Is France becoming the vanguard of civil law LegalTech?
Since the middle of the 2010s, France has witnessed a boom in startups addressing legal issues. According to a recent study, they now account for almost 30% of the total number of LegalTechs globally. [1] Although a large portion of this number is composed of small-sized initiatives and service innovations, several “champions” have raised significant amounts in recent years. Most notably, these figures reflect the liberalization of the legal sector and the adoption of the technology by legal professionals themselves.
What civil law owes to the French and could their LegalTechs benefit
Law, the unsuspected weapon of imperialism
In 1804, Napoleon imposed the Civil Code on France and its dominions, a bold attempt to compile every single rule applicable to citizens, from family, contracts, tort or business law.
Originally a tool to regulate and centralize a patchwork of local customs, it then translated into a soft power instrument of a growing empire, first being applied in continental Europe and later in western Africa and Indo-China. It was also a major source of inspiration in modernizing countries such as Japan or Mexico. [2] Today, the French legal system is still regarded as an influence in several jurisdictions, due to this shared history and bilateral relations maintained since then, e.g. by the Paris Bar. [3]
Peculiarities of the civil law markets
As opposed to common law jurisdictions, which have known a semi-centralized legal system until recently (and still do for some of them [4]), civil law countries have each followed their own path, influenced by wars, history and politics. Even though similarities can be found, the organization of courts, the precedence system, the rules applicable to legal professions, their training and career paths all differ, which leads to hyper fragmentation of civil law markets. As a natural result, few countries have witnessed the emergence of a domestic LegalTech market, and most of them see a negligible penetration of US-based giants, often ill-suited to their peculiar needs. France, together with other western European nations has, however, experienced a real boom in the sector lately, due to several factors: a sufficiently large domestic market [5], a tradition of rule of law and of state intervention [6], and a fertile tech ecosystem.
Hurdles to profitability and the bait of international development
Although the wide range of services covered and the high number of actors may make it resemble a gold rush fed by technology and the global push towards digitalization, French startups in the legal sector face multiple challenges. Despite a mostly favorable legal framework [7] and active support for digital transformation by the current government [8], France still suffers from weaknesses which make startups’ job harder. First is the well-known administrative burden and high cost of skilled labor [9], which makes it hard to attract and keep talents. The financing of innovative solutions is also a major issue, due to modest volumes of venture capital investment (although this seems to have improved lately [10]). There are important efforts to mitigate these factors, notably through the government-backed French Tech initiative [11], but these cannot compensate for the difficulties inherent in the market: corporate clients without favorable innovation policies, SMEs lacking clear digital strategy, or lawyers who perceive LegalTech as a threat to their jobs. As a result, many LegalTechs are looking beyond national borders to feed their growth and attract investors’ attention. Legal Publisher Lexbase [12] and startup Call a Lawyer [13] are active in West Africa, while online documents platform Wonder.Legal is proposing its services in 23 countries [14]. In July 2019, Entrepreneur’s association France Digitale even created a “French LegalTech” task force to help structure the industry, interact with public authorities, and foster the international development of French startups. [15]
How big exactly is the market and where it is heading
LegalTech Market size and recent growth The French LegalTech market has witnessed high growth in recent years. From only 7 firms in 2012 [16], it jumped to more than 300 [17] startups in 2019, while the legal market expanded over 30% by value over the same period. Myriad needs are addressed by these newcomers, from intermediation services, digitalization of legal information, contract automation, chatbots, online court proceedings, etc. [18] Fundraising in the industry has skyrocketed (by more than 92% in 2018, and the trend is expected to intensify in 2019), reflecting investors’ optimism as well as the international ambitions of several startups such as Dotrine [19], LegalPlace [20] or Hyperlex.[21]
A plurality of actors and a still expanding market
As a result of the relative impermeability to foreign solutions (mostly confined to few international law firms and corporations headquarters), the domestic sector has flourished to meet the demand, resulting in a kaleidoscope of actors. Over a quarter of start-ups consist of Legal Professionals and/or law students, whereas a significant number of startups (which amount to almost 70%) were cofounded by former lawyers. [22] Powered by easy access to technology and a broad-based transformation of consumer habits and expectations, innovations are growing by the day. The trend is not without challenges, as a large portion of these newcomers are neither serial entrepreneurs nor digital experts, but it nonetheless translates into a fertile and vibrant innovation ecosystem.
