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Senior partners at global law firm Freshfields are exploring plans to turn their in-house artificial intelligence division into a separate technology company, in a move that could change how major law firms make money from AI.
The proposed spin-off of Freshfields Lab could attract outside investors and eventually lead to an initial public offering (IPO). Partners have discussed the possibility of creating a business worth billions of dollars, according to internal emails first reported by the Financial Times.
The discussions involve Freshfields global managing partner Alan Mason and Ethan Klingsberg, co-head of the firm’s US corporate and mergers and acquisitions practice.
The plans became public after Mason accidentally forwarded the email exchange to a large internal distribution list. Although the message was recalled, some employees had already taken screenshots.
The proposal remains at an early stage, and there is no guarantee it will proceed. Freshfields has not announced a formal spin-off or confirmed a valuation.
However, the discussions raise a wider question for the legal industry. As law firms invest more heavily in AI, could the technology they develop become a business in its own right?
For decades, large law firms have generated most of their income by charging clients for legal advice. A successful AI company could offer a different source of revenue, with software sold to corporate legal departments and other law firms.
Why legal AI valuations are attracting law firm investment
The financial appeal of legal AI has grown as specialist technology companies have attracted major investment.
In September 2026, legal AI company Harvey raised $550 million in a funding round that valued the business at $15.5 billion. Rival Legora reached a valuation of $5.6 billion in April following another investment round.
These valuations help explain the interest at Freshfields.
In the leaked correspondence, Mason suggested that legal technology companies were being valued at between 25 and 40 times their annual revenue. Klingsberg reportedly believed a separate Freshfields AI business could be worth billions.
However, these figures are based on the valuations of specialist technology companies. They do not establish what investors would pay for Freshfields Lab.
A major difference is that companies such as Harvey and Legora have been built around selling software to external customers. Freshfields Lab was developed within an established law firm, where its tools support legal work and client services.
Freshfields would therefore need to show that its technology can attract customers beyond its existing business.
The firm has already made significant investments in AI.
In April 2026, Freshfields announced a multiyear partnership with Anthropic, the company behind Claude, to develop legal AI workflows and expand the use of the technology across its operations.
Freshfields said it had provided access to Claude to 5,700 employees through its internal AI platform. The partnership also covers the development of tools that could help lawyers complete complex legal tasks.
Freshfields Lab develops technology for work such as document analysis, due diligence and litigation management. These are areas where law firms and corporate legal departments spend considerable time and money.
Selling such tools to other organizations could create a new source of recurring revenue.
For Freshfields, the commercial opportunity may lie in its knowledge of how lawyers work. Large law firms understand the demands of complex transactions and disputes, which could help them develop software suited to legal practice.
Yet that experience alone will not guarantee success. A standalone business would need to compete on product quality, price, reliability and customer support.
Turning law firms into technology companies brings new risks
Separating an AI division from a law firm would involve more than creating a new corporate structure.
Freshfields would need to establish how the new business would operate, who would own its technology and how its relationship with the law firm would work.
Outside investment could provide funding for product development, recruitment and expansion. It could also create pressure to generate revenue and grow at a pace that differs from the priorities of a traditional legal partnership.
The new company would face direct competition from established legal technology providers, including businesses with substantial financial backing and dedicated software development teams.
There would also be questions about client confidentiality and data protection.
Law firms handle sensitive information relating to transactions, disputes and commercial negotiations. Any technology sold to outside customers would need suitable safeguards, particularly where AI systems process confidential documents or client data.
Freshfields would also need to decide whether it could sell its software to competing law firms. While those firms might represent valuable customers, commercial relationships could become more complex if Freshfields continued to own or influence the technology business.
The potential effect on legal fees is another important consideration.
AI can help lawyers complete some tasks faster, including reviewing documents and analyzing large amounts of information. This may put pressure on billing models that depend on the number of hours worked.
A separate technology business could allow a law firm to earn income through software subscriptions or licensing agreements, rather than relying entirely on legal fees.
However, that would introduce new costs and risks.
Software businesses require continuing investment in engineering, cybersecurity, sales and customer support. They must also keep their products up to date as underlying AI models improve and customer needs change.
There is no guarantee that a technology business developed inside a law firm would achieve the same growth or valuation as a specialist software company.
The wider industry is still working out how to measure the financial returns from AI adoption.
A recent PwC survey of UK law firms, reported by the Financial Times, found that around two-thirds had adopted AI, but only 8% reported financial gains. The findings suggest that widespread adoption has yet to produce clear financial benefits for many firms.
That gap between investment and returns matters when assessing the Freshfields proposal.
For now, the firm’s plans remain preliminary. But the discussions show that some senior law firm leaders are considering a more ambitious commercial role for the technology they develop.
The real test will be whether Freshfields can turn its internal AI capabilities into products that other organizations are willing to buy.
If it succeeds, the move could offer a new business model for major law firms. If it does not, the costs and competitive pressures of running a technology company could outweigh the potential rewards.
Source:
Legal Cheek
