Digital Revolution

Meet my lawyer, the computer

  • Why it matters

    Why it matters

    Digital technology is disrupting Germany’s legal profession, threatening jobs but creating opportunities for those who can adapt to the new landscape, such as startup legal advisers.

  • Facts

    Facts

    • Germany has around 160,000 lawyers who earn about €20 billion in fees annually.
    • “Legal tech” software programs can perform in seconds tasks that might take hundreds of thousands of man hours.
    • Many standard legal tasks such as basic contracts are already done by computers
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    Audio

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File illustration of a projection of binary code around the shadow of a man holding a laptop computer in an office in Warsaw
"Legal tech" is upending the market for legal counsel and services. Source: Reuters

Digital disruption may be no laughing matter, but Christoph Schalast, a corporate lawyer in Frankfurt, grins as he recalls his office’s uncomfortable first encounter with legal automation. “One day, a client came in the office and wanted legal advice, but he insisted our firm use artificial intelligence,” he said. The request set off a sweeping reassessment of the effects on his firm of so-called “legal tech,” a potent mix of legal services with technology.

While digitization is far advanced in sectors such as retail, the legal trade has lagged far behind. But Germany’s 160,000 lawyers are beginning to feel the pinch. Generally, legal tech refers to software programs that can reap mind-blowing efficiencies, performing in mere seconds tasks that would take human attorneys hundreds of thousands of hours to complete manually. The profit potential of such software and the many new startups employing it is huge and stands to take a big bite out of the €20 billion ($24 billion) of fees lawyers earn annually in Germany.

The first thing Mr. Schalast did was to convert his entire documentation, as well as that of 40 other lawyers, into digital files. The firm experimented with different software for lawyers, including learning programs that scan documents using search terms. The transition took a year, but greatly simplified a range of tasks, and productivity soared.

To offset a drop in lawyers’ fees, Mr. Schalast’s firm now offers legal tech solutions. That’s a big reason the firm became the majority shareholder in Hamburg-based startup Clarius Legal earlier this month. Clarius Legal offers standardized legal tech services such as document analysis and contract drafting at a set price. Meanwhile, Mr. Schalast offers individual consultation on a fee basis.

Legal tech stands to turn the legal consulting trade upside-down. The issue is not just one of computer-driven efficiency that may drive hundreds of small and middle-sized law firms out of business. It’s also about who decides over right and wrong. Should a computer dole out justice? Some critics say that should be verboten.

Stephan Breidenbach, a law professor at European University Viadrina in Frankfurt (Oder), says that digitization in the legal world – he calls it the “industrialization of law” – is already a fact of life. The basic framework of contracts, for instance, is increasingly pumped out by software programs. Previously, a lawyer would draw up each contract individually; now, legal tech programs create the building blocks of contract passages and help the lawyer to assemble them. This is the “digital assembly line,” says Dr. Breidenbach, who founded a legal tech company, Knowledge Tools. “Thinking in terms of building blocks, not documents, is a fundamental change for lawyers,” he says.

Should a computer dole out justice? Some critics say that should be verboten.

Inevitably, the digital revolution is changing business models of large law firms such as Freshfields Bruckhaus Deringer, which represents corporations such as Siemens and Volkswagen. This megatrend of digitization, says Andreas von Bonin, partner at Freshfields in Brussels, doesn’t just raise a host of legal issues. Managing huge amounts of data also demands new legal tech tools at law offices and their clients’ companies. A contingent of lawyers at Freshfields’ offices in Brussels and London are dedicated to legal tech.

“In the future, new documents will be generated automatically by databases,” Mr. von Bonin says. “For example, that could be initial drafts of standardized non-disclosure agreements, or of a new corporate financing.” In addition, the firm is working on apps that can be tailor-made for clients or specific cases. The client will be able to call up documents, say, that have been submitted to courts or other authorities worldwide, or access company data at the touch of a button.

myright legal tech, vw lawsuit
Myright makes suing Volkswagen easy. Source: Peter Steffen/dpa

The disruption runs deep. At corporate consultancies, law practices and accounting firms around the globe, computers threaten to replace droves of young, low-paid lawyers who research and comb through tens of thousands of documents. “We all need to think about how we want to earn our money in the future, and what alternative models in invoicing and business might look like,” Mr. von Bonin says.

That isn’t the case at Myright, a digital startup that provides legal advice, in particular to people affected by Volkswagen’s Dieselgate scandal. Myright trawls the internet to pool these legal cases and allows users to immediately find out whether their car is affected. These same users can then engage Myright’s legal services online. The startup has already collected over 30,000 registrations to file a class-action suit against the German carmaker.

To deal quickly with the paperwork, Myright developed a software that effectively turbo-charged the accessibility of data. “There isn’t any lawyer’s task that can’t be performed by a machine,” says Jan-Eike Andresen, one of the firm’s founders. But when it comes to specialized cases, people tend to be a better choice than computers – for now. “In the legal profession, oftentimes the margins for manual labor are still wide enough,” Mr. Andresen says. “But that will change in the next five years.”

“We all need to think about how we want to earn our money in the future.”

Andreas von Bonin, Partner at law firm Freshfields Bruckhaus Deringer

Some of the digital fallout may sound minor, but for lawyers, it amounts to a tectonic shift. For example, new internet platforms for legal consultation have radically changed how clients are acquired. Those contacts used to be made in tennis or automobile clubs, says Ulrich Schellenberg, president of the German Bar Association. But today, “what counts most is Google, and who’s listed at the top of the search results,” he says. Geographic proximity to the client “is in the process of disintegrating” in certain areas – such as the drawing up of a will or sales contract, which is increasingly done online.

Despite the warning signs, Mr. Schellenberg thinks the legal profession should be stirred, not shaken, by the challenges. “In the mid-1990s, pessimists were predicting the retail industry would disappear due to the internet,” he says. “If you go out on the street today, you still see retail stores. And that’s how it will be with lawyers.”

Retailers survived, in part, because they began offering their wares online. But the transition from purely brick-and-mortar outfits to hybrid businesses was fraught with difficulty. Lawyers are only just embarking on this path.

 

Maike Freund is an editor at Handelsblatt’s politics desk. To contact the author: freund@handelsblatt.com

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