A US federal appeals court has ruled that a law firm’s use of artificial intelligence in a trade secrets lawsuit does not, by itself, justify reducing its legal fee award, rejecting an argument that AI-assisted work should have lowered the amount charged to the opposing party.
The Denver-based 10th US Circuit Court of Appeals upheld a lower court’s decision awarding $115,000 in legal fees to Brownstein Hyatt Farber Schreck, which represented the defendants in the dispute. The three-judge panel said the plaintiffs had failed to demonstrate that the firm’s use of AI made the hours billed unreasonable.
“Plaintiffs have not shown that defense counsel’s use of AI rendered the hours that they actually expended unreasonable,” Circuit Judge Carolyn McHugh wrote in the ruling on Friday.
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The appeals court also upheld the dismissal of the underlying lawsuit, leaving intact the lower court’s decision that Flux Drive Inc. must pay the defendants’ legal fees.
The ruling addresses an emerging question for the legal industry as law firms increasingly deploy AI tools for research, document review and drafting: it borders on the question of whether efficiency gains from the technology should automatically translate into lower legal bills.
The court acknowledged that AI and other research tools can make lawyers more efficient. However, it did not accept that the use of such technology alone established that the firm’s billed hours were excessive. The central issue was whether the time actually recorded and charged was reasonable, rather than whether AI had been used during the work.
The judges also emphasized that lawyers remain professionally responsible for the accuracy of their legal arguments and supporting authorities, regardless of the tools used to prepare them. Attorneys must verify legal authorities and arguments generated or assisted by AI before submitting them to a court.
The case arose from a lawsuit filed in 2024 by Flux Drive, an industrial motor-efficiency equipment maker. The company alleged that one of its former engineers had helped steal proprietary information and transfer it to a Chinese manufacturer.
A lower court dismissed the lawsuit and ordered Flux Drive to pay the defendants’ legal fees. The company subsequently challenged the $115,000 award, raising several objections to the billing records submitted by Brownstein Hyatt.
Among its arguments, Flux Drive questioned charges for what it described as “ministerial tasks” and maintained that the defense lawyers’ use of AI should have reduced the time required to complete their work.
The company’s position raised a broader issue about how legal services should be priced as technology reduces the time needed for some traditionally labor-intensive tasks. If AI can accelerate legal research, drafting, and document analysis, clients may increasingly question whether they should continue paying for the same number of billable hours.
The defendants rejected Flux Drive’s arguments, saying the lawyers had verified every element of legal research involving AI. They also argued that the company had failed to identify specific entries that were inflated, duplicated, or otherwise unreasonable.
In their submissions, the defendants said Flux Drive “does not identify a single inflated time entry, a single redundant task, or a single unreasonable charge.”
The appeals court upheld the lower judge’s assessment that the billing records supported the fee award. Its decision does not establish that AI-assisted legal work can never justify lower fees. Rather, it indicates that a party challenging an award must show that the hours or charges were unreasonable, instead of relying solely on the fact that lawyers used AI.
Brownstein Hyatt partner Christopher Ottele, who represented the defendants, welcomed the ruling.
“AI is a powerful tool that sophisticated firms must embrace,” Ottele said. “This decision confirms that the use of AI is not a substitute for the judgment and analysis that attorneys still must exercise in every filing with the court.”
Implications for Law Firms and Clients
The ruling comes as law firms face growing pressure to explain how AI affects the cost and delivery of legal services. Tools that assist with research, drafting, and reviewing large volumes of documents can reduce the time required for certain assignments, but they do not eliminate the need for lawyers to assess evidence, interpret the law, and take responsibility for court submissions.
That is becoming an integral part of the billable-hour model, under which clients are generally charged according to the time lawyers and other professionals spend on a matter. As AI reduces the time required for some tasks, clients may seek greater transparency over whether efficiency gains are reflected in invoices.
For law firms, the ruling offers support for the position that AI use does not automatically make recorded legal hours unreasonable. But it also reinforces that lawyers cannot transfer professional responsibility to software. AI-generated legal research and arguments still require human verification, particularly where inaccurate authorities or unsupported claims could undermine a court filing.
The decision in Flux Drive Inc. v. Qiang Rong, No. 25-1308, therefore leaves the broader debate over AI and legal fees unresolved. It establishes that the technology’s use alone is insufficient to invalidate a fee award, while keeping the reasonableness of the actual work and charges at the center of the assessment.