Legal Tech and ChatGPT in Legal Practice: Can AI Provide Legal Services?

AI systems and digital contract generators can produce legal texts. Whether this constitutes a regulated legal service depends on how the system is used. The German Federal Court of Justice’s Smartlaw decision and the first practical experience with ChatGPT showed, as of February 2023, that automated contract drafting was not automatically an unauthorised legal service. The concrete facts, the type of legal review and the user’s expectations remained decisive.

1. Why ChatGPT changed the Legal Tech discussion

The German Federal Court of Justice’s decision on digital contract drafting of 9 September 2021 and the public release of ChatGPT on 30 November 2022 gave new momentum to the discussion about Legal Tech and artificial intelligence in legal practice.

Digital contract generators had already been able to create standardised agreements through a question-and-answer process. ChatGPT appeared to go further because it could generate text in natural language, respond to follow-up questions, summarise documents and implement requested changes.

The central question was therefore:

Can an AI system draft contracts and other legal documents, or does this constitute a regulated legal service under German law?

The answer does not depend solely on whether a legal text is generated. The relevant question is whether the requirements of a legal service under the German Legal Services Act are met.

2. The German Smartlaw decision

In its judgment of 9 September 2021, the German Federal Court of Justice held that a legal publisher could operate a digital legal-document generator. Users could create contractual and corporate-law documents through a question-and-answer system and stored text modules.

The court focused on the fact that the software had been programmed for typical factual situations and assembled standard contractual clauses. Individual circumstances beyond the usual case were not taken into account, and users therefore did not expect a legal review of their specific matter.

The decision is relevant to ChatGPT because it demonstrates that automated contract drafting does not automatically amount to an unauthorised legal service. It does not, however, answer every question concerning generative AI.

3. Digital contract generators and ChatGPT

A conventional contract generator generally follows a predefined questionnaire. For a German GmbH, it might ask for the company name, registered seat, business purpose, share capital, shareholders and managing directors. The answers are then inserted into a standard form.

ChatGPT, by contrast, operates through a dialogue. Users can ask free-form questions, submit follow-up instructions and request changes to an earlier answer. Whether this amounts to an individual legal review cannot therefore be answered solely by looking at the technical label of the tool.

The authors tested ChatGPT with documents for the formation of a real-estate GmbH, including a draft articles-of-association document, a list of shareholders and a commercial-register filing. The results were considered impressive and potentially useful as working drafts, but they still required critical legal review and adjustment.

4. The legal-services question under the 2023 discussion

Under section 2(1) of the German Legal Services Act, a legal service is an activity in a specific matter of another person once it requires a legal review of the individual case. Section 3 generally restricts the independent provision of out-of-court legal services unless permitted by the Act or another statute.

The following questions are therefore relevant:

• Is the system being used in a specific matter?
• Is it a matter belonging to another person?
• Does the activity require a legal review of the individual case?
• What expectations does the provider create?
• Is the system generating a general draft or giving an individual legal recommendation?

An AI system is not automatically a legal service merely because it uses legal terminology or produces a contract. Conversely, calling a tool a chatbot does not automatically make every use legally irrelevant.

5. The authors’ assessment at the time of publication

The authors took the view that their use of ChatGPT to generate corporate-law documents for their own economic purposes did not constitute an unauthorised out-of-court legal service.

Their reasoning included the following points:

• ChatGPT was not acting in a matter belonging to another person in that specific use.
• The authors used the system for their own purposes and under their own responsibility.
• ChatGPT did not present itself as a licensed lawyer.
• The system was recognisable as a research and text-generation project.
• Users could not reasonably expect a fully reliable legal review of their individual case.
• The generated documents were initially non-binding drafts.

The drafts therefore had to be reviewed for the parties’ actual intentions, legal coherence and possible errors before use.

This assessment is expressly presented as the authors’ view at the time of publication. It is not a blanket statement about every current use of ChatGPT or other AI systems.

6. Why the concrete use matters

The legal assessment may be different where an AI provider collects specific information from a client, assesses the client’s individual legal position and gives tailored legal recommendations.

The distinction may be illustrated as follows:

• General information: explaining what a German GmbH is or what an articles-of-association document typically contains.
• Internal drafting support: using AI to structure a first draft for a law firm or legal department, with human responsibility for review and use.
• Individual advice to a third party: assessing a client’s specific legal circumstances and deriving recommendations from that assessment.
• Automated output marketed as legally safe: creating an expectation that the result is tailored, legally correct or lawyer-reviewed.

The boundary cannot be determined solely by the technology. The workflow, the communication with the user, the actual service and its purpose all matter.

7. Impact on law firms and legal departments

The development of Legal Tech and generative AI is changing legal practice. As of the first publication, it was already apparent that repetitive tasks could increasingly be supported or partly automated, including first contract drafts, summaries, language revisions, standard communications and document comparisons.

This does not mean that legal work becomes unnecessary. Law firms should instead assess which digital tools can be used in a controlled, secure and quality-oriented way.

A blanket rejection of Legal Tech may be as problematic as the uncritical adoption of AI output. Expert human control remains essential.

Advice on Legal Tech and digital legal work

Stroschein & Makowka advises companies, law firms and legal departments on the legal and organisational issues associated with Legal Tech and artificial intelligence, including digital business models, contract generators, corporate-law documents and the use of digital tools in legal practice.