Digital Transformation Action Plans: Guidance for Law Departments
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Digital Transformation Action Plans:
Guidance for Law Departments
Companies in traditional industries are increasingly undergoing digital transformations and repositioning
their offerings as technology products and services. Law departments must understand this trend and
develop and implement a digital transformation action plan to effectively support their companies’ digital
transformations.
JEFFREY R. SEUL
PARTNER
HOLLAND & KNIGHT LLP
Jeff is a corporate, M&A, and strategic transactions partner and chair of the
firm’s Technology & Telecommunications Industry Sector Group. He advises
clients in many sectors of the tech industry, including artificial intelligence,
autonomous transportation, blockchain platforms and applications, clean energy
solutions, cloud computing, cybersecurity, digital media, enterprise systems and
applications, gaming, Internet of Things, digital health, robotics, semiconductors,
sharing economy platforms, social networks, and virtual reality.
36 December 2020/January 2021 | Practical Law © 2020 Thomson Reuters. All rights reserved.
SPOTLIGHT
Law Department
M
any companies in traditional industries Opening new markets for these reinvented products
are reinventing their products, services, and services and the technology companies
and business models to incorporate or use developing them.
advanced technologies (for example, machine
learning) in more fundamental ways. Companies in Technology-driven disruption is putting significant
industries that traditionally have used technology only pressure on established companies in traditional
to support their internal operations and online customer industries. Disruptive effects of the digital transformation
platforms, including energy, financial services, health trend include:
care, transportation, real estate, and hospitality, are now Bankruptcies, fire sales, and business closures.
repositioning their offerings as technology products and Split-ups, spin-offs, and preparations for similar
services. For example: transactions.
Automobile original equipment manufacturers (OEMs) Forward-thinking and strategic combinations of new
are bringing autonomous vehicles and app-based and old companies.
mobility services to market.
The technology-driven industry convergence trend is
Health care providers are promising greater wellness,
likely to accelerate and intensify over the coming years,
prevention, and early disease detection through
supported by:
continuous patient monitoring, coaching, and
treatment. Emerging platform technologies, including:
Real estate developers and urban planners are z artificial intelligence (AI);
building smart homes and cities. z big data;
This trend, often called digital transformation, has major
z blockchain;
implications for these companies’ law departments. A z elastic cloud computing; and
proactive corporate law department should drive its z virtual and augmented reality.
company’s digital transformation, rather than merely Fast and ubiquitous 5G connectivity and increasingly
adapt to it. powerful, energy efficient, and miniaturized
Against this background, this article: computer chips.
Provides an overview of the digital transformation
trend, including the forces propelling digital Search Artificial Intelligence Key Legal Issues: Overview and
Using Artificial Intelligence in Law Departments for more on AI.
transformation.
Search Blockchain and Distributed Ledger Technology (DLT):
Offers guidance for law departments on developing Overview and Blockchain Basics for In-House Counsel for more
and implementing a digital transformation action plan. on blockchain.
DIGITAL TRANSFORMATION: OVERVIEW These developments are propelling product and service
To drive digital transformation, in-house counsel must innovations. Companies that are able to integrate
understand: specialized expertise and talent from domains once
The forces propelling digital transformation. considered to have little to do with one another will
be best positioned to take advantage of the digital
The strategies available to companies to take transformation trend.
advantage of the digital transformation trend.
DIGITAL TRANSFORMATION STRATEGIES
FORCES OF CHANGE
The digital transformation strategies that law
Digital transformation of traditional industries has departments must support differ, and some strategies
been catalyzed, in part, by startups and established are more ambitious than others. For example:
technology companies that are reinventing a wide variety
of products and services. Digital transformation is: Some automobile OEMs are opting for deep
partnerships with major technology companies that
Making these products and services more: are developing autonomous vehicle platforms, while
z affordable; others are seeking greater independence from large
z connected; technology developers by designing or acquiring their
z convenient; own platforms.
z enjoyable; Certain manufacturers of tangible products, from toys
to refrigerators to operating tables, are looking to
z safe; and generate revenue from proprietary, software-enabled
z useful. services linked to those products.
