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The U.S. Department of Justice sued eBay last week for agreeing not to poach employees from rival Intuit. According to the Department’s press release, “eBay’s agreement with Intuit hurt employees by lowering the salaries and benefits they might have received and deprived them of better job opportunities at the other company.” DOJ maintains that agreements among rivals not to compete for workers have long been deemed per se illegal. (Indeed, Google, Apple, Adobe, and Pixar quickly settled antitrust claims based on similar non-poaching arrangements in 2010.)

DOJ is right to attack this type of arrangement. Apart from harming individual employees, non-poaching agreements occasion a societal harm: They preclude labor resources from being channeled to their highest and best uses. To poach a competitor’s star employee, you must offer to pay that employee more than she’s currently making (or otherwise adjust the terms of her employment in a way she deems desirable). Her current employer will usually have a chance to counter your offer. If you win the bidding war, it’s likely because the current employer’s willingness-to-pay for the employee—an amount reflective of the degree by which the employee enhances her firm’s value—is less than yours. If you can derive more value from the employee, you should have her. When employers agree to limit competition for workers, they preclude labor resources from flowing to their highest and best ends, causing an “allocative inefficiency.”

So perhaps DOJ should go after the members of the Association of American Law Schools. Pursuant to a Statement of Good Practices to which AALS members scrupulously adhere, each law school has agreed to limit competition with its rivals by refraining from making lateral offers of employment after March 1 each year. Unlike the eBay/Intuit arrangement, the competing law schools’ trade restraint is applicable for only part of the year–from March 1 until the fall hiring season–but it has the same basic effect as the eBay arrangement. And, despite the law schools’ claims to the contrary, it isn’t justified on efficiency grounds.

By preventing law professors from credibly threatening to leave their existing employers after March 1, the AALS restraint significantly reduces professors’ ability to negotiate higher wages or more favorable employment terms. If you announce a competing school’s offer six weeks before fall classes start, you’re much more likely to receive an attractive counter-offer from your current employer than you would be if you sprang the news of your potential departure six months before the start of classes, when you’re more easily replaced. What’s more, law schools generally don’t tell professors what they’ll be earning the following year until after March 1, when it’s too late for a disgruntled professor to secure another offer elsewhere. The AALS restraint thus artificially depresses the salaries of a school’s most desirable professors.

Now this might not seem like something to get worked up over. Most people think law professors are a spoiled lot. They have relatively low teaching loads and, despite the fact that most lack PhDs, they generally earn a good deal more than most academics. Why should DOJ intervene on behalf of these fat cats? Because the law schools’ non-poaching arrangement diminishes the quality of legal education. Here’s why.

At most law schools, where equality of end-states tends to be fetishized, professors are generally compensated in lock-step according to seniority. There’s some variation, but apart from endowed positions, starting salaries and annual raises are around the same level for everyone.

Talent and effort, by contrast, are not evenly distributed. Most law schools have some super-stars who are exceptional teachers and scholars, a number of “solid” professors who put in their time and provide competent teaching and enough scholarship to stay engaged, and a fair bit of dead weight. Lock-step compensation depresses the incentive to move into the first category and enhances the attractiveness of the last. It’s favored by administrators, though, because it permits them to avoid awkward conversations about merit.

If late-in-time departures of professors were a real possibility, administrators would have a stronger incentive to keep their most productive folks happy. They could stand to lose teachers with low course enrollments, so they probably wouldn’t worry too much about keeping their salaries relatively high. They’d also know that their less productive scholars are unlikely to receive a late offer. But highly productive scholars who also provide lots of the thing the law school is ultimately selling–law teaching–would likely begin to earn higher salaries than their less valuable colleagues. With compensation more accurately reflecting the value professors provide, labor resources would be allocated more efficiently. And, of course, law professors would have an increased incentive to make themselves both “poachable” and indispensable by firing on all cylinders–teaching, scholarship, and service.

