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Khan’s ‘Vision and Priorities for the FTC’ Statement Lacks Humility and Strategic Insight

Alden Abbott —  27 September 2021

Federal Trade Commission (FTC) Chair Lina Khan’s Sept. 22 memorandum to FTC commissioners and staff—entitled “Vision and Priorities for the FTC” (VP Memo)—offers valuable insights into the chair’s strategy and policy agenda for the commission. Unfortunately, it lacks an appreciation for the limits of antitrust and consumer-protection law; it also would have benefited from greater regulatory humility. After summarizing the VP Memo’s key sections, I set forth four key takeaways from this rather unusual missive.

Introduction

The VP Memo begins appropriately enough, with praise for commission staff and a call to focus on key FTC strategic priorities and operational objectives. So far, so good. Regrettably, the introductory section is the memo’s strongest feature.

Strategic Approach

The VP Memo’s first substantive section, which lays out Khan’s strategic approach, raises questions that require further clarification.

This section is long on glittering generalities. First, it begins with the need to take a “holistic approach” that recognizes law violations harm workers and independent businesses, as well as consumers. Legal violations that reflect “power asymmetries” and harm to “marginalized communities” are emphasized, but not defined. Are new enforcement standards to supplement or displace consumer welfare enhancement being proposed?

Second, similar ambiguity surrounds the need to target enforcement efforts toward “root causes” of unlawful conduct, rather than “one-off effects.” Root causes are said to involve “structural incentives that enable unlawful conduct” (such as conflicts of interest, business models, or structural dominance), as well as “upstream” examination of firms that profit from such conduct. How these observations may be “operationalized” into case-selection criteria (and why these observations are superior to alternative means for spotting illegal behavior) is left unexplained.

Third, the section endorses a more “rigorous and empiricism-driven approach” to the FTC’s work, a “more interdisciplinary approach” that incorporates “a greater range of analytical tools and skillsets.” This recommendation is not problematic on its face, though it is a bit puzzling. The FTC already relies heavily on economics and empirical work, as well as input from technologists, advertising specialists, and other subject matter experts, as required. What other skillsets are being endorsed? (A more far-reaching application of economic thinking in certain consumer-protection cases would be helpful, but one suspects that is not the point of the paragraph.)

Fourth, the need to be especially attentive to next-generation technologies, innovations, and nascent industries is trumpeted. Fine, but the FTC already does that in its competition and consumer-protection investigations.

Finally, the need to “democratize” the agency is highlighted, to keep the FTC in tune with “the real problems that Americans are facing in their daily lives and using that understanding to inform our work.” This statement seems to imply that the FTC is not adequately dealing with “real problems.” The FTC, however, has not been designated by Congress to be a general-purpose problem solver. Rather, the agency has a specific statutory remit to combat anticompetitive activity and unfair acts or practices that harm consumers. Ironically, under Chair Khan, the FTC has abruptly implemented major changes in key areas (including rulemaking, the withdrawal of guidance, and merger-review practices) without prior public input or consultation among the commissioners (see, for example, here)—actions that could be deemed undemocratic.

Policy Priorities

The memo’s brief discussion of Khan’s policy priorities raises three significant concerns.

First, Khan stresses the “need to address rampant consolidation and the dominance that it has enabled across markets” in the areas of merger enforcement and dominant-firm scrutiny. The claim that competition has substantially diminished has been critiqued by leading economists, and is dubious at best (see, for example, here). This flat assertion is jarring, and in tension with the earlier call for more empirical analysis. Khan’s call for revision of the merger guidelines (presumably both horizontal and vertical), in tandem with the U.S. Justice Department (DOJ), will be headed for trouble if it departs from the economic reasoning that has informed prior revisions of those guidelines. (The memo’s critical and cryptic reference to the “narrow and outdated framework” of recent guidelines provides no clue as to the new guidelines format that Chair Khan might deem acceptable.) 

Second, the chair supports prioritizing “dominant intermediaries” and “extractive business models,” while raising concerns about “private equity and other investment vehicles” that “strip productive capacity” and “target marginalized communities.” No explanation is given as to why such prioritization will best utilize the FTC’s scarce resources to root out harmful anticompetitive behavior and consumer-protection harms. By assuming from the outset that certain “unsavory actors” merit prioritization, this discussion also is in tension with an empirical approach that dispassionately examines the facts in determining how resources should best be allocated to maximize the benefits of enforcement.

