(This is part 4 of a 4 part series.  You can download the entire SOLP 2013 below.)

Image [CC] – Jeffness

The newer the legal pricing role, the more likely it is to be defensively motivated. By defensive, I mean the pricing role is narrowly focused on holding the line on profits. The more mature is the pricing role, the more likely it is focused on proactive business development efforts. But even in the most well established legal pricing roles, the offensive push is still very limited. My best guess is that 90+% of legal pricing professionals currently focus almost exclusively on the defensive side.

This is an indication that the legal pricing role, unlike pricing roles in other industries, has not yet matured to the point that it can focus on maximizing profit. Instead it is more about holding onto market share and hopefully holding onto some reasonable level of profit margin.

For firms that are just now contemplating whether or not to create a pricing role, consider this: Your firm is competing in the same market with firms who already have this role. If you do not have someone in this role, your partners are probably agreeing to whatever pricing option clients request in order to hold on to the work. If, as is also likely, your firm still has a compensation scheme for partners based on their hours billed and revenue realized, then you are actively rewarding your partners for new work, regardless of the profitability of that work. In effect, you may very likely be  rewarding your partners for losing money.

This caution highlights the most important function of a pricing role, that of developing a rational pricing strategy. Even a firm with an exclusively defensive pricing approach, is at least facing the challenge. Given the chaotic nature of legal pricing, a first level goal needs to be developing knowledge about a firm’s current pricing world. This means capturing pricing deals as they occur and monitoring them over time. Without this basic knowledge, firms will not learn and improve their pricing strategies over time. Or as I like to say: The hole will only get deeper.

Conclusions

A small group of legal pricing people got together in late-2011 to establish professional development and networking opportunities. By May 2012, there were 12 people in that group. More than a year later, that number has surpassed 200. The rapid growth of this pricing group is evidence that pricing will be an ongoing function at law firms for the foreseeable future. The members of this group reflect the state of legal pricing at the personnel level. The roles for each person vary greatly in their focus and some members, including a number of CFOs, only perform pricing functions as a subset of their duties. Despite such wide variability in the role, we have reached a point where a large firm without a pricing role of any kind is clearly out-of-step with the rest of market.

In addition to law firm pricing personnel, this group also includes a number of people who work in client legal departments. This reflects the growing need for both sellers and buyers to understand legal pricing. Active client participation in this process is a key requirement if we ever hope to be able to better align legal service value with price.

While the current state of legal pricing is definitely chaotic, chaos  is either a trial to be endured and overcome by individuals, or an opportunity for a community to rebuild their world as it should be. I choose to believe the latter and I hope this paper might be the first step toward understanding and eventually taming the chaos of legal pricing.

(This is part 3 of a 4 part series.  You can download the entire SOLP 2013 here.)

For the last fifty or sixty years, law firms have used the infamous hourly billing rate pricing model almost exclusively. More importantly, during this era they had the luxury of constantly raising prices under growing demand. This meant their revenue was easily outpacing their expenses, leading to a great run of higher and higher profits. The result was a profit maximizing outcome, albeit, without requiring much of a pricing strategy.

With the economic downturn in 2008, clients started pushing back on price increases, leading firms to explore other options for maintaining their bottom lines. Having had such a great run prior to this, many law firm owners (we’ll use the common term “partner” here) are not well versed on how their firms actually generate profit. In response, firms are finding it necessary to educate partners on what exactly makes their work profitable.

The result of these efforts is a core re-examination of how work is done within a firm, or more directly – who is actually doing the work. The punch-line for partners is “The more workers work, the more owners profit.” For an economist, or for pretty much any other business person, this statement is a truism. To paraphrase Karl Marx, the owners benefit ”by sweat of the workers’ brow”. Yet law firm partners often struggle with this concept. Since partner billing rates are higher, it seems logical that revenue from partner time is more profitable than revenue billed by associate employees charging lower rates. This is a logical fallacy. Partner rates may generate more revenue, but the cost of that revenue in partner time is so high that the profit margin is much lower or likely negative. It seems like a paradox, but fewer billable partner hours per matter translate to higher partner profits.

This highlights a tension within and challenge for law firms. As they embrace more sophisticated pricing approaches, they will also need to adjust their compensation systems to reward profit maximizing behaviors. In the old model of regular price increases and constantly rising demand, partners were rewarded on hours and revenue. But in this new reality our compensation schemes must instead shift to rewarding revenue and profitability.