But don’t the law schools need their non-poaching arrangement in order to prevent scheduling disorder that would hurt students? That’s certainly what they claim. The “Statement of Good Practices” memorializing the law schools’ collusive agreement begins:

[T]he departure of a full-time law teacher always requires changes at the law school. Unless the school is given sufficient time to make the necessary arrangements to find another to offer the instruction given by the departing teacher, the reasonable expectations of students will be  frustrated and the school’s educational program otherwise disrupted. To serve  the best interests of the program of legal education from which the teacher is departing and that to which she or he may be going, the Association urges that law schools and law faculty members follow these suggested practices….

A horizontal restraint of trade, though, isn’t necessary to prevent the sort of harm the law schools envision. If a law school believes it needs some amount of lead time to prepare for a professor’s departure, it may unilaterally negotiate contracts with its professors obligating them to provide a certain amount of notice before any departure and specifying liquidated damages for breach. Unlike the “one-size-fits-all” AALS restraint, such contracts could accommodate heterogeneous needs and preferences. For example, required lead times and the amount of liquidated damages could vary based on the location of the school (urban with lots of adjunct possibilities vs. rural with few), the degree to which the professor’s course offerings require a specialized background (Securities Regulation vs. Contracts), and the pedagogical importance of the courses (Business Organizations vs. Law & Literature). Moreover, this contractarian approach, unlike the AALS’s horizontal restraint, would further allocative efficiency across law schools: If Raider Law is willing to pay Target Law’s hot professor an amount that will increase her salary and cover the liquidated damages she owes Target because of an untimely departure, then Raider must value her more than Target and should get her. Thus, it is possible to achieve the practical benefit the AALS restraint purports to pursue without using a horizontal restraint and in a manner that permits allocative efficiency.

A horizontal agreement not to compete should not be allowed to stand when a less restrictive, easily achieved vertical option could secure the retraint’s benefits. See, e.g., Maricopa County Med. Soc’y (condemning an efficiency-enhancing maximum price-fixing agreement among physicians and observing that the procompetitive benefit occasioned by the restraint could be achieved via vertical agreements rather than a horizontal restraint); NCAA (refusing to allow the need for competitive balance to immunize a naked horizontal restraint because such balance could be achieved less restrictively); cf. Professional Engineers (horizontal agreement not to engage in price negotiations in order to assure high-quality engineering illegal when substantive quality standards could achieve same result).

Perhaps one day the DOJ will acknowledge that American law schools are competitors and, for the benefit of law students and the legal profession, ought to act like it.

I’m very pleased to announce the George Mason Law & Economics Center is hosting a program focusing on our friend and colleague Larry Ribstein’s scholarship on the market for law.   Henry Butler and Bruce Kobayashi have put together a really wonderful program of folks coming together not to celebrate Larry’s work — but to use it as a platform for further discussion and for legal scholars to engage in these important issues.

Interested readers might want to check out the TOTM Unlocking the Law Symposium.

The announcement follows and I hope to see some of you there on Friday, November 9, 2012 at GMU Law.
The Henry G. Manne Program in Law and Regulatory Studies presents Unlocking the Law: Building on the Work of Professor Larry Ribstein to be held at George Mason University School of Law, Friday, November 9th, 2012. The conference will run from 8:00 A.M. to 4:00 P.M.

OVERVIEW: In a series of influential and provocative articles, Professor Larry Ribstein examined the forces behind the recent upheaval in the market for legal services. These forces included increased global competition, changes in the demand for legal services resulting from the expanded role of the in-house counsel, and the expanded use of technology. His analysis showed that changes in the market for legal services were not just the result of a cyclical downturn in the economy. Rather, the profound changes in the market reflected building competitive pressures that exposed the flaws in the business model used by large firms to provide legal services. His recent writings also examined the broader implications of this upheaval for legal education, the private production of law, and whether legal innovation will be hindered by or hasten the demise of the current system of professional regulation of lawyers.

Professor Ribstein passed away suddenly on December 24, 2011. In the wake of the terrible loss of their close friend and colleague, Professors Henry Butler and Bruce Kobayashi (along with several other colleagues at Mason Law) have decided to honor Larry through a conference designed to capture and expand on the spirit of Larry’s recent work. The Unlocking the Law Conference seeks to advance these goals by inviting legal scholars to present their views and engage in a vibrant discussion about the present and future of the market for legal services. The panels at this conference will showcase 14 papers written specifically for this occasion and presented to the public for the first time.