The inevitable path towards contraction
The current hype surrounding the phenomenon can however not conceal the need of market re-structuring. Most LegalTech initiatives are struggling to reach profitability, as several solutions address niche markets which can not necessarily cover development costs. The state’s aggressive financing policy, notably through public loans and subsidies, enables a slew of startups to survive through their first years. Some of them make it to the seed round with the blessing of favorable fiscal policy, but only those reaching series A can seriously be considered as potential long-term players. Half a dozen startups have made it so far, mostly independent firms led by core founding teams with a technical, legal or business expertise, whereas both the legal publishing and software industry seem to be struggling to propose convincing products. The looming threat of a major international player entering the market and dampening competition remains, but the more local startups develop their technology, expertise, market penetration, and data acquisition, the harder international firms will find it to dominate the market.
Role and future of legal professions
Legal professions’ efforts to enter the ecosystem
The reaction of the legal professions to this global push towards the digitalization of their services is noteworthy, as regulated professions (i.e. attorneys, notaries, bailiffs or chartered accountants) are centralized and organized enough to respond to external threats to their monopolies. Some are developing digital solutions for their members [23], while others bet on a convergence with the startup ecosystem. Attorneys provide a meaningful illustration through the emergence of bar incubators [24] aiming at fostering the creation of LegalTechs by lawyers themselves, helping them grow, meet their markets, and address regulatory issues.
The initiative is taking ground as some bar incubators partner [25] with business schools or incubation experts [26] and are able to support their startups through innovation prizes, financial support or commercial partnerships.
Will regulation wildcard be enough?
The remaining question is, will regulated professions adapt fast enough? They have so far been relatively unscathed by competition owing to their regulatory monopolies (e.g. only public notaries can draft real property documents; attorneys have a partial monopoly over representation in courts or provision of legal advice). However, the walls have long been cracking, as consulting firms started providing legal advice since the early 1990’s and courts interpretation of these reserved areas grew more liberal. [27] Since neither the pace nor the direction of innovation can clearly be anticipated, one can only presume that in the future the main selection criterion for legal services will be customer satisfaction. This might sound obvious to any entrepreneur, but it is something of a cultural revolution for legal professions, which always lived with the assumption that the ideal of Justice was greater than the mere consumer’s interest.
Innovation culture as a core asset of tomorrow’s lawyers
Due to this tangible paradigm shift, lawyers will need to adapt swiftly to keep on demonstrating added value to their clients. As machine learning and high-end algorithms progress, lawyers cannot solely rely on the system’s complexity to justify their existence. The usual short-term responses to this transformation include more specialization, concentration of firms, integration of technology, or the development of soft skills. Several universities, law schools and private training programs have launched “augmented lawyers” training programs in the last few years [28] to diversify lawyers’ skills and prepare them for the coming changes. At the confluence of these endeavors is one essential skill: innovation culture. More than ever, it will become crucial for lawyers to understand and anticipate their clients’ needs, offer solutions in a more creative and pro-active way, and integrate, assemble or develop hybrid technical and legal services.
Notes
[1] According to a Day One international study from April 2019, 28,97% of the overall number of LegalTech companies are based in France https://www.dayone-consulting.com/insights/LegalTech-data-base-free-access/
[2] Halpérin, J. (2005). Deux cents ans de rayonnement du Code civil des Français ? Les Cahiers de droit, 46 (1-2), 229–251. https://doi.org/10.7202/043837ar
[3] 2017 Activity report of international actions of the Paris Bar : http://www.avocatparis.org/system/files/publications/20170701_rapport_action_internationale.pdf
[4] United Kingdom’s Judicial Committee of the Privy Council still serves as a final appeal jurisdiction for several Commonwealth countries, such as New Zealand, Mauritius or Brunei.