The Pricing Professional Role

It is not surprising that firms faced with this new economic reality, would seek professional pricing guidance, but there is a very broad range of pricing professionals across the sector. Some firms have entire dedicated staffs with broad ranging roles, while other firms are just beginning to consider creating such a function. Naturally, AmLaw 100 firms, with the most clients and the largest profits at stake, are the most likely firms to have a “pricing” role, but even at that level, such a role is not ubiquitous. Moving down market, the pricing role disappears relatively quickly. There are some pricing professionals in the AmLaw 200 layer, however, here pricing is typically done by people who have other primary roles, often times an Executive Director, a Chief Financial Officer, or in some cases, even a partner.

There is not even consensus on which department this pricing role belongs in.. In some firms it is marketing, in others it might be finance. Personally, I have performed this role in three different firms and in four different departments. Part of the challenge is that the role does not neatly fit within current law firm organizational structures and, as highlighted by the range of functions below, the role obviously utilizes resources across many different departments. In its highest form, the role needs to be client-facing – since pricing is one of the Four Ps of Marketing – and have direct access to the highest levels of firm leadership –  since the role is fundamental to the economic health of the firm.

To illustrate the chaotic nature of the pricing role itself, it may be worthwhile to explore each of these functions in greater detail. Some pricing roles may span across all of these functions, while many are responsible for only one or two.

Client Fee Discussions and Negotiations: This function includes talking directly with clients about fees and pricing options. The initial goal is to ascertain a client’s specific concerns related to fees, so that best-fit pricing options can be developed. Later in the lifecycle, these conversations can be negotiations over fee amounts. Finally, these discussions should be on-going over the course of a matter or the lifetime of a client relationship, to make sure pricing remains aligned with the client’s needs and consistent with their perception of value.

Partner Coaching: Many lawyers prefer to avoid fee conversations all together, but as the strongest point of connection with the client is often the relationship with the partner, it is usually beneficial to keep the partner involved in the discussion of fees. Most partners will benefit from and appreciate coaching on how to approach the subject of fees with clients. This effort usually involves giving general fee conversation guidelines and, when appropriate, specific advice on how to get a client to share their fee concerns. Another basic skill lawyers often need help with is, somewhat ironically, negotiating fees. Too often a lawyer will just accept a client’s price request, when an alternative proposal might lead to better results for the client and a better deal for the firm.

Budget Building: Many pricing situations require some type of a budget. Budget building can take many forms, depending on the demands of a client and the necessary level of precision. Many times lawyers like to utilize past matters as budget templates or even to develop templates for ongoing use. As might be expected, project scoping efforts come into play here as well. From experience, budget building is more often a high-level effort, only going into task-level details as needed.

Pricing Development: With knowledge of a client’s fee needs and with a general budget developed, then various pricing options can be determined. The typical drivers for any option are: cost savings, predictability (i.e. over a given time period), certainty (e.g. for a matter or group of matters), or even risk-sharing, where a firm takes on some level of fee risk as part of the arrangement. This function can many times be more art than science. This is where the pricing role benefits from creativity.

Profit and Scenario Modeling: With a pricing option in place, or as part of that effort, matter staffing needs to be determined. With a known breakdown for how a deal will be handled and managed, it can then be modeled for profitability. At this point various scenarios can be modeled to see how profit can be maximized for a given piece of work.

Monitoring: Once a pricing deal is in place, monitoring is the function that keeps the lawyers updated on the financial status of the deal. This includes providing the partners with regular updates for performance-to-budget numbers and other metrics.

The Rest – Process mapping, process improvement, project management & practice innovation: Many legal pricing people are being drawn into various practice re-engineering roles. Market pricing pressures are driving lawyers to modify how they deliver services. Lawyers are asking their pricing people for help in this effort, often because we are the ones that got them into the situation in the first place. In the long-run these needs may drive the creation of separate and more focused roles. In the short-run, I expect to see more pricing people pulled in this direction.

The wide range of pricing functions within firms and the wide range of adoption of pricing roles by firms, throws the law firm side of the market into as much, if not more, chaos than the client side. A very uneven playing field means it is hard for the players, both inside firms and out, to understand the game. Players attempting to function rationally are confronted with others playing wildly out of control and the result is extremely irrational pricing behavior by law firms.


(This is part 2 of a 4 part series.  You can download the entire SOLP 2013 here.)

In-house legal departments are now facing the same cost savings pressures as other corporate departments. In the past “legal” was able to largely avoid this conversation with leadership. They would dodge the question by insisting that they could not predict the number of lawsuits or deals they would have and therefore could not provide an estimate of legal fees. After all, without this base-line budget, how could they possibly reduce it? Consequently, outside firms were long spared the indignity of managing costs, and the cognitive strain of lowering rates.