Third, the chair wants to direct special attention to “one-sided contract provisions” that place “[c]onsumers, workers, franchisees, and other market participants … at a significant disadvantage.” Non-competes, repair restrictions, and exclusionary clauses are mentioned as examples. What is missing is a realistic acknowledgement of the legal complications that would be involved in challenging such provisions, and a recognition of possible welfare benefits that such restraints could generate under many circumstances. In that vein, mere perceived inequalities in bargaining power alluded to in the discussion do not, in and of themselves, constitute antitrust or consumer-protection violations.

Operational Objectives

The closing section, on “operational objectives,” is not particularly troublesome. It supports an “integrated approach” to enforcement and policy tools, and endorses “breaking down silos” between competition (BC) and consumer-protection (BCP) staff. (Of course, while greater coordination between BC and BCP occasionally may be desirable, competition and consumer-protection cases will continue to feature significant subject matter and legal differences.) It also calls for greater diversity in recruitment and a greater staffing emphasis on regional offices. Finally, it endorses bringing in more experts from “outside disciplines” and more rigorous analysis of conduct, remedies, and market studies. These points, although not controversial, do not directly come to grip with questions of optimal resource allocation within the agency, which the FTC will have to address.

Evaluating the VP Memo: 4 Key Takeaways

The VP Memo is a highly aggressive call-to-arms that embodies Chair Khan’s full-blown progressive vision for the FTC. There are four key takeaways:

  1. Promoting the consumer interest, which for decades has been the overarching principle in both FTC antitrust and consumer-protection cases (which address different sources of consumer harm), is passé. Protecting consumers is only referred to in passing. Rather, the concerns of workers, “honest businesses,” and “marginalized communities” are emphasized. Courts will, however, continue to focus on established consumer-welfare and consumer-harm principles in ruling on antitrust and consumer-protection cases. If the FTC hopes to have any success in winning future cases based on novel forms of harm, it will have to ensure that its new case-selection criteria also emphasize behavior that harms consumers.
  2. Despite multiple references to empiricism and analytical rigor, the VP Memo ignores the potential economic-welfare benefits of the categories of behavior it singles out for condemnation. The memo’s critiques of “middlemen,” “gatekeepers,” “extractive business models,” “private equity,” and various types of vertical contracts, reference conduct that frequently promotes efficiency, generating welfare benefits for producers and consumers. Even if FTC lawsuits or regulations directed at these practices fail, the business uncertainty generated by the critiques could well disincentivize efficient forms of conduct that spark innovation and economic growth.
  3. The VP Memo in effect calls for new enforcement initiatives that challenge conduct different in nature from FTC cases brought in recent decades. This implicit support for lawsuits that would go well beyond existing judicial interpretations of the FTC’s competition and consumer-protection authority reflects unwarranted hubris. This April, in the AMG case, the U.S. Supreme Court unanimously rejected the FTC’s argument that it had implicit authority to obtain monetary relief under Section 13(b) of the FTC Act, which authorizes permanent injunctions – despite the fact that several appellate courts had found such authority existed. The Court stated that the FTC could go to Congress if it wanted broader authority. This decision bodes ill for any future FTC efforts to expand its authority into new realms of “unfair” activity through “creative” lawyering.
  4. Chair Khan’s unilateral statement of her policy priorities embodied in the VP Memo bespeaks a lack of humility. It ignores a long history of consensus FTC statements on agency priorities, reflected in numerous commission submissions to congressional committees in connection with oversight hearings. Although commissioners have disagreed on specific policy statements or enforcement complaints, general “big picture” policy statements to congressional overseers typically have been by unanimous vote. By ignoring this tradition, the VP Memo departs from a longstanding bipartisan tradition that will tend to undermine the FTC’s image as a serious deliberative body that seeks to reconcile varying viewpoints (while recognizing that, at times, different positions will be expressed on particular matters). If the FTC acts more and more like a one-person executive agency, why does it need to be “independent,” and, indeed, what special purpose does it serve as a second voice on federal antitrust matters? Under seeming unilateral rule, the prestige of the FTC before federal courts may suffer, undermining its effectiveness in defending enforcement actions and promulgating rules. This will particularly be the case if more and more FTC decisions are taken by a 3-2 vote and appear to reflect little or no consultation with minority commissioners.