Other companies are deemphasizing service revenue
by designing their products to interoperate with a
© 2020 Thomson Reuters. All rights reserved. The Journal | Transactions & Business | December 2020/January 2021 37
SPOTLIGHT
Law Department
range of third-party services, preferring to focus on objects. This data is immensely valuable and presents
what they presently know best and providing their challenges for law departments because it must be:
customers with the ability to choose among digital z secured;
service providers. z analyzed;
Despite these differences, digital transformation is z used responsibly; and
likely to manifest in fairly predictable patterns across z handled in accordance with evolving data privacy
traditional industries and among diverse companies. and security laws across jurisdictions.
These patterns feature:
Machine learning and AI. Although the introduction
Software-enabled products and services. Most of general AI, often referred to as “strong AI,” remains
products on the market are already software enabled, elusive and speculative, existing and emerging
even if their features are as basic as a mini-LED approaches to “weak AI” are becoming increasingly
panel that displays settings and allows the user to powerful and pervasive. AI algorithms already
program the product. Although cars are not commonly influence how consumers shop, select movies, obtain
considered rolling computers, this description of them loans, and receive health care. These algorithms
has long been apt. From smart home products to the improve as they process more and higher-quality
components of smart electrical grids to smart city data, and continual digital transformation increasingly
infrastructures, tangible products are increasingly will supply this data. However, this data must be
defined by their software-enabled features and thoughtfully gathered and curated to avoid errors and
the online services accessible through them. These biases that can produce negative results (for example,
features and services will be continuously updated racial discrimination in loan processing).
and tailored to user characteristics and requirements,
performing with little or no conscious effort by users. Automation. Everything that can be automated
increasingly will be automated, from the delivery of
packages and pizzas to warfare. A recent report by
McKinsey & Company on the future of work in the US
Just as a company’s digital predicts that:
z automation will lead to net positive job growth;
transformation strategy requires z the jobs of the future are likely to be higher skilled
(for example, data scientists) and concentrated in a
diverse types of engineering, product small number of urban areas; and
lower-skilled jobs and work in rural areas will
development, and marketing
z
continue to decline.
expertise, a broad range of legal (See McKinsey & Company, The Future of Work in
America: People and Places, Today and Tomorrow
(July 2019), available at mckinsey.com.)
expertise also may be required.
DIGITAL TRANSFORMATION ACTION PLAN
The law department must thoughtfully develop its digital
Always-connected products and the Internet transformation action plan by identifying, analyzing,
of Things (IoT). An ever-expanding IoT is being and accounting for the impacts of the company’s digital
assembled by combining existing networks and transformation. Key steps the law department should
technologies with industry developments such as: take include:
z emerging 5G wireless standards; Assembling an effective legal team.
z smaller and more powerful microprocessors; Identifying the plan’s implications for the company’s
z new sensor technologies; and business model.
z elastic cloud computing. Understanding the plan’s impact on products and
services.
The IoT uses the internet’s current functionality
and adds communication and data sharing among Determining the plan’s effect on marketing, sales, and
humans, as well as a growing number of sensors, fulfillment.
controllers, and other devices. Evaluating the plan’s risks.
Power and value in data. An increasing volume Accounting for the plan’s impact on internal
of granular and real-time data is being generated, operations.
captured, and analyzed within the ecosystem of
connected organizations, individuals, machines, and
38 December 2020/January 2021 | Practical Law © 2020 Thomson Reuters. All rights reserved.
LEGAL TEAM COMPOSITION Data privacy and security attorneys.