This conference is organized by Henry N. Butler, Executive Director of the Law & Economics Center and George Mason Foundation Professor of Law, and Bruce H. Kobayashi, Professor of Law, George Mason University School of Law through a new Project on Legal Services Reform – under the auspices of the Mason Law & Economics Center. The Project on Legal Services Reform seeks to continue and extend the important work on legal innovation, legal education, law firms, and legal regulation produced by Larry. We hope to encourage scholars who have not worked in these areas to read Larry’s work, critique it in the same manner in which Larry famously commented on papers, and expand (or even restrict or redirect) the thrust of Larry’s work. In essence, this project is about “Larry as Catalyst.”

For background information, you might want to visit TRUTH ON THE MARKET (http://www.truthonthemarket.com), which held an online symposium on this topic on September 19 and 20, 2011.

REGISTRATION: You must pre-register for this event. To register, please send a message with your name, affiliation, and full contact information to: Jeff Smith, Coordinator, Henry G. Manne Program in Law and Regulatory Studies, jsmithQ@gmu.edu

AGENDA:

Friday, November 9, 2012:

Panel I. The Future of Legal Services and Legal Education

How the Structure of Universities Determined the Fate of American Law Schools
- Henry G. Manne, Distinguished Visiting Professor, Ave Maria School of Law; Dean Emeritus, George Mason University School of Law

The Undergraduate Option for Legal Education
- John O. McGinnis, George C. Dix Professor in Constitutional Law, Northwestern University School of Law

Panel II. Deregulating Legal Services

The Deprofessionalization of Profession Services: What Law and Medicine Have in Common and How They Differ
- Richard A. Epstein, Laurence A. Tisch Professor of Law, New York University School of Law

The Future of Licensing Lawyers
- M. Todd Henderson, Professor of Law, University of Chicago Law School

Failing the Legal System: Why Lawyers and Judges Need to Act to Authorize the Organizational Practice of Law
- Gillian K. Hadfield, Richard L. and Antoinette Schamoi Kirtland Professor of Law and Professor of Economics, University of Southern California Gould School of Law

Globalization and Deregulation of Legal Services
- Nuno Garoupa, Professor and H. Ross and Helen Workman Research Scholar, University of Illinois College of Law; Co-Director, Illinois Program on Law, Behavior, and Social Science

Panel III. Law Firms and Competition Between Lawyers

From Big Law to Lean Law
- William D. Henderson, Professor of Law and Van Nolan Faculty Fellow, Indiana University Maurer School of Law; Director, Center on the Global Legal Profession

Glass Half Full: The Significant Upsides to the Changes in the American Legal Market
- Benjamin H. Barton, Professor of Law, University of Tennessee College of Law

An Exploration of Price Competition Among Lawyers
- Clifford Winston, Senior Fellow, Economics Studies, Brooking Institution

Panel IV. Reputation, Fiduciary Duties, and Agency Costs

Lawyers as Reputational Intermediaries: Sovereign Bond Issuances (1820-2012)
- Michael H. Bradley, F.M. Kirby Professor of Investment Banking Emeritus, Fuqua School of Business, Duke University; Professor of Law, Duke University School of Law
- Mitu Gulati, Professor of Law, Duke University School of Law
- Irving A. De Lira Salvatierra, Graduate Student, Department of Economics, Duke University

The Fiduciary Society
- Jason Scott Johnston, Henry L. and Grace Doherty Charitable Foundation Professor of Law and Nicholas E. Chimicles Research Professor in Business Law and Regulation, University of Virginia School of Law

Class Action Lawmakers and the Agency Problem
- Barry E. Adler, Bernard Petrie Professor of Law and Business and Associate Dean for Information Systems and Technology, New York University School of Law

Panel V. Private Lawmaking and Adjudication

Decentralizing the Lawmaking Function: Should There Be Intellectual Property Rights in Law?
- Robert G. Bone, G. Rollie White Teaching Excellence Chair in Law, University of Texas at Austin School of Law

