of the advantages I see for corporate lawyers who want to go and make things cheaper and better for their clients. Now, a blockchain has, you know, a few enticing properties I see for corporate deals.

It's a neutral database, so that means it's free to read and write from. You don't need a gatekeeper permission in order to build on it your own or on other public blockchains. Timestamp tamper-resistant records, that kind of goes into the neutrality of blockchain and that um we have a very clear chronology of transactions. And we also have a clear sense of how transactions might be reversed. What kind of economic force would take, you know, the 51% hack?

We can think logically and clearly about how information can be erased. We can take some of the vagaries of centralized servers away because I see a lot of centralized servers as just ticking time bombs to hackers. Uh digital scarcity. So, when you have an open free database that's tamper-resistant and time-stamped very predictable, you can also think of online assets as scarce. We're able to solve for double-spending problem.

We have a greater um I guess guarantee that a asset that's represented online will stay that way. There won't be a million copies of it. So, all this goes to having internet native or blockchain native assets. So, Alice paying Bob on the 10th day of the week is not just an instruction to a bank, it's literally the payment itself. And that's what we can do with smart contracts.

Why Ethereum? I think basically the easiest pitch is that there's been so much development in the area of business transactions and what is being fondly called money legos. Um the sense of Ethereum has all these different ways to, you know, move value online, whether it's stable coins, whether it's something that we might be more speculative like ether or, you know, security tokens. It's all there and it's being built in real time. And for lawyers like myself who are trying to get a sense of like I only have so much time to learn how to code.

Um you know, my clients might have confusion about all these different blockchains out there. It seems useful to just go with the momentum and go where a lot of developers are going and I see them going to Ethereum because of things like MetaMask, which is MetaMask, which is kind of like a universal passport to Ethereum and blockchain that anyone can get on um Google or Firefox. If you know how to use the internet, you can get MetaMask. Dai is a stable coin that helps people pay each other using blockchain without exposing them to volatility. So, it's kind of like this core bedrock for finance.

And then OpenLaw, my employer, is a way to wrap all these different web free money Lego tools and um clear legal terms that can be understood by humans and I guess more importantly by judges if things go wrong. Um I know that's a lot of info. Um like I'm saying, it's just smarter agreements that are enabled through code. Um and now I just like to quickly get through some demos because it's one thing to kind of lay out this in theory, but I think it's way more useful to just see it in practice. Rob, quick question.

Oh, yeah. Sure. Uh Yeah. Is there any work being done either with OpenLaw or through this like startup called the contract wrangler on the staff around creating like a spec for contract types? We just so that like aside from putting things on chain, you could say well, if this contract is supposed to do X and Y and Z independent of what whatever language it's written in, like the contract should work this way so that way, you know, you can have your testing suites for verification.

Yeah, yeah, yeah. So, I think there's a lot of overlap with like open source development and where I see like legal templates going, they're converging on market standards. So, at OpenLaw we're very keen on saying like we We want to have a hundred different ways to do a business deal. We want to find the market, the one form to unite them all. And with that, we want a template smart contract that is also covering most of the things people want to do with a certain deal.

So, what I'm going to show next is my sense of what that standardization might look like for, um, you know, sales of online goods and arbitration. Um, but I hope that was responsive to your question. Um, so first demo is just basically knocking out a bill of sale on my phone with MetaMask wallet and also OpenLaw. Oh, and also programming a smart contract which is related to that. Again, this is on a phone.

This is accessible to anybody. These are free templates. Um, this is just Well, actually, well, let's skip to the end bit. This is important. You can see me reviewing the bill of sale that I drafted in OpenLaw.

Then also find an escrow contract that matches that bill of sale. Now, what do I mean when I say matches? What is the point of all all this? When I say match, I mean that the parties specified in this bill of sale, buyer and seller, are reported to a smart contract factory that I deployed, so that there is a unique cloned escrow smart contract that comes out that only these parties can access. Um, and it also reflects a certain amount that's being paid, in this instance, 10 die for my sneakers.