The law department must understand how the company Compensation and benefits specialists with
is embracing the elements of the digital transformation extensive experience creating and maintaining the
trend to assemble the right team and develop a digital types of equity incentive programs common in the
transformation action plan for advancing the company’s technology industry.
strategy. Just as a company’s digital transformation Corporate and M&A attorneys with venture capital and
strategy requires diverse types of engineering, product startup company expertise.
development, and marketing expertise, a broad range of
legal expertise also may be required. For example: Law departments that do not yet have these types of
specialists may need them, and those law departments
Companies offering technology-supported insurance
that already have them may eventually be required to
products and services (known as InsurTech) must
hire additional attorneys. Practices and disciplines that
develop and market those products and services with
are standard in technology industry law departments,
guidance from an integrated team of attorneys who
such as forward-patenting sessions and tight control over
understand:
trade secrets, will become even more common.
z insurance regulations;
z consumer protection standards; Search In-House Attorney Development and In-House Counsel
z data strategy and privacy and security issues; and Skills to Support Emerging Law Department Responsibilities for
more on developing in-house counsel skills and competencies.
z intellectual property (IP) law.
Companies participating in public-private partnerships
to bring autonomous vehicles or smart city infrastructure The right balance between building internal capacity
to urban environments may require the assistance of and relying on outside counsel will vary from company
attorneys possessing expertise in areas such as: to company. However, tight integration and effective
collaboration among diverse internal and external
z telecommunications regulations; specialists will be essential (for more information, search
z environmental law; Working Effectively with Outside Counsel Checklist on
z real estate law; Practical Law).
z transportation regulations;
IMPLICATIONS FOR THE COMPANY’S BUSINESS MODEL
z corporate law;
In-house counsel should identify and plan for a
z joint ventures; digital transformation’s effect on the company’s
z public finance; business model by:
z tax law; Conducting an appropriately broad survey of laws and
z IP law; regulations applicable to the new business model.
z data privacy and security law; and Ascertaining how the new business model is affected
by existing laws and regulations. This includes
z administrative law.
assessing whether the new business model:
Few law departments within technology companies z complies with laws and regulations, in which case
or companies in traditional industries presently have in-house counsel may want to advocate for the
the broad range of expertise needed to support their maintenance of those laws and regulations; or
companies’ digital transformation strategies. z conflicts with laws and regulations, in which case in-
General counsel and other law department leaders, house counsel should suggest revising the products,
including senior legal operations professionals, may services, or business model in development to
need to significantly expand the scope of expertise remove the conflict, work to change the laws and
and services their law departments provide to support regulations to eliminate or mitigate the conflict,
their companies’ digital transformation strategies. This develop a litigation strategy to contend with disputes
may require a complete overhaul of their departments, that may arise as a result of the conflict, or develop
depending on current levels of expertise and the a strategy that employs a combination of these
companies’ ambitions and plans. approaches.
Identifying whether and how the business model
Many law departments already have attorneys with the
change affects the company’s revenue model and
required expertise, including:
developing a revised contracting structure, including:
Patent prosecutors and litigators.
z licensing;
Experts in heavily regulated areas, such as:
z subscription services; and
z communications; and
z service levels.
z export control.
© 2020 Thomson Reuters. All rights reserved. The Journal | Transactions & Business | December 2020/January 2021 39
SPOTLIGHT
Law Department
Determining whether the company’s existing products z IP rights;
and services are incorporated in or displaced by z continuity of supply or service;
software-enabled features and capabilities. If the
z service level commitments;
new business model displaces existing products and
services, in-house counsel should: z assignment restrictions;
z identify the resulting legal issues, such as potential z representations and warranties; and
customer claims based on the company’s inability to z indemnities.
support or repair legacy products; and Develop, publicize, and audit compliance with
z develop a strategy to address legal issues. policies and systems for approving and managing the
use of third-party software, including open-source
IMPACT ON PRODUCTS AND SERVICES software, and for approving and tracking alteration
If the company’s digital transformation produces of all third-party software, components, and licensed
valuable datasets or original technological innovations data, including combinations with the company’s own
(such as software, hardware, or processes), in-house developments and data.
counsel should take steps to protect these assets and Evaluate and address dependencies on third-party
maximize their value by: application programming interfaces and terms of use.
