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TOTM Fifteen years ago I published an article urging that non-lawyers be allowed to finance the cost of legal representation in return for a percentage of . . .
Fifteen years ago I published an article urging that non-lawyers be allowed to finance the cost of legal representation in return for a percentage of a judgment or settlement if the plaintiff is successful. Common law prohibitions on champerty were widely believed at the time to prohibit third parties from buying an interest in litigation. Few such litigation funding arrangements were available for plaintiffs, and lawyers perhaps predictably looked upon them with disfavor. See Litigating on a Contingency: A Monopoly of Champions or a Market for Champerty?, 70 Chicago-Kent Law Review 625-697 (1995) (Symposium on Fee Shifting).
Read the full piece here.
TOTM Last month the New York Times ran an editorial with the headline “Addressing the Justice Gap,” observing that “the poor need representation and thousands of law graduates . . .
Last month the New York Times ran an editorial with the headline “Addressing the Justice Gap,” observing that “the poor need representation and thousands of law graduates need work.” The piece proposed several solutions, but notably absent was the reform most likely to deliver legal services to those in need and to create jobs for unemployed lawyers: corporations should be able to own law practices and provide legal representation. It’s not only a matter of managing the justice gap in America in the face of an enduring economic recession and increased global competition; it’s also a matter of First Amendment concern.
Popular Media Innovation and entry by entrepreneurs is a powerful force for change. Joseph Schumpetersaw these forces as the primary engine for long-term growth, even as the process . . .
Innovation and entry by entrepreneurs is a powerful force for change. Joseph Schumpetersaw these forces as the primary engine for long-term growth, even as the process of creative destruction destroyed existing wealth, including monopoly rents associated with established regulatory regimes. The forces of creative destruction seemingly have their sights squarely on the legal profession, promising greater access to legal services while simultaneously threatening licensed lawyers’ monopoly over legal services.
The traditional market for legal services is breaking down in the face of increased competition from numerous sources. One of the biggest threats comes from new technologies that enable clients to perform many tasks formerly performed by lawyers. For example, large clients now use of sophisticated search algorithms to substitute for hours of manual document search and selection formerly performed in large law firms. As technology improves, it is not hard to imagine the expansion of tasks performed by computers rather than lawyers. At the low end, legal software products allow unsophisticated consumers competently to perform a wide variety of legal tasks with little or no additional input from legal professionals. These and other legal information products allow the seller of such information and services to take advantage of technology as well as economies of scale and scope that were not captured by the traditional market.
The speed and extent to which such legal information products transform the supply of law legal services depends upon the extent to which innovation and entry by entrepreneurs, especially by those outside the traditional legal sector, occurs. In our forthcoming article, Larry Ribstein and I discuss two important impediments to such entry. The first is the current system of legal regulations, especially those that forbid non-lawyers from practicing law, which directly suppresses legal innovation.
The current system of legal regulation is based upon the assumption that legal advice is conveyed through one-to-one agency relationships in which an uninformed client depends on her lawyer’s judgment and independence. This assumption supports the system of attorney ethical rules designed to reduce the agency costs of this one-to one relationship by promoting lawyers’ loyalty to clients. It also supports licensing laws to ensure lawyer quality.
However, these regulations are costly. They constrain the supply of legal services by suppressing the use of legal information products and services that would directly compete with traditional legal services. These rules further inhibit innovation by preventing use of private contractual arrangements that limit organizational flexibility and increase the cost of collaboration between lawyers and non-lawyers. Moreover, it is far from clear that such rules would serve much of a beneficial purpose outside of the traditional model of legal advice. For example, if consumers of legal services instead could use legal information products traded in a broad and transparent market, the underlying rationale for ethical rules and licensing would be greatly diminished. Market competition would reduce consumers’ reliance on the traditional agency relationship and market-based mechanisms could help ensure quality. Thus, one effect of the current system of legal regulations is to suppress the development of a robust market for legal information products that, left unimpeded, would likely threaten both the viability and underlying rationale of the current regulatory system.
How this struggle comes out in equilibrium will depend upon how much pressure is placed on the existing system by the amount of innovation and entrepreneurial entry that occurs. This in turn will depend upon the returns to such investments, which will in turn depend upon the ability of the entrepreneur to capture the returns from his investment. This brings us to the second impediment we identify, a system of relatively weak intellectual property right protection for legal information that reduces the incentives for legal innovation. I will take up this issue in my second post.
