Big Law Billable Hours Face Existential Threat from Claude Cowork’s New Weapon
Executive Summary
FAF explains in simple language how one new AI tool for law work shook stock markets and worried big law firms.
A company released a “legal helper” inside its AI coworker app. It can read contracts, help sort NDAs, prepare checklists, and write short legal notes, but a real lawyer must still check everything.
Even so, investors quickly sold shares of companies that sell legal data and software, especially in Europe and the US.
At the same time, big law firms in the US are spending more money on AI tools while still charging clients by the hour.
AI makes common tasks much faster, so firms fear that clients will ask, “If you used AI and saved time, why am I paying the same fee?”
This fear links the new AI tool, the stock market drop, and worries about billable hours into one story.
Introduction
The new AI feature is part of a tool called a “cowork” assistant. Think of it like a very smart digital paralegal that lives on a computer.
It can open documents, move files, and follow step‑by‑step instructions written by its makers. One of these instruction sets is focused on legal work.
The legal plugin is not magic.
It does not argue in court or make final legal decisions. Instead, it does a lot of the background work that junior lawyers and paralegals often do.
For example, it can read a contract and highlight risky clauses, check if an NDA follows a standard template, or draft a first version of a short legal summary.
A human lawyer must still review, correct, and approve the result
History and current status
For many years, law firms and companies have used software to search cases, store documents, and manage contracts.
More recently, new startups built tools that use AI to review huge piles of documents in lawsuits or business deals. These tools save time but still sit on top of big databases owned by older data companies.
At the same time, the business of large US law firms has been strong.
Reports show that demand for legal work grew around low single digits in 2025, while technology budgets grew close to 10%, much of that going into generative AI.
Standard partner rates at top firms moved above $1,000 per hour, with many other lawyers charging around $600.
Even with all this change, about 90% of what companies pay outside law firms still comes through hourly billing.
So before the new AI tool arrived, two lines were already crossing. On one line, AI was getting better at reading, writing, and summarizing text, including legal text.
On the other line, law firms and data vendors were making good money selling time, documents, and software based on that text.
The new legal plugin brought these lines into direct conflict.
Key developments: what actually happened
When the legal plugin for the AI coworker went live, it came as one of around a dozen new plugins for different fields such as sales, finance, and human resources.
On paper it was just one more workflow. But markets focused on law because legal research and contract tools are a rich, high‑margin niche.
In Europe, shares of companies that sell legal and financial data fell fast. RELX and Wolters Kluwer each dropped by more than 10% in a single day. Experian fell close to 9%.
London Stock Exchange Group, Thomson Reuters, LegalZoom, and FactSet also lost roughly 10% or more at their lows.
An index that tracks European companies seen as likely AI losers fell about 4.7%, showing broad fear, not just a move in one or two names.
In the US, software funds and baskets also sank. A major software ETF had one of its worst days in months, losing around 5–6%.
A basket of US software stocks fell about 6% in one session, and legal‑focused names such as Thomson Reuters and LegalZoom saw double‑digit hits.
In total, one estimate said roughly $285 billion in value across software, finance, and asset management disappeared for the moment.
Latest facts and concerns
Since that shock, some stocks have bounced, but price swings remain large.
Investors now ask a simple question: if an AI company can give firms an open-source legal agent that runs on top of their own documents, why should they keep paying so much every year for extra software and data platforms?
There are also legal and regulatory concerns, especially in Europe.
New AI rules will shape how such tools can be used, who is responsible when something goes wrong, and how training data must be handled.
Long court fights over copyright and the use of books, articles, and images to train models could also change the costs and risks for big AI developers and for data companies that license content.
Inside big law firms, partners see both promise and danger. Studies suggest that lawyers can save more than 30% of their time on tasks like contract review and legal research when they use AI well.
Yet firms still mostly bill by the hour.
Reports show that technology spending rose close to 10% and lawyer pay rose more than 8% in 2025, while most revenue still depended on how many hours were billed.
This makes many partners nervous: AI helps them work faster, but the current way they get paid punishes speed.
Cause-and-effect
Why one plugin shook markets and billable hours
The chain of events is easier to see with a simple example. Imagine a corporate client that pays a firm $7,500 for a contract review.
At a rate of $300 per hour, that means around twenty five hours of work. Now suppose an AI tool cuts the real lawyer time to ten hours.
To bill the same $7,500, the firm would have to charge $750 per hour, more than double.
Many clients would refuse that, since they know the job got faster.
Now link this to the new plugin. It offers a way for firms—or even in‑house legal teams—to get that kind of speed gain using an AI coworker and their own documents.
Investors look ahead and think: if clients push back on hourly bills, firms will try to cut what they spend on outside data and software.
They may cancel some tools, switch to cheaper options, or rely more on in‑house AI agents.
That means less future revenue for the public data and software companies. Stock prices fall to reflect that new belief.
There is also a jobs angle. Studies and business leaders have warned that AI could automate a large share of legal tasks, especially entry‑level, document‑heavy work.
The new plugin makes that threat feel more real. If a simple plugin can already do much of what junior lawyers do, partners worry that clients will ask why they are paying for big teams of young associates at high hourly rates.
That deepens the fear around billable hours and future hiring.
Future steps
What happens next will depend on choices by three groups: vendors, law firms, and clients.
Data and software companies will try to prove they still add value by combining trusted data, smart search, and safe AI features that are easier and safer to use than raw open-source plugins.
Law firms will test new ways to charge, such as flat fees, subscriptions, or success‑based payments that fit better with AI‑driven speed.
Corporate legal departments will keep bringing more work in‑house once they see they can do some tasks themselves with AI for a lower cost.
Conclusion
The new legal AI plugin did not break the legal world on its own.
But it gave everyone—investors, partners, and clients—a clear message about where things are heading.
AI tools that can read and write legal text at scale are now in many hands, not just in a few startups.
Stock markets responded by cutting the price of companies that look easier to replace.
Law firms reacted by worrying more openly about how long the billable hour can last in its current form.
In the short term, there will be more swings in both markets and business models. Over time, the likely outcome is not “no lawyers” but “different lawyers” and “different software.”
Firms that share the benefits of AI with clients and change how they charge will probably do better than those that try to hide AI behind ever higher hourly rates.
The shock from this one tool is a warning: legal work, legal software, and legal billing are all entering a new phase.