During the economic downturn of 2008, when leadership broached the subject, they no longer accepted the standard answer. One CEO commented that “the legal department was the last bastion of cost savings” for the company. The issue was not the amount of legal work, but instead the cost of it. Now the General Counsel (GC) has to toe the same line as every other department head; minimize the costs and increase the productivity.

Discounts

The first and most obvious line of attack for in-house legal departments to reduce legal spend was to request discounts. In recent years, many have significantly increased pressure on their outside firms for larger and larger discounts. As one lawyer commented in 2010, “15 is the new 10” as in a 15% discount off of standard rates. (I have heard that some GCs even attend conferences and write the level of discount they are getting on their name tags for all to see; a spontaneous market level reaction to the lack of clear pricing across the sector.) Another type of discount is the rate freeze. As firms make their annual move to raise rates, many GCs are asking for, or in some cases demanding, they stay the same.  Discounts and freezes are an easy and quantifiable way for GCs to demonstrate the appearance of savings to corporate management.

Distrust

Another market level reaction (in addition to the Conference Name Tag Exchange) is a general and growing distrust of outside firms’ billing practices. As budgetary pressures mounted, clients began focusing on very specific aspects of legal pricing that they deemed “abusive.” One easy target was billings from first-year associates. A number of clients viewed this as training; something for which they believed they should not have to pay.. In many cases, the backlash against paying for first-year hours may stem from the public awareness of young lawyers’ salaries thanks to the lock-step increases across the industry. At $160,000, first-year associates often make higher salaries straight out of school than many senior in-house attorneys, plus they get additional bonuses for billing lots and lots of hours, which only adds insult to injury. Unsurprisingly, first-year associates have become a lightning rod for client anger and distrust.

AFAs and RFPs, PDQ

Some clients have continued experimenting with Alternative Fee Arrangements (AFAs) and have expanded their use of Requests for Proposals (RFPs) in securing legal work. Here they often ask for fixed fee proposals in order to compare pricing between competing firms. This effort has led to market drops at the fee level for certain types of legal work, such as patent litigation, where fixed fees, or fixed fees per phase – and in some cases fee caps (hourly billing with a ‘not to exceed’ amount) – have been more widely adopted. However, since in-house legal departments have never before faced the challenge of defining the scope of a matter, many RFPs lack a useful scope. Consequently, too many RFPs are vaguely worded or provide outdated metrics with an eye towards getting competitive bids from various firms. Many firms struggle to give coherent responses to these RFP questions and too often this results in completely incomparable bids to the same RFP. One large client confided in me that they have never awarded work under their RFP, because they had no clear way of choosing the lowest cost or best value firms.

Of course, these examples are from the more savvy clients. If you look at the broader market, you will find a very wide range of adoption levels. Some clients are simply implementing the suggestions they have read in the latest magazine article (e.g. “Ask for a fixed fee!”). Others have entire teams and large scale efforts focused on overall savings (e.g. Pfizer Legal Alliance). While some have not yet even begun asking for discounts.

Procurement

As in-house legal departments struggle to understand their legal spend and attempt to bring it under control, the corporate procurement department has increasingly been present in legal pricing discussions. Procurement often gets involved at the request of the legal department , but occasionally at corporate leadership’s insistence. In the long run, this effort should produce measurable results, however, there are numerous challenges facing procurement when evaluating legal services.

Procurement typically assesses current costs of a product or service on a per unit basis, and then works to lower that per unit cost. As I have already established, the legal market does not currently have a mechanism to set these prices, nor does it have a clear understanding of the “unit” for sale. This leads procurement to measure billing rates as the per unit cost of legal services, which may result in lower rates, but may or may not actually save the client money. And just as importantly, the risk factors of going to lower cost providers are not always factored into the equation. To procurement, a lawyer is a lawyer, much like a widget is a widget. Many procurement departments seem to be advancing to a better understanding of legal services, but it is going to be some time before these efforts play out. Absent market pricing mechanisms at the fee level, procurement will continue to struggle to find cost savings and then attain them.

One GC for a food services company commented that he was holding procurement at bay, since they may be good at reducing costs, but they do not live with the consequences. The point here is that procurement may have value, but the current level of chaos in the legal pricing market makes it hard to achieve that value.

Data Analytics

What most clients ultimately want to know is that a patent litigation will cost $X through the Markman hearing or that an acquisition will cost $Y for Due Diligence, and $Z to close the deal. But an acquisition service may have a price range of $10,000 to $10,000,000 – from experience, that type of fee range is not an exaggeration – and what drives the range is a combination of scope, size and client goals related to the deal. For the reasons outlined above, it may be impossible for a market to ever establish a fair price within that environment.