Popular Media Welcome to “Unlocking the Law: Deregulating the Legal Profession.” Licensing and regulation of lawyers, long questioned by scholars, is emerging as an important public issue. . . .
Welcome to “Unlocking the Law: Deregulating the Legal Profession.”
Licensing and regulation of lawyers, long questioned by scholars, is emerging as an important public issue. Legal costs are rising for individuals and firms with increases in litigation and regulation. These costs tax business growth and entrepreneurship and impede ordinary Americans’ access to the civil justice system. Meanwhile, the development of new business structures and technologies and significant regulatory moves toward opening up competition for legal services in the UK and elsewhere are forcing policymakers to address lawyer licensing and regulation. The U.S. is certainly not immune from the economic and other institutional forces nudging toward a reconsideration of existing licensing and regulation regimes. It is an excellent time to reexamine the costs and benefits of existing and alternative regimes in light of these changes.
The Unlocking the Law Symposium will be running today and tomorrow. This symposium is designed to start an intellectual dialogue on this topic, bringing together legal scholars and economists with a variety of views and perspectives on the law and economics of the legal profession, regulation, and competition policy. Just a few of the questions the Symposium will consider are:
We encourage both the participants and commenters to keep the discussion going in the comments. In addition to Larry Ribstein and the other TOTM bloggers, we’re very pleased to announce an excellent list of participants with a variety of perspectives on the complex combination of issues involved with deregulating the law:
Without further ado, lets begin with our first set of posts from Larry Ribstein, Bill Henderson, and Robert Crandall.
TOTM Several years ago, when Cliff Winston and I began looking at the incomes earned by lawyers, we were struck by several facts. First, after accounting . . .
Several years ago, when Cliff Winston and I began looking at the incomes earned by lawyers, we were struck by several facts. First, after accounting for age, years of education, experience and various other demographic influences, we found that the income premium earned by lawyers had increased by about 50 percent between 1975 and 2004, with a large share of the increase coming near the end of the period. Second, the rate of increase in the number of lawyers in the United States had been declining for some time. Why, we asked, would the rising earnings premiums for lawyers have not attracted a sharp increase in the number of persons applying for entry to and graduating from U.S. law schools?
TOTM Let me start with a couple of stories. Story 1. I’m an economist, but I got a chance to be like a real lawyer in . . .
Let me start with a couple of stories.
Story 1. I’m an economist, but I got a chance to be like a real lawyer in filing an amicus brief recently (Barnes v. Indiana– here’s our brief). We had only two weeks to organize, write, and file because of an oddity of the case (a petitition for the Indiana Supreme Case to rehear after an opinion that surprised everyone with its breadth). We had legal counsel, but pro bono, without paralegal help, and by email. It came down to the wire in writing and getting final approval from amici, so he suggested that I do the physical filing. I took the brief to Kinko’s around 9 p.m., but discovered they couldn’t do the binding by 11, and I needed to drive an hour get to the Indianapolis Statehouse and file by midnight. I went to my office instead, and did simple staple binding with green cardstock, which ran out so I used white cardstock for the back covers and made it to the Rotunda at 11:50. Alas, our counsel shortly got a notice that the back covers needed to be green too. But the Court Clerk was merciful, and allowed us to slip in replacement briefs without a formal motion.
Popular Media My previous post in this symposium argued that deregulation is upon us. Here I’ll discuss what that could entail. The legal information expert: I summoned . . .
My previous post in this symposium argued that deregulation is upon us. Here I’ll discuss what that could entail.
The legal information expert: I summoned up the specter of computers practicing law. There is in fact no doubt that computers can practice law as that term is defined by some courts and regulators: giving personalized legal advice. Clearly computers already can process a lot of data and come to fairly accurate determinations of many types of legal questions.
This does not, however, mean that computers can replace lawyers. It means that lawyers will have to learn to work with technology. The “legal information experts” of the future will have to provide the human insights about the world of law that computers must have to do their jobs. They must also make the choices that computers can’t. For example, what types of contractual structures work best with the new types of arrangements that arise in a constantly changing business world? What choices should individual clients make among the alternatives that a computer provides?
