LegalTech On Trial – Regional German Bar ‘Wins Ban’ On Contract Platforms

The Hanseatic Bar Association in Hamburg appears to have won a court battle that effectively prevents contract platforms from offering their services to clients without lawyers directly involved. The action was brought by the Hanseatic Bar against a consumer legal platform called Smartlaw.de – which is owned by the massive legal publisher and tech company, Wolters Kluwer.

The case has caused shockwaves in some parts of the German legal community, with several experts telling Artificial Lawyer the potential ban raised serious questions about legal tech regulation in Europe’s largest economy.

The Bar claims that tech-based platforms like this cannot provide sufficient legal certainty for a client as they rely on an automated Q&A expert system to fill in a contract or other legal document template. In short, unless you have lawyers involved in contract creation then it should not be allowed, they say. 

The full written judgment of the regional court has not yet been made public, but in theory, this could potentially prevent companies such as RocketLawyer, LegalZoom, as well as others that use an expert system to complete contracts without a lawyer, from operating in the region.

At the same time, there is an ongoing case in Berlin, also brought by a local Bar, against a tech-based company that helps residents fight against unfair rent, (see more below).

With two cases now made against legal tech platforms in Germany, it’s fair to say that not all German lawyers are embracing the idea that technology can help improve legal services for society, especially when they are cut out of the process. It’s a position that many other lawyers across the world will no doubt empathise with.

In relation to the case in Hamburg, on winning their case against Smartlaw, the Bar published a press release (in German) claiming that what the company did was ‘an inadmissible legal service and therefore a violation of the Legal Services Act (RDG)’. 

It went on to say that a core reason for their case was ‘the protection of the legal profession from unqualified competitors’. 

Perhaps most importantly for legal tech companies is this part of their statement, which in effect says that digital contract systems are incapable of offering a reliable legal document on their own.

When drafting legally secure … contracts, it is usually necessary to clarify the relevant facts in cooperation with the client…. This can not be provided by a computer that asks different questions about the desired contract design in a question and answer system and then delivers a contract that has been compiled considering the answers,’ they said. 

The Bar also pointed out that there was a pricing aspect, with the tech platform offering services at a very low cost compared to regular lawyers.

Smartlaw.de – operated by Wolters Kluwer in Germany.

So, the end conclusion for them is: ‘Such a contract generator should not be operated by companies that are not admitted to the legal profession or otherwise legitimised under the RDG.’

Artificial Lawyer asked several German legal experts what their thoughts and feelings were about the case.

Nico Kuhlmann, an associate at Hogan Lovells and a regular commentator on legal tech, said: ‘From a legal standpoint, the argumentation of the court is probably justifiable. But there are good arguments for the other side as well. At the end of the day, the real question is not if the District Court is right or if the ruling will be overturned in the appeal, but if the German Legal Service Act (the RDG) is still up to the job?’

Dirk Hartung, Executive Director Legal Technology, Bucerius Law School, said: ‘The first instance decision by the regional court of Cologne is controversial.

‘While the case rests on legal technicalities and mixes competition law and unauthorized practice of law questions, the general direction is troublesome.

‘The German Legal Services Act is primarily intended as consumer protection. Instead of achieving this goal, the court does responsible consumers a disservice and hinders innovation and access to justice to protect an outdated monopoly.

To me, it seems rather naive to believe that the users do not understand how this combination of an expert system and a document generation solution on the basis of template document works. Rather, the users are simply happy with an affordable solution in sufficient quality. However, as the defendant can still appeal the decision, there is a good chance that this worrying course will be corrected.’

And, Markus Hartung, the well-known legal tech expert, (no relation to the above) and at the Bucerius Center on the Legal Profession, told Artificial Lawyer: ‘This is today‘s conflict which is dealt with by yesterday‘s regulation. Access to justice and consumer protection require lawyers and non-lawyer legal services, not a guild-like monopoly from past centuries.’

And, Tom Braegelmann, another well-known German legal tech commentator and lawyer, told this site: ‘The decision comes at a crucial time, when the German Government and Parliament are debating whether to grant more leeway for legal tech or restrict it further.

‘Moreover, there is currently another case in this regard pending at the highest German civil court, that might further restrict legal tech or open it up in Germany: the Berlin Bar association is suing wenigermiete.de (a start-up for lowering your rent).’

Interestingly, the initial case against the rent lowering app was lost, as the court ruled, among other reasons, that it was fair competition. However, this month it has now gone to appeal, so the local Bar could still win.