A lack of clear or consistent market pricing information has led many clients to begin looking for pricing information elsewhere. Many have started looking to e-billing vendors to use their billing data to determine a market price for a given service. The CT Tymetrix Real Rate Report is one example. Tymetrix has, by their own account, about 42 billion dollars in legal spend logged down the to time entry level. Services like this are attempting to analyze their data to determine average rates for categories of timekeepers, variances in rates by location, variances in rates by type of work, and fees per type of work.

I would caution both firms and clients to use this type of data very thoughtfully. This is not “market data” in the classical economics sense. It is pulled from relatively small samples with known and unknown biases. Relying exclusively on this data as a market mechanism to establish pricing would be unwise. However, this data might, on some level, give a sense of current legal prices, and more importantly, it may reveal how work is managed within firms. As clients are trying to lower legal costs, and firms are trying to keep clients happy, the real trick will be more cost-conscious management of legal work. This kind of data may provide real insights into how work is staffed and where efficiencies can be realized.

In summary, the client-side of the market is flailing about, grasping for ideas, latching on to any data they can find, and hoping for some level of rationality to emerge. But they are not the only players creating chaos while hoping for some sense of calm.


(This is part 1 of a 4 part series.  You can download the entire SOLP 2013 here.)

Friends, Romans, Countrymen! (8423468943)
IMage [CC] –  Frank Kovalchek   

Partners, Executives, CFOs, CIOs, CPOs, Marketers, and Legal Pricing Aficionados of all types, titles, and roles, I have come to report that the current state of legal pricing is absolutely chaotic.

There are three methods of dealing with a chaotic situation. First, the completely rational approach is to dig a hole, climb inside, and wait for the noise overhead to subside before coming out. Personally, I fight the urge to do that on a regular basis. The second option is to lower your shoulder and plow into the fray, driving hard and hoping beyond hope that the chaos has another side upon which you might one day emerge. This is the approach most of us are now valiantly attempting. And finally, you can stop pushing and seek a higher vantage point from where you can watch the chaos unfolding below. From there you can study the movement of the mob and look for patterns, repetitions, possibilities, and opportunities.

This State of Legal Pricing is my first attempt to describe our current situation from that higher vantage point.  From this modest beginning, and with the help of my colleagues and the community at large, I hope we can begin to calm the chaos and create a rational market for legal services.

The Current Legal Market

The market has fortunately grown tired of the Alternative Fee Arrangement (AFA) buzz-phrase-term and has begun to more properly focus its attention on the broader function of pricing. Pricing as a profession has been around for some time now and generally refers to the task of determining best prices for products and services in order to maximize profits. It should be noted, especially for those in the legal space, that profit maximization is not focused on a single sale. Instead it is measured at the firm, client, or product offering level. So for this discussion about the legal market, we will presume that the legal pricing function serves at that broader level, where prices attract customers and support the business.

Every market craves rational pricing. That is to say pricing where the buyer has some understanding of the value associated with their needs or the goods they are purchasing, and the seller has an expected revenue for each type of good or service. Unfortunately, the extreme range of services provided by law firms and the dynamic nature of the legal market itself have worked against the establishment of rational pricing for legal services at a product level.

The dynamism in the legal market comes about for several reasons. First, in my experience, there are not a lot of truly comparative legal service offerings from firm to firm, or even from matter to matter within firms. Litigation in a given category has a broad range of service types and pricing levels. From the highly complex to the mundane, prices vary to a significant degree. While we may eventually see fee-level pricing appear at the more commodity level for certain kinds of offerings, even there, we may never see a transparent market pricing mechanism.

Secondly, we don’t sell widgets. While there is a push for task coding of time entries as an attempt to establish pricing data on a per task level, a client does not buy one deposition, two filings, and a side of legal research. They buy resolutions to disputes. Even if we were to offer a fee per task pricing option, clients rarely if ever make purchasing decisions at the task level.

Suppose, for example, we set a standard price of $25,000 per deposition. Then in the course of a matter, we determined that a CEO or CFO needed to be deposed. Such a deposition would very likely require much greater resources and attention than the deposition of a mid-level executive.  Should the firm honor their “standard deposition” rate for the deposition of a CEO and perform a lot of extra work for free? Should the firm differentiate low, medium, and high level deposition rates? We are now descending a slippery slope hoping for a rational stopping point.

Third, even if universal task codes were adopted across the industry, and were used effectively, the per task market price would still not be achieved without establishing much more detailed market information. As a market we haven’t even determined standard case types at this point. How much resource will we expend to agree upon task-level pricing for one sub-type? In the process, we may commit a significant amount of industry resource to develop a standard number that ultimately has no meaning within the specific confines of any specific case.

