Katrin Hanschitz, Co-Chair of the International Litigation Committee at American Bar Association (ABA SIL), explores legal tech and AI and their impact on the practice of law, navigating recent developments and case law in Europe in her latest contribution to the publication ABA International Dispute Resolution News.

In a world where artificial intelligence (AI) is used by so many in the legal profession to undertake a wide array of tasks formerly undertaken by specialized legal staff, and where many businesses turn to ChatGPT and similar instruments for free legal support, should the legal industry fear or embrace AI?

A. Judicial Decisions – Austria

The Austrian Bar was unsure. So, it sought judicial guidance concerning a startup LawTech company operating in the DACH region (Germany, Switzerland, Austria) that used “incaseof.law” in its domain name and e-mail address.

1. The Defendant’s Business Concept

The firm describes itself as an online “legal department on demand” for small and medium-sized enterprises.  Clients submit documents and case descriptions online. These are processed by an AI tool to identify the underlying legal issue and identify an appropriate member law firm, based on specialized practice areas and industry focus as well as comparable cases and success rates.[1] The AI tool provides the matched law firm/lawyer with research, with suggestions for solutions and actions and even draft communications and briefs. All communication is undertaken via the platform until the client has mandated the matched lawyer. The matched lawyer is required to issue its invoice via the platform, which retains 25% of the fees paid.

As with ChatGPT and similar tools, the more documents and cases that are processed via the platform, the more the tool learns — and the better the results its produces.

2. The Legal Environment

As in many other continental jurisdictions, in Austria the term “lawyer” is zealously defended, and may only be used by legal practitioners who have completed full training,[2] have passed the bar exam, and are registered with the local bar.[3]  The practice of law for consideration (representing clients in court and before public authorities, drafting legal documents, providing legal advice to external clients etc.) is, for the most part, reserved to “lawyers” and “law firms.”[4]  The impermissible practice of law by non-lawyers is sanctioned by criminal penalties.

3. The Complaint

The Austrian Bar sought to prohibit the use of the brand “incaseof.law” as unfair competition, arguing that it suggests to the public that the company is a qualified law firm.

The Bar also wished to prohibit the provision of automated legal advice in the form of recommendations for actions by the platform to the lawyer as unfair competition, positing that this violated the rules restricting the practice of law to lawyers, and also raised confidentiality concerns.

4. The Decision

In a decision handed down this June^[5],  the Austrian Supreme Court saw no reason to impede the use of AI as a technological tool, provided the lawyers remained firmly in charge, and responsible for the legal advice provided to the platform customers — and for ensuring confidentiality.

The court held that the law provides no restrictions on the use of auxiliaries[6] or service providers to undertake research or to generate drafts, recommendations etc., provided that they are subject to sufficient controls over confidentiality. There is no suggestion in the contracts with the platform that the matched lawyers are in any way bound by these recommendations and drafts — or that they may or should forward the automated suggestions and drafts to the clients without review. The matched lawyers remain responsible for complying with their professional obligations to represent their clients with all due commitment, loyalty and conscientiousness and in compliance with their mandate, their conscience and the law.

Moreover, the court held that the name “in case of law” does not suggest a law firm to the general public, leading the court to find that there was no risk that the public would be unable to distinguish between the provision of certain services by the defendant, on the one hand, and a law firm on the other.

The fee structure did not, however, meet with the approval of the courts: Under the Austrian Lawyers Code, offering or accepting benefits for procuring clients is not allowed. The court rejected the argument that the fees were being paid “for the use of the platform” rather than for procuring mandates. The Supreme Court also prohibited invoicing via the platform for reasons of preserving confidentiality, in line with previous case law that also prohibits e.g. the assignment of fee claims, since this enables third parties to view issues protected by lawyer/client confidentiality.

B. Judicial Decisions – Germany

The German Federal Court has similarly shown a tendency to accept AI in this area: In 2019[7] that court held that the pursuit of rent-related claims against landlords via an automated platform is covered by the – broadly interpreted – term “debt collection services” and thus is not restricted to lawyers. This has led to numerous platforms offering the AI-supported, automated, pursuit of low-threshold claims such as claims for flight delays, insurance claims and even the Volkswagen Diesel scandal-related claims.

C. Outlook

The world-wide web generally — and more recently AI tools that are available on the internet free of charge — are often the first port of call when legal problems arise in a business context. Uncertainty as to the correctness and quality of “hits” is, correctly, high. Mistakes made by non-legally trained staff early on in disputes can result in high costs and may even imperil the success of a case if the dispute ends in court.

On the other hand, few small businesses can afford a permanent legal department; finding and retaining external law firms can require significant resources. In this gap in the legal market, AI-supported lawtech services such as those provided by “incaseof.law” appear to provide a useful service, in the combination automated debt collection services and enabling efficient access to reasonably priced legal advice. Provided the system is sufficiently well-trained and has a broad membership of well-trained lawyers so that the quality of legal advice does not suffer, it appears that the legal industry could stand to benefit, as seems to be the view of the Austrian Supreme Court.

If even courts in continental jurisdictions that are generally regarded as more traditional and protective of the legal profession are not inclined to impede the progress of legal tech, law firms are well advised to embrace these developments, utilize the advantages AI can bring and tailor their professional services accordingly. While clients with more standardized or routine cases may well wish to access inexpensive AI-supported legal support, clients with more complex or delicate cases who value creative, innovative and meticulous litigation support will continue to require the services of specialized litigators, especially those who have become adept at utilizing AI.

[1] The platform also provides – undisputed – automated debt collection measures, not including litigation.

[2] Five   years, in addition to a university law degree.

[3] This means they are subject to extensive professional ethics rules and statutory restrictions and, moreover, are subject to specific monetary obligations to the bar (bar fees, pension insurance, professional liability insurance etc.). 

[4] Tax advisors, patent lawyers and notary publics also have the right to practice law, within certain limitations. In-house counsel, i.e., legal practitioners employed on a regular basis to provide legal advice to their employer, may not call themselves “lawyers”, are not subject to professional ethics and cannot be bar members. While lawyers are not required in civil law for small claims (under EUR 5,000), litigating larger claims in court requires representation by a lawyer.

[5] Austrian Supreme Court 4Ob77/23m of 27 June 2023

[6] Hilfskräfte

[7] VIII ZR 285/18

*This article was first published in the ABA International Dispute Resolution News Fall 2023: https://www.americanbar.org/content/dam/aba/administrative/international_law/newsletter/2023/international-dispute-resolution-news-fall-2023.pdf

For more information, please contact Katrin Hanschitz or your customary relationship professional at KNOETZL.