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  1. 1. Legal Information: Globalization, Conglomerates and Competition--Monopoly or Free Market May 19, 2009 Kendall F. Svengalis Rhode Island LawPress
  2. 2. Relative Market Shares of Major Legal Publishers: 2008
  3. 3. Relative Market Shares of Parent Companies: 2008
  4. 4. A Concentrated Industry The Big Three control about 90% of the market for legal information.
  5. 5. Attributes of Legal Publishing <ul><li>High profitability </li></ul><ul><li>Reliable cash flow from subscription sales (85%) </li></ul><ul><li>Affluent customer base </li></ul><ul><li>Purchasing decisions driven by content, not price </li></ul><ul><li>Customer inattention to publisher practices </li></ul>
  6. 6. Thomson/West, 1979-date <ul><li>Callaghan & Company (1979) </li></ul><ul><li>Clark Boardman (1980) </li></ul><ul><li>Warren, Gorham & Lamont (1980) </li></ul><ul><li>Lawyers Cooperative (1989) </li></ul><ul><li>Research Institute of Amer. (1989) </li></ul><ul><li>Maxwell Macmillan (1991) </li></ul><ul><li>Counterpoint Publishing (1994) </li></ul><ul><li>Information Access (1994) </li></ul><ul><li>Information America (1994) </li></ul><ul><li>Barclays (1995) </li></ul><ul><li>Shepard’s (treatises only) (1995) </li></ul><ul><li>West Publishing Company (1996) </li></ul><ul><li>Banks Baldwin (1996) </li></ul><ul><li>Foundation Press (1996) </li></ul><ul><li>Federal Publications (1998) </li></ul><ul><li>Dialog (Info. Services) (2000) </li></ul><ul><li>Findlaw (2001) </li></ul><ul><li>Harrison Company (2002) </li></ul><ul><li>Andrews Publications (2003) </li></ul><ul><li>Elite Information Systems (2003) </li></ul><ul><li>Glasser LegalWorks (2004) </li></ul><ul><li>Hildebrandt International (2005) </li></ul><ul><li>Global Securities Info., Inc. (2005) </li></ul><ul><li>Quantitative Analytics, Inc. (2006) </li></ul>
  7. 7. Reed Elsevier, 1979-date <ul><li>CIS (1979) </li></ul><ul><li>R.R. Bowker (1985) </li></ul><ul><li>Univ. Pubs. of Am. (1988) </li></ul><ul><li>Martindale-Hubbell (1990) </li></ul><ul><li>Butterworths (1994) </li></ul><ul><li>Michie (1994) </li></ul><ul><li>LexisNexis (1994) </li></ul><ul><li>Shepard’s (1998) </li></ul><ul><li>Matthew Bender (1998) </li></ul><ul><li>Mealey’s Publications (2000) </li></ul><ul><li>Book Publishing (2001) </li></ul><ul><li>Courtlink (2001) </li></ul><ul><li>Anderson Publishing (2002) </li></ul><ul><li>Seisint (2004) </li></ul><ul><li>Gould Publishing (2004) </li></ul><ul><li>Weil Publishing (2005) </li></ul>
  8. 8. Wolters Kluwer, 1994-date <ul><li>Aspen Law & Business (1994) </li></ul><ul><li>Commerce Clearing House (1995) </li></ul><ul><li>Little, Brown treatises (1996) </li></ul><ul><li>Wiley Law Publications (1997) </li></ul><ul><li> (2000) </li></ul><ul><li>Bowne Publishing (2002) </li></ul><ul><li>Casenotes Publishing Co. (2002) </li></ul>
  9. 9. Building blocks of a successful legal publishing enterprise <ul><li>Online legal research service </li></ul><ul><li>State and federal primary law </li></ul><ul><li>Substantial body of secondary and analytical resources </li></ul><ul><li>Citator service </li></ul>
  10. 10. Thomson Reuters: Legal & Tax <ul><li>Westlaw (online primary and secondary resources) </li></ul><ul><li>Primary law in print for all jurisdictions </li></ul><ul><li>Largest body of secondary and analytical materials in print formats </li></ul><ul><li>KeyCite (on Westlaw) </li></ul>
  11. 11. Reed Elsevier: LexisNexis <ul><li>LexisNexis (online primary and secondary resources) </li></ul><ul><li>Primary law in print for many jurisdictions </li></ul><ul><li>Substantial body of secondary and analytical resources in print formats (Matthew Bender, Michie) </li></ul><ul><li>Shepard’s Citations service </li></ul>
  12. 12. Wolters Kluwer: Tax, Accounting & Legal <ul><li>Loislaw (primary law and modest secondary resources) </li></ul><ul><li>No print primary law </li></ul><ul><li>Substantial secondary/analytical resources (CCH, Aspen, Wiley) </li></ul><ul><li>Global Cite (bare bones citator service) </li></ul>
  13. 13. What they said in 1996: Anne Bingaman, Chief of U.S. Justice Department’s Antitrust Division: “ We are all consumers of legal information from time to time and as citizens we rely on access to information about our nation’s laws. Competition in the legal publishing industry helps keep costs low, improves product quality and increases innovation.” Toronto Star , June 20, 1996 Thomson General Counsel Michael Harris: “ The merged companies have no plans to discontinue products or raise prices .” As quoted in ABA Journal , May 1996.