Conclusion

The VP Memo reflects a lack of humility and strategic insight. It sets forth priorities that are disconnected from the traditional core of the FTC’s consumer-welfare-centric mission. It emphasizes new sorts of initiatives that are likely to “crash and burn” in the courts, unless they are better anchored to established case law and FTC enforcement principles. As a unilateral missive announcing an unprecedented change in policy direction, the memo also undermines the tradition of collegiality and reasoned debate that generally has characterized the commission’s activities in recent decades.

As such, the memo will undercut, not advance, the effectiveness of FTC advocacy before the courts. It will also undermine the FTC’s reputation as a truly independent deliberative body. Accordingly, one may hope that Chair Khan will rethink her approach, withdraw the VP Memo, and work with all of her fellow commissioners to recraft a new consensus policy document.   

In Antitrust & Competition, Federal Trade Commission, Justice Department, Merger Guidelines, Truth on the Market , , , , , , , , , , ,
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Going Back to Antitrust Basics

Jonathan M. Barnett —  1 July 2021

Advocates of legislative action to “reform” antitrust law have already pointed to the U.S. District Court for the District of Columbia’s dismissal of the state attorneys general’s case and the “conditional” dismissal of the Federal Trade Commission’s case against Facebook as evidence that federal antitrust case law is lax and demands correction. In fact, the court’s decisions support the opposite implication. 

The Risks of Antitrust by Anecdote

The failure of a well-resourced federal regulator, and more than 45 state attorney-general offices, to avoid dismissal at an early stage of the litigation testifies to the dangers posed by a conclusory approach toward antitrust enforcement that seeks to unravel acquisitions consummated almost a decade ago without even demonstrating the factual predicates to support consideration of such far-reaching interventions. The dangers to the rule of law are self-evident. Irrespective of one’s views on the appropriate direction of antitrust law, this shortcut approach would substitute prosecutorial fiat, ideological predilection, and popular sentiment for decades of case law and agency guidelines grounded in the rigorous consideration of potential evidence of competitive harm. 

The paucity of empirical support for the exceptional remedial action sought by the FTC is notable. As the district court observed, there was little systematic effort made to define the economically relevant market or provide objective evidence of market power, beyond the assertion that Facebook has a market share of “in excess of 60%.” Remarkably, the denominator behind that 60%-plus assertion is not precisely defined, since the FTC’s brief does not supply any clear metric by which to measure market share. As the court pointed out, this is a nontrivial task in multi-sided environments in which one side of the potentially relevant market delivers services to users at no charge.  

While the point may seem uncontroversial, it is important to re-appreciate why insisting on a rigorous demonstration of market power is critical to preserving a coherent body of law that provides the market with a basis for reasonably anticipating the likelihood of antitrust intervention. At least since the late 1970s, courts have recognized that “big is not always bad” and can often yield cost savings that ultimately redound to consumers’ benefit. That is: firm size and consumer welfare do not stand in inherent opposition. If courts were to abandon safeguards against suits that cannot sufficiently define the relevant market and plausibly show market power, antitrust litigation could easily be used as a tool to punish successful firms that prevail over competitors simply by being more efficient. In other words: antitrust law could become a tool to preserve competitor welfare at the expense of consumer welfare.

The Specter of No-Fault Antitrust Liability

The absence of any specific demonstration of market power suggests deficient lawyering or the inability to gather supporting evidence. Giving the FTC litigation team the benefit of the doubt, the latter becomes the stronger possibility. If that is the case, this implies an effort to persuade courts to adopt a de facto rule of per se illegality for any firm that achieves a certain market share. (The same concept lies behind legislative proposals to bar acquisitions for firms that cross a certain revenue or market capitalization threshold.) Effectively, any firm that reached a certain size would operate under the presumption that it has market power and has secured or maintained such power due to anticompetitive practices, rather than business prowess. This would effectively convert leading digital platforms into quasi-public utilities subject to continuous regulatory intervention. Such an approach runs counter to antitrust law’s mission to preserve, rather than displace, private ordering by market forces.  