Identifying and implementing the appropriate forms of In-house counsel should examine whether the company
IP and data protection, including: intends to store its data using its own cloud infrastructure,
z patents; a third-party cloud service provider, or a combination of
z trademarks; the two. To ensure that the company’s data is adequately
z copyrights; and protected, in-house counsel should:
z trade secrets. Assess and address the company’s network and data
privacy and security issues.
Establishing programs to encourage early
identification of inventions, such as: Review and update the company’s privacy policies
and practices, terms of service, and other related
z forward-patenting sessions; and agreements.
z patent disclosure bonuses. Evaluate and negotiate appropriate third-party terms
Conducting offensive and defensive surveys of the IP of service.
landscape applicable to the company’s technological
developments to identify potentially competing IP. If the company’s new products and services depend
on dedicated access to third-party communication
Implementing a comprehensive IP portfolio
networks, in-house counsel should:
development and protection strategy.
Secure the necessary regional and global network
access agreements.
Search Intellectual Property Rights: The Key Issues for more
on the main categories of IP rights in the US and their Consider procurement and integration of required
management. communications hardware modules with bundled
network access contracts.
If the company outsources development or production In-house counsel should address any cross-border
of new software or hardware, in-house counsel should impacts arising from hardware, software, or data
carefully document the distribution of IP rights among traveling through or residing in new countries by
the participating parties, regardless of whether the identifying and accounting for:
third-party developer will develop the software or
International trade regulatory issues, such as export
hardware entirely or whether it will be jointly developed.
controls on encryption technology.
It is especially important to secure ownership, or at least
strong license rights, to developments that are critical to Foreign legal and regulatory implications, such as
the company’s digital transformation or that could not the General Data Protection Regulation (GDPR)
easily be replaced. and International Organization for Standardization
requirements regarding accessibility, recycling, and
If the company’s new products or services incorporate, testing (for more information, search GDPR Resources
integrate with, or are dependent on third-party hardware for US Practitioners Toolkit on Practical Law).
components, software components, or data, in-house
counsel should: If AI technologies are used in the company’s
internal operations, products, or services, in-house
Ensure that the terms governing the use of those
counsel should:
components or data are consistent with the company’s
business and legal needs in areas such as: Assess AI systems, such as algorithms and datasets,
for risks, including:
40 December 2020/January 2021 | Practical Law © 2020 Thomson Reuters. All rights reserved.
z bias; Privacy.
z torts; and Procurement.
z data privacy and security.
Take steps to mitigate any identified risks. Search Federal Drone Law in US for information on the US
federal laws related to government, recreational, and
Develop, implement, and enforce policies and commercial use of drones.
protocols for the responsible use of AI.
Track emerging legal, regulatory, and industry
developments that may affect the company’s use of AI.
If the company’s products and services connect to and It is especially important to secure
function with the IoT, in-house counsel should:
Evaluate and address the associated impacts on data:
ownership, or at least strong license
z strategy; and rights, to developments that are
z privacy and security.
Consider and plan for the issues presented by the critical to the company’s digital
interaction among products, services, and components
emanating from multiple sources, including: transformation or that could not
licensing; and
easily be replaced.
z
z liability.
Search The Internet of Things: Key Legal Issues for more on the
benefits and risks of the IoT and IoT privacy and data security EVALUATION OF KEY RISKS
regulation under US federal law.
In-house counsel must identify and address any new risks
that emerge from the company’s digital transformation,
EFFECT ON MARKETING, SALES, AND FULFILLMENT including:
The law department should determine if the company’s Cybersecurity risks. In-house counsel should conduct
digital transformation affects its marketing and sales a risk assessment to determine whether the digital
strategies. If the company uses channel partners to transformation creates new or different cybersecurity
market and sell its products and services, in-house risks and develop and implement mitigation strategies,
counsel should develop or revise the promotional including:
materials and agreements the company uses with z incorporating provisions in the company’s contracts
its partners, joint marketers, and resellers to reflect with its suppliers that require them to implement
applicable technology industry-related issues, including: appropriate levels of cybersecurity; and
IP rights. z recommending that the company obtain cyber
Licensing. risk insurance (for more information, search
Cyber Insurance: Insuring for Data Breach Risk on
Representations and warranties.
