Who’s Who Legal brings together Peter Bräutigam of Noerr and Clara-Ann Gordon of Pestalozzi to discuss key issues affecting the IT sector, including data protection, outsourcing, cloud computing and the balance between large and niche law firms servicing the market.
WWL: Data protection and transfer continues to be a dominant topic in IT law, with intensified regulatory scrutiny and big businesses eager to seek advice on compliance requirements. The proposed European General Data Protection Regulation is one example of efforts to address the complexity surrounding the issue. Are there any plans for domestic legislation on data protection in your jurisdiction and have you seen a lot of work in the area?
Peter Bräutigam: Although domestic legislation on data protection is focused on the European General Data Protection Regulation, the German government recently brought in a draft bill concerning IT security. This bill obligates operators of critical infrastructures (ie, finance, telecommunications, energy) to take adequate measures to ensure a high level of IT security in order to prevent cyber attacks targeting the backbone of the German economy. This, along with the actions of the authorities (eg, the decisions of the Düsseldorf working group) and issues such as data loss, data leaks and latest global surveillance disclosures, led to an rapidly increasing need for advice on data protection issues in recent years.
Clara-Ann Gordon: Since Switzerland does not belong to the EU, we are not obliged to implement any EU regulations and laws. Nevertheless, the Swiss Federal Data Protection and Information Commissioner (FDPIC) closely follows the developments in the EU legislation procedures and it is to be expected that the new EU regulations will also be imported in a similar manner to the Swiss Data Protection regulations – as such has happened with the existing laws. Accordingly, the FDPIC has just confirmed that the Swiss Data Protection legislation is in line with the ECJ’s ruling on the right to be forgotten. However, there are no specific plans to specifically address the matter of compliance in Swiss IT or data protection laws. The current legislation covers this sufficiently. In practical business terms, we are seeing a large increase in work regarding, for example, company internal audits on their data processing procedures in order to be compliant with the Swiss Data Protection Act. This does not only include the review of the current company internal data processing procedures, but also the contractual side (ie, review of data protection notices, notification of authorities) and, for example, the implementation of whistle-blowing hotlines, etc.
WWL: Many IT specialists have referred to increased outsourcing activity in the past two years, with many agreements related to cloud computing. Has this been the case at your practice, and can you highlight any other major trends currently affecting your work in the IT sector?
Peter Bräutigam: Yes, it is true that the outsourcing activity increased with many cloud computing agreements. As BITKOM’s Cloud Monitor 2014 (bitkom.org/de/publikationen/38338_79386.aspx) shows, 40 per cent of German companies do use cloud-computing services. Additionally, 29 per cent of the questioned enterprises responded that they are planning to use cloud services in the future. However, recent revelations concerning the surveillance practices of foreign intelligences destroyed trust in cloud services and resulted in a setback of the growth of the cloud market. Nevertheless, companies are not willing to forgo the advantages cloud services offer. In order to regain trust, IT lawyers are now in charge to objectify recent discussions. Besides the surveillance of enterprises by foreign authorities, other cybersecurity risks such as hacking or denial of services are of great importance for clients. Additionally, we identified data protection issues like data retention and big data as topics. But also e-commerce and in particular digital business brings new challenges for IT lawyers as new concepts and whole ecosystems rose over the last years.
Clara-Ann Gordon: I can confirm this trend. Since many multinational companies have headquarters in Switzerland and everybody is trying to economise on expenses and accordingly streamline their company internal procedures in the fields of HR, finances etc, we are seeing more and more companies moving entire sectors to cloud-based solutions. Only in the banking sector are clients still more reluctant to move parts of their customer business to the cloud – mainly due to the regulatory hurdles. Another trend is for service integration and management (SIAM) agreements, where the client separates the services required into different groupings and procures them provider by provider. This is done mainly for cost-efficiency reasons.
WWL: There have been increasing numbers of niche firms in the market in recent years, which are appealing to small start-up companies due to their modest fees and high degree of specialisation. Is this something you have noticed, and what effect has it had on the legal market? Is there increased competition among specialist IT firms?
Peter Bräutigam: Ever since the need for specialised IT lawyers emerged, big law firms (such as Noerr) and niche firms coexisted and shared the market. Some niche firms concentrate on advising smaller enterprises and customers, while others focus on advising companies on IT issues in specialised areas.
When companies are planning to launch an IT project, they make their decision – whether they hire a niche firm or a big law firm – dependent on criteria such as pricing, volume and the importance of the project. In addition, many IT projects involve several fields of law such as IT law, labour law and tax law. In this context, it is only (premium) full-service law firms that are well positioned to cover the whole range of advice needed. Having said that, there is no increased competition between niche firms and big law firms in Germany. Rather, they serve different markets.
Clara-Ann Gordon: Yes, we are also seeing this trend in Switzerland. On the one hand, these niche firms are certainly in a position to offer modest fees and a high degree of specialisation; on the other, hand, they are often not full-service law firms. Typically, start-ups do not only have IT-related questions, but also important tax (including VAT), corporate and contractual law issues. The small niche law firms are not in a position to offer all of these services. This is, in my view, a disadvantage on their part. Additionally, they often do not have an international network of lawyers if an international matter pops up. Finally, due to the lack of manpower, they cannot take on several outsourcing cases at the same time and accordingly do not show the same track record as a larger, full-service law firm. The same applies when their client is faced with IT litigation.
WWL: Given the increased technological developments in the sector and complexity involved in outsourcing transactions, are firms looking to build their practices in response to the demand for advisory work? In your jurisdiction, has the need for leading expertise been reflected in greater lateral movement among firms?
Peter Bräutigam: A few years ago, many of the global player law firms left the IT market head over heels. During this time, we experienced a great lateral movement among law firms, when highly specialised experts in IT law chose to leave their law firms. Many of these specialists founded their own niche firm; others, such as our Frankfurt partner Joachim Schrey who left Clifford Chance in 2009, chose to change law firms and contribute their high expertise and extensive experience to a new environment. Nowadays, we see a stabilisation of the market; greater lateral movements in the IT sector have become exceptional.
Clara-Ann Gordon: In Switzerland outsourcing transactions are increasing, and are a very welcome source of income streams for any law firm since the negotiations are often quite complex. When pitching for a new outsourcing case, it is inevitable that you must submit your track record. Law firms that cannot provide this will not be considered for these cases. On the other hand, not many lateral movements are seen on the partner level in Switzerland. We have had some lateral movements in the IT field over the last few months; however this was due to other circumstances (for example, mergers or spinoffs of existing law firms).