This is good news for lawyers. Lawyers can focus on the more sophisticated tasks that require human ingenuity as computers take over the routine.
The policy architect. Freed by technology from routine, lawyers can increase their involvement in designing laws and other legal structures. Computers may be great historians but they are not yet equipped to make judgments about what the future should look like. Lawyers need not leave lawmaking to legislators, but can participate in a private market for law. Kobayashi and I discuss in a recent paper the potential for such private lawmaking and the changes in the law that could make it happen.
The death of the law firm. Although I’ve written the obituary for Big Law, regulation continues to sustain a semblance of the big law structure. These firms are sustained by rules restricting referral fees and non-lawyer financing of firms engaged in the practice of law. At a more basic level, law firms address clients’ costs of obtaining information about lawyer quality. Law firms presumably can help by monitoring, mentoring and screening lawyers, so that the client just needs to choose a firm with a good reputation. But as big law weakens, so does its ability to provide these services. More importantly, the markets and technologies discussed in my previous post can step in and solve clients’ information asymmetry better than can today’s law firms.
The future of licensing. It’s unlikely that lawyer licensing will completely die. It will be hard to reconcile complete deregulation of law practice with continued licensing of doctors, tour guides and horse dentists. But there’s an important difference between lawyers and these other professions: the prodigiously powerful lawyer interest group has managed to restrict access to the extremely broad field of human activity called the “practice of law.” This regulatory monolith is bound to fracture.
It’s not clear what will remain. Certain types of services to consumers may require a license, on the theory that ordinary consumers can’t fully protect themselves from lemons. Also, courts may insist that licensed lawyers conserve public courts’ scarce resources. Licensing may reflect something like the traditional British distinction between barristers and solicitors.
Another approach to licensing may be to change how it is done. Lawyers now must be licensed in every state where they practice law. This enables states to erect regulatory walls that impede national law practice. It also forces professional rules to be uniform in order to accommodate our mobile and global society.
A better option, similar to a system I’ve suggested for law firm regulation, is a “driver’s license” approach, where lawyers get a license in the state of their principal residence which they can use to practice anywhere in the country. Unlike the internal affairs doctrine for corporations, states could issue licenses only to their residents. Because lawyers are likely to practice mainly where they live, this helps ensure that the licensing jurisdictions will have a stake in good regulation and prevent a potential race to the bottom. At the same time, the drivers’ license approach would enable more jurisdictional competition for lawyer regulation than we have today, and thus help pave the way for the developments discussed in my previous post.
TOTM Although it has the zing of a slogan that I myself have often used, the call to ‘deregulate’ the legal profession is misleading. Yes, most . . .
Although it has the zing of a slogan that I myself have often used, the call to ‘deregulate’ the legal profession is misleading. Yes, most of us who argue that the legal profession is excessively closed to competition—in a way that hampers both access and innovation, as I have argued in recent papers—think that the entry barriers are too high. But the legal profession is not only over-regulated, it is also under-regulated. The regulatory regime lawyers and judges have put in place is overly protective of lawyers’ interests and insufficiently protective of the public’s interest in an accessible, innovative, and efficient legal system. So the goal should not be ‘deregulation’ but ‘right-regulation.’
Popular Media The NY Times starts its op-ed against the AT&T / T-Mobile transaction with a false proposition about antitrust analysis of mergers: “The analysis begins with . . .
The NY Times starts its op-ed against the AT&T / T-Mobile transaction with a false proposition about antitrust analysis of mergers: “The analysis begins with a mathematical formula for calculating the deal’s effect on competition.” Any antitrust lawyer or economist will recognize the error. A major change from the 1997 Horizontal Merger Guidelines to the 2010 version is that the former observes that agency analysis must begin with market definition and evaluation of concentration:
First, the Agency assesses whether the merger would significantly increase concentration and result in a concentrated market, properly defined and measured
However, the it is widely recognized that the 2010 Guidelines shed the cookie cutter, algorithmic approach to merger analysis in favor of a fact-intensive analysis involving multiple tools of which market definition and calculating market shares and evaluating concentration levels and changes is just one. Indeed, the 2010 Guidelines expressly state:
The Agencies’ analysis need not start with market definition.