Um, and that's what will actually be given out if this transaction goes through and people do what they're supposed to I could probably talk more broadly about, you know, why escrow is a good use case for Ethereum, but I I do feel like I should move ahead. This is also an example of just using legal forms on your phone. You can also top up an escrow smart contract by sending a die. There's other buttons you might have noticed there, um, that are options for the seller and buyer to initiate a dispute, and that is the next iteration of the show. But, let's say that the buyer is taking way too long to pay for the shoes, or um they hated the quality, they smelled too bad.

They might have wanted to dispute that, and we can actually make this stay online. They don't need to go to a separate venue. So, we just move it here. Now, our would-be arbitrator, should they be called to action, easy actually to play. So, you all I'll do I'll just tell you what this is supposed to show right here.

Oh, sweet. An arbitrator does not need to know more about smart contracts or Ethereum other than this is what buyer should get, this is what seller should get. And it's over. You sign it, it reports this transaction to the smart contract, and then what we can actually also see in real time are those 10 die, those digital dollars that are escrowed to induce completion of this legal transaction, is then split up automatically after the arbitrator reports the result using the OpenLaw platform. And I think this is pretty cool.

And that's a stable value. I think that's very familiar to people, familiar to arbiters, the sense of digital dollars and how to split them up. So, I think it's all kind of coming together in a way that doesn't take need to take a lot of technical knowledge, doesn't need to take um any ideological um you know, sense. It's more just efficiency. One thing I'm really excited about is tokenization.

And I would like to show an example of how I am tokenizing something called an income share agreement. So, there is an alternative to financing higher education that's getting a lot of popularity, where students say, "You know, instead of taking out a loan, or you know, paying you today, I will give you a share of my income should it be above a certain amount. Um and we see this as, you know, advantageous to students, but it's also um a very interesting way to show how Ethereum can map onto legal agreements and make markets more efficient. And what I mean by that, okay, so we just had somebody quickly plug an income share agreement based on the Lenders School form. And then this um agreement after it's executed will report information about that contract, about the parties, to a smart contract factory that then gives something called Visa tokens that also bear a hash that's generated by OpenLaw.

This is kind of complex and I think it's more relevant to attorneys, but there's this sense of like, what does it mean to tokenize a hash? What does it mean to tokenize a real-world asset? For me, it means creating a clear legal link between the relevant parties who might have control over that asset and something like a token. So, somebody creates 100 tokens that represents their income share agreement. Those 100 tokens represent 100% claim on that student's future income.

Now, as an education provider, I don't necessarily want to wait, you know, a couple years to get paid and have that uncertainty. I might want money today, and I can say I can sell you these tokens and you can get a portion of that income share rights automatically and it'll be settled very quickly on Ethereum. And now, more for the lawyers in the room, this is kind of the language from the uh Lenders Income Share agreement that makes this all possible and programs people to do what they're supposed to do. This is what I added to basically say that this income share will be represented by, you know, digital assets, um and we're also saying they're going to bear an ID that's created um by OpenLaw for this specific contract. So, I see that as unique and contemporaneously between creating a real legal obligation, something that somebody's going to have to do in the future or else they get hauled into court and they're holding a digital asset that's very easy to access, very transparent, and it's on Ethereum.

So, I guess my takeaway and knowing I have little time is that I really think the world's ready for this. Um there's fatigue with lawyers, with their presence on deals, the transaction costs, the back and forth that is often unnecessary with them preparing forms that should be in the market anyway. So, we see a value record services migrating online. We see more technical people becoming lawyers or just doing what the lawyers do already by drafting their own agreements. So, I think lawyers can steal the edge here and say, "We recognize this threat, but instead of, you know, vanishing into the foreground or, you know, retreating, we're going to embrace it and deliver new types of value."

