3 Geeks and a Law Blog

It all started as an innocent project to find a cheap way to conduct an online panel discussion, but it turned out to be a lesson in work place rules that left me shaking my head. First, the backstory.

I've been wondering how law firm summer recruiting programs are faring this year.

I wonder how closely partners are scrutinizing this year's crop of summer clerks for their ability to generate revenue rather than fighting other firms for over what was once perceived as a limited pool of talent.

I suspect that prior years' rush-type recruiting seasons are gone for ever more and that this year's young legal eaglets are competing with one another for diminishing spots.

Just a few years ago, many of us stood back in disbelief as we watched new lawyer salaries peak at $160K a year. I, for one, was horrified because I remember how wet behind the ears I was the first day I stood before a judge in a court room full of onlookers. I just wanted to fall into a hole. Forget getting paid. I simply just wanted to disappear.

I tell ya, kids today . . . I had to walk through ten miles of mud up hill--oh, wait, that's another story. Sorry, got side-tracked.

What I am trying to say is that sometimes the ones left behind are just as hungry and just desperate enough to risk it all.

Because I am convinced that people that do well in law school are good at being in school; they have always done well in school and love being in school. We all know those kids and how they do in real life. Yeah, they may be the next brilliant geek that will brew up a million dollars in his or her garage. But the rest of us lawyers had our first real taste of losing our wits.

And from that experience, the rest of the class learned to cope with fighting and losing over and over again. Because, as any good wrestler knows, as long as you are still standing you cannot be beat.

So invoke my principle when reviewing resumes. Check that they are graduates of an accredited law school. Set aside any resume that indicates a steady work history and solid scholastic achievement. It is a given that my "interview" pile indicates the characteristics of a lawyer: positions of leadership, civic pride and community activities. It is assumed that all of these kids are bright--they have all passed the LSAT and were all admitted into law school.

So when I interview, I interview for character. I seek to find the character of a man or a woman that makes a great lawyer: an innate drive to fight for justice, a need to to help others and the ability to lead a battle. These types of individuals are the sorts that we need now: men and women of character.

So don't be so quick to judge a feisty kid from a lesser known school and so-so grades--they just might have the drive and the ambition to be everything you wished you could be. Let them in and show them around. You just may be introducing one of the next greatest lawyer of our times.

Having spent considerable time working with Alternative Fee Arrangements (AFAs), I am starting to see a more defined path for how AFAs might evolve within law firms. So based on my experience and all I have read about AFAs, I predict the following evolution for law firms:

1) Setting Price. Lawyers and firms are currently struggling with setting fees based on work (and value) and not hours. These prices are ultimately guesses (like all prices are), with some being more educated guesses and some just coming from the ‘gut.’ At this stage lawyers are learning that even with a wild guess, they are not risking the entire fee, but only the margin of error.

The knowledge systems involved at this stage of evolution include time and billing, as that is the primary source of information on which to base good guesses.

2) Tracking Profitability. Once a firm has a number of AFAs in place – time will pass. And with the passage of time they will begin to see how good their guesses were. As expected, some engagements will be more profitable than others. As this knowledge source grows, patterns will emerge as to which types of matters and fees are more profitable than others.

As previously noted on 3 Geeks, there is an emerging market for systems that address the question of profit tracking. These knowledge systems, as advertised, will allow firms to create, model and monitor matter budgets. As their use becomes more wide-spread, it will become apparent that firms can actually impact the profitability of engagements through-out the life of the matter. Red flags will come up during an engagement that will signal the need for altering behavior - which brings us to our third stage of evolution.

3) Project Management (PM). Once a firm sets a price and can carefully monitor performance-to-budget (a.k.a. price or fee), they will want to improve that performance. Here is where PM will come into play. Good lawyers have skills at case management, which involves managing to legal outcomes. In contrast PM is managing to a defined scope of work with known resources within a given time frame. This approach allows for changes in any of those aspects, but fees are then typically revisited.

Currently PM resources within a law firm (if they exist) are either in IT or in some form of practice support. The challenge with utilizing these PM resources is they lack the technical/legal knowledge related to case management. What is needed are project managers with the technical expertise to manage legal matters (both litigation and transactional). This begs the question: Where will this PM resource come from?

This is yet to be seen. However, I predict that when this resource comes into play, we will be witnessing the actual transformation of law firms that everyone likes to talk about. PM in play will be a recognition that law firms need to function like a business, to both their benefit and their clients’.

At least that’s the way I see it.

