Is It Becoming the 'Second Tada'... 2,000 Out of 4,000 Lawyer Members Have Left Lotok

Kim Bonhwan, CEO of Law&Company, "10 Billion Won Loss Occurred"
Did Not Violate Law but... Continued Attacks from Bar Association
Ministry of Justice and Fair Trade Commission Fail to Play Significant Roles
Overseas Legal Tech Investment Scale Reaches 14 Trillion Won
Kang Samgwon, "Thorough Command and Supervision by Relevant Ministries Needed"

While the government has taken a passive stance on the development of new industries, the number of lawyers registered on Law&Company's online legal service platform 'Lotoc' has been halved from 4,000 to 2,000. Worldwide, there are 6,700 legaltech companies?services born from the combination of law and technology?with investments reaching $10 billion (approximately 14 trillion KRW). In South Korea, due to continuous attacks from interest groups making business expansion difficult, there are only two legaltech startups that have attracted cumulative investments exceeding 10 billion KRW.

Kim Bonhwan, CEO of Law&Company, stated at a regulatory innovation field meeting held on the 1st at the Korea Venture Business Association in Guro-gu, Seoul, "The number of lawyers registered on Lotoc dropped from 4,000 to as low as 1,700 last year," adding, "Due to disciplinary actions pursued by the Korean Bar Association against Lotoc member lawyers, losses close to 10 billion KRW occurred last year alone." Currently, the number of lawyers registered on Lotoc is reported to remain around 2,000.

Law&Company has been repeatedly reported by lawyer organizations such as the Korean Bar Association (KBA), but all cases were dismissed without charges. The Ministry of Justice has clearly stated that the current operation method of Lotoc does not violate the Attorney-at-Law Act.

The reason why the Lotoc service does not violate the Attorney-at-Law Act is as follows. Legal platform services are broadly divided into two types based on the platform company's revenue model: △advertising platforms and △brokerage platforms. Brokerage platforms earn commissions as a fee for contracts concluded between users and lawyers, which may violate Article 34 of the Attorney-at-Law Act. However, Lotoc does not operate as a brokerage platform that introduces or mediates specific lawyers to users in exchange for fees. Instead, it operates as an advertising platform where users freely decide whether to consult after viewing lawyers' advertisements posted on the platform. Therefore, the Ministry of Justice judged that it is difficult to consider this a violation of the Attorney-at-Law Act.

However, the KBA passed an amendment to the lawyer advertising regulations at its board meeting, banning lawyer promotion through platforms like Lotoc, and recently imposed disciplinary fines of up to 3 million KRW on nine Lotoc-registered lawyers, causing another stir in the legaltech industry. This disciplinary action was taken despite the Constitutional Court ruling the KBA's advertising regulation amendment unconstitutional in May. The KBA holds disciplinary authority over lawyers delegated by the Ministry of Justice.

[Image source=Yonhap News]

Lawyers disciplined by the KBA's disciplinary committee can file objections, which are then reviewed once more by the lawyer disciplinary committee within the Ministry of Justice. The objecting party is the lawyer, and Law&Company had planned to provide support behind the scenes. However, since the KBA did not send formal disciplinary notices to the nine lawyers, they could not even file objections, leaving Law&Company in a situation where it cannot take any action.

The Fair Trade Commission held a plenary meeting on the 12th of last month to decide on sanctions for the KBA's disciplinary actions against Lotoc-registered lawyers for alleged violations of the Fair Trade Act. However, the meeting was suddenly canceled, plunging the Lotoc service into further uncertainty. The Ministry of Justice also formed a legaltech task force (TF) in September last year to support the establishment of the legaltech industry but has yet to play a clear role. Legal platform services have both positive effects, such as improving consumer accessibility, and concerns that the legal market could be swayed by capital.

While the government wavers between these two sides, the overseas legaltech industry is rapidly growing. According to the Small and Medium Business Ombudsman, as of this year, there are 6,694 legaltech companies worldwide, with investment amounts reaching $10 billion, of which $4.1 billion was raised in the past two years. There are eight unicorn companies valued at over 1 trillion KRW and 18 prospective unicorns. In Japan, 'Bengoshi.com' was listed in 2015 and currently has a market capitalization of 3 trillion KRW, while the U.S. 'LegalZoom' successfully went public last year.

In the domestic legaltech market, Law&Company is the first to be selected as a prospective unicorn. Only two startups, Law&Company and Modusign, have attracted cumulative investments exceeding 10 billion KRW. There are concerns that Law&Company, struggling with exhausting conflicts with lawyer organizations, may eventually have to shut down its business or be overtaken by global legaltech companies, similar to the 'Second Tada' incident.

Kang Samgwon, chairman of the Korea Venture Business Association, emphasized, "Arbitrary prohibitive regulations by professional groups against legitimate corporate services are rampant, but the government's will to resolve this is weak," adding, "Guidelines for the platform industry should be established to ensure that existing regulations are not abused as tools to restrain ventures and startups and that fair competition is possible." He further urged, "The responsible government departments must thoroughly direct and supervise to prevent professional groups from exercising unfair or extralegal authority."