Attorney vs. Algorithm

Legal Startups Challenge Barristers

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The legal profession, rooted in tradition, is having to move with the times in the face of digitialization. Source: Getty Images

Can software replace the work of expensive lawyers? The short answer is: yes, to some extent. Several digital startups have entered the legal market, trying to get a piece of the attractive pie called litigation.

One of the pioneers in Germany’s legal startup scene is Philipp Kadelbach, who launched Flightright seven years ago to help passengers claim compensation for delayed or canceled flights. He has since filed more than 35,000 lawsuits against airlines from his office in Potsdam. “Our business wouldn’t work without technology,” said Mr. Kadelbach.

The German bar association, which is holding its annual Laywers Day on Wednesday, is keeping close track of these and other technological advancements and follows them with curiosity, as well as skepticism, said Ulrich Schellenberg, president of the association, known under its German acronym DAV.

More than two thirds of Germans refrain from consulting an attorney in disputes due to the fear of the costs involved. Legal startups take advantage of exactly this fear.

“We are convinced that our current business model of being in direct contact with our clients is the right one for our industry. Of course, we are critical of new instruments such as internet platforms or rights generators that are trying to replace us,” he said. However, the industry needs to rethink certain aspects. “Everyday tasks of lawyers” will be done by machines in the future, Mr. Schellenberg said.

The theme of this year’s German Lawyers Day, which kicked off on Wednesday, is “Legal Tech,” as digitalization is making its way into the legal profession. It’s the first time in the conference’s history that legal startups have been invited.

There are around 100 legal tech startups in Germany and many of those not only provide their software directly to consumers but also to law practices to help them speed up their processes.

The German bar association’s president, however, does not believe that technology will replace lawyers anytime soon. Instead, he said it will free up lawyers to focus on their core competencies, which is finding creative solutions for the individual case of their clients.

“We will also be able to provide legal advice in areas where we see the withdrawal of legal institutions,” he said. “In Mecklenburg-Vorpommern (a state in northern Germany), we see court closures. This will result in law firms moving away. … The internet provides an opportunity to expand legal access.”

Startups such as Flightright are currently not replacing lawyers but provide them with additional work because they take on cases that previously didn’t even end up in court. More than two-thirds of Germans refrain from consulting an attorney in disputes due to the fear of the costs involved, according to a Forsa survey.

Legal startups take advantage of exactly this fear. Their services are usually free of charge, but should they win the case, they charge about a quarter or a third of the disputed amount. The reason that many people still take advantage of those services is that without their help they wouldn’t get anything.

“Technology offers a new access to law,” said Markus Hartung, who looks at changes within the industry at the Bucerius Law School. In any area, where claims can be standardized, technology will change the work of lawyers. “What used to be formulated by lawyers can now be assembled by text blocks based on an algorithm.”

Helpcheck, a Düsseldorf-based startup, is a different example where digital tools help customers in their fight against large corporations. The business collects a large number of similar cases to put pressure on companies and force them into settling the claims of angry customers. In Germany, unlike the United States, there is no such thing as a class-action lawsuit in consumer law.

Three entrepreneurs, including a lawyer, launched Myright in the summer of 2016 to get compensation for European owners of manipulated VW diesel cars. In Europe, VW has not agreed a deal with diesel drivers, whereas in the US, affected car owners can get up to $10,000 in compensation and are able to sell their vehicle back to VW.

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The German bar association’s president, Mr Schellenberg, said that the industry has to take a hard look to figure out where new technologies can provide an advantage, what they could do to make workflows more efficient and what new business segments could be created by them.

“For example, in the future, the due diligence process when buying company shares will not require an armada of industry experts anymore,” Mr. Schellenberg said.

These changes will lead to financial losses as clients won’t pay the same high hourly rates for an automated process. But on the other hand, it will also open new business opportunities, especially in the area of low-cost services.

One development threatening all business areas, is the risk of cyber attacks, which could also target the country’s largest law firms. “Cyberattacks are a threat that has been completely underestimated,” Mr. Schellenberg said.

The legal profession has to make sure it is doing everything it can to protect itself against attacks. “It’s an extraordinary challenge to protect the data of our clients in the wake of digitalization.”

The lawyer’s comments come on the heels of a global “ransomware” cyberattack, which recently shut down more than 230,000 computers in 150 countries. In Germany, the virus, dubbed “WannaCry,” affected arrival and departure screens as well as ticket machines at numerous train stations of Deutsche Bahn.

According to figures from insurer Allianz, only four to five thousand of Germany’s 3.6 million companies have taken out policies to cover the growing risk. “The recent cyberattacks will certainly contribute to raising awareness of the threat,” said Torsten Jeworrek, who serves on the management board of reinsurer Munich Re.

 

Heike Anger is an editor for economics and politics at Handelsblatt and Handelsblatt Online. Oliver Voss is an editor with business weekly WirtschaftsWoche, a sister publication of Handelsblatt. Hans-Jürgen Mai from Handelsblatt Global contributed to this article. To contact the authors: anger@handelsblatt.com and oliver.voss@wiwo.de

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