Not So Trivial: Blue J Legal Harnesses IBM’s Watson for Tax Law

Alex Redinger (2L)

Ken Jennings, the Jeopardy! contestant with the longest winning streak in the television show’s history, famously lost to IBM’s Watson computer system in 2011. He described the machine’s method for answering questions like so:

“[It] zeroes in on key words…then combs its memory (in Watson’s case, a 15-terabyte data bank of human knowledge) for clusters of associations with those words. It rigorously checks the top hits against all the contextual information it can muster…[and] when it feels “sure” enough, it decides to .”

This process might seem similar to the fundamentals of legal research: Professor Benjamin Alarie evidently thought so. Alarie was first exposed to Watson by participating in the vetting process for U of T’s submission in an IBM computer science competition meant to explore potential commercial applications for the computer system. According to Alarie, “[his] thinking was that if Watson can beat the best human champs at Jeopardy! [then] perhaps it can be hammered into a tool that can help with tax law.”

Alarie founded Blue J Legal, which is jointly owned by himself and his fellow co-founders: Professor Anthony Niblett, Professor Albert Yoon, and former IBM employee Brett Janssen (U of T retains a minority non-voting interest, and Blue J is a client of IBM). Blue J Legal has also received assistance from JD/MBA students participating in the Creative Destructive Lab at the Rotman School of Management, including Claudia Dzierbicki, Joe McGrade, and Chad Cogar. The team at Blue J is developing a tool which uses Watson to answer tax law questions. Incidentally Watson is not the only Jeopardy! winner at Blue J Legal, since Niblett has also won on the television show.

Blue J Legal intends to use Watson “to provide an independent complement to the professional judgment of tax accountants and lawyers.” As Alarie explained to me, “Blue J is a tool that is best used (for now) by professionals who know what they don’t know and understand the context in which the tax questions arise. The results are best for tax professionals who can interpret and apply the results. An analogy might be to medical testing, where lab results get sent to your medical professional for interpretation and advice.” Thus Blue J will function as a tool for tax accountants “not good at grappling with the gray areas in law,” and will be “totally complementary to lawyers” (Alarie foresees its use for questions which it is “not practical to retain a lawyer for”).

Tax professionals who input searches into Blue J will have their inquiries positioned with the “cloud of questions” answered by the law. The example he provided for me was for tax law questions related to Uber – a Blue J search on the topic would presumably yield analogous answers as determined for taxis. In these gray areas of law, Blue J thus “can help [tax professionals] see why there is disagreement on an issue, and investigate further, [facilitating] conversations for settling disputes.” As Alarie explained, Blue J is mutually beneficial for taxpayers to “plan with a view to complying” and for the government to “avoid overstepping,” hence expediting dispute resolution, “[making tax] law more predictable and reliable” and resulting in a “more effective tax system.”

Currently, Blue J is undergoing beta tests with three of the Big Four accounting firms, and training its system to handle the following legal issues: “(1) the distinction between workers who are employees and those who are independent contractors; (2) the classification of individuals as residents or non-residents for tax purposes; (3) the distinction between transactions yielding capital gains and income; and (4) the distinction between capital expenditures and current expenses.” However, Alarie does not envision this capacity as Blue J’s endpoint. He anticipates “[definitely] expanding beyond tax eventually,” and “[building] out the capacity to address many more issues in the future,” remaining “responsive to [their] users’ needs.”

The immense potential of Blue J to increase the capacity of individuals to perform legal research, in conjunction with comparable developments in the legal industry, might bring an attendant concern about the risk of job loss. When I raised this issue with Alarie, he responded that “[he sees] technology as being very positive for access to justice and as complementing rather than substituting for lawyers […] [allowing] lawyers to spend more time on more difficult issues since [the] facilitating technologies will bring more clarity to the law.” Evidence seems to support this position: for instance, The Atlantic reported last month that while electronic software for legal discovery has become a multibillion dollar business since the late 1990s, the US job market for paralegals and legal assistants has still grown faster than the labour market there as a whole. The rationale for this counterintuitive trend is that as the cost for legal services decreases, more prospective clients can afford legal services and judges can allow more expansive discovery requests.

The legal profession has struggled with providing adequate access to justice, so much so that Justice Karakatsanis, in the 2014 Supreme Court decision for Hryniak v Mauldin, described it as the “greatest challenge to the rule of law in Canada today.” Therefore, tools such as Blue J could prove instrumental to ultimately broadening the availability of legal services. Alarie also mentioned to me that Blue J Legal is itself hiring between 5-8 law students for the summer – he emphasized that it is a “privilege” to hire from among our ranks, indicating that it is “mutually beneficial” as the hired students will be “working with three law professors on something very practical, but still legal research.” By way of comparison, the Bay Street firms with the most 1L summer students in 2015 hired 4-5 U of T 1Ls (depending on whether you include JD/MBA students), and 9 1Ls overall from all law schools. Ultimately, the erosion of traditional legal employment reduces certainty but also creates new opportunities, and Blue J Legal is a promising manifestation of this dynamic.