And I think that new type of value is we can replace a lot of the transaction costs, a lot of the money that goes to the bottom lawyers with just lawyer coders. So, escrow agents, banks, all these other parties that take value out of bargains, they can be eliminated with legal engineering. And that's my thesis at least. But I am optimistic and I'm optimistic if this is built on Ethereum cuz I think Ethereum's here to stay. There's a good energy, there's a good community, and um I think it's necessary to pick up the world today.

Uh you guys have any any questions? I know that was a sprint, but I hope it gave you kind of a a gestalt of what I'm working on, where I think the space is headed for lawyers, um yeah, all that good stuff. So. Uh you had your hand up first. Okay.

Um this might be too broad a question, but this this particular platform, but how how do you plan to address uh variations in international law and international trade agreements? Oh, yeah. That's great. I mean, I believe the parties themselves that use this technology uh figure that out. Um OpenLaw myself, we don't want to be in the business of creating like legal standards.

We think lawyers should still be helpful there and team up coders. Better yet, lawyers that are coders can quarterback that, but like international law is very very complex and what Yeah. I think something that worries me about this is the language barriers that people face and you're also going to vary in the way that legal systems work. That that is also a really interesting point. It's like the power of Babel problem for like commerce.

It's just like we have different languages in different ways to talk about validities. Talking about smart contracts is then I see almost this alchemical process of natural language agreements are going to be boiled down to the spare parts that are most necessary. Then the really important things are going to be reflected in code that anyone can understand regardless of language. Well, yeah, but I mean like like Sorry. No, no, go ahead.

Uh I didn't quite get that. What's the What's the upshot if the way that one interprets the word agreement is different in the U.S. versus in the U.K.?

You know, like how do you how do you mitigate the fact that the parties might not have had had proper understanding in the beginning? So, yeah, that's cool. Um one of the things that I want on a platform just for people from other jurisdictions, speaking other languages, put it all there. Then I have the market kind of refine what forms should be used and what agreements should constitute. But I do think contract law is pretty baked into like most of our sense of like deals and like how we can control things.

Judges even outside the U.S. are usually differential between what type of parties find themselves to do. Um so, you know, if this technology weighs into more regulated areas, you know, like securities transactions, then yes, there's variation and there's deliberate process that's probably going to go with like issuance of securities payments as it should, but for like invoice payments on Di, like I don't see a lot of bakeries or need for, you know, a lot of like cross-border communication. Like trying to figure out what it means to get paid for services.

I think a lot of these things are very basic economic tools that it's convenient to have paper records, just so if things really go south, you can reconstruct what people wanted and judges can help resolve that dispute. But the So you're not saying that the same primitives from the same point of agreement can be connected to different languages and translation. Oh, I do I do think they can be. Yeah. Yeah.

So like the primitive of escrow, like why shouldn't that could be universal. Like storing funds on time duration or something. I do agree with you on that. Yeah, yeah. I I think I think that's probably what we're going to see is um and kind of like my thesis here, forms and deals are going to converge.

Like Latham forms are very popular for fundraising. Um you have Series C, you have um National Venture Association also has the market forms. I don't know if how those work outside of the US, but that's mostly just my perspective as a US attorney. And a lot of people there are talking to lawyers about what they're doing. Seems like a good space to be in.

Yeah, I didn't mean to I did not mean to uh talk about burning man. No, I'm I'm very chill actually. I don't have a feeling please take criticize me and give me something to work on. Yeah. What What does the adoption of these kinds of technologies look like?

Do law firms start offering digital services and disrupting themselves or Yeah, I think so. So my my sense there is and just like what I was saying already is in-house counsel and companies themselves investing in this technology to help them run back office processes and that being the inducement for law firms to join the party. I think law firms will probably resist this technology. If you know, they might have a little you know, one or two roles that study it, but I don't think they're going to fully embrace it until it's more or less an existential threat to their bottom line. And I see more of the adoption curve being with um law firm clients than law firms themselves.