Even at the high-water point of post-World War II antitrust zealotry (a period that ultimately ended in economic malaise), proposals to adopt a rule of no-fault liability for alleged monopolization were rejected. This was for good reason. Any such rule would likely injure consumers by precluding them from enjoying the cost savings that result from the “sweet spot” scenario in which the scale and scope economies of large firms are combined with sufficiently competitive conditions to yield reduced prices and increased convenience for consumers. Additionally, any such rule would eliminate incumbents’ incentives to work harder to offer consumers reduced prices and increased convenience, since any market share preserved or acquired as a result would simply invite antitrust scrutiny as a reward.

Remembering Why Market Power Matters

To be clear, this is not to say that “Big Tech” does not deserve close antitrust scrutiny, does not wield market power in certain segments, or has not potentially engaged in anticompetitive practices.  The fundamental point is that assertions of market power and anticompetitive conduct must be demonstrated, rather than being assumed or “proved” based largely on suggestive anecdotes.  

Perhaps market power will be shown sufficiently in Facebook’s case if the FTC elects to respond to the court’s invitation to resubmit its brief with a plausible definition of the relevant market and indication of market power at this stage of the litigation. If that threshold is satisfied, then thorough consideration of the allegedly anticompetitive effect of Facebook’s WhatsApp and Instagram acquisitions may be merited. However, given the policy interest in preserving the market’s confidence in relying on the merger-review process under the Hart-Scott-Rodino Act, the burden of proof on the government should be appropriately enhanced to reflect the significant time that has elapsed since regulatory decisions not to intervene in those transactions.  

It would once have seemed mundane to reiterate that market power must be reasonably demonstrated to support a monopolization claim that could lead to a major divestiture remedy. Given the populist thinking that now leads much of the legislative and regulatory discussion on antitrust policy, it is imperative to reiterate the rationale behind this elementary principle. 

This principle reflects the fact that, outside collusion scenarios, antitrust law is typically engaged in a complex exercise to balance the advantages of scale against the risks of anticompetitive conduct. At its best, antitrust law weighs competing facts in a good faith effort to assess the net competitive harm posed by a particular practice. While this exercise can be challenging in digital markets that naturally converge upon a handful of leading platforms or multi-dimensional markets that can have offsetting pro- and anti-competitive effects, these are not reasons to treat such an exercise as an anachronistic nuisance. Antitrust cases are inherently challenging and proposed reforms to make them easier to win are likely to endanger, rather than preserve, competitive markets.

In Antitrust & Competition, Facebook, Federal Trade Commission, Market Definition, Merger Guidelines, Monopolization, Platforms, Truth on the Market, Vertical Restraints , , , , , , , , , , , ,
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Economic Calculation in the Public Defender’s Office

Ben Sperry —  10 July 2019

After spending a few years away from ICLE and directly engaging in the day to day grind of indigent criminal defense as a public defender, I now have a new appreciation for the ways economic tools can explain behavior that I had not before studied. For instance, I think the law and economics tradition, specifically the insights of Ludwig von Mises and Friedrich von Hayek on the importance of price signals, can explain one of the major problems for public defenders and their clients: without price signals, there is no rational way to determine the best way to spend one’s time.

I believe the most common complaints about how public defenders represent their clients is better understood not primarily as a lack of funding, as a lack of effort or care, or even simply as a lack of time for overburdened lawyers, but as an allocation problem. In the absence of price signals, there is no rational way to determine the best way to spend one’s time as a public defender. (Note: Many jurisdictions use the model of indigent defense described here, in which lawyers are paid a salary to work for the public defender’s office. However, others use models like contracting lawyers for particular cases, appointing lawyers for a flat fee, relying on non-profit agencies, or combining approaches as some type of hybrid. These models all have their own advantages and disadvantages, but this blog post is only about the issue of price signals for lawyers who work within a public defender’s office.)

As Mises and Hayek taught us, price signals carry a great deal of information; indeed, they make economic calculation possible. Their critique of socialism was built around this idea: that the person in charge of making economic choices without prices and the profit-and-loss mechanism is “groping in the dark.”

This isn’t to say that people haven’t tried to find ways to figure out the best way to spend their time in the absence of the profit-and-loss mechanism. In such environments, bureaucratic rules often replace price signals in directing human action. For instance, lawyers have rules of professional conduct. These rules, along with concerns about reputation and other institutional checks may guide lawyers on how to best spend their time as a general matter. But even these things are no match for price signals in determining the most efficient way to allocate the scarcest resource of all: time.