[5] According to an EY study from October 2017, the French Legal Market overall value would amount to 31,1 billion euros http://web.lexisnexis.fr/LexisActu/EY-ObservatoiredesActeursEconomiquesduMarch%C3%A9%20du%20Droit.pdf
[6] e.g. Impact of the Villers-Cotterêts Ordinances of 1539 or the influence of Louis XIV’s Finance Minister Jean-Baptiste Colbert of the economic doctrine and state interventionism.
[7] On the recent controversy of the possibility for LegalTechs to predict court decisions in France, see https://gsell.tech/predicting-courts-decisions-is-lawful-in-france-and-will-remain-so/
[8] The 2015 « Macron Law » offers new opportunities for lawyers to provide commercial services, structure their capital with more flexibility and partner with other professions.
[9] According to an April 2019 DESTATIS study, France rank in 5th in the European Union in terms of labour costs https://www.destatis.de/EN/Press/2019/04/PE19_164_624.html;jsessionid=A50DFEC2BDCCDB31FE2B22DB72819CB4.internet711
[10] La France, principal investisseur européen (en volume) des startups early stage, Madyness, 12 novembre 2018 https://www.maddyness.com/2018/11/12/france-investissements-early-stage-stripe-techstars/
[11] Que fait vraiment la French Tech et avec quels résultats, La Tribune, 25 mai 2018 https://www.latribune.fr/technos-medias/que-fait-vraiment-la-french-tech-779274.html
[12] https://www.lexbase-afrique.com/
[18] For regularly updated information, see https://www.village-justice.com/articles/Les-start-up-droit,18224.html
[19] Legal research engine Doctrine raised €10M in 2018 https://business.lesechos.fr/entrepreneurs/financer-sa-creation/0301893746505-doctrine-en-passe-d-imposer-son-moteur-de-recherche-dans-l-univers-juridique-321990.php
[20] SME’s legal platform LegalPlace raised €6M in 2019 https://www.maddyness.com/2019/07/09/legalplace-leve-6-millions-euros/
[21] AI-powered contract management and analysis Hyperlex raised €4M in 2019 https://www.frenchweb.fr/LegalTech-hyperlex-leve-4-millions-deuros-pour-simplifier-la-gestion-des-contrats-dans-les-entreprises/362346
[23] E.g. see initiatives of the Order of Notaries : https://www.notaires.fr/fr/profession-notaire/linstitution/le-notariat-et-le-num%C3%A9rique
[24] 14 Bar Incubators at the time of writing, gathered in a national association http://www.avocatparis.org/naissance-officielle-du-reseau-national-des-incubateurs-de-barreaux
[25] see the Paris (https://incubateur-ibp.com/) or Lyon (https://www.incubateurbarreaulyon.com/) Bar initiatives
[26] For an example of a joint bar and business school incubation : http://accelerator.em-lyon.com/2019/04/09/legal-pilot/
[27] In a recent decision, the French Supreme Court (Cour de Cassation) ruled that limitations imposed on lawyers as a regulated professions were not applicable to other services providers, who can freely develop comparison and lawyers rating services https://www.legalis.net/jurisprudences/cour-de-cassation-1ere-ch-civile-arret-du-11-mai-2017/
[28] See the initiatives of Paris II, Lyon III or UCLY Universities, EFB or EDARA Law schools, Seraphin Legal or Hercule private training programs
About the Author
Pierre-Michel Motteau is a lawyer and Legal Project Manager. After training in France and the U.K. he started his career as country representative for a leading independent firm in Asia.
Going back to a traditional French practice later, he realized the coming impact of the digital transformation on legal professions. In 2017 he partnered with two independent law firms to form Legal Pilot, a French leading legal automation startup.
As a registered lawyer, he contributes to the legal transformation of the profession via the Lyon Bar Incubator and the development of digital-related training programs in several Law Universities in France.