They are competent, cheaper than large law firms and available at any time. Alternative legal service providers arrange interim lawyers or offer their services using technology-based legal tech solutions. While the market is growing significantly worldwide, Germany is still cautious.
The market for alternative legal service providers (ALSPs) has grown significantly worldwide. According to new research, it has grown by around 40 per cent to 28.5 billion US dollars in just two years. The findings of the biennial report on the ALSP market by the Thomson Reuters Institute, the Centre on Ethics and the Legal Profession at Georgetown Law School in the US and the Saïd Business School at the University of Oxford were published in January. It is based on responses from more than 400 law firms and more than 200 corporate legal departments in North America, the UK, Europe and Australia.
In 2015, the market volume was still below one billion US dollars, but by 2019 it had already reached almost 14 billion. Of the currently estimated 28.5 billion, according to the report, 25.1 billion US dollars are attributable to independent ALSPs, 1.8 billion US dollars to those affiliated with law firms, and 1.6 billion US dollars to the four major accounting firms. Although the percentage increase in market volume is lower than in the previous two years, the latest figures nevertheless show that the ALSP market is growing much faster than the market for traditional legal services, the report says.
Costs and capacities
The preferred areas of application for ALSPs are project management, contract reviews, contract management, corporate housekeeping and the handling of mass proceedings. The companies surveyed cited costs, expertise, efficiency and work capacity as the main reasons for using ALSPs.
Alternative legal service providers have also been around in Germany for several years. However, the market here is growing much more slowly than in other countries. But what exactly does an alternative legal service provider do? Broadly speaking, there are two groups. On the one hand, there are service providers that rely purely on human resources. They place interim lawyers with legal departments and law firms. When a bottleneck arises, the service providers provide them with lawyers for a specific period of time. An example of this is Pinsent Masons' subsidiary Vario Legal. The second group consists of technical service providers who, as the name suggests, focus primarily on providing technical support for the provision of legal services. A classic example in Germany is Fieldfisher X.
Legal departments in particular make use of the services of alternative service providers. In Germany, however, companies are still very cautious. According to a study by EY Law from 2022, only 6 per cent of German legal departments surveyed use ALSPs. By comparison, the figure worldwide is around 80 per cent, with providers in high demand particularly in the USA and Asia.
Comings and goings among German providers
One of the global pioneers in this market is Axiom, which shook up the US market more than ten years ago. The company's core business is placing attorneys for in-house work on a project basis for a specific period of time. It offers this service at significantly lower hourly rates, which shook up the business model of established law firms early on.
In Germany, companies such as Perconex and Xenion Legal were among the first to hire out project lawyers to companies. Perconex, founded in 2005, is now history. In 2018, Zurich-based private equity firm Kieger Capital acquired a majority stake in Perconex, including from the founders, who sold back their shares. According to JUVE information, things went well for Perconex at the beginning. However, when the diesel wave subsided, Kieger brought its competitor Flex Suisse on board. The deal led to the departure of Perconex founder Olaf Schmitt and later to the conversion of Perconex into Flex Suisse. None of this had a positive impact on the business. By the end of 2023, sales had fallen, and Kieger pulled the emergency brake.
Xenion Legal was launched in 2012 and became part of Pinsent Masons subsidiary Vario Legal in 2019, which now operates from 16 locations worldwide. Companies ranging from start-ups to DAX-listed corporations use the services of Vario's project lawyers to address capacity bottlenecks, provide transaction support or act as interim managers on large projects.
German success stories
There are now only a few pure personnel service providers for lawyers in Germany. Axiom also withdrew from the German market in 2020. In view of the advance of artificial intelligence in legal consulting, the future of a service offering limited purely to human resources is questionable anyway. This is probably one of the reasons why most alternative service providers rely on technical support in their client work – sometimes combined with different professions such as project managers and legal engineers. A prominent example is Fieldfisher X, the legal tech arm of the British law firm Fieldfisher, which specialises in providing scalable legal services as an independent law firm. Founded in early 2022, Fieldfisher X now has 36 employees, including lawyers, programmers, legal engineers and product managers. The focus is on automation and technology. The law firm subsidiary develops its own solutions for services in product areas such as mass litigation and contract automation. Fieldfisher X has its own clients, such as the US corporation LinkedIn, and in many, but not all, cases also works with Fieldfisher's lawyers.
The Hamburg-based Clarius Group is also successful in the market for alternative legal service providers. It now has more than 200 clients, ranging from small and medium-sized enterprises to large international corporations. According to its own information, these include Bosch, Samsung, Trivago and Vodafone. The Clarius Group is the umbrella organisation for four specialised companies: Clarius Legal Rechtsanwaltsaktiengesellschaft, Clarius Data & Security GmbH, Clarius Services GmbH and Janolaw GmbH, which provides software for small businesses.
Competition for the Big Four?
The group combines proprietary AI-driven software solutions with personalised advice from legal consultants and other experts. Just a few weeks ago, it expanded its range of services and took over the finance operations division for a consumer electronics group. To this end, it founded the specialised subsidiary Clarius Services. With this expansion, Clarius is moving closer to the services offered by the Big Four firms.
From 2017 to 2023, Clarius Legal was part of the medium-sized law firm Schalast. Clarius Legal had already grown significantly as a subsidiary of Schalast. Its turnover tripled to around €4 million, and the number of employees rose from 4 to 30. Today, it has more than 100 employees and, according to its own figures, turnover is in the double-digit million range. One of the reasons for the separation was that control by a law firm at various levels had proved to be a stumbling block for business development.
The combination of technology and law is the future
Eagle LSP is also based in Hamburg. Founded in 2019, the company offers specialised legal services, particularly for the efficient handling of mass litigation. This essentially includes procedural support for mass litigation, eDiscovery services, outsourcing of legal services and the analysis of large volumes of documents. Eagle LSP relies on a combination of legal expertise and technological solutions such as legal tech and data science. Its clients include large law firms, investigative authorities and companies.
The alternative service provider Eqwal was founded in 2021 by Alexander Aran, Patrick Kusak and Daniel Biene, the former general manager of Axiom for Germany and Switzerland. Based in Düsseldorf, the company provides legal departments with interim lawyers who have the appropriate industry experience and skills to bridge bottlenecks in legal departments, such as increased workloads, sick leave or parental leave. In addition, it works with AI technology, for example through a partnership with the AI start-up Libra, to optimise legal work and relieve lawyers of repetitive tasks and analyses.