Imagine two lawyers, one working for a public defender’s office who receives a salary that is not dependent on caseload or billable hours, and another private defense lawyer who charges his client for the work that is put in.

In either case the lawyer who is handed a file for a case scheduled for trial months in advance has a choice to make: do I start working on this now, or do I put it on the backburner because of cases with much closer deadlines? A cursory review of the file shows there may be a possible suppression issue that will require further investigation. A successful suppression motion would likely lead to a resolution of the case that will not result in a conviction, but it would take considerable time – time which could be spent working on numerous client files with closer trial dates. For the sake of this hypothetical, there is a strong legal basis to file suppression motion (i.e., it is not frivolous).

The private defense lawyer has a mechanism beyond what is available to public defenders to determine how to handle this case: price signals. He can bring the suppression issue to his client’s attention, explain the likelihood of success, and then offer to file and argue the suppression motion for some agreed upon price. The client would then have the ability to determine with counsel whether this is worthwhile.

The public defender, on the other hand, does not have price signals to determine where to put this suppression motion among his other workload. He could spend the time necessary to develop the facts and research the law for the suppression motion, but unless there is a quickly approaching deadline for the motion to be filed, there will be many other cases in the queue with closer deadlines begging for his attention. Clients, who have no rationing principle based in personal monetary costs, would obviously prefer their public defender file any and all motions which have any chance whatsoever to help them, regardless of merit.

What this hypothetical shows is that public defenders do not face the same incentive structure as private lawyers when it comes to allocation of time. But neither do criminal defendants. Indigent defendants who qualify for public defender representation often complain about their “public pretender” for “not doing anything for them.” But the simple truth is that the public defender is making choices on how to spend his time more or less by his own determination of where he can be most useful. Deadlines often drive the review of cases, along with who sends the most letters and/or calls. The actual evaluation of which cases have the most merit can fall through the cracks. Often times, this means cases are worked on in a chronological manner, but insufficient time and effort is spent on particular cases that would have merited more investment because of quickly approaching deadlines on other cases. Sometimes this means that the most annoying clients get the most time spent on their behalf, irrespective of the merits of their case. At best, public defenders are acting like battlefield medics and attempt to perform triage by spending their time where they believe they can help the most.

Unlike private criminal defense lawyers, public defenders can’t typically reject cases because their caseload has grown too big, or charge a higher price in order to take on a particularly difficult and time-consuming case. Therefore, the public defender is stuck in a position to simply guess at the best use of their time with the heuristics described above and do the very best they can under the circumstances. Unfortunately, those heuristics simply can’t replace price signals in determining the best use of one’s time.

As criminal justice reform becomes a policy issue for both left and right, law and economics analysis should have a place in the conversation. Any reforms of indigent defense that will be part of this broader effort should take into consideration the calculation problem inherent to the public defender’s office. Other institutional arrangements, like a well-designed voucher system, which do not suffer from this particular problem may be preferable.

In Law & Economics, Legal Profession, Truth on the Market , , , ,
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Sixth Circuit’s Decision Rejecting FCC Preemption of State Restrictions on Municipal Broadband Ownership Strikes a Blow in Favor of the Rule of Law (But a Broader Problem Remains)

Alden Abbott —  19 August 2016

The American concept of “the rule of law” (see here) is embodied in the Due Process Clause of the Fifth Amendment to the U.S. Constitution, and in the constitutional principles of separation of powers, an independent judiciary, a government under law, and equality of all before the law (see here).  It holds that the executive must comply with the law because ours is “a government of laws, and not of men,” or, as Justice Anthony Kennedy put it in a 2006 address to the American Bar Association, “that the Law is superior to, and thus binds, the government and all its officials.”  (See here.)  More specifically, and consistent with these broader formulations, the late and great legal philosopher Friedrich Hayek wrote that the rule of law “means the government in all its actions is bound by rules fixed and announced beforehand – rules which make it possible to see with fair certainty how the authority will use its coercive powers in given circumstances and to plan one’s individual affairs on the basis of this knowledge.”  (See here.)  In other words, as former Boston University Law School Dean Ron Cass put it, the rule of law involves “a system of binding rules” adopted and applied by a valid government authority that embody “clarity, predictability, and equal applicability.”  (See here.)