Although um lawyers, sole practitioners, small law firms, in-house counsel can see a lot of use here if you're not, you know, under this pressure to have large billable hours, you know? So, I think there is that tension between how lawyers account for their time and account for their value and like what the work actually takes now with the what the internet has brought. You know, unlike just information being everywhere and then you know, as a lawyer at a big law firm, you know, I would often be given a task and I would just go online. I'd go to SEC filings. I would go to law firms, etc.

I'd use all these online tools and then we'd just take that information and just like put it into our like law firm database and then have that cook for a while and then when we took it to the law firm, we'd compare forms, but it's all kind of just coming from the internet. It's kind of this like dirty secret or something. I think that that'll be exposed if there's real competition and I think there can be real competition with payments, you know, startups using these forms for invoice payments. Like we've seen some traction there, but with more complicated stuff, like I think that jury's still out. You know, like M&A deals, I think it's still probably too early because those do take a lot of different nuances.

I just haven't gotten there yet, yeah. It's still the startup world. Any other questions? How much of a legal background does an engineer need to get involved in this space? So, um This is always a very interesting question.

Um because like some founders I've met have better legal understanding than a lot of lawyers. Um but I would say that developers are complex problem solvers and that's very similar to what lawyers are doing. And if the developer understands the economics of a deal, you can be helpful to a lawyer and you can probably I don't I don't want to say that you can replace a lawyer quite yet because like I'm saying I I really like this contingency of the smart contract fails or we still have an imperfect oracle where people have to report real world events to smart contracts. I like having a legal layer to that. Um and that requires I think some legal training, but I think it's probably understood.

So. I don't think law school should be 3 years, also. That's my another thing I want to bring up. Um. Do you guys know Lincoln didn't go to law school to become a lawyer?

He just read Blackstone. Yeah. And you can still do that in California, not go to law school, just read the law, and take the bar exam, get admitted. But anyways. Um, do you have a second uh livestream three about LLCs that was touch on what those are?

Oh, yeah, no, totally. So, yeah, like some of the work I'm doing at OpenLaw and beyond with like Aragon and other teams is like studying like how can we make organizations more efficient with smart contracts? And the most immediate obvious use case is for like grant-making organizations. Like if you're pooling funds together and these funds are already denominated digital assets, it makes a lot of sense to use something like a DAO or voting multi-sig. But it's like, okay, we're going to do that.

Before if you're splitting money, if you're giving funds to independent contractors, you're creating liabilities. So, a lot of my thought process has been like kind of this like after the fact sense of like there's a lot of DAOs out there that are that might be creating legal liabilities for themselves or having default assumptions about how they're structured that would surprise them. So, why not clarify that with an LLC? I I don't think it's like that crazy, to say like, let's let's settle who owns what and how the liabilities are distributed um between DAO members. Like that's pretty I think common sense, but I think as more lawyers are going to space, it's becoming more of a thing of just like you you guys are already acting as partners, why not um make it so that you get sued holding the court, the judge understands exactly what you're trying to do here.

And you'll have protection and predictability um So, it's not very complex. Um, one of the things that I've been a a fan of and had fun with um, you know, through OpenLaw and Aragon just like an operating agreement in large part can be represented on chain. Operating agreements are just saying like who owns what, what their um voting weight might be, and a lot of DAOs already represent that information. Uh, you know, and they make it programmatic, so one thing that I'm working on is, you know, beyond just referencing a smart contract and operating agreement and saying this is where decision making goes, um it's really cool to have the moment operating agreement is executed and deployment happen. Have a multi-sig wallet, an Aragon DAO, a DAOstack DAO, or a Moloch DAO.

And I think that is kind of going to be the next thing that I work on. It's just like trying to make that more streamlined because I I think a lot of people make it really overly complicated when uh law is introduced. So, um I guess that's kind of what I want to be at OpenLaw these days.