Most of the alternative fees posts on 3 Geeks are penned by Toby. However, after reading the articles on Seyfarth Shaw implementing a Six Sigma method; O’Melveny Myers’ leaked alternative fees memo; and Mayer Brown and Reed Smith’s discussion of alternative fee agreements, I wanted to jump in on how these changes in how the firm generates revenue affects the three-way relationship between the online legal research vendor, the law firm, and the client.

Over the past 25+ years, the model of passing through the expense of online legal research to the client created a system where operating profits for the vendor were over 30%, and law firms felt immune to the total costs of using online research. Clients were paying the majority of the costs of online research, but had no voice in setting the price negotiated between firms and the vendors. Clients were told that online research created a more efficient way for lawyers to conduct research on their behalf. The idea presented to the client was that online research costs saved the lawyer time, and thus saved the client money in the end. Law firms and online legal research providers were so comfortable with this model, that many signed multi-year contracts where the vendor would build in automatic price increases of more than 10% a year.

At one time, it was common for firms to charge clients more than they were paying the vendor for the online research product, and were able to make an additional profit. When the Model Rules of Professional Conduct prohibited these charges with Rule 1.5, many firms implemented a 100% recovery model where online resources could only be used if the charge could be passed to the client. That meant when a lawyer needed to do business development research, pro-bono research, or professional development research, they had to go to the books, or other resources where the costs of these resources were not passed along to clients.

Although there are still a handful of “100% Recovery” firms out there, most firms now isolate “client charges” separately from “firm charges.” Out of the librarians I (unscientifically) surveyed, most say that over the past 10 years, the percentage that the firm is paying out of pocket has steadily increased from under 10% out of pocket costs, to now almost 50% out of pocket cost. Firms are now scrambling to cut costs of online resources by either cutting subscriptions, or going back to models requiring that online resource tools only be used when that cost can be passed through to the client. With firms now considering alternative fee arrangements with clients, the model of passing online research costs to clients will come under even more scrutiny.

As firms start negotiating alternative fee agreements with clients, one of the items on the table is going to be online research costs. I imagine that firms will attempt to set up the agreements with the costs of online legal research being a variable rate outside the base cost of the agreement. In other words, keeping the status quo. Clients are going to want to see these costs built into the agreement as a set amount, a capped fee, or will demand that the firm include any necessary legal research into the agreement with no dollar amount listed at all.

Alternative fee agreements and the general move away from the generic hourly-billing rate will mean that firms will need to have a different negotiating strategy with the online legal research vendor. No longer will online research be seen as a pass-through cost to the client. Because the client will not be paying the attorney by the hour, they will not buy the idea that online charges are saving them money because it saves the attorney time. Clients will say that firms will need to bear the burden of the online research because, if it truly saves them time, then that means they should be able to spend less time on the client’s matter, thus the savings is really a benefit to the firm.

For the vendors, the fact that firms are seriously considering changing the methods of how they generate revenue means that vendors have to reevaluate how they negotiate the next contract. As clients bear less and less of the cost of online research, vendors cannot come to the negotiating table with the underlying idea that their service saves either the firm or the firm’s clients money. Those 30% profit margins are not sustainable as alternative fees become a larger percentage of how law firms generate revenue. Firms will finally come to the negotiating table willing to cut services, and demand that the built in annual increases end. The days of online legal research contracts based on the idea that the costs will be passed along to a third party are numbered. It is going to be interesting to see how it all unfolds.

While skimming through my RSS feed this morning, I ran across Scott Greenfield's post called "This (pointing) Is A Book". Scott discusses the issue of libraries slowly disappearing and being replaced by technology like the Kindle. He also mentions that the Millennial Generation has a general distaste for physical books, that this is a major flaw in their development, and that those that have electronic collections rather than books have no soul.

I don't know, Scott... a lot of the books I have on my shelf, I "intend" to read some day (especially those from the Dalai Lama and former Presidents), whereas all of the books I have in my Kindle I "have" read. Don't get me wrong, as a librarian and a GenX'er, I do appreciate personal library collections, but I've found that many (especially people with large personal collections) view their libraries as piece of art rather than information resources. Judging a person's soul by the library they collect is like judging how good a lawyer is by the suit they wear to court.

"Always and never are two words you should always remember never to use." Wendell Johnson

A recent 'debate' on Ron Baker's Verasage site got me thinking about hourly versus value or fixed fee pricing. The substance of the debate between Ron and Colin Jasper focuses on whether hourly billing is ever justifiable. As reflected by the above quote, I am skeptical when someone claims you can "always" do one thing, or "never" do another. So I respectfully disagree with Ron on this one, noting that it is not the law firm who will decide if hourly billing is the right option, but the client.