Regrettably, by engaging in regulatory overreach and ignoring statutory limitations on the scope of their authority, federal administrative agencies have shown scant appreciation for rule of law restraints under the current administration (see here and here for commentaries on this problem by Heritage Foundation scholars).  Although many agencies could be singled out, the Federal Communications Commission’s (FCC) actions in recent years have been especially egregious (see here).

A prime example of regulatory overreach by the FCC that flouted the rule of law was its promulgation in 2015 of an order preempting state laws in Tennessee and North Carolina that prevented municipally-owned broadband providers from providing broadband service beyond their geographic boundaries (Municipal Broadband Order, see here).   As a matter of substance, this decision ignored powerful economic evidence that municipally-provided broadband services often involve wasteful subsidies for financially–troubled government-owned providers that interfere with effective private sector competition and are economically harmful (my analysis is here).   As a legal matter, the Municipal Broadband Order went beyond the FCC’s statutory authority and raises grave constitutional problems, thereby ignoring the constitutional limitations placed on the exercise of governmental powers that lie at the heart of the rule of law (see here).  The Order lacked a sound legal footing in basing its authority on Section 706 of the Telecommunications Act of 1996, which merely authorizes the FCC to promote local broadband competition and investment (a goal which the Order did not advance) and says nothing about preemption.   In addition, the FCC’s invocation of preemption authority trenched upon the power of the states to control their subordinate governmental entities, guaranteed to them by the Constitution as an essential element of their sovereignty in our federal system (see here).   What’s more, the Chattanooga, Tennessee and Wilson, North Carolina municipal broadband systems that had requested FCC preemption imposed content-based restrictions on users of their network that raised serious First Amendment issues (see here).   Specifically, those systems’ bans on the transmittal of various sorts of “abusive” language appeared to be too broad to withstand First Amendment “strict scrutiny.”  Moreover, by requiring prospective broadband enrollees to agree not to sue their provider as an initial condition of service, two of the municipal systems arguably unconstitutionally coerced users to forgo exercise of their First Amendment rights.

Fortunately, on August 10, 2016, in Tennessee v. FCC, the U.S. Court of Appeals for the Sixth Circuit struck down the Municipal Broadband Order, pithily stating:

The FCC order essentially serves to re-allocate decision-making power between the states and their municipalities. This is shown by the fact that no federal statute or FCC regulation requires the municipalities to expand or otherwise to act in contravention of the preempted state statutory provisions. This preemption by the FCC of the allocation of power between a state and its subdivisions requires at least a clear statement in the authorizing federal legislation. The FCC relies upon § 706 of the Telecommunications Act of 1996 for the authority to preempt in this case, but that statute falls far short of such a clear statement. The preemption order must accordingly be reversed.

The Sixth Circuit’s decision has important policy ramifications that extend beyond the immediate controversy, as Free State Foundation Scholars Randolph May and Seth Cooper explain:

The FCC’s Municipal Broadband Preemption Order would have turned constitutional federalism inside out by severing local political subdivisions’ accountability from the states governments that created them. Had the agency’s order been upheld, the FCC surely would have preempted several other state laws restricting municipalities’ ownership and operation of broadband networks. Several state governments would have been locked into an unwise policy of favoring municipal broadband business ventures with a track record of legal and proprietary conflicts of interest, expensive financial failures, and burdensome debts for local taxpayers.

The avoidance of a series of bad side effects in a corner of the regulatory world is not, however, sufficient grounds for breaking out the champagne.  From a global perspective, the Sixth Circuit’s Tennessee v. FCC decision, while helpful, does not address the broader problem of agency disregard for the limitations of constitutional federalism and the rule of law.  Administrative overreach, like a chronic debilitating virus, saps the initiative of the private sector (and, more generally, the body politic) and undermines its vitality.  In addition, not all federal judges can be counted on to rein in legally unjustified rules (which in any event impose costly delay and uncertainty, even if they are eventually overturned).  What is needed is an administration that emphasizes by word and deed that it is committed to constitutionalist rule of law principles – and insists that its appointees (including commissioners of independent agencies) share that philosophy.  Let us hope that we do not have to wait too long for such an administration.