Practical Law).
Indemnities.
Product liability risks. In-house counsel should
Data privacy and security. determine whether the digital transformation exposes
the organization to new or different product liability
Search Advertising and Marketing Toolkit for resources to assist risks, including:
counsel in identifying key legal and business issues when
undertaking advertising and marketing activities. z risk of bias or error from increased reliance on AI;
z tort risk associated with autonomous transportation
or delivery; and
Regardless of whether the company delivers its products
and services using its own resources or the resources of a z risk allocation within a multivendor IoT system.
third party, in-house counsel should analyze and address
the consequences of adding new modes of delivery (such Search Cybersecurity Issues for In-House Counsel for more on
as drones, autonomous vehicles, or robots), including: key cybersecurity issues, including steps to take when
developing and implementing a comprehensive information
Regulatory approvals and compliance. security program.
Safety. Search Product Liability Claims, Defenses, and Remedies for
more on product liability issues.
Liability.
© 2020 Thomson Reuters. All rights reserved. The Journal | Transactions & Business | December 2020/January 2021 41
SPOTLIGHT
Law Department
To protect the company from identified product liability adopts an equity incentive plan, in-house counsel
risks, in-house counsel should: should provide guidance on issues related to:
Work with the company’s product development z corporate law;
and engineering departments and other internal z securities law;
stakeholders to identify and eliminate potential
z the tax implications of equity compensation for
bias issues.
employers and employees; and
Revise the company’s sales and service agreements
z board operations.
and terms and conditions of sale and service to include
warranty disclaimers and limited indemnities. The company’s digital transformation may result in
Recommend that the company purchase product layoffs arising from:
liability insurance (for more information, search The reconfiguration of the company’s workforce.
Maximizing Insurance Coverage for Product The addition of new capabilities.
Manufacturers on Practical Law).
The relocation of operations.
IMPACT ON THE COMPANY’S INTERNAL OPERATIONS The incorporation of new technologies, such as AI
The company’s digital transformation action plan may and robots.
have impacts across the company’s internal operations, In-house counsel should identify and plan for these
departments, and personnel. In-house counsel must layoffs and other labor and employment issues,
identify and address those impacts to ensure that they do including:
not adversely affect the success of the company’s digital
Notification obligations arising under the Worker
transformation.
Adjustment and Retraining Notification Act
Specifically, the plan may implicate: (WARN Act) and state law equivalents.
Labor and employment issues. Compliance with federal and state anti-
Corporate, tax, and accounting considerations. discrimination laws.
Data strategy and privacy and security concerns.
Search Reductions in Force Toolkit for resources to assist
Law department operations changes. employers in complying with legal requirements when planning
and implementing a reduction in force, including plant closings
Labor and Employment Issues and mass layoffs.
In-house counsel specializing in labor and employment
issues should determine whether the company’s If the company intends to use independent contractors,
employment agreements, policies, and practices are affiliates, or non-traditional third parties to operate the
suitable for its new business model, direction, and new business model, in-house counsel should:
staffing needs. If the company requires employees with Identify, analyze, and address “gig economy” labor
specialized technical skills, in-house counsel should: issues, such as the risk of employee misclassification
Assess the adequacy of the provisions included in litigation.
existing template employment agreements related to Assess and manage the liability risk of third-
the assignment of technical developments. party conduct.
Consider the relevance and desirability of customary Draft program agreements that align with the
technology industry restricted covenants, such as: company’s view of its roles, and associated
z non-competition covenants; and responsibilities and risks, in the new model.
z non-solicitation covenants.
