Legal Tech and Comparative Legal Reform in Germany

by Shubha Ghosh, Crandall Melvin Professor of Law and Driector, IP and Technology Commercialization Law Program

Continued research in the legal tech environment in Germany brought me to several innovative changes in the tech and legal professions landscape. Just as the emerging applications are fun to learn about, so the legal challenges are vexing.

FlightRight is one application that allows for consumers to vindicate their legal rights when law firms may find it difficult to provide representation. German law provides compensation for passengers from airlines when there are extended flight delays due to the weather. Compensation tends to be in the range of several hundred euros per passenger and is not available if the delay was due to force majeure. Unfortunately German law firms do not find it profitable to represent clients seeking vindication of their rights, especially as the class action mechanism does not exist in Germany. Injured passengers must vindicate their own rights. While some are successful, often the airlines deny compensation, claiming force majeure such as weather. As weather data and other technical information relating to flight travel may not be readily accessible, airlines often prevail. FlightRight, an app based company, obtains the right to pursue claims for passengers with the advantage that the company has access to the relevant data. The application effectively allows for claims aggregation and a challenge to the superior information of the airlines.

Does FlightRight interfere with the practice of the law? German bar councils and legislatures are debating this question. Legal services have to be provided through a law firm under German regulation. So is FlightRight providing a legal service or is it just another plaintiff with standing, deriving its rights from passengers? Adding to the complication, FlightRight’s business model is based on the success-fee: the passenger does not pay unless the claims are successful. German law does not allow law firms to enter into contingency fee arrangements. Outside the field of law, Uber is restricted in Germany in part because of the strength of taxi companies and in part because of the company’s publicly aggressive stance, flaunting relevant regulation. AirBnB, while subject to regulations, has been more successful in entering the German market. FlightRight, by contrast, has fallen under the radar of legal profession regulators while demonstrating success in the consumer market.

Other apps are also stradding the lines set by regulations. MyRight arose in light of the prosecution of a decades long cartel among truck manufacturers. Under European and German laws, purchasers of the overpriced trucks can receive compensation for their overpayments. Small business purchasers, however, find it difficult to vindicate their claims. Enter MyRight, an app based company, that aggregates claims and relevant data to pursue judgments on a success-fee basis. Unlike FlightRight, MyRight has successfully pursued venture capital financing as it seeks to expand its scope. German law does not allow law firms to seek external financing. This law may pose a problem for MyRight if it functions as a law firm. Another venture emerged in the shadow of the Volkswagen fraud regarding compliance with regulatory standards for diesel. Consumer claims accummulated as the fraud allegations came to light, and German law firms satisfied the demand despite the costliness in document preparation and document review required for these million claims. Litigation support companies emerged and were engaged by law firms to process the flood of documents. Is this unauthorized practice of law? German law firms developed creative business structures and contracts to allow outside firms to provide legal services under the law firm’s aegis. As many of these litigation support firms use legal tech, these structures may provide models for how legal tech and legal tech companies can be integrated into traditional law firm practice, presuming the regulations allow for it.

Dr. Philipp Plog, a partner with FieldFisher in Hamburg offers some valuable insights on legal tech and the legal profession. Futzure blog posts will engage with these ideas, especially as I delve into the issues of legal tech and risk management, which is the principal subject of my current research. Here, just some brief comparative comments to conclude.

The United Kingdom and Australia have relaxed their regulations on law firm management and the unauthorized practice of law. Perhaps Germany will follow this model. These issues take on a different flavor in the United States, in part because we allow class action and other claim aggregation mechanisms, in part because we have fewer statutory rights protecting consumers analogous to the passenger protection legislation in Germany, and in part because many law firms have incorporated legal tech in their practice already. Legal tech in the United States is nonetheless disruptive for the legal profession. Law oriented apps can aid pro se clients, obviating the need for law firms and licensed attorneys in some instances. For apps adopted or developed by law firms, delegation of decision-making may raise questions about unauthorized practice of law or at the minimum issues of legal malpractice. Furthermore, as apps expand their domain beyond legal questions to assess questions of business risk, the problem of legal malpractice may potentially be a broader issue. As with other technological development in the United States, insurance markets, especially as they operate through tort law, will shape implementation and use of legal tech. As in Germany, legal professional regulation may do little to forestall the progression of legal tech, but certainly will shape what the tech landscape will look like on our smart devices and in society.

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