The Two Sides of the Legal-tech Market : Based on Lawtalk Issue

The Two Sides of the Legal-tech Market : Based on Lawtalk Issue

 

Abstract

In the era of fourth industrial revolution, ICT technologies are being applied to many  industries and are creating new markets. This movement is also being applied to the legal market, which used to be categorized into human characteristic area. Legal-Tech is a technology that helps clients and lawyers search for lawyers, request for counseling, find appropriate  laws and regulation, and handle business. It could be solution for asymmetry and high cost of legal information. Legal-Tech market is also starting in Korea. Lawtalk is sorted to the advertising platform that intermediates lawyers to clients. Lawtalk’s business model is focusing (to focus) on advertisement for practicing lawyers. Lawtalk argues that the platform can increase legal clients’ access to lawyers and increase the overall size of the legal market. Nevertheless, there are two concerns regarding the platform. The first one is the possibility of collusion. The second problem is the possibility of legal services being subordinate to the platform. Aside from these economic concerns, there is also a big legal issue regarding the service that Lawtalk provides. The legal dispute between Lawtalk and the Korean Bar Association is centered on Article 34 (1) of the Attorneys-at-Law Act. Article 34 is about prohibition of partnership with non-lawyers. Lawtalk claims that its service is legal because its service is centered around advertising and promotion, not Introduction stipulated in Article 34. In response, the Korean Bar Association refutes Lawtalk’s argument. The main reason is that Lawtalk is advertising not only lawyers but also Lawtalk itself. Based on these arguments, on May 2021 the Korean Bar Association revised the Lawyers’ Advertisement Regulations and the Lawyers’ Ethics Bill in a row. In response, Law & Company has filed a petition against the revision of the regulations on advertising lawyers. Sixty lawyers, including lawyers from Korean Bar Association who have used Lawtalk’s advertising service or who are willing to use it in the future, are also listed on the claimant team. Law & Company also reported the Korean Bar Association to the Fair Trade Commission on charges of violating the Fair Trade Law and the Advertising Law. It appears the issue is concerning Article 26 and Article 19 of the Fair Trade Law, and Article 6 of the Advertising Law, respectively. The Law & Company argues that the current Fair Trade Law stipulates that business organizations such as the Bar Association should not unfairly restrict the contents or activities of the business operators (lawyers). If Lawtalk wins the war against the Korean Bar Association, about 50% of lawyers are expected to enter to Lawtalk platform. This is because the number of practicing lawyers who cannot compete with law firms exceeds 50%. The more we can expect the explosive demand for platform, the more we need to worry about how to balance between justice and the profit of the (protecting the) industry.

 

I. Introduction to Legal-Tech Market

In the era of fourth industrial revolution, ICT (Information and Communication Technologies) technologies are being applied to entire industries and are creating new markets. This movement is also being applied to the legal market. It’s surprising because legal service used to be categorized into human characteristic area that only humans can do. This is the background of the term “Legal-Tech,” which combines laws and new technologies such as artificial intelligence.

Legal-Tech is a technology that helps clients and lawyers search for lawyers, request for counseling, search for laws and regulation, and handle business. It could be a solution for asymmetry and high cost of legal information. Based on these advantages, the investment in Legal-Tech abroad has increased explosively. Specifically, the investment in Legal-Tech amounted to $1.96 billion in the U.S. and $150 million in the U.K. from 2015 to 2019.

Legal-Tech market is also starting in Korea. Domestic Legal-Tech business is divided into three main areas. The first area is an advertising platform that intermediates lawyers to clients. The biggest issue here is billing method. There is a limit of profit model because the Attorneys-at-Law Act does not allow mediation profit. The biggest platform in this market is Lawtalk which earns $1.2 billion annually.[1]

Secondly, there is a site that provides search services for statutes and precedents. The biggest issue here is the court’s data closure which causes lack of data to utilize in the system. The Software Policy Institute said, “The core of Legal-Tech is to fuse information based on big data, so the more precedents there are, the more accurate the results of Legal-Tech’s artificial intelligence.”[2] Intellicon is the strongest player in this market.

Thirdly, there is a service that provides direct legal services. In this regard, the operator issue is the biggest problem. The current Attorneys-at-Law Act prohibits the partnership of non-lawyers and lawyers, making it difficult for private companies to provide Legal-Tech services joint with lawyers. This service is provided by law offices such as Help Me.

The second and third arguments are just criticism from industries that have not yet become legal issue. On the other hand, the first debate over brokerage fees continues with legal battles such as a petition for the Constitution[3] and a report to the Fair-Trade Commission.[4]Therefore, before discussing the dispute between Lawtalk and the Korean Bar Association, understanding the Lawtalk’s service is needed.

 

II. Introduction to Lawtalk

Since its establishment in 2012, Law&Company has launched and operated its own legal platform Lawtalk service in February 2014 and Lawtalk News in April 2018. It has also provided agency service for lawyers and law firms in searching advertisement through Naver.

