Why technology start-ups turn to Germany’s law firms

In Germany, Berlin has built a reputation as a technology hub, home to a host of innovative start-ups. But there is more to the country’s digital industry than Berlin, and all the major German law firms are putting an increasing amount of resources into working for digital clients as well as companies in other sectors grappling with technological challenges.

“The problem with digital is that it’s now so broad that every company we’re advising has digital things they do or need,” says Hengeler Mueller technology, media and telecoms partner Albrecht Conrad. “Digital platforms and technology are overtaking traditional businesses or becoming more important for traditional businesses such as car manufacturers or suppliers, insurance sales platforms – pretty much everything you could think of.”

“A hot topic for most of the bigger clients is archiving structures, making all processes digital” Markus Sengpiel, Luther

Type of work digital companies need

Work related to the digital industry in Germany ranges from M&A advice for companies acquiring technology companies to more specialised work – particularly, at present, on data protection.

“We’re advising clients in all areas,” reports Luther managing partner and IT specialist Markus Sengpiel. “A hot topic for most of the bigger clients is archiving structures, making all processes digital.”

Conrad agrees with this assessment, saying Hengeler’s TMT practice was built from a base of advising platform operators such as telecoms companies. This work has now evolved into advising the big technology companies including Amazon and Google, as well as working for more traditional businesses on the implementation of digital platforms.

At SKW Schwarz partner Martin Schweinoch identifies the growing area of the internet of things – technology that enables devices to send and receive data – as generating considerable work.

“One major area is the automotive industry and auto suppliers who are heavily involved in such projects,” says Schweinoch, explaining that by putting technology into cars manufacturers hope to attract more customers and boost their revenue.

German companies used to the German regime are much more prepared for the GDPR requirements than, say, UK companies – Axel von Walter, Beiten Burkhardt

He is not the only German lawyer to point to automotive as a key crossover sector between traditional business and the digital world. The sector is an important one for the German economy, as the country is one of the top four automotive manufacturers in the world, and all those interviewed for this report cited it as one of the main industries active in digital innovation right now.

The increasing crossover between the technology sector and traditional businesses has shifted the centre of digital power in Germany from Berlin to other cities in the country. Germany has always had a decentralised legal market and other major centres are looking at how they can contribute to the digital economy.

Heuking Kühn Lüer Wotjek partner Philip Kempermann acknowledges that Berlin remains the centre for innovation, with a talent pool of “young, hip people”, but points to the initiative launched by his city of Düsseldorf to attract more start-ups as an example of how digital has spread beyond the capital.

Frankfurt is seeking to become a hub for financial services start-ups, although Sengpiel contends that the city is not the best place for smaller companies due to higher costs there. Munich is also a digital hub, says Noerr technology partner Peter Bräutigam.

One of Noerr’s key clients is Rocket Internet, a company that has ballooned from a modest start-up to incubating new start-ups with a market capitalisation of over €3bn (£2.6bn). Bräutigam and other lawyers credit Rocket’s founders, the Samwer brothers, as the catalyst for turning Berlin into an innovation hub.

“Oliver Samwer was the magnet for what was to follow,” Bräutigam adds, explaining that the same thing could happen in other cities, should a company become hugely successful.

Data protection

The major area keeping technology lawyers in Germany busy right now is data protection. In April 2016 the EU approved the General Data Protection Regulation (GDPR), a piece of legislation that must be implemented by all EU member states by 25 May 2018. The GDPR replaces a previous data protection directive and is designed to harmonise data privacy laws across Europe, protect EU citizens’ data privacy and change the way organisations approach the issue.

Germany was one of the first member states to implement the legislation, introducing a Federal Data Protection Act in April. This law replaces the country’s previous Data Protection Act, or ‘Bundesdatenschutzgesetz’. Lawyers say that in some respects implementing the GDPR into German law has been quite simple.

“The GDPR from its basic principles is similar to the German regime which is in place,” says Schweinoch. Beiten Burkhardt partner Axel von Walter agrees.

“German companies used to the German regime are much more prepared for the upcoming GDPR requirements than, say, UK companies would be,” he says.