Where I agree with Ron generally is that fixed fee pricing isn't rocket science. Engineers, architects, construction companies, even plumbers are service providers who have been doing this for years. As a provider, you develop a scope of work and then give the client a price for it. From my growing experience in dealing with alternative fees, I can tell you the scope of work effort is the part outside and in-house counsel struggle with the most (alluded to in Colin's reply to Ron). For years both sides have used this problem/challenge as an excuse for not having fixed fees. The common reason was that "there are too many variables" to possibly develop a scope of work for a matter. Although lawyers don't use the term 'scope of work' they are referring to their inability to define the parameters of a legal matter due to outside influences. This reasoning applies to both litigation and transactional matters.

But let's take a pragmatic look at this approach. At the outset of a case it may be very difficult to develop a useful scope of work. At that point, many critical unknowns may exist, like opposing counsel, jurisdiction, judge and most of all, the complete facts of the matter. In contrast, at the end of a matter all of this is known. So the question becomes: At which point in a representation do we know enough about the matter to develop a useful scope of work?

Even the well-known ACES model from Jeff Carr provides for a period of time for lawyers to gather the relevant information before they give a hard budget for a matter.

So based on numerous alternative fee deals, I predict something in the future along these lines for value pricing legal services:

1. Matter comes to law firm
2. Law firm and client agree to an investigation stage. The fee for this stage may be fixed or hourly, based on the clients' needs and the complexity of the case. On some matters this may be done for free.
3. At the completion of that stage, the law firm provides a scope of work and fixed fee for the matter. There may be phases priced out separately (e.g. trial).
4. If events drive work outside the scope:
   a) The scope is redefined and the price re-set, or
   b) A fee is set for the out-of-scope work (hourly or fixed as preferred by the client)

The more routine the work, the more likely all aspects can be fixed fee (but not necessarily). The more complex and 'bespoked' the work, the more likely hourly billed components will be utilized.

If something has changed in the legal market (and I believe it has) it's that the excuses for developing useful scopes of work will no longer be tolerated. What will (and should) be tolerated are efforts to bring focus to a legal matter to properly develop the scope. These new efforts will bring a high value proposition to clients and lead law firms to more profitable structures.

To reiterate, the hard part of value pricing and alternative fees will be developing useful and effective scopes of work. This is a new thing for law firms, and it will lead to more and deeper changes in the profession.

One of the bad things about a down economy within a BigLaw library is that you need to reevaluate the way you are spending money on your resources. One of the good things about a down economy within a BigLaw library is that you need to reevaluate the way you are spending money on your resources. In the previous post, Mark Gediman mentioned:

“…for this discovery of yours [writing] will create forgetfulness in the learners’ souls,
because they will not use their memories;
they will trust to the external written characters and not remember of themselves.
The specific which you have discovered is an aid not to memory,
but to reminiscence,
and you give your disciples not truth,
but only the semblance of truth;
they will be hearers of many things and will have learned nothing;
they will appear to be omniscient and will generally know nothing;
they will be tiresome company, having the show of wisdom without the reality.”

“… for this discovery of yours [Google] will create a laziness in the attorneys' souls,
because they will no longer desire to use their research skills;
they will trust to the external Wikis and Blogs rather than remember their training.
The results that the search engine returns through the use of a few keywords is not adding to their skills,
but rather diminishes their abilities,
and the answers they receive are not authoritative,
but only attempt to give the appearance of authority;
they will achieve millions of results and will skim the top few;
they will think they are searching all of mankind's knowledge,
but in truth will barely scratch the surface;
they will tire of the true researcher,
as they believe the wisdom of Google is the new reality.”

For reasons I won't go into now, I don't watch TV. If I can't watch it online, I'm not doing it.

So when the President was inaugurated or when he was giving an important speech, I watched it online via streaming video.

Tonight I missed Obama's speech to the Joint Session. And when I went onto C-SPAN, they pulled the video while I was watching it (it is up now).

So I opted to download his speech and read it (as an aside, I will continue to do this in the future--it only took 15-20 minutes to read).

Anyway, my point is this: the President does not have very good grammar skills. I must have spotted about 10 typos.

Now before you start thinking (if you haven't already), "what does this have to do with online legal marketing," let me explain.

Everything.

Due to the demands and expectations of our "get-it-now" culture and the speed of technology, more web content than ever before is now being posted on a daily basis. The Online Publishers Association reports that, in July, the average online user either read or posted content on over 1,000 pages--let's be conservative and say the average user wrote 300 pages of content. It could be a tweet, a blog, web content.

