Guest post by Seung Hoon Park, a 2L at Northwestern Pritzker School of Law. Seung Hoon was a research assistant for Daniel W. Linna Jr. during the summer of 2020. In this guest post, Seung Hoon examines the current regulation of South Korea’s legal tech industry and emphasizes the need for change. Seung Hoon discusses how updating legal-services regulations will help grow South Korea’s legal tech industry so that more law firms can provide services based on advanced technology.
In South Korea, the legal tech industry is in its early stages, exploring its way forward in an environment limited by regulations. Large South Korean law firms are adopting technology tools, such as e-discovery and digital forensics equipment.[i] Although lawyers use technology tools to help them deliver services, they are not yet providing client-facing tools using technology, such as expert systems that can be used by clients to solve a specific problem. Most of South Korea’s legal tech services are provided by start-up companies. The services provided by these start-up companies are mainly divided into 1) attorney-search services, 2) automated document completion services, and 3) legal information research services. Below, I introduce the contents of each service, the start-ups providing it, and related regulations.
Major services and regulations
(1) Attorney search service
Using this service, clients can search for many lawyers who have a specialty related to various legal matters. For example, Law Talk is a platform for customers to search for lawyers. This platform currently operates legal counseling services such as “15-minute phone consultation” and “30-minute visit consultation.”
However, according to the Attorneys’ Act in South Korea, no person shall introduce a party to a specific attorney-at-law after receiving or being offered beforehand money, valuables, entertainment or other benefits (Article 34 (1)). Therefore, these services are offered for a flat-rate advertising fee from lawyers, and the fees are not shared with anyone who is not a lawyer. Many people point out that the attorney search service cannot make enough profit to expand their service due to the nature of business models that entirely rely on advertising fees. Avvo, an online marketplace for legal services in the U.S., found itself in a similar situation. According to a joint ethics opinion by three New Jersey Supreme Court committees, lawyers in New Jersey cannot participate in client-linking services offered by Avvo because of ethics issues stemming from the company’s “marketing fee.”[ii]
In 2020, NHN,[iii] a large company, entered the attorney-search service market in South Korea. NHN charged a platform fee of 5.5% from the amount paid by the customer. If this price is equivalent to the usual usage fee or advertising fee, it is not in violation of the law. However, if NHN receives a certain percentage of the attorney’s fee, and they receive significantly more money than the usual usage fee, it might be interpreted as an introduction fee, which would violate the Attorneys’ Act.
Related to this service, on July 22, 2020 the Korean Lawyers Association (KLA) accused NHN of violating the Attorney’s Act, claiming that the flat 5.5% fee is higher than the usual usage fee. KLA claimed that NHN charges from 3.65% to 5.85% depending on the payment method in their other online marketplace not for lawyers. KLA is a lawyers group consisting only of lawyers who have graduated from South Korean law schools. On the other hand, the Korean Bar Association, which is a group of all lawyers, did not provide an official opinion at this time. In the midst of controversy, NHN decided to cut their fees on July 28. The new fee is determined by the payment method, and it ranges from 1.65% to 3.74%. NHN explains that this fee is only the usual usage fee, and they do not receive their own fee from this service. Nevertheless, as of September, the Korean Bar Association seemed to be leaning toward interpreting this case as a violation of law.[iv] It has not yet been determined whether this fee may be interpreted as an illegal introduction fee.
(2) Automated document completion service
Using this service, customers can make legal documents by simply entering necessary information without the help of lawyers. For example, Help Me and Amicus Lex each provide a service to create various legal documents automatically, including contracts.
However, according to the Attorneys’ Act in South Korea, any person who is not licensed to practice as an attorney is prohibited from practicing law, including arbitration in exchange for any economic profits, and a criminal penalty of up to seven years in prison shall be imposed on anyone in violation of this prohibition (Article 109 (1)). In addition, attorneys are not allowed to operate their business in partnership with non-attorneys according to the Attorneys’ Act (Article 34). Therefore, it is difficult for law firms to introduce new technologies in cooperation with other technology companies.
(3) Legal research service
Using this service, customers can research relevant provisions and cases conveniently. For example, Intellicon provides a legal research service, “U-Lex,” which utilizes artificial intelligence and machine learning. When customers input non-legal terms, the service interprets the legal meaning of the search query to find relevant laws and cases, and automatically displays relevant terms and phrases related to search terms. In addition, Intellicon launched “Alpha Law,” a service that evaluates contracts in a few seconds using natural language processing technology based on deep learning.[v] This service has the function of extracting and analyzing important contents in the contracts, finding the risk factors, and presenting the legal impact to customers.
Legal research tools, however, lack access to court data needed to improve these tools. In South Korea, very few lower court case documents have been released. Even though people can see the documents when they visit the court library, there is only one court library in the country. In addition, people can only read the documents in the library, they cannot print or photograph. Although lawyers’ requests for the disclosure of lower court case data have increased, the requests have not happened, due at least in part to privacy concerns about personal information in the court records. For research services, the lack of data from cases in the lower courts leads to the lack of big data. Customers are not able to obtain the lower court cases they want, and the effectiveness of the legal research service decreases.