  14. 14. What Svengalis said in 1996 <ul><li>“ Svengalis also worries that Thomson will increase prices. In 1987, Lawyer’s Co-op marketed its American Jurisprudence legal encyclopedia for $584. Thomson bought that company in 1989, and by 1994 the price was $1,450 [a 148% increase]. There are lots of similar price increases that run throughout their secondary materials.” </li></ul><ul><ul><ul><ul><ul><li>34 ABA Journal / May 1996 </li></ul></ul></ul></ul></ul>
  15. 15. “ Profit margins are probably the most mean-reverting series in finance, and if profit margins do not mean-revert, then something has gone badly wrong with capitalism. If high profits do not attract competition, there is something wrong with the system and it is not functioning properly.” Jeremy Grantham
  16. 16. Operating Profit Margins of The Big Three: 2008
  17. 17. Thomson Corporation: Operating Profit Margins of Professional Divisions: 2008
  18. 18. Average Annual Increase in New Costs, 1995-2009 Average Annual Increase in Supplementation Costs, 1995-2008
  19. 19. History of Antitrust Enforcement <ul><li>Sherman Antitrust Act </li></ul><ul><li>1914 Clayton Antitrust Act </li></ul><ul><li>1890-1920 limited enforcement </li></ul><ul><li>1920-1950 lax enforcement </li></ul><ul><li>1950-1970 aggressive enforcement </li></ul><ul><li> (Warren Court) </li></ul>
  20. 20. Warren Court decisions United States v. Vons Grocery Co., 384 U.S. 270 (1966) The court rejected a merger of two grocery chains in the Los Angeles area whose combined market share was 7.5%
  21. 21. United States v. Pabst Brewing Co., 384 U.S. 546 (1966) The Supreme Court disallowed a merger of two brewing firms that together accounted for 24% of beer sales in Wisconsin, 11% of sales in three states of upper Midwest, and less than 5% nationally.
  22. 22. History of Antitrust Enforcement 1970s Rise of the “Chicago School” A body of lawyers and economists associated with the University of Chicago, including Robert Bork, Richard Posner, Harold Demsetz, and others.
  23. 23. History of Antitrust Enforcement Bork and his allies argued that The likely prospect of net efficiency gains, coupled with ease of market entry, should preclude government intervention in business conduct except where economic theory indicates that harm will result. The Warren Court denied consumers the benefits of free market resource allocation by protecting small, weak, poorly managed, inefficient and inadequately funded businesses.
  24. 24. History of Antitrust Enforcement A monopoly based on efficiency benefits consumers and should be left alone. Market entry by new competitors will invariably erode market dominance that is not based on efficiency.
  25. 25. History of Antitrust Enforcement <ul><ul><li>- Reagan-era appointment of William F. Baxter to head the Antitrust Division ushered in a new era of neglect. </li></ul></ul><ul><ul><li>In the field of legal publishing, this was best exemplified by the approval of the Thomson-West merger in 1996. </li></ul></ul>
  26. 26. Current era of antitrust marked by <ul><li>Excessive patent & copyright protection. </li></ul><ul><li>The right to curb retail price competition. </li></ul><ul><li>Tactics that exclude new challengers from a market </li></ul><ul><li>Unopposed mergers that create overpowering market giants </li></ul>
  27. 27. History of Antitrust Enforcement There is a rising sense that the pendulum has swung too far in the direction of lax enforce-ment. Two recent books promote this view: Pitofsky, Robert, ed. How the Chicago School Overshot the Mark: The Effect of Conservative Economic Analysis on U.S. Antitrust. New York: Oxford University Press, 2008. Reback, Gary. Free the Market!: Why Only Government Can Keep the Marketplace Competitive. New York: Portfolio, 2009.