Specifically, Lawtalk’s business model is to focus on advertisement for practicing lawyers. If a lawyer pays 500,000 won a month, he or she can purchase 200 to 300 keywords. When a user searches with the keyword, he or she is advertised for a certain period. The order of advertisement is random. The service introduction posted on the Lawtalk website is as follows.[5]

  • Search for questions, find counseling cases and lawyer information at a glance
  • Get information about lawyers’ expertise, fees, reviews of counseling, resolution cases, etc. transparently
  • Easily book telephone/visit consultations with lawyers
  • Write online consultation, get complimentary attorney answers

 

III. Legal dispute between Lawtalk and Korean Bar Association

The legal dispute between Lawtalk and the Korean Bar Association is centered on Article 34.1 of the Attorneys-at-Law Act. Article 34 is about prohibition of partnership with non-lawyers. A person who violates this regulation will receive a penalty which is set out in Article 109. According to the Article, the person who mediates between an attorney and a client may be sentenced to up to 7 years in prison.

Lawtalk claims that its service is legitimate because its service is just advertising and promotion, and not regarding Introduction stipulated in Article 34. In response, the Korean Bar Association refutes Lawtalk’s argument. Their main reason is that Lawtalk is advertising not only lawyers but also Lawtalk itself. Based on these arguments, on May 2021 the Korean Bar Association revised the Lawyers’ Advertisement Regulations and the Lawyers’ Ethics Bill in a row. As an example, the regulation on lawyer advertising has been changed to strictly ban not only intermediary but also the introduction and promotion of lawyers. The purpose of revision is most likely to ban Lawtalk.

In response, Law & Company has filed a petition against the revision of the regulations on advertising lawyers. Sixty lawyers, including lawyers from Korean Bar Association who have used Lawtalk’s advertising service or who are willing to use it in the future, are also listed on the claimant team. Law & Company also reported the Korean Bar Association to the Fair-Trade Commission on charges of violating the Fair-Trade Law and the Advertising Law. It appears the issue is concerning Article 26 and Article 19 of the Fair-Trade Law, and Article 6 of the Advertising Law, respectively.

The Law & Company argues that the current Monopoly Regulation and Fair-Trade Act (Fair Trade Act) stipulates that business organizations such as the Bar Association should not unfairly restrict the contents or activities of the business operators (lawyers). According to the FTC’s notice, which details the regulation, a representative example of the act is “unfairly restricting or jointly determining the contents of advertisements, advertisement withdrawal, and advertising media of the operators,” which the Korean Bar Association already violated.

Stance of Korean Bar Association’s about this is as follows. They say the current legal platform service could pose a serious risk of allowing judicial and justice in the hands of capital and profit. The Korean Bar Association said, “In the meantime, criticism that legal consumers’ options have not been sufficiently guaranteed should be accepted and that we should find solutions. However, the method should not be made through profit-seeking sales patterns based on the size of advertising costs spent by lawyers.”

In response, Law & Company immediately refuted the statement. “Law & Company is ready to discuss seriously with the Korean Bar Association if they help improve the legal service market. However, the Korean Bar Association is not asking us to improve and supplement our service, but rather to stop the business right away. We cannot follow this because it violates the trust of more than 20 million clients (accumulated) who have trusted and used the Lawtalk service and nearly 4,000 lawyers.” and added, “All counseling fees paid by the client on Lawtalk belong to the lawyer.” [6]

Department of Justice’s stance is not that clear.[7] However, considering the recent conflict between the Korean Bar Association and the Department of Justice over the limitation of the number of practitioners who passed the bar exam, some analysts say that the Department of Justice will revise the law in a different direction than the bar association regulations. The Department of Justice is reportedly considering revising the Attorney-at-Law Act to expand training institutions in addition to the Korean Bar Association, as the Korean Bar Association recently limited the number of traineees to only 200 people. On the basis of the objection, the Department of Justice is likely to ease advertising regulations to cover the increased number of lawyers.

 

IV. The merits and demerits of Lawtalk

Lawtalk argues that the platform can increase clients’ access to lawyers and the overall size of the legal market. It can also be seen as a positive use of non-face-to-face trends during covid-19. This is because Lawtalk can provide stable services to people who are burdened with legal counseling face-to-face. Furthermore, it has the effect of greatly lowering entry barriers to legal counseling. This can also solve the structural problems of information asymmetry.

Law & Company officials said, “Law consumers have met lawyers by searching for information on lawyers, and in the process, they have often given up getting help from lawyers. Lawtalk provides detailed information about lawyers such as fees, expertise, and winning cases. The lawyers also can meet with potential clients on platform and have an opportunity to promote their expertise.

Nevertheless, there are two concerns about the platform. The first one is the possibility of collusion. Lawtalk and Naver Expert could be combined because Lawtalk and Naver Expert have a strong partnership.  If a lawyer replies to a question posted on Lawtalk, the reply will also be exposed to Naver Expert website. Answering a single consultation post and doubling the exposure effect is an attractive factor for individual lawyers. Lawtalk is also a one of nine domestic institutions that can register experts in the legal field of Naver Expert.

