Germany: BGH backs debt collection companies against the legal profession

A decision by the German Federal Court of Justice is causing considerable unease in the German legal profession. What was at issue?

A debt collection company had low-threshold claims from consumers assigned to it in order to bundle them into a class action and then bring them before the court in its own name. A professional association had filed a complaint against this, claiming that this procedure exceeded the scope of the so-called "collection privilege" of the German Legal Services Act. The Court of Appeal also agreed with this view and denied the debt collection agency the right to sue. The Federal Court of Justice, however, does not consider this view to be supportable.

As reported by lto.de, the court refers almost exclusively to the question of whether the consumers who have assigned their claims have a special interest in protection that speaks against the collection agency asserting their claims. In short: this is not the case, since the collection agency must also be represented by a lawyer in court. The BGH also considers the business model, according to which the collection agency assumes the sole litigation risk in order to retain 35% of the awarded claim amount in the event of success, to be appropriate. On the other hand, there is no question of a protective interest on the part of the legal profession, nor are they unduly disadvantaged by the fact that the lawyers themselves are barred from success fees to this extent.

German lawyers must accept, according to the article in lto.de, that they will face even more structural competition from debt collection companies.

 This case law is not directly applicable to the Austrian market, as the "debt collection privilege" of the German Legal Services Act has no direct equivalent in the Austrian legal system. 

Who is being harmed by bad campaigning?

Last week, I reported on this space about the sale of Kira to Litera and the intention to release a standalone product for corporate lawyers under the Zuva brand. The media release emphasized that Kira technology would continue to be operated and developed under the new umbrella.

Somewhat surprisingly, UK vendor Luminance responded with an aggressive campaign urging existing Kira customers in the legal sector to switch, portraying the Kira-sell in a distinctly different, negative light. One could read from the Luminance press release that it was a child disposal, the fact that the existing management would perform a strategic advisory function was left unmentioned.

Several media are now asking what drove Luminance to this activity, and who actually benefits from bad campaigning. On the one hand, this is coffee-bag reading, because without knowing the reactions of the customers, one will not come to a conclusive answer. In any case, the commenters seem to assume that Luminance itself will come out of this damaged. However, I think that the issue shows the enormous pressure that even established legaltech companies are under. Is it the concern of falling behind in development resources? Is it fear that their own customers will switch to Litera's comprehensive software solution because they appreciate the all-in-one concept? - Everything is possible

Markets on the move

As reported by alm, Legaltech group Litera is acquiring industry leader Kira, effective Sept. 1 of this year. The product and brand are to be continued, and at the same time Litera is aiming for market expansion. Why and to what extent can this also be significant for Europe?

Kira is a specialist in AI-based automated document analysis. Main use case is due diligences / data rooms in transactions. Accordingly, Kira's customers are mainly law firms, globally.

Litera, which has grown enormously through numerous acquisitions, describes itself as a leading provider of legal workflow and workspace software. The focus is clearly on speed and effectiveness of legal work towards client service and retention. Litera sees itself as one-stop-shop for any type of legal work. That's why Litera aims to leverage Kira's core expertise in its own software suite. 

The big difference, however, is that Litera also operates in the corporate law market, and by spinning off its own new startup Zuva, Kira is also expected to follow this path in the future.

Consultants on both sides of the Atlantic won't be too happy to hear that.