Challenges that Korea’s legal tech industry must overcome to grow
Restrictive regulations are a major reason why the introduction of legal tech is slow in South Korea. For example, if lower court cases were fully disclosed, it would be a great asset for an AI research service. Due to the Attorney’s Act, which prohibits operating a business in partnership with non-attorneys, only law firms or attorneys are able to provide legal services based on technologies. Traditionally, this provision was intended to prevent the emergence of brokers in the South Korean legal market. Specifically, this provision is designed to prevent the hiring of lawyers by brokers, who illegally connect the lawyers to clients. However, due to this limitation, law firms are unable to provide services in cooperation with technology providers.
Despite this, some law firms have found a way to cooperate with technology start-ups. For example, Barun Law collaborates with Uppsala Security, a security company that has its own cryptocurrency tracking solution. In their collaboration, Uppsala Security tracks the flow of stolen cryptocurrency of clients, and provides evidence to Barun Law. Based on this evidence, Barun Law takes legal action, such as freezing and seizing assets and filing civil lawsuits. To avoid an Attorney’s Act issue, they seem to contract with customers independently, and they are not sharing fees.
In 2018, Congressman Sung Ho Chung hosted a discussion regarding the revision of regulations for the legal tech industry. He also tried to propose a revision of the Attorney’s Act prohibition on profit distribution between lawyers and non-lawyers, although this was not successful. The bill was not proposed because it could not gather at least 10 concurrences from other Congress members. If the Attorney’s Act were amended, other companies would have a greater incentive to partner with law firms because they could share profits. As a result, law firms could adopt various technologies to improve their services more easily.
(2) Opposition from lawyers
To amend the Attorney’s Act, opposition from lawyers must also be overcome. The reaction of lawyers against legal tech seems to be divided into two branches. Some lawyers look for opportunities in the introduction of legal tech. For example, most of the start-ups above (Intellicon, Help Me, and Amicus Lex) are run by lawyers.
However, many lawyers are still against amending the Attorney’s Act. After the introduction of the law school system in South Korea, the number of new lawyers has increased significantly, from 1,000 to over 1,700 additional lawyers per year. Given this increase, lawyers are concerned about amending the Attorney’s Act because they think that the introduction of legal tech means that large corporations will enter the legal market, reducing the demand for lawyers. For example, in 2018 KLA issued a statement against amending the Attorney’s Act. They said that if tech companies are allowed to work with lawyers, a small number of large companies having capital and technologies will use lawyers to help them practice law. In particular, lawyers are concerned that the income of lawyers will eventually decrease as large companies raise their fees after establishing a monopoly in the market.[vi]
South Korea’s competition law includes regulations governing market dominant companies.[vii] It is forbidden for a market dominant company[viii] to significantly increase fees that are compared to fluctuations in supply and demand or fluctuations in costs required for supply without a justifiable reason. Nevertheless, if technology companies providing legal services charge similar fees as other marketplace service providers, they might not be punished under this provision. This situation could be a good development for consumers, but it could hurt lawyers at the same time. Nevertheless, if the service could help consumers, it would be difficult for lawyers to justify opposing it.
To grow South Korea’s legal tech industry so that more law firms can provide services based on advanced technology, the Attorney’s Act needs to be amended. If regulation is changed to foster innovation and appropriate competition, the entire legal market in South Korea will be able to expand as the legal tech industry grows.
[i] Digital Forensics refers to a forensic investigation technique that collects and extracts data contained in digital devices such as PCs and smartphones. The law firm’s digital forensics teams are in charge of internal investigations of the company. The internal investigation of a company is used to predict legal risks that a company may face through preliminary investigations, and devise measures to prevent them.
[ii] Debra Cassens Weiss, ‘Marketing fees’ paid to Avvo violate New Jersey lawyer conduct rules, ethics opinion says, ABAJOURNAL (Jun. 26, 2017), https://www.abajournal.com/news/article/avvo_violates_nj_ethics_rules_banning_fee_sharing_lawyer_referral_payments.
[iii] NHN ranks first in the web-searching market in South Korea, and has a mobile messenger app “Line,” which ranks first in market share in Japan, Taiwan, Thailand, and Vietnam.
[iv] According to a newspaper article on September 17, the Chairman of the Korean Bar Association visited NHN’s headquarters recently and he conveyed the opinion that NHN’s service violates the Attorneys’ Act.
[v] This service uses “natural language processing” technology like U-Lex. This service is optimized for labor contracts and non-disclosure agreements, but it will continue to expand to areas such as real estate purchase contracts, lease contracts, and license contracts.
[vi] A similar case occurred in 2020. The company occupying more than 50% of the food delivery market in South Korea decided to change its method of calculating fees. This policy was controversial in South Korea because it was disadvantageous for small restaurants. Eventually, due to pressure from politicians and public opinion, the company withdrew its plan.
[vii] Unfair Competition Prevention and Trade Secret Protection Act (Article 3-2).
[viii] If one company has a market share of 50% or more, or the total market share of three or fewer companies is 75% or more, they are assumed to be market dominant companies (Article 4).