LexBeat #2: Microsoft steps in, the courts draw the line

LexBeat is the column in the German Legal Tech Summit magazine. It summarises the key developments in the legal market concisely and puts them into context.

Microsoft moves into the law firm

On 15 October, Microsoft unveiled Copilot for Legal: more than 20 legal skills for contract review, drafting and obligation tracking, built directly into Word and the agentic workspace Cowork, complemented by plugins from more than two dozen legal tech partners. According to LawSites, this makes Microsoft the fourth major AI group to build its own legal division within five months.¹ Partners include Harvey, Legora, Relativity and Everlaw. The rollout is going to customers with a commercial licence for Microsoft 365 Copilot.²

For law firms and legal departments, this means above all: legal AI is arriving where people already work. Anyone using Word no longer needs a new system for initial applications. This doesn’t automatically diminish the relevance of specialised providers, since they remain part of the offering as partners. Harvey CEO Winston Weinberg noted that Microsoft is both a customer and a partner for his company.³

A new benchmark by Ivo and the data lab micro1 shows just how much judgement the models bring to the table. Seven leading models were tested on 350 real-world contract review tasks. None reached 60 per cent of the criteria defined by lawyers; the best scored 58.3 per cent.⁴ So the tools are becoming more widely available, but human review remains the decisive step.

Check first, then sign

The Federal Labour Court (Bundesarbeitsgericht) dismissed an AI-generated appeal against refusal of leave to appeal as inadmissible, because the authorised representative had not checked the submission.⁵ The submission contained judgments that an AI had invented, and it was signed without review. Under the decision of 30 September 2026 (2 AZN 339/26), there was therefore no effective representation. The court referred to the guidance issued by the Federal Bar Association (Bundesrechtsanwaltskammer) on the use of AI.⁶ At almost the same time, Aachen Regional Court (Landgericht) ruled that Google is liable for false statements made by its AI.⁷

This gives the debate from LexBeat #1 an initial answer from a federal court: anyone who files AI-generated submissions without checking them risks not just an embarrassing moment, but the validity of the procedural act itself. In the UK, too, responsibility is taking centre stage. In a new practice guide, the Law Society makes clear that AI is not a legal person, and that lawyers cannot transfer their professional responsibility to an AI tool.⁸

When the law firm becomes a tech company

According to a report by the Financial Times, Freshfields is considering spinning off its AI unit, Freshfields Lab, into a separate company and opening it up to external investors. A stock market listing is also being discussed. Global Managing Partner Alan Mason pointed to valuations in the legal tech market of 25 to 40 times revenue. The plans came to light via an email that was accidentally sent to a large internal distribution list. The discussions are said to be at a very early stage.⁹

Freshfields Lab is developing applications for document analysis, due diligence reviews and complex litigation. In future, these could also be offered to legal departments and other law firms.¹⁰ Freshfields is not alone in such plans: Womble Bond Dickinson has set up its own AI lab, initially developing tools for monitoring regulatory developments and for legal analysis.¹¹

Behind this lies the question of whether large law firms are themselves becoming technology providers. What remains unclear, above all, is whether tools developed in-house offer the same added value outside the firm itself.¹² Ultimately, this will also shape how they are assessed.

Legora draws level with Harvey

Legora has raised $550 million in a Series E round at an $8.8 billion valuation. The round was led by Atreides Management, with new investors including Fidelity, Capital Group and J.P. Morgan.¹³ Annual revenue now exceeds $200 million, less than six months after passing the $100 million mark.¹⁴ Legal departments accounted for more than 40 per cent of new customers in the third quarter. In the US, now Legora's largest market, more than half of the AmLaw 50 firms are among its customers.¹⁵

The funding round came just six weeks after Harvey’s own round, which also raised $550 million at a $15.5 billion valuation.¹⁶ This is relevant for the German market because Legora has had an office in Munich since late September and has won BMW as a major corporate client.¹⁷

With Microsoft on one side and two highly funded specialist providers on the other, the market is realigning: broad core functionality comes from the Office world, deep legal workflows from specialists. For law firms and legal departments, this doesn’t make the choice any easier. But the question is increasingly not whether AI is used, but which and how.

Outlook

On 4 and 5 November, the industry meets at Legal Innovators UK in London, and on 17 and 18 November in New York.¹⁸ The European Commission’s consultation on the procedural rules under which the AI Office imposes fines also runs until 9 November.¹⁹

The German Legal Tech Summit takes place on 3 December at the HCC Hannover. All four developments featured in this issue are reflected in its topic areas: from AI agents and regulation and responsibility to new business models and the legal tech market.

LexBeat #3 is expected in two weeks.