What’s at Play? Learning about the Design and Impact of Legal Innovation Sandboxes

Amy Salyzyn

Legal innovation sandboxes have gained significant traction in North America over the last few years. In 2020, Utah was first to launch its legal regulatory sandbox and, in Canada, law societies in three provinces have subsequently launched sandbox initiatives in relatively quick succession (see, here, here and here).¹ These developments follow earlier use of rule waivers and “innovation spaces” overseas by the Solicitors Regulation Authority (the regulator of solicitors in England and Wales) starting in 2016.² All of this has taken place in the backdrop of sandbox use in other industries and professions, most notably in the financial technology (“fintech”) sector.

For readers not familiar with concept of a “sandbox”, the general idea is to offer opportunities for innovative providers to deliver services in a regulated industry in new ways. The sandbox model permits service delivery that would (or might) otherwise breach current rules due to, for example, a non-compliant business structure or means of delivery. Innovators generally participate in a pilot where they have the regulator’s permission to operate under certain specified conditions and with ongoing monitoring. Often, the regulator collects data during such pilots with the aim of informing future regulatory reform.

As they grow in number and progress in their operations, North American legal innovation sandboxes are attracting interest among lawyers, academics, and law students. To date, most information about legal innovation sandboxes has been located on their respective websites or presented in short online commentary. More detailed analysis has been elusive. Thankfully, two new publications have emerged to fill this gap.

In their forthcoming article, The Legal Innovation Sandbox, Cristie Ford and Quinn Ashkenazy provide a comprehensive account of the development and operation of legal innovation sandboxes. They trace the background of these reform initiatives, break down their design elements and discuss best practices in legal innovation sandbox design.  Complementing this analysis is a recent report on legal regulatory reform from Stanford’s Rhode Center on the Legal Profession, Legal Innovation After Reform: Evidence from Regulatory Change, which shifts the focus away from questions of construction and centers on analyzing outcomes. In this report, David Freeman Engstrom, Lucy Ricca, Graham Ambrose, and Maddie Walsh provide a detailed empirical analysis of new legal services entities that have emerged in response to certain regulatory reforms, including Utah’s legal innovation sandbox.

Together, the Ford and Ashkenazy article and the Stanford report provide a wide-ranging account of legal innovation sandbox use in North America. Individually, they each bring unique and important contributions to the literature.

The detailed, nuanced and comparative approach of Ford and Ashkenazy’s design discussion makes their article a rich text for those interested in legal innovation sandbox design and regulatory design more generally. Among other things, they outline important considerations and options in relation to application criteria, application evaluation, risk minimization, as well as monitoring and reporting requirements. Throughout their article, Ford and Ashkenazy draw not only on the experiences of North American legal innovation sandboxes but also on sandbox design in the fintech sector. For example, on the topic of monitoring, they note that participants in the United Kingdom’s Financial Conduct Authority’s fintech sandbox “are assigned a dedicated case officer to support the success of the pilot, to assist with navigating the regulatory framework, and to ensure that the appropriate safeguards are in place” (p. 46). This example helps to highlight how sandbox experimentation can be infused with ongoing communication and cooperation. The authors’ use of comparative material in the article can hopefully stand as a model and motivator for more comparative work in legal profession scholarship, which has generally been too reluctant to draw on experiences from other professional contexts.³

Ford and Ashkenazy are also helpfully clear-eyed about the regulatory trade-offs present in the legal innovation sandbox context. For example, they note that while “lawyers are trained to aim for perfection”, aiming to design the “perfect” sandbox before launching can lead to too much rigidity and a missed opportunity to benefit from continual, iterative design improvements (p. 51). The challenges associated with undertaking optimal consultation processes, acting within resource constraints and developing appropriate evaluation models are also highlighted.

Complementing Ford and Ashkenazy’s design-focused analysis is the Stanford report’s examination of outputs. The report explores two questions: (1) if the rules governing legal service delivery are relaxed, what types of innovation are likely to result? (2) who will be served by such innovations? To answer these questions, the report looks at the data relating to 57 new legal services entities that were authorized in Utah and Arizona as of June 30, 2022. The researchers supplemented this analysis with interviews from innovative legal services providers in Utah and Arizona, as well as in England and Wales. The report touts itself, I think fairly, as providing “a first-of-its-kind, grounded, and data-driven analysis of what regulatory reforms might achieve in the U.S. legal context” (p. 9).