  28. 29. Characteristics of Legal Publishing Oligopoly <ul><li>Oligopolies are often characterized as markets in which the four largest firms control 40% or more of the market. Indeed, Thomson/West alone accounts for 41% of the market. </li></ul><ul><li>Generally speaking, oligopolies compete on product differentiation rather than price. </li></ul><ul><li>The concentration of products and services in the hands of three legal publishing conglomerates between 1979 and the present effectively swept the decks clear of potential sources of competition. </li></ul><ul><li>Potential rivals are, most likely, candidates for acquisition by one of the cash-rich Big Three. </li></ul>
  29. 30. Characteristics of Legal Publishing Oligopoly (cont.) <ul><li>Short and near-term potential for serious potential rivals is limited by market power of existing players, current legal research habits, and concentration of authors and editors. </li></ul><ul><li>Thomson/West, alone, has been able to corral a critical mass of legal products and services, including the two major systems of legal information, a commanding share of primary law and analytical tools, and a substantial share of the online market, which has allowed it to increase prices at rates far in excess of its rivals. </li></ul><ul><li>Thomson/West has uniquely been driven to increase prices and profit margins at the expense of its customers and to fundamentally alter the law library landscape. </li></ul>
  30. 31. Thomson/West print publications: average annual supplementation % cost increases, 1995-2008
  31. 32. Legal Information Buyer’s Guide & Reference Manual 2009 Cost and supplementation cost data (chapter 27): Fletcher Corporation Forms Annotated. 4th ed. By Lenore M. Zajdel. St. Paul, MN: West (Clark Boardman Callaghan), 1980-date. 33 vols. Annual pocket parts and periodic revised volumes. Cost: $2,705; supplementation: 1993: $429; 1994: $528; 1995: $511; 1996: $519; 1997: $599.70; 1998: $750; 1999: $918.40; 2000: $1,097; 2001: $1,302; 2002: $1,052; 2003: $1,152.50; 2004: $1,291; 2005: $2,531.50; 2006: $2,027.50; 2007: $1,575; 2008: $2,909; CD-ROM: $2,220 per year. May also possibly be purchased in tandem with Fletcher Corporate CD-ROM (LawLink) at discount pricing for set and all future upkeep. 1995-2008: 334% - 13% average annual increase
  32. 33. Hypothetical $100,000 baseline budget projected at 5% and 13% average annual increases over 10 years
  33. 34. Supplementation and continuing subscription costs are the name of the legal publishing game Lower new set prices and promotions are the bait, but these prices must be increased periodically to limit the “write-for-order” strategy of buy and cancel. More than 85% of profits are derived from continuing supplementation costs.
  34. 35. West special promotions 2006 St. Patrick’s Day promotion--20% discount on every order of $150.00 or more. Example: Fletcher Corporation Forms Annotated 2005 Price: $1,263.00 2006 Price: $1,888.00 minus 20% discount = $1,510.00 2007 Price: $2,373.00 2009 Price: $2,705.00 No Pot of Gold here! The 20% discount is a trifling compared to profits it hopes to make off supplementation costs in future years.
  35. 36. Cost-Saving Tips Before leasing office space, consider the distance to the nearest public law library. Spend a few hours determining what resources are available at the law library before acquiring any of these for your office. You will then be in a better position to make informed purchases based upon quality, suitability, cost, frequency of usage, and travel time saved.
  36. 37. Cost-Saving Tips Legal information is a virtual minefield for the unwary consumer. Legal publishers make 80-85% of their revenues from subscription sales, i.e. either subscriptions to online services or supplements to print products. Implement strategies to control these automatic costs.
  37. 38. Cost-Saving Tips Before subscribing to a premium online research service (Westlaw or Lexis), take full advantage of low-cost alternatives, particularly Casemaker (available as a benefit of bar association membership), the free resources on LexisOne, VersusLaw, or free state government sources for cases, statutes and regulations.
  38. 39. Cost-Saving Tips If you are tempted to subscribe to a premium legal research service, give it a test run first, on a daily, weekly or monthly basis. Or, if your usage is likely to be infrequent, schedule your research work within the limits of your short-term subscription.
  39. 40. Cost-Saving Tips If your online research reaches a threshold at which an annual subscription to one of the premium online services is desired, and you are in a firm of 40 attorneys or less, you can opt for either a Westlaw PRO or a Lexis Total Practice Advantage subscription.
  40. 41. Cost-Saving Tips Avoid print subscriptions, particularly to the large state or national research sets. If desired, these materials can be added to a Westlaw PRO subscription for a fraction of their cost to maintain in print.
  41. 42. Westlaw PRO Savings v. print Westlaw Pro Connecticut Plus Am Jur 2d American Law Reports Am Jur Legal Forms Am Jur Pl. & Prac. Forms AM Jur Proof of Facts Am Jur Trials Causes of Action $2,208 per year ($184/mo.) Same titles in print: Initial cost: $43,302 Supp. Cost (2008) $29,891
  42. 43. Cost-Saving Tips Law books are not an investment, but a cost of practicing law. The value of used law books plummets faster (80-90% once they’re yours) than that of the typical new car (20-25% in the first year). Yet, West urges customers to “protect your investment” by buying the latest pocket part or release to a supplemented legal treatise. This is baseless marketing rhetoric and has no basis in reality.