A rational market does not ascertain useless pricing data. It has no patience for that. So unless clients start buying depositions rather than resolutions, there will never be an incentive for the market to determine a price for depositions. Even if the market could determine such a price, it would only be for a certain level and type and would not be universally applicable. I just don’t see the market needing that level of detail in product pricing especially when it struggles to find reasonable pricing mechanisms for much higher product levels (e.g. – the matter level).

The most likely outcome of any overt attempt to create something like a legal pricing market is that rational pricing behaviors will only appear within tiny pockets of the market. To some degree, we can already see this beginning to happen at the far end of the commodity spectrum (e.g. patent prosecution). It is reasonable to expect that this commodity pricing will “evolve up” within certain market segments over time, but I question how far up it will or can go.

Given this challenging market environment, tomorrow we will turn to the behavior of the market participants driving such chaos.


A couple weeks ago, Michael Robak guest blogged about his experience on Why ReInvent Law Was Not Just a ‘Preaching to the Choir’ Conference. There was, and still is, a lot of discussion on this Silicon Valley conference, both with the presentation model, and the content. Now you can see for yourself what all the buzz is about. The ReInvent Law Channel now has many of the six and twelve minute videos available for you to watch for free. Here are a couple of my favorites on the concepts of visualizing law (Joe Kelly), and who owns the law (Ed Walters.)

[Ed. Note: I had a great email conversation with my friend, Michael Robak, Associate Director of the Law Library and Director of Technologies at UMKC School of Law and all-around geek like me, about the Reinvent Law Silicon Valley 2013 conference. Long story short, I bluntly mentioned to Michael that the twitter feed was so full of the usual buzz words, and the usual suspects preaching to the usual choir that’s been going on for the last four to five years. Michael’s response was very thoughtful when he, and I’m paraphrasing here, said “Greg, you are stupid.” Well, if I had tried to rewrite his response, that’s all I would have remembered, so I asked him to guest post and elaborate on what he found valuable. So, thank you Michael for taking me up on the offer. -GL]

I attended the March 8, 2013 Reinvent Law Silicon Valley 2013 conference held at the Computer History Museum.  Once the conference started, I realized that my good friend, and premier Geek, Greg Lambert, was absent.  After the event, I could not resist sending Greg a note asking why he missed, what I thought, was one of the best events I’ve attended about the changes in the legal profession and  needed changes in both the profession and legal education.
Greg immediately responded, because I swear he is the model for some of William Gibson’s cyber protagonists, that he had followed the conference twitter feed and thought it seemed one of those events where it was kind of just preaching to the choir, and then the choir folks get all excited, and then….nothing would come of it…  And, to this, I responded that Greg…was wrong…. this was not one of those events.  What follows is a cleaned up version of that response: (in which I leave out references to certain past and future events which may, or may not, involve… good scotch, gin, wine, or other such things)…
Greg,
Sorry you missed ReInvent Law Silicon Valley 2013.  You raise good points about this appearing to be an event where the faithful speak to each other, shout hallelujah, and then…nothing happens.
But I really must disagree.  Dan Katz  and Renee Newman Knake, along with Dean Joan Howarth of Michigan State University College of Law are, in my humble opinion, leading some game changing stuff. Have you had a chance to talk to Dan and Renee?   Dan and I share an Illinois connection, the late Larry Ribstein, whose work in the area has been incredibly influential to Dan and others.  I have been an ardent follower of Dan’s blog, Computational Legal Studies, and admire his works generally.   When I came to the University of Missouri – Kansas City from Illinois, I wanted, on some level, to create a niche like Dan had, but with a slightly different emphasis, from a 21st century librarian’s perspective. At last year’s ABA Tech show I connected with Dan and we had a great talk about how only a handful of law schools get this stuff.  And, as I told Dan, I am fortunate because my Dean, Ellen Suni, is one of that handful (and Bill Henderson will affirm!).  Plus, she understands my pitch about librarians as COO’s of Information for the Law School Enterprise.  And this is good stuff actually, very much “blue ocean” material.
I think what made this event different is that it brought clarity for a way forward for both legal education and for law. In my view, there is still confusion about how we discuss the “technology of law” and what it means exactly.. especially when you throw in legal research and associated tools.  And, it becomes even more confusing, when you throw in the whole discussion of Rule 5.4 as an inhibitor to the delivery of access to justice. 
This event had wholly new kinds of conversations about educating and practicing.  You are right on some level, there were people there who were reinforcing each other’s views,  but Aric Press was there and not someone I think of as necessarily part of that group. He tweeted about the vibe in the room and only 5 people wearing ties……I was one of the five and so had to seek him out and ask if that made me to cool, or counter cool, or …  I will say he was kind in his response…
Having said that, and speaking as a Law Librarian who sees a much bigger and important role for Law Librarians in both legal education and law practice,  this conference was huge.  Richard Susskind was our AALL keynote last year and that was awesome.  He outlined things we librarians can and should be doing to be not just relevant to the places we work but to actually take the lead in the changes happening in the legal ecosystem.  This conference completely underscored that and, to me, made it even clearer that we law librarians have a mega opportunity, to be at the center.