This is not trivial detail; these changes were at the very core of the changes in the new Guidelines promulgated by the Obama administration’s antitrust enforcement agencies. The NYT analysis simultaneously relies exclusively upon market concentration statistics while appealing to the 2010 Guidelines which rejected that approach as authority. Odd. But not unsurprising.
What is more surprising is Professor Hovenkamp’s quote, whom we certainly can expect more from than the NYT. Hovenkamp observes:
“It’s only a slight overstatement to say that if they weren’t going to block this one, the Justice Department might as well just throw the antitrust guidelines out the window,” said Herbert Hovenkamp, professor of law at the University of Iowa, who is considered by many to be the dean of American antitrust law. “This merger clearly seems to violate them.” … “It was becoming legendary that the Bush administration wasn’t enforcing the old guidelines,” Mr. Hovenkamp said. “What good is a guideline that doesn’t provide any guidance? The Obama administration conceded that perhaps the old guidelines were too strict. So it made it easier, but at the same time said, ‘We’re going to enforce this.’ ”
“It’s only a slight overstatement to say that if they weren’t going to block this one, the Justice Department might as well just throw the antitrust guidelines out the window,” said Herbert Hovenkamp, professor of law at the University of Iowa, who is considered by many to be the dean of American antitrust law. “This merger clearly seems to violate them.” …
“It was becoming legendary that the Bush administration wasn’t enforcing the old guidelines,” Mr. Hovenkamp said. “What good is a guideline that doesn’t provide any guidance? The Obama administration conceded that perhaps the old guidelines were too strict. So it made it easier, but at the same time said, ‘We’re going to enforce this.’ ”
I’ve got to believe Hovenkamp was quoted out of context here because, frankly, this doesn’t make much sense. I doubt Hovenkamp would argue that the Guidelines’ thresholds were treated as gospel by any administration regardless of political ideology. But what is absent from Hovenkamp’s discussion is the primary reason why the Guidelines expressly shifted away from concentration and toward direct analysis of competitive effects. The answer doesn’t lie in politics. Put simply, antitrust economists and lawyers at the agencies and elsewhere simply do not believe the HHI thresholds in the Guidelines provide a useful predictor for competitive effects. The persistence of the HHI thresholds are at least somewhat a result of path dependency; despite some prodding, it proved too tempting for the agencies to keep the thresholds in given their appeal and general acceptance in merger precedent emerging in the 1960s and 70s. But that was the age when those types of market structure arguments were in fact the economic state of art. That is no longer true — and rejection of that general approach is a key (if not they key) component of the Guidelines’ evolution toward the current approach.
The theme of the NY Times article and the omission of any sense at all that the shift at the agency level has been the polar opposite of what is claimed — that is, away from treating HHI thresholds as gospel or even related to analysis of competitive effects and toward an analysis more directly focused upon competitive effects — I’m left puzzled by a few things in Hovekamp’s quote. When the agencies have screamed from the rooftops that competitive effects and not market structure and market definition is what matters in merger analysis, the idea that not blocking a merger that nominally crosses otherwise meaningless thresholds in agency Guidelines threatens the rule of law or means that we ought not have Guidelines is at the very least overstated. Of course, one could interpret the statement as a critique of leaving the thresholds in the Guidelines at all if one is not going to enforce them. I agree with that. But they’ve always been there and often been ignored when the agencies’ analysis concluded the merger would not harm consumers.
And of course, that interpretation is difficult to square with the statement that this “merger clearly seems to violate them.” Violate them? The Guidelines do not have the force of law. If this merely means something like “the merger appears to be one that the agencies’ analytical framework articulated in the Guidelines indicates that they will challenge” — that’s fine. But, that statement suffers the same analytical flaws described above. Violating the Guidelines would require a showing that the merger was likely to create market power and produce anticompetitive effects — to do so under the new Guidelines requires more than a simply counting the number of firms. That type of analysis no longer passes muster in antitrust analysis at the agencies. To claim a merger “clearly seems to violate” the Guidelines by sole reference to the HHI thresholds at the same time the agencies have distanced themselves from them(in favor of more fact-intensive and direct analysis of competitive effects) is not consistent with the economic letter or spirit of the new Guidelines.
Filed under: antitrust, economics, merger guidelines, mergers & acquisitions, technology, telecommunications, wireless
