Microsoft Copilot in Outlook vs a legal AI add-in: what small firms should know

It depends on what you want it to read. Microsoft's page on how Copilot Chat works in Microsoft 365 apps (as at 8 November 2026) says people with an eligible Microsoft 365 subscription, including work or school accounts, can use Copilot Chat in Outlook. Without an add-on licence it answers questions about your inbox, calendar, meetings and other limited data. With a Microsoft Copilot add-on licence, the same chat can work across your inbox, calendar, meetings, chats and wider business data.

Microsoft's Copilot in Outlook FAQ says Chat with Copilot in Outlook is only available with a work or school account. Microsoft's FAQ and Chat pages describe Chat access a little differently, and the summary and drafting pages don't say which licence those features need. Which features your staff see also depends on what your IT provider has switched on. So ask your IT provider for a one-line answer on which Copilot features each person at the firm has today, and what an add-on licence would add. Then check Microsoft's current pricing for your plan before you budget.

A legal AI add-in is a separate app, made by another company, that sits in the Outlook sidebar and is built around law firm work. Microsoft's Outlook pages describe general email jobs: summaries, drafts and meetings. They don't describe filing an email to a matter in a practice management system such as Smokeball, which is the kind of job a legal add-in is usually chosen for. Depending on the vendor, it may also suggest time entries or draft from documents your firm uploads.

Vendors differ a lot, so read each one's own pages and test it on your own mail. Most can be sorted quickly by whether it connects to the system you run matters in, and whether it prepares work for you to approve or acts on its own. For a fuller way to compare add-ins, see our guide to the best Outlook add-ins for Australian law firms, and if you use Smokeball, AI tools that work with Smokeball.

For Copilot, Microsoft's page on enterprise data protection (updated 4 November 2026) says organisational use is covered by Microsoft's Data Protection Addendum and Product Terms, with Microsoft acting as a data processor. It says prompts, responses and data accessed through Microsoft Graph are not used to train foundation models. For where data is stored, Microsoft keeps a separate page on data residency for Microsoft 365 Copilot. Ask your IT provider to read it against your own Microsoft 365 setup and tell you in writing what applies.

Microsoft's FAQ also sets out where Copilot works in Outlook. It is available on a person's primary mailbox and on shared and delegate mailboxes, but not on group mailboxes or mailboxes not hosted on Exchange Online. It cannot read emails encrypted with S/MIME or Double Key Encryption, and its features are not supported on signed or encrypted emails, emails with IRM, or some emails with sensitivity labels. If your firm encrypts client mail, check this first.

For any add-in, ask the same questions and keep the answers on file:

• Where is the app and its database hosted?
• Where is the AI processing done, and is anything kept there?
• Is our client correspondence used to train AI models?
• What happens to our data if we stop using it?

Yes. They are separate tools and both run inside Outlook. A common split is Copilot for general jobs (a summary of a long thread from a real estate agent, a meeting invite from an email chain) and the legal add-in for matter work (filing the settlement email to the right matter, recording the time, drafting the reply to the client).

Decide early which tool drafts which kind of email. If both are drafting replies to clients, staff end up comparing two drafts, which costs the time you were trying to save. If you use AI on documents filed in court, see our court AI rules tracker.

1. List the three email jobs that take most of your week, then check which tool does each one.
2. Find out which Copilot features your staff already have on your current Microsoft 365 plan.
3. Check whether the tool connects to your practice management system, or leaves filing and time to you.
4. Check that you approve every draft, filing and time entry before it happens.
5. Ask each vendor in writing where data is hosted and processed, and whether it trains AI on your mail.
6. Check it runs in the Outlook your team uses, including Mac and new Outlook.
7. Test it on one real week of mail before you sign up the whole firm.
8. Add up the monthly cost per practitioner for everything you plan to run.

No. AI Legal Toolbox is an independent Outlook add-in made in Australia for legal practices. Its AI paralegal, Nova, triages the inbox, drafts replies into your drafts folder (it has no send function), reviews contracts and documents, and with Smokeball files emails and records time after you confirm. Case names and section numbers are only given when they appear in a provided source or your firm library. It is hosted in Sydney, with AI text processing by OpenAI in the United States, not retained there. It starts with a 7 day free trial (card needed, nothing charged until day 8), then $149 AUD per practitioner per month including GST. See the facts page.

Microsoft updates Copilot features and licences regularly, so check the Microsoft pages linked above for current details. Last checked 8 November 2026.

This guide is general information, not legal advice.