Something big happened this week. Anthropic, the company behind Claude AI, released a legal plugin. Within hours, billions of dollars evaporated from legal tech stocks.

This is not hype. This is a real shift in how AI companies are approaching the legal industry. And if you run a small firm, you need to understand what just happened.

What Anthropic Actually Released

On February 2, 2026, Anthropic launched a legal plugin for Claude Cowork. This is not a chatbot that answers legal questions. It is a workflow tool built for in-house legal teams.

The plugin handles specific tasks that lawyers do every day. Contract review. NDA triage. Compliance checks. Legal briefings. These are the bread-and-butter tasks that eat up hours of associate time at big firms and solo practitioners alike.

Here is what the plugin can do:

Contract Review — Upload a contract and the plugin reviews it clause by clause. It flags risks using a simple GREEN/YELLOW/RED system. It generates specific redline suggestions based on your negotiation playbook.

NDA Triage — Drop in an NDA and get instant categorization. Standard approval? Send it through. Needs counsel review? Flagged. Full review required? Escalated. This alone could save hours per week for firms that handle volume.

Compliance Tracking — The plugin can check vendor agreements and generate contextual briefings. Daily briefs, topic research, incident response. All templated to your specifications.

The key detail: it is configurable to your firm's own playbook and risk tolerances. You are not locked into someone else's definition of "acceptable risk."

Why Wall Street Panicked

The market reaction was immediate and severe.

A Goldman Sachs basket of US software stocks dropped 6% on Tuesday. That was the biggest single-day decline since April's tariff selloff. But the damage was concentrated in legal tech and data services.

RELX, the parent company of LexisNexis, dropped as much as 17%. That erased over £6 billion in market value in a single day. Thomson Reuters fell as much as 17%, marking its largest intraday decrease ever. Wolters Kluwer dropped 12.7%. LegalZoom fell more than 19% during regular trading.

The London Stock Exchange Group fell 8.5%. Pearson dropped 4%. The selling spread beyond legal software into EPAM Systems (down 15%), Intuit (down 12%), and Equifax (down more than 10%). PayPal also dropped sharply, though its decline was compounded by separate news about poor Q4 earnings and its CEO's departure.

According to Jefferies, software sentiment is now "the worst ever." Bloomberg Intelligence called the sector "radioactive."

So what triggered this panic?

The Real Threat to Incumbents

For the first time, a foundation model company is packaging a legal workflow product directly into its platform. Anthropic is not selling an API to legal tech vendors. It is competing with them.

This is different from what we have seen before. Companies like Harvey and Casetext built legal AI tools on top of foundation models. They added legal-specific training, curated datasets, and specialized interfaces. They sold to law firms.

Anthropic just cut out the middleman for basic workflows.

The plugin is available now in research preview to all paid Claude users. Professional, Team, or Enterprise plans. It is open source on GitHub. Any firm can install it and start using it today.

The real threat is not to BigLaw. They have the resources to evaluate, customize, and integrate whatever tools they want. The threat is to legal tech companies selling commoditized AI skills.

Why would a firm pay $500 per month for a contract review tool when Claude can do it as part of a $20 subscription?

What This Means for Small Firms

Here is where it gets interesting for the 1-20 lawyer firms we work with.

The cost barrier just dropped. Tools that required enterprise contracts or per-seat licensing are now baked into a general-purpose AI subscription. If you are already paying for Claude, you have access to contract review, NDA triage, and compliance workflows.

The learning curve is lower. These are not standalone products with their own interfaces. They are commands within Claude. If you know how to use Claude, you know how to use the legal plugin.

Customization is built in. You can configure the plugin to your firm's playbooks. Your risk tolerances. Your standard terms. This is not a one-size-fits-all tool.

But there are caveats.

Anthropic explicitly frames this as assistance, not advice. Outputs should be reviewed by licensed attorneys. This is not a replacement for legal judgment. It is a tool that handles the tedious parts so you can focus on the work that requires actual expertise.

The Incumbents Still Have Advantages

The legal tech companies that got hammered this week are not going away. They have something Anthropic cannot easily replicate: proprietary datasets and subject-matter expertise.

LexisNexis has decades of case law, statutes, and secondary sources. Thomson Reuters has Westlaw. These are not datasets you can scrape from the internet. They are curated, annotated, and continuously updated by legal experts.

For research-heavy work, the incumbents still have the edge. The Claude legal plugin does not give you access to Westlaw's headnotes or LexisNexis's Shepard's Citations.

The real risk is for vendors selling commoditized skills. Basic contract review. Simple compliance checks. Document summarization. These are exactly the tasks that foundation models can now handle directly.

What Happens Next

The legal AI market is splitting into two tiers.

Tier 1: Commodity workflows. Contract review, NDA triage, document summarization, basic compliance. Foundation models will handle these directly. Prices will collapse. Standalone tools for these tasks will struggle to justify their pricing.

Tier 2: Specialized intelligence. Legal research requiring curated datasets. Complex litigation support. Regulatory analysis with domain expertise. These still require specialized tools and human oversight. Incumbents will focus here.

For small firms, this is mostly good news. The tools that used to cost thousands per month are becoming commodities. Access is democratizing.

The firms that win will be the ones that adopt these tools early. Not to replace lawyers, but to handle the administrative burden that eats into billable time.

The Bottom Line

Anthropic just made a move that nobody in legal tech expected. They packaged real legal workflows into their consumer product. The market reaction tells you everything about how seriously incumbents are taking this threat.

For small firms, this is an opportunity. The cost of AI-powered contract review just dropped to the price of a Claude subscription. The barrier to entry for legal automation just got a lot lower.

The question is not whether to pay attention. The question is how quickly you can integrate these tools into your practice.

Sources:

Anthropic Just Entered Legal Tech — Here's What Small Firms Need to Know