Arbitration, the Law Market, and the Law of Lawyering
- Erin O’Hara O’Connor, Milton R. Underwood Chair in Law, Vanderbilt University Law School
- Peter B. Rutledge, Herman E. Talmadge Chair of Law, University of Georgia Law School

VENUE:
George Mason University School of Law
3301 Fairfax Drive
Arlington, VA 22201

FURTHER INFORMATION: For more information regarding this conference or other initiatives of the Law & Economics Center, please visit: http://www.MasonLEC.org

Call or send an email to: Tel: (703) 993-8040, Email: lec@gmu.edu

The Henry G. Manne Program in Law & Economics honors the legacy of Henry G. Manne, Dean Emeritus of George Mason Law School and founder of the Law & Economics Center. Manne was a trailblazer in the development of law and economics, not only as a prominent and influential scholar, but also as an academic entrepreneur. He spurred the development of law and economics into the most influential area of legal scholarship through his Economics Institutes for Law Professors and Law Institutes for Economics Professors. The Manne Program promotes law-and-economics scholarship by funding faculty research and hosting research roundtables and academic conferences.

http://www.MasonManne.org

The AALS each year selects a few “hot topics” program proposals for discussion of “late-breaking” subjects at the January meeting.  This year I agreed to be included in a hot topics panel described as follows:

Law schools have long kept a comfortable distance from the concerns of the practicing bar. Earlier calls for reform such as the MacCrate Report (1992), the Carnegie Foundation’s Educating Lawyers: Preparation for the Practice of Law (2007), and Stuckey et al, Best Practices for Legal Education (2007), have led to a greater emphasis on more practical training, at least in law school admissions brochures if not always in the curriculum. Increasing competition for rankings has also changed the dynamics of reputation with respect to academic study and practical training at some law schools. Fundamentally, however, most schools have seen little change in the curriculum and overall approach to delivery of instruction since the last century. Despite this, students have continued to flock to law schools, and more law schools have sought and received accreditation. Recently, however, a series of high-profile news reports, blogs, lawsuits by recent graduates, ABA disciplinary actions against law schools, and calls from Congress for stricter regulation have brought increased public attention to fundamental questions about the delivery of legal education in the U.S. What was once dismissed as the unfounded complaints of a minority of embittered law students is approaching a full-blown scandal. Issues such as the ABA’s capture by the law schools it is meant to accredit and regulate, the skyrocketing cost of a legal education in the face of what some argue is a long-term restructuring in the legal market and a permanent downturn in employment, and law schools’ failure to disclose meaningful and accurate information regarding employment prospects, are converging into a widespread sense of disillusionment and dissatisfaction with legal education.

While the perspectives and methods of the panelists vary, each has been a voice for reform within legal education. Some call for a strengthened regulatory hand; others call for deregulation of the legal profession or for voluntary collective action by law schools. All share a concern for the improvement of legal education and the profession. This panel will be an opportunity for a candid and highly interactive assessment of the situation and directions forward.

Does this discussion sound like the sort of late-breaking “hot topic” that ought to have been included in the AALS program?  I guess not, because it was rejected. 

Instead, the AALS chose programs on Occupy Wall Street, the Endangered Species Act, human rights in Russia, health care reform, the legacy of Derrick Bell, Supreme Court recusal, the ministerial employment discrimination exception, DOMA and alternatives to incarceration.

Why the rejection?  There are two hypotheses: the AALS didn’t think its members would regard the future of legal education to be as important and current a topic as those just listed; or the AALS as an organization didn’t want to be the forum for such a panel.

Either way, the rejection seems disturbing for law teaching (not for me — I can find other things to do).

It’s Sunday so the NYT has another David Segal screed on legal education.  This time he presents the insight that law school is expensive because of accreditation standards that prevent law schools from containing costs even if they wanted to.  Segal says, “[t]he lack of affordable law school options, scholars say, helps explain why so many Americans don’t hire lawyers.” He quotes several law professors — my former colleague Andy Morriss, now at Alabama; USC’s Gillian; Emory’s George Shepherd.