And, when you look at how the company explains itself, it does seem rather hard to object to its offering, given that it appears to offer a lot of human legal input as well, and is not just an isolated tech platform, and they say they ‘operate under the German Legal Services Act’.

‘We’re an innovative Legal Tech company that uses modern technology, backed by experienced lawyers and IT experts, to handle cases quickly, efficiently and in a customer-friendly manner. All you have to do is fill out our online questionnaire, send us contract information and we’ll do the rest. We enforce legal claims against landlords on your behalf.

‘A legal service provider, we operate under the German Legal Services Act with the supervision of the Berlin Supreme Court. If claims come to court, we will cover the costs and provide you with one of our contract lawyers at our expense. Our wenigermiete.de promise: you only pay if we’re successful. You can find clear information about our service fees here.’  – Source: company site.

Artificial Lawyer also asked for a comment from Wolters Kluwer, but has not yet received one.

Here is what all the fuss is about, check out the video below. It’s in German, but you’ll get the gist. It’s very similar to a host of other platforms offering you contracts without necessarily having to involve a lawyer.

What do you think? Is this reasonable, i.e. people cannot be trusted to make contracts with expert systems without a qualified lawyer sitting with them? Or, is this just protectionism dressed up as concern for the clients? Or perhaps a bit of both?

Either way, as the experts above noted, this and the other case look likely to test the boundaries of what is acceptable in Germany in terms of legal technology.

It’s also interesting that this comes not long after the French judge data ban – in what is another move against legal tech’s capabilities.

3 Comments

  1. Translation of the press release
    “Dear colleagues,
    the district court of Cologne (file reference 33 O 35/19) announced on 08.10.2019 a judgment in favour of the evaluation of legal-tech offers to end-users (ie not to the legal profession). The district court Cologne judges therein the “smartlaw” offer of a renowned publishing house, lawyers to deliver “legal documents in Attorney quality” by computer, as inadmissible legal service and therefore as offense against the legal services law (RDG). The action was brought by the Hanseatic Bar Association of Hamburg, which pursues the protection of lawyers against unqualified legal services and, of course, the protection of the legal profession from unqualified competitors.
    In legal literature and in politics it is controversial whether and when Legal Tech contract generators violate the RDG. The Hanseatic Bar Association saw in the offer “smartlaw” of this provider, the prototype of a product that violates the RDG: the customers receive services for a relatively small amount of money, which the contract generator simply cannot offer; nevertheless, is the service depicted in the advertising as a (better and cheaper) alternative to legal advice by a lawyer.
    There is a good reason that the RDG reserves the right to an “activity in specific foreign affairs as soon as it requires a legal examination of the individual case”. Such a case-by-case legal examination is particularly needed when compiling contract rights and obligations in the framework of contracts to be concluded. When drafting legally secure and interest-based contracts, it is usually necessary to clarify the relevant facts in cooperation with the client and to check whether the questions posed by the client on the drafting of the contract really exhaust the facts. This cannot be provided by a computer that asks different questions about the desired contract design in a question and answer system and then delivers a contract that has been compiled considering the answers. In fact, he cannot question the value and the truthfulness of the user’s answers, nor is he able to judge whether questions offered in the interest of the user are currently unanswered. It was indisputable in this case that the computer does not have “artificial intelligence” for this product, whatever that may be.
    Therefore – as the district court of Cologne now ruled – such a “contract generator” should not be operated by companies that are not admitted to the legal profession or otherwise legitimized under the RDG. This applies even if the company writes in the terms and conditions, it does not provide legal advice, but (only) a publishing product; because the clientele does not understand that they only put together their own contract on the basis of sample collections.
    The judgment of the district court of Cologne has further prohibited that the company states in the advertisement of the contract generator that it is a “legally compliant contracts in Attorney quality” or “more individual and secure than any template and cheaper than a lawyer”. Because this indicates that you get comparable legal service quality as in the legal profession, which is just not right and considered misleading.
    The Hanseatic(Hamburg) Bar Association very much welcomes this verdict and hopes that several other non-legal providers of Legal-Tech, which suggest legal services that seem to substitute lawyers, will follow suit. In the view of the Hanseatic Bar Association, it cannot address the fact that the legal profession as a legal service provider providing legally qualified individual advice is subject to legal restrictions such as the self-evident prohibition of conflicting interests, prohibition of borrowing and liability for deficiencies in consulting along with compulsory liability insurance, but not so legally qualified Companies are not subject to these restrictions and then give the impression that they would offer comparable activity faster and cheaper with legal advice. This is also not in the interest of the users of such offers, because they expect due to the advertising, a qualified advice as the lawyer, but then they do not get”

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