  43. 44. Cost-Saving Tips Know both the cost and the supplementation cost history of any book before you buy it. Publishers will not tell you this unless you ask. Getting you on standing order is their goal, which is why they’ll gladly discount the initial purchase 20%. They make their money by attaching your wallet to their milking machine.
  44. 45. Cost-Saving Tips With some exceptions, treat legal treatises as monographs rather than serial publications. Most of the value will be contained in the base text, providing you with the basic descriptive and analytical discussion of the subject matter. While the supplements add only marginal value to the base discussion, they add substantially to the publishers’ bottom line.
  45. 46. Cost-Saving Tips Update the information contained in legal treatises by using Shepard’s or KeyCite, and by tracking cases, statutes and regulations in your jurisdiction and practice areas. Chances are, the national treatise supplements will not catch the latest changes in your jurisdiction.
  46. 47. Cost-Saving Tips Supplementation is a double-edged sword. You need to be kept up-to-date; but the supplements to secondary sources are an extraordinarily expensive way of accomplishing this. Imagine paying for a Shepard’s citator for every treatise in your library.
  47. 48. Cost-Saving Tips Consider alternatives to complete sets, including abridged editions, selected volumes in your practice area, statutory subject compilations, etc.
  48. 49. Cost-Saving Tips Share library and expenses with another firm in your building.
  49. 50. Cost-Saving Tips If your firm lacks a law librarian, assign a member of your firm to be the library gatekeeper, with responsibility for monitoring library acquisitions and expenditures. One of this person’s tasks should be to maintain a database of all titles in your library, conduct an annual inventory, and determine the desired level of supplementation for each.
  50. 51. Cost-Saving Tips is an excellent source for new, nearly new, or used law books, including most legal monographs and many serial tiles, often at drastic discounts.
  51. 52. Cost-Saving Tips Beware of solicitations disguised as invoices. These may or may not follow free trial subscriptions. The tactic is based on the premise that you are more likely to renew a subscription to which you think you are already subscribing, even though you never did so by conscious act.
  52. 53. Cost-Saving Tips Don’t become so enamored of one online legal research service that you cannot walk away when the costs or terms become excessive. Play Westlaw and Lexis off against each other to get the best content and rates. While Westlaw may have a bit of an edge in user preference surveys (much of it a result of heavy marketing at law schools), both services provide a level of sophistication to satisfy the most discriminating practitioner.
  53. 54. Cost-Saving Tips Take advantage of free Lexis or Westlaw research attorneys when conducting complicated searches in their respective databases.
  54. 55. Cost-Saving Tips If you are in a firm too large for a Westlaw PRO or Lexis Total Advantage plan, be aware that careless, or higher levels of, online usage will result in more expensive terms when your current “flat rate” contract expires. Cost effective searching is always a good idea under such circumstances.
  55. 56. Cost-Saving Tips Have a strict firm policy of directing all publishers’ telemarketers to the library staff or contact person. Never volunteer attorney names to telemarketers when asked for practitioners in particular practice areas.
  56. 57. Cost-Saving Tips With the steeply rising costs of print reporters and advance sheets, discontinue subscriptions to hardcopy court reports in favor or online access if you have not already done so. Get used to obtaining your state appellate court decisions off your state court web site, or by periodically doing a date-restricted search on Casemaker or VersusLaw.
  57. 58. Cost-Saving Tips When contemplating the purchase of a legal treatise or reference book, consult the Legal Information Buyer’s Guide & Reference Manual for the history of its supplementation costs and the comparative costs of competing works.
  58. 60. Legal Information Buyer’s Guide & Reference Manual 2009 Cost and supplementation cost data (chapter 27): Fletcher Corporation Forms Annotated. 4th ed. By Lenore M. Zajdel. St. Paul, MN: West (Clark Boardman Callaghan), 1980-date. 33 vols. Annual pocket parts and periodic revised volumes. Cost: $2,705; supplementation: 1993: $429; 1994: $528; 1995: $511; 1996: $519; 1997: $599.70; 1998: $750; 1999: $918.40; 2000: $1,097; 2001: $1,302; 2002: $1,052; 2003: $1,152.50; 2004: $1,291; 2005: $2,531.50; 2006: $2,027.50; 2007: $1,575; 2008: $2,909; CD-ROM: $2,220 per year. May also possibly be purchased in tandem with Fletcher Corporate CD-ROM (LawLink) at discount pricing for set and all future upkeep. 1995-2008: 334% - 13% average annual increase
  59. 61. fini