The article seeks to rebut the claim of the chairman of the ABA’s legal education section that high accreditation standards are necessary to give students “what they have a right to receive in terms of education” and “protect the public and make certain that graduates who offer themselves as qualified lawyers know what they’re doing.”  It examines the experiences of a start up law school in Tennessee, the Duncan School of Law, which is seeking ABA accreditation. The school must have a big library and professors with tenure and time to write law review articles.  This setup is great for law professors. So, as a couple of former law deans tell Segal, the professors exert their power through the accreditation process to maintain the status quo. 

In the end, the Duncan folks had to fly to a beachfront Ritz-Carlton in Puerto Rico to meet with the ABA to meet and make a 15-minute argument for provisional accreditation. The ABA’s questions indicated they were interested in the lawyer market in east Tennessee, suggesting that lowering clients’ costs mattered less to them than threatening lawyers’ income.

As usual (see my posts on past Segal screeds here and here) Segal presents common complaints in an overwrought stew with little cogent analysis.  Law is high-priced because the ABA is powerful and wants to keep it that way. Clifford Winston, co-author of First Thing We Do, Let’s Deregulate All the Lawyers, says this ABA-enforced “near-total absence of competition” is the big problem.  Raise your hand if this shocks or surprises you.

If you want more thoughtful analysis on the modern issues confronting law teaching you need to look beyond the NYT to a blog — namely this one, and especially our “Unlocking the Law” symposium, which had essays by, among many others, Gillian Hadfield and Winston’s co-author, Robert Crandall. My law review article, Practicing Theory, discusses many of the issues presented in Segal’s paper.

The NYT article typically fails to articulate the causes and cures of our over-priced legal system beyond the commonplace that the ABA somehow manages to restrict competition.  Segal blames the law professors, finding comfort in the scam-bloggers’ simple-minded denunciation of high-priced legal scholarship. But since Segal doesn’t explain how a bunch of eggheads sitting around writing useless articles came to control the ABA, he sounds like he’s blaming the mosquitoes for banning DDT.  This narrow focus isn’t surprising given Segal’s mission, which not to analyze or educate, but to entertain with simplistic narratives and pithy quotes.

So what’s really happening?  The cause of the current situation, as I make clear in my Practicing Theory, is obviously the practicing bar, a powerful lawyer interest group with an incentive to keep the price of legal services high.  Lawyers operate not only through the ABA but also local bar associations. Legal educators (law professors, law school and university administrators) come into the picture because they manage the key instrument for doing so — the academic institutions that keep the price of entry high. If the lawyers really wanted to make law school cheaper and more “practical” they could do it in an instant.

Gillian Hadfield’s suggestion to Segal of alternative accrediting bodies is one possible future world, but there are others.  The route to all of these worlds isn’t simply changing the law school accreditation system (accreditation is pervasive throughout the education world), but changing the system of lawyer licensing which maintains the current one-size-fits-all approach.  But how to do that when the powerful lawyers’ guild has maintained its grip on the process for almost a century?   

As I have discussed (Practicing Theory, Law’s Information Revolution, Delawyering the Corporation, Death of Big Law) the answer lies in the current rise of technology and global competition, which are combining with the soaring costs of legal services to crack the foundations of the current regulatory system.  Systemic changes such as changing the choice of law rules regulation of the structure of law practice and changing the intellectual property rules governing legal information products (Law’s Information Revolution, Law as a Byproduct) could hasten this process. 

Reform of law school accreditation ultimately will come along with significant changes to lawyer licensing whether lawyers and law professors like it or not.  Regulation of legal services will be unbundled, with only core legal services (however that comes to be defined) subject to anything like the current level of regulation, and other areas regulated at different levels or deregulated altogether. 

While lawyers and law professors can’t stop change they can shape the future.  In particular, they should start to provide a rationale for why the world needs at least some high-priced legal experts.  What, exactly, is it that lawyers do that’s so valuable?  The answer is clearly not “nothing,” although in a world of increasing competition and sophisticated technology may not be enough to maintain the current level of lawyer employment.