I think Marc Lauritsen and Oliver Goodenough’s book (Educating the Digital Lawyer, and free from LexisNexis) is a start, as is Susskind, but I have a different view on how law schools can move forward. Ken Hirsh is close with his course on teaching technology, but what I will have in place at UMKC in Spring 2014 is much more in line with Jerome Frank’s expression of experiential learning in “Why not a clinical lawyer school?” in his seminal article by that name.  But mine is “Why not have legal information professionals teach how to use technology in practice?”  (not quite as pithy, but I’m working on it…)

All I’m saying here dude is, I think there is a real opportunity for us (law librarians) to be at the forefront on shaping real change to both legal education and law practice. The twitter feed was ok but there was a palpable energy in the room relative to the potential opportunities, and not just folks coming together to sing amazing grace.  But my real take away here is that the “technology of law” is law librarian space.  It follows completely Thomson “re-branding” Westlaw to be Legal Solutions.  As Joe Hodnicki has declared (and, yes Joe, you owe me a drink in Seattle), it is all about Legal Research Plus.. and the plus is the “technology of law”.

Thanks for your update and congrats on the new job! We do need to meet at ABA Tech and talk, there are changes a coming and I think AALL and SLA folks really don’t understand. Actually it was Kingsley Martin’s talk that made it most clear why things haven’t happened with technology yet because of the need for machines to catch up. He had a great talk.

Look forward to seeing you in Chicago!!

Michael
Post script to the original email:
Have you heard about LegalForce (formerly Trademarkia) and their store front operation in Palo Alto? I had a chance to visit on Saturday, March 9, 2013 and  man, oh man, it is amazing.  A bookstore, a DIY law place, a place you can compare tablets (since, according to Calvin, the “legal concierge” who gave me a tour, LegalForce believes legal content will be delivered on these platforms, so why not try and compare).  All they need is a coffee bar.
Aric Press has written a terrific review of the event.
Bill Henderson, whose talk at Reinvent Law was amazing, has a terrific post.
Image [cc] zen

There has been talk for the last few years about the unsustainability of the Graduate School program in the United States. For many of us, we have heard the segment that talks specifically about law schools, and have watched as many of the schools are caught in… shall we say, stretching the truth about hiring rates and salaries after graduation. Unfortunately, these issues are not limited to law schools, they are affecting practically every graduate level program in the United States. The cost of obtaining a graduate level degree is not necessarily being off-set by the employment opportunities out there that require these degrees. However, students still persue them; graduate colleges still accept them and increase tuition and fees each year, and; Federal Student Loans are guaranteed by the US government insuring that schools get paid, banks get paid, and students get left with massive amounts of debt.

Everyone Else is to Blame


Last week, I ran across a few things that reminded me that this problem isn’t going away anytime soon. First of all, I had lunch with my co-blogger, Toby, who reminded me that no one involved in this situation thinks that they are the problem. He told a story of how years ago he sat in a room with people representing law schools, bar associations, law firms, and lawyers, and how it became a “everyone is to blame but me” session. He mentioned that everyone knew the system was flawed, but that the flaw lay in someone else’s area of responsibility.

The second thing I saw was a tweet from Jim Milles from this week’s Association of American Law Schools’ annual meeting:

Jim Moliterno on Washington & Lee’s 3L curriculum reform. This is a great time for reformers because there’s demand to do better. #aals12

I responded to Jim and asked him how in the heck can there be reformers in an environment when no one thinks they are the problem?? His response was that he thought it “was a little bit of encouragement from Dean Moliterno” on the subject. So, does that mean this is not a call to action, but more of a wish that someone would step up and be the reformer that law schools need? Best of luck with that.

So once again, law schools know there’s a problem, yet aren’t ready to step up to the plate to fix it.

Industry Responsibilities


What about the Bar Association?? Well, apparently they aren’t to blame either, according to the ABA President, William Robinson. In a Reuters interview, Robinson placed the bubble blame squarely on the shoulders of the students who go to law school:

It’s inconceivable to me that someone with a college education, or a graduate-level education, would not know before deciding to go to law school that the economy has declined over the last several years and that the job market out there is not as opportune as it might have been five, six, seven, eight years ago…

Robinson’s suggestion to the problem is if a student does decide they are willing to take the risk of entering a down-market job industry like legal, at least do it through a cheaper school. Robinson then picked up the ball and squarely punted it away from the ABA by saying that the ABA was completely powerless in holding down the cost of a law degree.

