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Regulation of Legaltech: are the shoemaker’s children ill-shod?

By Iga Kurowska.


On October 1st, the ‘Legal Tech Act’ entered into force in Germany. Focusing mainly on regulating legal tech debt collection models, it is yet another trigger of still relatively quiet, but the reoccurring debate around the necessity and the right approach towards regulating ‘Legaltech’. A part of me wants to ask directly: “would we even be lawyers if didn’t touch upon that matter?” Yet, the state-of-art situation might be proving us the opposite.


Reasons for regulating ‘Legaltech’

A number of reasons can be mentioned when arguing the need for ‘Legaltech’ regulation. Before entering into the core of the topic, one shall search for a definition of ‘Legaltech’, which is far from being easy to give. It is an umbrella term, covering a range of IT products and services for the legal sector and administration (B2B), as well as directly the clients of these sectors (B2C). Indeed, when regulating, lumping them all together is a recipe for failure. However, as it is merely a set of several observations, we will turn a blind eye to that shortcoming.


Firstly, before looking into the reasons of a business character (2), we will briefly consider the legal ones (1).


(1) Legal reasons:

Without providing a deep legal analysis, one can intuitively enumerate dangers related to data privacy and data security, cybersecurity issues, or trade secret matters. Two other ones, that I would like to highlight, are interference with legal services and their regulatory framework, as well as the liability.


In relation to the first one, as a preliminary remark, it shall be noticed that each country has its own set of regulations concerning legal services. A definition of a ‘legal service’ or ‘legal advisory’ is indeed crucial to clearly set a border that shall not be crossed by Legaltech providers, and especially the alternative ones (ALSP). Not that long ago, on Sept 9, 2021, the German Highest Court (Bundesgerichtshof), has tried to answer that question in regards to a contract platform commercialized by Wolters Kluwer.


In relation to the second one, two aspects merit particular attention:

{a) we shall distinguish the level of support provided by the IT system (for instance the one based on AI), and probably - for the current IT advances - keeping the state-of-art human- supervisory and human-responsibility principle; (b) the liability of human legal advisors shall be not only considered when getting support from the IT tools but also when refusing to use them.


The latter leads to another interesting discussion: is it within our (lawyers’) obligations to be up-to-date with Legaltech advances and apply them regularly to serve the clients’ best interest? Shall the opposite be seen as professional negligence?

(2) Business reasons The two legal reasons enumerated above also have a business side of the coin. Regulating Legaltech may mean preserving legal services in their comfortable position of monopoly, that it has been placed for ages. Excluding potential competitors who may offer or enable “better, faster, cheaper” is quite comforting, yet, from a personal standpoint: not sustainable.


Another business factor may be related to a fear of ‘unregulated Legaltech’ serving as a deterrent for Legaltech implementation among lawyers. Here, a direct business reason would be a fact that, realistically speaking, those who do not learn and embrace Legaltech tools will be left behind, paying a higher price for dissociation, than the one to be paid for adoption.


Approach towards regulating LegalTech

Legaltech environment, being intrinsically a tech one, definitely does not have a one-size-fits-all solution. A number of different approaches may be seen across the states, ranging from ‘hands-off approach’ through resistance, control to enabling. [1]


As noticed by Dr. M.Ebers, a current European regulatory framework is, in a nutshell, an interplay between proper for each country Legal services’ regulations, as well as EU Consumer and Data Protection laws. [2]


Three interesting ideas/ initiatives could be mentioned:

  1. Certification of Legaltech tools: a set of guidelines and criteria and an independent IT body to certify the adequacy of software to be used in the legal sector, beyond cybersecurity or data protection eg. ISO;

  2. Soft-law initiatives, such as the Ethical Chart of the digital legal sector, such as the French multi-stakeholder initiative dating back to 2016 (available in English);

  3. A nearly deontological obligation of each professional to “to keep abreast of changes in the law and its practice, including the benefits and risks associated with relevant technology.”, as encoded in 2019 in the Competence of Model Rules of Professional Conduct (Rule 1.1 ) by the American Bar Association.

 

Notes

[1] A study of Hook Tangaza, The Use of Regulation of Technology in the Legal Sector beyond England and Wales, 2019

[2] M. Ebers, Chapter 12: Legal Tech and EU Consumer Law, in: M. Canarsa/M. Durovic, F. de Elizalde, L. di Matteo, A. Janssen, P. Ortolani (eds.), Lawyering in the Digital Age, Cambridge: Cambridge University Press, 2021.

 

About the Author

Iga Kurowska works as Head of Legal Innovation & Legaltech at Aktion legal, a corporate law firm in Spain. She holds a PhD from Sorbonne Law School, dedicating her research to data-driven international M&As. She has experience working as a French lawyer and a university lecturer, as well as a startup founder (with exit to Wolters Kluwer). She is an author of numerous publications on legaltech and a member of international initiatives around legal innovation, such as AIJA Legaltech Board or Global Legaltech Consortium.


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