With respect to legal educators, as I discuss in Practicing Theory, law schools should continue to do what they do best — teach theory.  Although the theory should be relevant to what lawyers do, this doesn’t mean that law school should devolve to three-year apprenticeships overseen by practitioners.  The new world of law practice will leave the more menial and routine stuff to machines and non-lawyers.  Lawyers will handle the high-level legal planning and architecture.  They will have to learn how to build that legal architecture using disciplines such as philosophy, economics, political science, psychology, and computer science.

This leads me to the most interesting, if unspoken, aspect of Segal’s article.  All of the non-ex-dean law professors quoted in the article trained as economists. This isn’t surprising. An economist would not ask how we make sure lawyers remain important, but rather what it is that lawyers contribute on the margin.  (Perhaps it’s that tendency to ask such pesky questions and their skepticism about the government regulation that secures the demand for lawyers that some law professors don’t like about economists.) This is the kind of multidisciplinary perspective (as noted above, not just economics) that will provide the intellectual foundation of the future of legal services.  It’s going to come from law professors writing the high-priced articles that Segal and the scam-bloggers decry.  Of course, there will be fewer of them, at fewer schools, but that’s a story for another day.

A lot of ink has been spilled about the technology threat to traditional law practice. But U.S. law firms need also to worry about lawyers elsewhere in the world. 

The WSJ reports that Beijing-based King & Wood is planning to join with Australian firm Mallesons Stephen Jaques to form Hong Kong-based verein King & Wood Mallesons.  It would be the largest non-U.S. or U.K law firm merger. 

Obviously the law business is following the global economy to Asia. Will U.S law firms be part of that move?  Or will they continue to assume that the U.S. is the center around which the rest of world business revolves. The article concludes:

New York University law professor Jerome Cohen, a leading scholar on the Chinese legal system, said that despite the restrictions, he expects the deal to spur other Western firms to seek Chinese partners. “It’s going to be a scramble,” he said

In my recent Practicing Theory: Legal Education for the Twenty-First Century I noted:

Global competition is relevant not only to the legal market within the United States but also to U.S. law firms seeking to enter foreign markets. U.S. law firms used to have the significant advantage of exporting clearly superior American legal technology. This enabled them to easily enter foreign markets at low cost with their own U.S.-trained lawyers. However, foreign law firms more recently have been able to enter non-U.S. markets with lawyers who can combine U.S. LLMs and local knowledge. Also, countries such as Japan and Korea have increased the quality and output of their law schools, partly by incorporating knowledge from the United States. Thus, the United States’ export of its legal infrastructure, though profitable in the short-term, ultimately may contribute to the long-term erosion of its global competitive advantage.

I concluded that U.S. legal educators needed to prepare for these developments.  Yet subjects like comparative law are still small niches in the curriculum.

The WSJ Law Blog reports that New York Supreme Court Justice Marcy Friedman held that a former Holland & Knight partner wasn’t an employee under city and state anti-discrimination laws and therefore wasn’t entitled to age discrimination protection for his expulsion at age 55. 

Per the Law Blog’s summary, the ex-”partner” argued that he was “utterly unable to influence the firm to do much of anything” (which will ring true to many law partners). But the Justice reasoned that plaintiff “offered no evidence to show that he didn’t have a stake in Holland & Knight, or that he didn’t have a right to elect managing partners or directors.”

A few years ago I blogged an overview of the vague and confused law on the subject, including the views of Judges Easterbrook and Posner in an important case, and the leading Supreme Court opinion.  For the full and up-to-date examination, see Bromberg & Ribstein, §2.02(b)(2).  

Until the Court clarifies the law (as Judge Easterbrook sought to do), these cases will multiply as Big Law disintegrates, dumping partners along the way.

You’ve seen the blog posts (e.g., here) and the working paper.  Now you can get the published article here.  Let me know if you want a reprint.