“There’s a German approach in this regulation.”

Elements of the GDPR drawn from German law include the requirement for a company to have a data protection officer.

Despite agreeing that the GDPR displays “very German thinking”, with many principles already contained within German legislation, Bräutigam contends that clients are not well-prepared for its implementation.

“They have to check their processes,” he explains. “There’s also a shift of burden of proof; they now have to show the documentation, so you need the documentation.

There are some challenges that are European rather than German. These are real challenges also for our German clients because they’re completely new.”

These principles include the ‘right to be forgotten’ and data portability. Bräutigam claims these are challenges for clients.

However, the GDPR could also offer opportunities for Germany.

“The German data protection regime has been quite restrictive which is quite a selling argument for Germany as a hub for services such as cloud services,” says Luther’s Sengpiel. “If they comply with German regulations everybody’s happy to use programs in the cloud if they’re hosted in Germany or some other European country.”

Hengeler’s Conrad says for his firm data ownership is a bigger issue than the GDPR.

“We’re doing a number of cases that have key questions involving how you deal with
protection in the wider sense, and questions of liability or ownership of data – questions of data ownership are becoming much more important,” he says.

Kempermann says the ownership debate affects all sectors, and also that German consumers are more savvy about data protection and ownership than those in other countries.

“German consumers are more data protection-concerned so you need to be more transparent and get the consumer to buy into your ideals more than in other jurisdictions,” he asserts. “If you want to be successful as a German start-up or a German industry using data you need to be transparent about it.”

Law firms staying ahead in the ever-changing tech market

German technology lawyers say industry sectors have dealt with the challenges posed by the constantly changing digital landscape with differing levels of success.

According to Beiten Burkhardt media specialist Holger Weimann, many in the media sector waited too long to get to grips with digital and this lassitude extended to other industries too.

“The traditional industries have been waiting far too long to be on top of the revolution
now,” says Weimann.

Lawyers themselves are constantly battling to stay ahead of their clients. Several of the big firms are contributing to city-focused or federal working groups. For example, SKW’s Schweinoch heads up the civil law section of an Industry 4.0 working group set up by the ministries for economic affairs and research and education, advising the government on how to help the digitisation of smaller companies. Hengeler co-founded an organisation that is looking at artificial intelligence and automation in the law.

“It’s important to know what’s going on, it’s important to know the law, what’s important today and what may be important tomorrow,” says Conrad.

Weimann agrees, adding: “We interpret our role in relation to our clients as a knowledge
interface centre. What we’re trying to do is use the know-how that we get doing work for our clients to the benefit of the clients as well, to show people business opportunities.

There are some challenges that are European rather than German. These are real challenges also for our German clients because they’re completely new – Peter Bräutigam, Noerr

“We’re the heart of the development so we can share our industry knowledge with clients who are coming into touch with these issues for the first time.”

His colleague at Beiten, partner Axel Lober, says: “We tend to hire lawyers who are interested in technology development and are already on top of technology developments when they start with us.”

Schweinoch says being at the forefront of a developing sector is immensely exciting. “The most exciting and at the same time demanding aspect is finding out how different business models can be implemented from the legal side,” he says. “That’s a large part of our business. We’re at the heart of the coming trends.”

Law firms themselves are also looking at digitisation – it was a word which was repeated time and time again by German firms and those in other European jurisdictions during research for The Lawyer European 100 2017 earlier this year.

Heuking has launched a legal technology working group internally to identify where and how it wants to use legal technology, but Kempermann says the firm is being cautious about how it applies this.

“Digitisation cost-benefit needs to be reasonable,” he says. “It’s expensive to develop a good app and you don’t want to go into the market with a bad app,” he points out.

But digital is an area that can also bring immense satisfaction. Noerr’s Bräutigam says he has seen it develop from first stages to the internet to Industry 4.0.

“This is the future and we have to work in the future,” he says. “I started in 1994 and there was a new animal called the internet – that was my thing. Now there’s Industry 4.0. For lawyers who really want to be challenged, this is the area to be in.”