So the ABA isn’t to blame, it must be the Schools or Students fault.

Students Responsbilities


That brings me to an article I saw regarding students and the burden they have with debt after grad school. On the Life Inc. portion of the Today Show’s website, there was an interview of two law librarians titled “Loving the job, but hating the student loan debt.” At first blush, I have to admit that I wasn’t very sympathetic to a couple that took on more than $150,000 in student loans, and was having a hard time meeting those obligations even though their combined income was more than $100,000 a year.  While reading this, it made me wonder if William Robinson’s assessment that students are idiots for jumping into grad schools, and taking on massive amounts of debt for a potentially moderate paying profession is correct.

Is it wise to go to a grad school that charges in the neighborhood of $40K a year in tuition, as this librarian did by getting a degree at Drexel instead of a state school?? If the median wage of a law librarian is $54,500, does it make sense to go to a program that will cost you somewhere between $80K and $100K to finish? Jennifer Wertkin nailed the situation perfectly when she tweeted a response to this story and said “Law librarians overeducated & underpaid.” Although it is required for most law librarian jobs to have an advanced degree like a JD or an MLS, can that be sustained in an economy that doesn’t produce the pay to support the debt needed to enter the workforce?

Pressure to Take the Risk 
In a way, the whole situation reminds me of the recent housing bubble. Think of the similarities of the home ownership pressures and the pressures that the higher your education level is, the more successful you will be. We are told that college graduates are more likely to make tens of thousands of dollars more than their high-school counterparts. Grad school graduates make more than undergraduates. It reminds me of the argument we heard about home ownership equaling success (think of those home owners vs. renters stats for crime, income, stability, etc.) So, there is pressure on the students to take on more education than they probably need. Add to that, the easiness of credit for college tuition (conveniently backed by the Federal Government in most cases), increased tuition costs, and add in a sudden economic downturn, and you got yourself a bubble ready to burst.

Free-Market and the Big “POP!”


Earlier this year, I heard futurist Andy Hines make a comment at the AALL Future’s Summit, that Higher Education in the United States is in for an implosion in the next ten years. I think he may be right on that topic, and I think I might know what will cause the implosion. Of course, this is all speculation on my part, so I could be wrong, but bare with me on this. Just think about what would happen if the Federal Government decided to adopt some austerity programs, and one of those programs was to stop guaranteeing student load debt? Suddenly, the free market would kick in and students would have to practically prove that they have employment lined up in order to get a student loan for grad school. No loan guarantees would essentially sink most grad programs. It will be at that time that you will hear the giant “POP” in this bubble.

Recently Donna Seyle posted an article on the lack of a Bright Line for what is the unauthorized practice of law (UPL). I offer some additional thoughts on the subject here.
First off – the LegalZoom battle is a losing one for regulators. As noted in the article, this provider and others have been around for some time now. The only real recent issue is that the market for legal services has become truly competitive, so now lawyers are actually worried about competition. So crying wolf once it hits your pocket book, but draping your argument in the “sheep’s wool” of protecting clients seems a bit wrong to me.
LegalZoom’s argument that they are providing a service not previously offered by lawyers rings true to me. I worked for a mandatory bar and have some front-line knowledge on this subject. About 15 years ago a senior lawyer called me up all mad at the state courts since they had just released a document generation system for use in divorce matters – primarily targeted at low income citizens. He wanted me to have the Bar sue the courts for UPL. I understood his logic – as he was a self-professed “bottom-feeder” who served low income clients and saw this as a threat to his business.
I suggested it was unlikely the Bar would sue the Court. And I told him if he thought it was such a competitive and valuable offering, there was nothing stopping him from providing the same. In the end, he started sending clients to the court’s online system to generate their own filing documents. He would then give them advice and help make any needed changes to the document. I applauded him for being smart enough to realize he was a lawyer, not a software developer, and for finding ways to profit from the advance of technology instead of trying to fight it. He finally agreed that such a system was providing services to people who had not been getting them.
Towards the end of this dialog, I made the prediction that if a mandatory bar ever decided to pursue a case like the LegalZoom one, they should be prepared for a bad outcome. Even if the case is won, legislatures will not be warm to the idea of protecting lawyers’ market over the needs of constituents and businesses who generate jobs and valuable services. So you would expect some weakening of the laws that support the regulation of UPL.
With this rant behind me – I’ll move to what I consider to be the bigger question here: The Bright Line. Every state has different rules and very few resources to pursue UPL violations. This creates a very blurry line which is an open door for new competitors to enter the market. I have previously given examples in the IP Disputes market, but much broader and better funded providers have recently appeared and no one is raising the UPL flag.
Another prediction: no one will raise this flag until their business feels it and then it will be too late. Much like the LegalZooom situation, the market and government will ask why no one said anything before, and as a legal market our only fall-back will be some variation of clients being injured by the new providers. Too little – too late.
So what is a reasonable response?
If lawyers want to protect their market they would do well to come up with a Bright UPL Line now. And as importantly, they should start innovating and finding ways to provide better, faster, cheaper services to preempt new competitors from entering the market. Without these two efforts, they can just sit back and watch the future happen around them, while their island of protected space grows smaller and smaller.
Back to my original story – that lawyer and I kept a dialog going on the topic for a few years. We finally came to the conclusion that the only real protected space for lawyers was court appearances since the courts can be an effective gatekeeper. Everything else was open to attack.

