This presentation by the OECD Competition Division was made during a roundtable discussion on Disruptive innovations in legal services held at the 61st meeting of the Working Party No. 2 on Competition and Regulation on 13 June 2014. More papers, presentations and contributions from delegations on the topic can be found out at www.oecd.org/daf/competition/disruptive-innovations-in-legal-services.htm

1. Disruptive innovation
in legal services
Presentation of the OECD Background paper
James Mancini
OECD Competition Division
Working Party No. 2 on Competition and Regulation
13 June 2016 Roundtable

2. The Background note together will all materials related
to the discussion can be found at:
www.oecd.org/daf/competition/disruptive-innovations-in-
legal-services.htm
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3. Despite traditional resistance to change in legal professions, pro-competitive
“disruptive” innovations are beginning to transform legal services and the
manner in which they are delivered.
• Online service delivery is allowing both legal professionals and
unlicensed providers to serve clients remotely;
• Ranking and review information regarding legal professionals is
allowing clients to assess the quality of professionals before retaining them
– a previously difficult proposition;
• The unbundling of services, is transforming the distribution of tasks in
legal services and ending traditional “black box” models of service delivery;
and
• Automation is changing the nature, and volume, of tasks that legal
professionals perform.
Abstract
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4. As a result of these innovations and the new competition they bring, the regulatory
framework in which legal professionals operate is under pressure. The exclusivity
enjoyed by legal professionals, and the precise scope of activities to which it applies, is
becoming unclear as unlicensed entrants offer a widening range of services. Restrictions
on the quantity of professionals that can operate in specified regions are being
questioned at a time where the services they provide could easily be made available
online. Further, legal professional self-regulators may be unable, or ill-suited, to identify
accommodations that permit innovative entrants to serve consumers.
Competition authorities, which may have limited experience in legal services markets
given that enforcement issues have been rare, should be aware of the challenges
described above. Authorities can play a role in advocating for regulatory systems that
reflect current market realities and ensure market access for pro-competitive disruptive
innovations. Such a role could include advising policymakers who may be seeking to
balance the benefits of competition with other policy objectives such as consumer
protection. This process will require consideration of the objectives of legal professional
regulations, particularly those addressing market failure, as well as the current design of
those regulations.
Abstract
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5. Defining disruptive innovation
• New products, processes or business
models that redefine a market and
displace incumbent firms.
• Come from outside a market’s value
network

6. LEGAL SERVICES
REGULATIONS: RATIONALE
AND SCOPE

7. Why are legal professions regulated?
Information
asymmetries
• Inability to assess quality (credence/experience good)
• Use of alternative indicators of quality
• Moral hazard
Externalities
• Imposition of additional costs due to poor quality
• Positive externalities from good quality
Other policy
objectives
• Regional fairness
• Accessibility of services at low incomes
• Legal principles (attorney-client privilege)

8. The scope of regulatory restrictions
• Qualitative entry
• Quantitative entry
• Fees
• Advertising
• Partnerships, ownership, management
• Legal aid
Many are enforced through self-regulation
(i.e. bar associations)

9. RECENT DISRUPTIVE
INNOVATIONS IN LEGAL
SERVICES

10. No shortage of dramatic predictions…

11. What is underlying these bold
predictions?
Communication technology
A few broad trends (not all of them new)…
Accessibility of knowledge regarding legal
needs and services
Fee and affordability pressure

12. These trends have given rise to:
Online
service
delivery
Professional
quality data
via rankings
and reviews
Automation
of tasks or
entire
services
Service
unbundling/
end of the
“black box”

13. IMPLICATIONS OF
DISRUPTIVE INNOVATION
FOR LEGAL SERVICES
REGULATIONS

14. Does the rationale still apply?
Information
asymmetries
• Inability to assess quality (credence/experience good)
• Use of alternative indicators of quality
• Moral hazard
Externalities
• Imposition of additional costs due to poor quality
• Positive externalities from good quality
Other policy
objectives
• Regional fairness
• Accessibility of services at low incomes
• Legal principles (attorney-client privilege)
New relationship due to online research,
reviews, new competition, commoditisation
Still an open question – will reputation and
consumer awareness mitigate these risks? Will
new problems arise?
Innovation could be addressing some of these
concerns
Changes to the market may mean fewer, or different, market
failures

15. Implications
The current regulatory framework rests on several foundations
which may be under stress
Exclusivity
Quantitative
entry
restrictions
Qualitative
entry
restrictions
Self-
regulation
Consumer
protection
and other
regulations
Is it necessary,
desirable or
enforceable in
current forms?
Are they still
relevant?
Should they be
adapted to fit
online service
delivery
models?
Are conflicts
of interest
emerging?
Have any new
consumer
protection
issues arisen?
What is its
precise scope?
Are they
limiting
innovation?
Can para-
professionals
play an
expanded
role?
Is there a need
for further
oversight?
Can other
policy
objectives be
achieved
without the
status quo?