My paper from Wisconsin’s in-house counsel symposium (symposium discussed here, paper previewed here) is now available on SSRN. The paper is Delawyering the Corporation.  Here’s the abstract:

This article shows how in-house lawyers’ role has evolved to address the high cost of legal services and the traditional information asymmetry between lawyers and clients. The first stage of this evolution involved the expanding role of in-house counsel from intermediary between corporate executives and the corporation’s outside law firm to the corporation’s purchasing agent in a broader market for legal services. The second stage could see legal work distributed among employees with and without legal expertise throughout the corporation. The article also shows how evolving legal information technology could facilitate corporations’ full-fledged integration of legal information into business decisions. These developments have potential implications for the corporate and general markets for legal services and for legal education.

In short, don’t assume that the evolution of corporate law practice will stop with more legal work moving inside the corporation.  The same forces driving this move — technology and markets — may change the nature of the work.

Big Law as LPO reseller

Larry Ribstein —  10 December 2011

Yesterday’s Law Blog notes a Fronterion report that legal outsourcers are facing more competition from “insourcers” setting up centers inside the U.S. The reasons include rising wages in India and falling wages in the U.S. and the U.K. so  

The glut of new law school graduates in 2012 will likely put offshore legal services outfits at a further disadvantage, the report found. “Most legal professionals, all things being equal, prefer to keep legal work domestically,” it said. In response, some offshore vendors are opening up in places such as Chicago and Washington D.C., said Fronterion managing Principal Michael Bell.

So wages of law workers in the U.S. are getting in line with their counterparts in India.  Not good news for U.S. law grads.

The story concludes with an interesting observation:

“Law firms say, we can hire these contract attorneys in the U.S. for really nothing,” Bell said. “One issue that law firms have is that they can’t mark up the services of an LPO… but if it’s a center based internally and it’s law firm staff, they can charge whatever they want to.”

In other words, amid intensifying global competition, Big Law thinks it’s found another way to make money.  I wouldn’t bet on this lasting very long — certainly not longer than in-house counsel see it happening and realize they can do better by eliminating the middleman.

The ABA is considering loosening the bar on non-lawyer ownership of law firms (HT Law Blog).  Here’s the discussion paper.

For those who are thinking that this move is meaningful, forget about it.  The ABA proposal (which would still have to be approved by the ABA and then by individual states) would permit non-lawyer ownership only if the firm provides only legal services, the lawyers have control, and the lawyers are responsible for the non-lawyers’ integrity and compliance with ethical rules.   The ABA is not considering publicly traded law firms, passive outside investments, or firms (as under the UK’s new “Tesco” law) that offer both legal and non-legal services.  

The ABA’s continued resistance to non-lawyer ownership of law firms is misguided on policy grounds.  Keep in mind that eliminating the ban would not permit non-lawyers to render legal services.  It would simply change the ownership structure of the firms in which lawyers practice.  The idea behind the rule is that non-lawyer owners would emphasize bottom-line profits over proper concern for the client.  But firms, whether or not they practice law, can’t profit by stomping on their customers and sullying their brands.  And who really believes that law as it’s practiced today, in lawyer-owned firms, isn’t a business?  Or that the law business should be protected from competition by other business models? For more on these issues see my conversation with Mitt Regan and Bruce MacEwen.

More important is what the ABA move would do about the cost of legal services: nothing.  The non-lawyer ownership ban has been enacted and maintained by and for lawyers as a way of banning lower-cost provision of legal advice.  Under current rules, many middle class consumers have no reliable reasonably priced way of getting basic legal advice.  The UK rule permitting law practice by alternative business structures was promoted by consumers.  It lets consumers buy legal services from the same businesses (e.g., Tesco) whose brands they trust for many other products and services.  It is a way of bridging the huge current divide between supply and demand for legal services by ordinary non-corporate consumers.

In any event, as discussed in my Death of Big Law and my and Kobayashi’s Law’s Information Revolution, big changes are coming to legal services as a result of significant technological developments and global competition.  The responsible position by the profession would be to try to manage these developments in ways that protect consumers, as in the UK and Australia.  The ABA’s decision to go no further than reconsidering modest proposals it rejected twenty years ago is basically one to bury its collective head in the sand and let the changes happen without the bar’s involvement.  This is not only unwise but irresponsible.