In Broadband, Constitutional Law, Federal Communications Commission, Federalism, First Amendment, Google, Platforms, Telecommunications , , , , , , ,
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GMU Law & Economics Center Presents “Unlocking the Law: Building on the Work of Professor Larry Ribstein”

Josh Wright —  25 July 2012

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

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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

In Banking, Constitutional Law, Corporate & Securities Law, Financial Regulation, Intellectual Property, Jurisdictional Competition, Law & Economics, Legal Profession, Regulation, Unlocking the Law Symposium , , , , , ,
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The NYT on why law school is expensive

Larry Ribstein —  18 December 2011

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.

In Intellectual Property, Law & Economics, Legal Profession , ,
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Delawyering the Corporation

Larry Ribstein —  11 December 2011

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.

In Legal Profession ,
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Lawyers as responsible business advisors

Larry Ribstein —  6 December 2011

Katherine Franke argues that lawyers are partly responsible for the financial misdeeds protested by OWS (HT Leiter):

Implicit in the OWS protests is a condemnation of an approach to lawyering that regards all legal rules simply as the price of misconduct discounted by the probability of enforcement* * *

In recent years we have seen the increased blurring of the boundary between law and business, between the lawyer and the businessperson, and between legal and business education. Too often, being a “good lawyer” has meant taking on the role of consiglieri, providing effective legal cover for otherwise borderline, or worse, practices. Effective and ethical representation of business interests does not relieve lawyers of responsibility for the harmful effects on others created by our clients’ actions, taken pursuant to our counsel. * * *

Servicing law school debt after graduation drives many of our students to highly compensated legal work for the financial services industry. * * *

The widely held public outrage at corporate overreaching given voice in the OWS protests reminds us of the degree to which the legal profession has fallen short of its traditional role as “republican” citizen, obliged to act as guardian of public interests even when — indeed especially when — representing private interests.

Without getting deeper into the psyche of the Occupiers, let’s grant that Wall Street’s improvidence was a cause of its Occupation and that lawyers were partly to blame for this improvidence. (I hope Franke will accept the friendly amendment that the lawyers worked for the government as well as the banks.)   What should we do about this? 

For starters, and recognizing that it has become obligatory to drag the high price of legal education into everything, I don’t think the answer to this particular problem is getting lawyers out of “highly compensated legal work” in finance.  (Indeed, not that many of today’s law school grads are even being tempted by such jobs.) Nor does the answer lie in simply hoping that lawyers will feel more obliged to “act as guardian of public interests.”  Indeed, the latter strategy is a prescription for their irrelevance.

Rather, the answer is training lawyers to get more into business and finance, where they can be respected and full-fledged participants in business decisions.  Law schools don’t adequately train lawyers on the complex financial instruments and deals they’re being called to advise on. Although lawyers may come to law school with this knowledge or learn it after they leave, law school generally doesn’t train them to integrate financial expertise with law practice.  For example, they may understand how a deal works, but not necessarily what material facts about the deal need to be disclosed, or when the transaction comes too close to the regulatory line.  And even if they might have such knowledge, they need to be able to speak the client’s language in order to be sure of being listened to.

Integrating lawyers more fully into business should make businesses in and out of finance more rather than less responsive to legal considerations.  In retrospect it’s clear that the lawyers who didn’t fully advise their clients of the legal risks inherent in their complex deals and securities didn’t just let the public down — they didn’t serve their clients’ interests.

Not every deal or new security that eventually blows up should have been squelched by a lawyer.  Risk can be healthy and perfectly legal.  Anyway, clients will tend to ignore legal advisors who just say no rather than try to find ways to get things done.  But the right course of action is often unclear.  Finding it requires matching high-level business expertise with knowledge of black-letter law and underlying policies.

Taking the lawyers out of finance or blunting their authority by turning them into preachers will not get the results Franke hopes for.

In Financial Regulation, Legal Profession, Regulation ,
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The NYT on law teaching

Larry Ribstein —  20 November 2011

The NYT brings another David Segal story on legal education.  Today’s sermon: law schools don’t teach “lawyering.”

Boiling away the overheated journalism, here’s the indictment:  Law profs are richly paid for writing mostly useless law review articles rather than “the essential how-tos of daily practice.” Students study cases about contract law but not contracts.  Clinics get second-class status.  New lawyers need law firm training to figure out how to “draft a certificate of merger and file it with the secretary of state.” A law graduate isn’t “ready to be a provider of services.” Clients won’t pay for work by untrained associates.  Legal education is not worth its high price.