If such advertising methods serve as a big advantage for individual lawyers, the possibility of collusion between Lawtalk and Naver Expert will increase. As a result, increased market dominance of Lawtalk could reduce the welfare of clients and operators.  This is because the greater their market dominance, the greater their power to adjust prices arbitrarily.

The second problem is the possibility of legal services being subordinate to the platform. [8]
Some lawyers are concerned that, as delivery platform did, trying to increase the number of participants at free or low prices would gradually increase advertising costs in the future as the number of users increases.

Given that young lawyers who have just entered the industry cannot afford costs amounting to millions of won per month for advertisement, there is a concern that capital lawyers who have settled down to some extent will dominate the market. In addition, as the comparison of fees on the Internet becomes easier, there is a possibility that the competition for lower price and the acceptance of “small profits and quick returns” manner will eventually make it difficult to look into a case in depth. This is a concern because the wage relationship was formed at a low price, not because of professionalism.[9]

 

V. Conclusion

If Lawtalk wins the war against the Korean Bar Association, about 50% of lawyers are expected to enter to Lawtalk platform. This is because the number of practicing lawyers who cannot compete with law firms exceeds 50%. As of February, according to the Korean Bar Association, there are 25,000 practitioners out of a total of 30,000 lawyers and 10,000 law school graduates, so there seems to be a big incentive to enter Lawtalk as a private lawyer.

The more we can expect the explosive demand for platform, the more we need to worry about how to balance between justice and the interest of the industry. Only then will a healthy platform be established for clients, operators, and lawyers to coexist.

 

References

Lee Jong-hyun, “The Lawtalk is ranked the fourth place in law firm market”,

Chosun Biz, 21 January 2021,  https://biz.chosun.com/site/data/html_dir/2021/01/20/2021012002120.html

Song Hwa-yeon, “The world has grown 654% in three years… Korea is still in place”,

News 1, 21 July. 2020, https://www.news1.kr/articles/?4001516

Choi Na-sil, “Lawtalk files a Constitutional Appeal”
Hankook Ilbo, 31 May. 2021, https://www.hankookilbo.com/News/Read/A2021053110230001458

Shin Jong-cheol, “Lawtalk reported to the committee…”,

Law leader, 10 June. 2021, http://www.lawleader.co.kr/news/articleView.html?idxno=6429
Song Hwa-yeon, “The demand for ‘discontinuation’ of the Bar Association is tyranny…”,

Nate news, 21 June. 2021, https://news.nate.com/view/20210621n35281?mid=n0300
Hong Soo-jung, “Ministry of Justice will take a look at the Lawyers Act on advertising”,

Legal Newspaper, 21 May. 2021, https://m.lawtimes.co.kr/Content/Article?serial=170221

Shin Hee-chul, Park Sang-joon, “Need Government intervention to find a win-win solution.”,

Dong-A Ilbo, 21 June. 2021, https://www.donga.com/news/Opinion/article/all/20210607/107297093/1
Joo Young-jae ,”Will Platform swallow lawyers?”,

Kyunghyang Newspaper,16 January. 2021, https://m.khan.co.kr/view.html?art_id=202101161608001#c2b
 

[1] Lee Jong-hyun,”The Lawtalk is ranked the fourth place in law firm market”, Chosun Biz, 21 January 2021,  https://biz.chosun.com/site/data/html_dir/2021/01/20/2021012002120.html

[2]Song Hwa-yeon, “The world has grown 654% in three years… Korea is still in place”,  News 1,  21 July. 2020, https://www.news1.kr/articles/?4001516

[3]Choi Na-sil, “Lawtalk files a Constitutional Appeal”, Hankook Ilbo, 31 May. 2021, https://www.hankookilbo.com/News/Read/A2021053110230001458

[4]Shin Jong-cheol, “lawtalk reported to the committee…”, Law leader, 10 June. 2021,

http://www.lawleader.co.kr/news/articleView.html?idxno=6429

[5]“Law&company” , last visited 20 August. 2021, http://lawcompany.co.kr

[6] Song Hwa-yeon, “The demand for ‘discontinuation’ of the Bar Association is tyranny…”,

Nate news, 21 June. 2021, https://news.nate.com/view/20210621n35281?mid=n0300

[7] Hong Soo-jung, “Ministry of Justice will take a look at the Lawyers Act on advertising”,

Legal Newspaper, 21 May. 2021, https://m.lawtimes.co.kr/Content/Article?serial=170221

[8] Shin Hee-chul, Park Sang-joon, “Need Government intervention to find a win-win solution.”,

Dong-A Ilbo, 21 June. 2021, https://www.donga.com/news/Opinion/article/all/20210607/107297093/1

[9] Joo Young-jae ,”Will Platform swallow lawyers?”,

Kyunghyang Newspaper,16 January. 2021, https://m.khan.co.kr/view.html?art_id=202101161608001#c2b

 

 

Posted in Autumn 2021.