Notably, the Stanford report does not limit its focus to legal innovation sandboxes – while it does look at Utah’s sandbox, the Arizonian reforms explored are fundamentally distinct. As explained in the report:

[T]he two states’ reforms vary in their target—that is, which of the rules are relaxed. Utah’s approach allows entities to seek waivers of Rule 5.4, UPL, or both—an approach we call the “ABS+UPL” approach….Arizona, in contrast, relaxed only Rule 5.4—an approach we call the “ABS-only” approach. The states also vary in terms of their lever—that is, how those rules are relaxed. Utah created a sandbox, which is a space within which legal services providers can seek waivers of UPL, Rule 5.4, or both, subject to ongoing oversight by a regulator. The sandbox is currently authorized for seven years. Arizona made an ex ante change to its rules—and, in particular, its Rule 5.4 equivalent—and then created an application process for entities seeking ABS status (p. 10)

By comparing and contrasting the Utah legal innovation sandbox against the different approach taken in Arizona, the report aims to draw inferences about how regulatory reform choices might yield different results. For example, the report finds:

[T]he contrasting reform approaches in Utah and Arizona appear to be generating very different types of innovation in terms of how legal services are delivered and who is served. In particular, because of Arizona’s narrower, ABS-only approach, only Utah’s reforms are yielding innovation in the use of nonlawyers and technology to deliver legal services. And, perhaps relatedly, only Utah is seeing innovation in the nonprofit and community-based sector and in the development of new delivery models that serve low- and middle-income populations.

The authors are appropriately reluctant to draw strong conclusions from such comparisons, noting several caveats and limitations: (1) the relative newness of the reforms; (2) the reality that legal markets differ across jurisdictions, which can result in different consequences even if similar reforms are instituted (e.g. market size can influence which innovators might want to operate within any particular state); (3) the presence of competing design elements—while Utah’s reforms are more expansive in scope, this reform effort is also time limited in contrast to Arizona’s permanent rule revision; the rule waivers being permitted in Utah might yield even more expansive legal innovation if they were in the form of permanent rule changes; and (4) the outcomes may be impacted by parallel paraprofessional reforms in each jurisdiction (i.e. newly authorized paraprofessionals may be filling needs that might otherwise be the focus of initiatives taken pursuant to the reforms studied).

Another valuable contribution of the Stanford report is its articulation of a novel taxonomy of different types of legal innovation that can result from reform efforts. The authors “identify and illustrate five stylized innovation types: (a) traditional law firms making changes to their capital or business structure or service model; (b) ‘law companies’ practicing law; (c) ‘non-law companies’ as new entrants to the legal sector; (d) intermediary platforms; and (e) entities using nonlawyers and technology to practice law” (p. 43).

One insight that this taxonomy yields is the significant degree to which lawyers are involved in innovation efforts – for example, 35% of the emerging entities studied were classified as being in the form of “traditional law firms” with another 35% classified as “law companies practicing law” that generally used the reforms to incorporate lawyers into their service delivery. For lawyers, this is perhaps a reassuring signal that innovation in legal service delivery won’t render them obsolete.

Presumably, lawyer involvement also brings with it a certain type of baked-in quality control that has a public benefit. At the same time, however, one might also question the degree to which reform initiatives are optimally innovative absent more involvement from a diversity of actors. Are more efforts needed to ensure everyone feels welcome to “play” in the sandbox? On their part, Ford and Ashkenazy highlight the importance of broad consultation and the value of some degree of independence in sandbox operations given the “potential vested interest in the existing legal services provision” by legal regulators (p. 55).

Time will tell how legal innovation sandboxes will affect legal service delivery in North America. Both the Ford and Ashkenazy article and Stanford report provide important foundation for further work regarding effective sandbox design and evaluation of sandbox outputs.

1. I am a member of the Advisory Council for Ontario’s Legal Innovation Sandbox, called the Access to Innovation (A2I) project. The views expressed in this Jot are my personal views alone and should not be affiliated with or attributed to the A2I project.
2. For an overview of these early initiatives, see Amy Salyzyn, See No Evil? Could ‘Innovation Waivers’ Help Break Roadblocks to Reforming Legal Service Delivery? (June 13, 2018), availible at Slaw.ca
3. There are, of course, important exceptions to this. My last Jot reviewed an excellent article by Rima Sirota that used the experience of continuing education in the medical field to explore potential improvements to mandatory continuing legal education.