Search Independent Contractor Classification for more on
independent contractor classification issues.
Search Restrictive Covenants Toolkit for resources to assist
employers in protecting their trade secrets and other proprietary
and confidential information and assets.
Corporate, Tax, and Accounting Considerations
Revise the template employment agreements The company’s digital transformation action plan
appropriately. However, in-house counsel should be may introduce new ways of funding, structuring, and
mindful of state law variations, such as restrictions conducting the company’s operations that in-house
on non-competition provisions in California and other counsel must be prepared to support. For example, if
jurisdictions, when revising those agreements. the company:
Research and advise the company on new and Intends to raise funds to pay for its digital
different compensation models that it may need to transformation efforts, in-house counsel must advise
implement to attract qualified employees, such as on equity or debt financing.
stock options and restricted stock units. If the company
42 December 2020/January 2021 | Practical Law © 2020 Thomson Reuters. All rights reserved.
Participates in joint or hybrid business structures, z collection;
in-house counsel may need to provide legal advice on z governance;
structures such as public-private partnerships and joint
z privacy and security;
ventures (for more information, search Public Private
Partnerships: Issues and Considerations and Joint z use;
Ventures: Overview on Practical Law). z monetization; and
Licenses its IP or software-enabled services to z breaches.
generate revenue, in-house counsel should consider: Advising the company on its uses of data gathered
z surveying applicable state, federal, and foreign through emerging technologies, such as:
direct and indirect tax regulations, with an eye z facial recognition;
to identifying possible differences between how
z biometrics (for more information, search Biometrics
existing products and services are taxed and how
in the Workplace on Practical Law); and
new products and services will be taxed;
z location tracking.
z adopting a tax-efficient international corporate
structure;
Search Privacy and Data Security Toolkit for resources to assist
z implementing appropriate revenue accounting counsel in creating, implementing, and reviewing a company’s
policies; privacy and data security compliance programs.
z making the necessary changes to the company’s
customer contracts; and
Law Department Changes
z revising the company’s Securities and Exchange
Commission reporting protocols. The law department must be prepared to update its
operations in response to the digital transformation
Purchases emerging technology assets or entities
action plan, including by:
to develop the company’s ecosystem or acquire IP,
personnel, or customers, in-house counsel must Expanding the law department’s knowledge
manage the associated domain-specific norms management capabilities by:
and issues. z ensuring that in-house counsel have access to
Issues or participates in the exchange of digital tokens relevant and current information to provide the legal
in connection with the new business model, in-house support required by developments in the company’s
counsel should identify and evaluate securities law, operations; and
money transfer, and other issues associated with z providing in-house counsel with relevant continuing
digital tokens. legal education training by outside law firms and
other third parties.
Data Strategy and Privacy and Security Concerns Identifying and implementing new process
The company’s digital transformation action plan may improvements, such as those relying on robotics
require the company to handle increased amounts and process automation, by:
types of data. If the company intends to collect, use, z assigning law department members responsibility
share, or monetize its data, in-house counsel should for identifying appropriate process improvement
be prepared to provide the necessary legal support, opportunities;
including: z collaborating on solutions with consultants and
Identifying and mapping data: outside counsel; and
z types; z working with the company’s IT department or
z sources; third-party technology vendors to implement the
z collection methods; appropriate process improvements.
z storage; Determining the impact of the company’s digital
transformation on the company’s selection of outside
z aggregation;
counsel to support the new business model by
z manipulation; and confirming that the law department or procurement
z uses. team has data on outside counsel capabilities, fees,
Conducting initial and ongoing technical audits and and other relevant market information.
stress tests of the company’s information technology
(IT) systems to validate the company’s understanding Search Using Artificial Intelligence in Law Departments, Using
of its data types and flows and to ensure system Technology to Increase Law Department Efficiency, and
Designing and Implementing Legal Technology Roadmaps for
integrity. more on law department technology.
Developing comprehensive and globally compliant
strategies, policies, and programs regarding data:
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