Dewey & LeBoeufs bankruptcy filing has shed some light into the inner workings of that once-august institution and provided fodder for reams of commentary. Most of the commentary falls under the heading of “What Went Wrong.”
I saw something else in that filing. In the list of Dewey’s “top 20 unsecured creditors” that accompanied the firm’s first-day bankruptcy filing was tangible proof of the central importance of library services to the existence of law firms, and just how substantial firms’ economic relationships with their vendors of legal research products are.
Within that top 20 were some usual suspectsan estimated $80 million in pension obligations, about $5.2 million in rent and property taxes, and almost $5 million in outsourced staffing. But what stood out for me were the identities of the firm’s third-, sixth-, and twelfth-largest unsecured debts: almost $2.4 million due to Thomson Reuters (which now owns West Publishing); more than $1.4 million due to LexisNexis; and more than $650,000 owed to a third vendor, also categorized as “library serviceslegal research.” In total, $4.5 million was owed to just three vendors of legal research products and services.
We don’t know from that filing exactly what these sums representhow many months of service, what services had been purchased, and so on. But there’s no denying that they represent real money being spent in firm law libraries. And while that magnitude of investment may be surprising to some, it shouldn’t be. Law firms are information businesses, and law libraries (and, therefore, library services vendors) are in the business of providing raw materials for legal professionals to turn into their advice or work product. Short of our own human capital, legal research products are our biggest intellectual investment.
Bottom line: We’re spending a lot of money for legal research products. And, as we are trying to wrangle our costs of doing business in this so-called New Normal of law firm economics, we’ve cast a gimlet eye on our spending with these vendors. In doing so, we’ve encountered our share of challenges and questions. Here are just a few.
How Do You Measure Value?
This is the $4.5 million question. We do not know what most vendors of legal research services are charging other firms for similar or identical services. Some think that there may be as much as (or more than) a threefold range of costs for similar or identical services provided by the same vendorthat is, the price given to one customer could be as much as triple that given to another. And when we do end up having discussions with the vendors about “value,” they typically offer two metricstheir own retail rates (which are arbitrary) and our last contract with them (which is just as arbitrary). If you mention that a competitor has made you a better offer for its suite of services, you’ll likely be waved off with the claim that the two services aren’t comparable (which may be a dubious claim, at best).
Absent information about comparative prices, firms will have to make their own subjective appraisals of value. What’s the value of Westlaw vis-à-vis Lexis? Compared to Bloomberg Law? When measured against the free or low-cost case law research available from Google Scholar, FastCase, or FindLaw? Is West’s proprietary KeyNote system worth a premium, or is it an antiquated search method that has been surpassed by powerful search engines? Even if two services are not identical, are they close-enough substitutes that they should cost about the same, or is one worth twice as much, or more, than the other?
Can We Continue to Offer Coke and Pepsi?
Why do so many firms offer Westlaw and Lexis? These services are not identical, obviously, but they are substantially similar. Each claims as its value proposition a certain amount of proprietary material (treatises, etc.) as well as certain tools that can be used to more efficiently search across the collection of sources available on those services. And recently, Bloomberg Lawa product whose core has had a long pedigree in the financial sectoracquired The Bureau of National Affairs, and has entered this legal research services market in a big way. Still, each of these companies, at their core, is offering largely fungible goods and services.
The major reason why firms have traditionally purchased both Lexis and Westlaw is that their principal direct consumers of legal research servicesnew lawyers fresh from law school or clerkshipshave already developed a preference for one or the other, and so it’s easier to rely on the training and experience these young lawyers already received. And these preferences were shaped largely by how effective the law school sales representatives were in marketing and training them when they were law students. As a partner, though, I’ve received work product from hundreds of my junior colleagues, and not once have I detected a difference in the quality of their work based on where their research-brand loyalty lay.
As a result, I’ve become convinced that a first-rate law firm could effectively serve its clients with the highest quality legal services even though it offered only one of the three comprehensive legal research services. One of the two main reasons that most Am Law 200 firms haven’t done so, at least to date, is that it’s been easier to provide the services that our newest lawyers have already been trained on, and there would be a certain amount of short-term pain involved in retraining the lawyers who previously favored the discontinued service.
What Will Clients Pay For?
The other main reason that firms have not centralized their legal research services with one vendor is that they have not, until recently, had an incentive to do so. Since computer-assisted legal research emerged in the early 1970s, most firms have billed clients directly for their share of the use of these resources. But in a recent article, Jean O’Grady, DLA Piper’s director of research services and libraries, noted that “[c]lients are less willing to pay for online research. The decline, and perhaps impending abolition, of cost recovery means that there will be less tolerance for the support of two major vendors within law firms. Like the legal industry they support, Lexis and Westlaw are facing unprecedented pushback from clients in contract negotiations.”
When computerized legal research costs drop to the bottom line, firmsas stewards of their clients’ costs and as stewards of their own resourceswill have to make decisions that only a few years ago seemed unfathomable. That fact changes many of the traditional equations and assumptions: Perhaps retraining new lawyers to use a single service is worth it after all. Perhaps reorienting the libraries to utilize a single vendor of online services makes the most economic sense. And perhaps, if law firms make these hard judgment calls, vendors will change their behaviors, tooif they want to survive, that is.
Gregory A. Castanias is an appellate litigation and intellectual property partner in the Washington, D.C., office of Jones Day. He also serves as that firms partner in charge of global library services.