This means we are writing just as much as we ever have but even more people are reading what we have written. The need for proof-reading is at an all-time high.

Which brings us to the law: lawyers and law firms are judged by their legal writing skills and, consequently, grammatical mistakes are not well-tolerated.

But what I have learned in my business as an internet marketer is that mistakes will happen. All the time. So what I have taught my staff is one of my favorite "Lisa-isms": "We are not perfect, we all make mistakes. All I ask is that you fix it."

So I was greatly comforted to find that even the President of the United States has problems with grammar. I do too. Despite the fact that I majored in English Literature, most of the grammar I learned was from on-the-job training.

So Mr. President, on the behalf of legal online marketers every where, I thank you.

P.S. Another favorite "Lisa-ism": "everything is fixable on the web."



Photo courtesy of WordPlay at http://hubpages.com/hub/2008-election-clipart-Obama-McCain

Coming on the heels of our Gmail Waives Privilege dialogue, I came across even further evidence of the dangers of using free email systems like Gmail. As reported in the Washington Post and published by the Houston Chronicle, for only $100 you can buy the password to a any freemail account. The article explains how a 'woman scorned' contacted YourHackerz.com and was able to purchase the password to her "married boyfriend's" AOL email account. She followed that up by securing the passwords to people he emailed who used similar accounts.

We at 3 Geeks are aware that a number of state bars have opined that email has a reasonable expectation of privacy and as such is ethical to use when transmitting confidential client information. In part, the reasonable expectation comes about since it is illegal to intercept email. However, the article points out:

Federal law prohibits hacking into e-mail, but without further illegal activity, it's only a misdemeanor, noted Orin Kerr, a law professor at George Washington University and a former trial attorney in the Justice Department's computer crime section.

Wow ... a misdemeanor.

The feds usually don't have the resources to investigate and prosecute misdemeanors, Kerr said. And part of the reason is that normally it's hard to know when an account has been compromised, because e-mail snooping doesn't leave a trace.

Ethics issues aside (which still need to catch up with reality) lawyers should have their eyes VERY wide open when using these email services. In addition to email being inherently insecure, hacking freemail accounts is now as easy as buying a book on Amazon. As we've noted previously, the higher duty of care lawyers hold demands a higher level of practice.

Previously on 3 Geeks, we posted on the dangers of using free email services like Gmail. The basic argument is that by granting a property right to content (a.k.a. client information) to Google, lawyers risk of waiving privilege. We had an interesting set of comments come in from this post, exploring how serious this problem is. Some people thought it wasn't a problem at all, since Google is using machines to read your content. Others thought it was similar to FedEx reviewing packages for safety. My position is that the granting of rights to your clients' information to someone else (be it Google, Yahoo, etc.) on its face creates an ethical issue for lawyers.

To add fuel to this fire, I saw two posts this week on a related subject. In July the New Jersey courts released an opinion (Sengart v. Loving Care) where an employee was using their company laptop to communicate with their lawyer about possible litigation against the employer. At the core of this argument is that fact that employers retain property rights to any information that resides on their computer equipment. Most employment policies inform employees about this, such as the one from Loving Care.

E-mail and voice mail messages, internet use and communication and computer files are considered part of the company’s business and client records. Such communications are not to be considered private or personal to any individual employee.

Compared to Google's TOS:

By submitting, posting or displaying the content you give Google a perpetual, irrevocable, worldwide, royalty-free, and non-exclusive licence to reproduce, adapt, modify, translate, publish, publicly perform, publicly display and distribute any Content which you submit, post or display on or through, the Services.

Google notes that this right is for the sole purpose of proving the Services. However, that is not much of a limiting factor. Google uses this right primarily to direct ads to its users. But I don't see anything in the TOS that limits them to this behavior.

Although Sengart and the Google TOS situations are not entirely similar, they share that core issue of giving property rights to content to a third party in exchange for the use of the technology. The one key difference with Sengart is that the client is the one who compromised the ownership of the content. Frankly, it's the client's right to do this since it's their content. But even in that situation, a lawyer would be wise to warn clients about using email in such a way that privilege is compromised.

The legal profession holds itself out as having higher duties of care when it comes to securing client information. I suggest that using free email services with a TOS like Googles' runs counter to this professional responsibility.

A lot of us in the law firm library field have been asking for database and resource "monitoring" software for a few years now. Most of us have had our requests rejected because the cost of the software was seen as too high, or the benefits from such software were seen as too low back when the economy was booming. Now that law firms are cutting staff, attorneys, resources and salaries, some of those firms that rejected the monitoring software now understand the potential benefits that we've been talking about.