The Law Market and U.S. law firms

Larry Ribstein —  13 August 2010

According to an article in Corporate Counsel (HT Law Blog), a recent survey suggests U.S. law firms are losing international business to the Brits:

About 53 percent of the companies use English law for international work, while only 34 percent use U.S. law. When asked to name law firms they would consider for multijurisdictional deals or litigation involving three or more countries, only 30 percent named U.S. firms compared to 70 percent who preferred firms in the U.K.

One significant factor is “the well-established fear and loathing of U.S. litigation”:

In essence, the companies are pointing to their choice of jurisdiction for the contracts they sign. And the prospect of litigation is certainly on their minds. But that’s only one of the likely factors, according to Acritas, the U.K.-based research and advisory firm that conducted the survey. “I think it’s a mix of factors,” said Lisa Hart, the firm’s CEO. “There’s definitely an image that the U.S. is a litigious society,” she noted.

The loss of business is happening despite the fact that U.S. law firms charge lower rates than U.K. firms.

I have long argued, particularly in my book with Erin O’Hara, The Law Market, that international jurisdictional competition ultimately will be the great leveler when it comes to tax, regulation and litigation.

One way this works is that when firms choose to avoid a country because of its legal environment, interest groups in the avoided country suffer. These interest groups then have an incentive to try to change the laws that are driving their business away. This process translates “exit” via jurisdictional choice into “voice,” or political action.

The beauty of the law firm example is that the lawyers themselves who are instrumental in creating the laws that are driving up legal costs are also suffering the effects in the international law market.

I do think that other forces are at work. In particular, British law firms have always done a better job competing internationally than the more insular U.S. legal profession. Expect this to accelerate as the U.K. removes constraints on the organization of law firms. In other words, international competition is helping directly to deregulate the legal profession itself, as I discuss in my Death of Big Law.

At some point the U.S. and its lawyers are going to have to face up to the fact that there are other places in the world to do business.

Larry Ribstein

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Professor of Law, University of Illinois College of Law

5 responses to The Law Market and U.S. law firms

  1. 

    A recent survey by the International Association for Contract & Commercial Management confirmed these concerns. Whether or not they are justified, international negotiators have concerns about the unpredictability of the US legal system. President Obama;s onslaught against BP can only have made this worse. Now, added to the perception of potentially draconian legal settlements, we have the possibility of impositions that are more like those of a country without law.

  2. 

    Its a rather interesting point. International companies are already starting the moving and relocating of head offices outside the United States. The shakedown of BP and the money grab from auto company shareholders has accelerated the flight. The rule of capricious law has become the norm. America is now ruled by “feelings” and the mantra of “leveling the playing field”. Its a poetic justic. Trial lawyers, Congress and advocacy groups have made the US a risky place to do business. When you dirty your own nest it gets a little desperate. Cheers.

  3. 

    The problem with solving the law problem is that the trial lawyers control the legislative process in the United States, . Most of the members of Congress and of the state legislatures are lawyers, many of them trial lawyers, most of them financially dependent on lawyer contributions to stay in office. John Edwards, Alan Grayson, Trent Lott and others use a glaring and hypocritical conflict of interest to line their pockets, and could care less about the damage they do to the United States.

    Without tort reform, nothing can be done, but tort reform is unlikely with the economic interests of politician/lawyers at stake.

  4. 

    Hmmmm.

    “These interest groups then have an incentive to try to change the laws that are driving their business away.”

    This is the rational, logical and therefore completely and utterly wrong argument. The reality is that interest groups are often ideologically driven and there are few if any restraints on such groups to the point where even reality does not interfere.

    Consider the Progressive Liberals in the USA.

    They know that tax cuts are the fastest, simplest and most comprehensive method of reinvigorating an economy and producing jobs … so they avoid tax cuts completely.

    Only a complete retard doesn’t understand that businesses depend on planning, if they want to remain a going concern at least, and anything that introduces uncertainty will restrain business efforts at growth … so they introduce as much uncertainty as possible.

    etc etc etc.

    The rational argument is based on self interest as long as you ignore the unfortunate reality that self-interest isn’t always the self-interest of such groups.

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