The Law Society Gazette reports that 30% of UK solicitor firms have already talked to potential investors about investing in their firms come October. Some additional stats from the article:
“65% said they were ‘comfortable securing external investment from a non-legal investor”
“Some 65% of solicitors said they would consider doing work with a non-legal brand such as a supermarket …”
I have had my eye on the Legal Services Act (LSA) for some time now. Allowing law firms to take on capital investments is a very powerful idea. It’s challenging for any business to prosper, let alone survive in a competitive market without access to capital. Law firms have been bound by ethical rules that haven’t allow outside, non-lawyer investment in their firms. This limits their capital raising ability to whatever the lawyers could shoulder personally. With the LSA, law firms can make large scale investments in their businesses, upping the ante in order to remain competitive. This article predicts that firms will respond proactively to a more open capital market. Personally, I think this is a very positive step and a smart strategy by the UK to dominate the legal industry on a global scale.
Since US firms are not able to access this level of capital, they will be at a distinct disadvantage in the global market. Their UK counter-part firms can now start investing in strategic technology and more professional marketing and sales organizations in a much more aggressive way.
The outcome of all this is yet-to-be-seen. My 2 cents: the market for legal services IS becoming a fully competitive market. Market players with access to capital will absolutely have an advantage in the market. US firms who compete internationally would be wise to keep a close eye on this new approach as it evolves.

I know that the Law Librarian Blog gets plenty of traffic all on its own, but I wanted to lead as many 3 Geeks’ readers over to the LLB for an excellent post from Bryan Carson called “Time to Reinstate the FTC’s Guidelines for the Law Book Publishing Industry.” Carson lays out some of the details surrounding the 2000 repeal of the FTC’s Guidelines for the Law Book Publishing Industry (.doc), and how since the repeal, publishers (not just legal publishers) have fallen back to tactics that the Guidelines were specifically set up to prevent.

Carson points out that the “revocation was taken despite the fact that every single comment received by the public cited the necessity of these guidelines and recommended that they be continued.” He goes on to list some of the abuses that were going on in 1969 (via Raymond Taylor’s 1975 article New Protection for Law Book Users) that prompted the need for the Guidelines’ creation in 1975. See if any of these look familiar:

  • Putting new titles and new binders on old materials (particularly looseleaf items);
  • Including the same book in two different series;
  • Overpricing supplements and issuing new editions rather than supplementing;
  • Issuing misleading advertisements (particularly in terms of works designated as “new,” “revised,” or “enlarged”);
  • Using unnecessarily expensive bindings and formats;
  • Putting local names on books that are not truly local;
  • Adding remotely related books to established sets to assure their automatic sale;
  • Failing to advertise prices of major items;
  • Failing to issue supplements for books that otherwise will soon be obsolete;
  • Issuing treatises in looseleaf form; and
  • Failing to put correct printing date on republished books.
Carson calls for a couple of actions steps needed to correct these types of abuses in 2011.
  1. Reinstating the FTC Guidelines for Law Book Publishers
  2. Expanding the FTC Guidelines beyond Law Book Publishers to include other specialized fields such as the medical industry and other fields that have limited choices in their selection of necessary publications
  3. Seek antitrust exemptions for all library organizations and allow them to ban together in order to give “teeth” to their existing guidelines (which, ironically because of antitrust laws, prevents them from enforcing those guidelines through boycotts or other collaborative efforts.)
It is a provocative read, and one in which I ask that those of you that buy materials from law book publishers would step out of your comfort zone and comment upon – either here, at the LLB post, on law-lib, or at a minimum, call or email a colleague to discuss the issue and think about what needs the next steps taken in addressing this issue. Inaction does not make any problems go away.