Well, yes, law schools should pay more attention to the market for lawyers and offer more value.  But as I’ve written in my article Practicing Theory, this doesn’t mean teaching what lawyers traditionally do.  Lawyers now don’t draft agreements from scratch.  There’s an app for that — software templates modified by user input.  A technological tsunami is sweeping over legal services.

Practicing Theory suggests that law schools should teach law students how to be architects and designers rather than mechanics.  The lawyers of the future will focus, more than today’s lawyers, on the building blocks of law. Computers and non-lawyers will handle the mechanical tasks. Training lawyers demands the sort of theoretical perspective that Segal disdains. 

Law students also will need business skills that law schools don’t traditionally teach.  Indeed, Segal himself notes that “graduates will need entrepreneurial skills, management ability and some expertise in landing clients” without considering the implications of this observation for legal education.

The real problem, as discussed in Practicing Theory, is not that law professors are teaching theory rather than the way to the courthouse, but that their choices of which theories to teach pay insufficient attention to the skills and knowledge today’s and tomorrow’s market demands. Segal’s article, like others in this series, ignores such nuance, preferring to string together well-worn criticisms and to eschew coherent analysis in favor of attention-getting quotes.

But, then, this is what journalists learn in journalism school.  Just as law professors swing for the law reviews, so journalists swing for the Pulitzers.  No wonder blogs are replacing the mainstream media as the source of cutting-edge information.  If you want to know what is actually ailing the legal profession and the law professoriate, you would do much better to read, e.g., Bill Henderson, Dan Katz, Brian Leiter, Brian Tamanaha, Steve Bainbridge and me.  It will save time and trees.

In Corporate & Securities Law, Legal Profession, Regulation , , ,
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Eric Rasmusen on Everyday Versus Fancy Law

totmauthor —  19 September 2011

Let me start with a couple of stories.

Story 1.  I’m an economist, but I got a chance to be like a real lawyer in filing an amicus brief recently (Barnes v. Indiana– here’s our brief).  We had only two weeks to organize, write, and file because of an oddity of the case (a petitition for the Indiana Supreme Case to rehear after an opinion that surprised everyone with its breadth). We had legal counsel, but pro bono, without paralegal help, and by email. It came down to the wire in writing and getting final approval from amici, so he suggested that I do the physical filing. I took the brief to Kinko’s around 9 p.m., but discovered they couldn’t do the binding by 11, and I needed to drive an hour get to the Indianapolis Statehouse and file by midnight. I went to my office instead, and did simple staple binding with green cardstock, which ran out so I used white cardstock for the back covers and made it to the Rotunda at 11:50. Alas, our counsel shortly got a notice that the back covers needed to be green too. But the Court Clerk was merciful, and allowed us to slip in replacement briefs without a formal motion.

Story 2.  The company MDCO hired the law firm WilmerHale to handle its patents. WilmerHale filed for a patent extension 62 days after a key date, missing the statutory deadline of 60 days. This was perhaps because of confusion over whether the days started being counted from the Friday night of a previous filing’s approval of the following Monday morning. The uproar that began then is still in progress (litigation and a special statutory amendment known as the “The Dog Ate My Homework Bill”), but MDCO and WilmerHale settled for $214 million malpractice damages if their efforts fail to win back the patent extension.

I tell these two stories as examples of the importance in everyday lawyering of following arbitrary rules. Experience counts in this, and care, and even wisdom (don’t wait till the last minute or something bad might turn up unexpectedly) but not IQ.

To be sure, other defects can be fixed up by IQ. That’s what MDCO is doing with its litigation, where it hired Peter Keisler and Sidley Austin. (Medicines v. Kappos, 731 F.Supp.2d 470 (2010), brief here ).  But everyday lawyering is not rocket science. It demands trustworthiness, experience, and wisdom, but not intelligence. That’s why big national firms hire local counsel— the big firms are wise enough to know that experience counts.

Training for everyday lawyering is different from training for appellate work or for helping on fancy deals. Everyday lawyering is best learned by serving as an apprentice.  There is a place for both kinds of lawyering. Fancy practice benfits from law school training. Everyday lawyering doesn’t. A lot of legal work falls in between— trial work, for example.

The current system of requiring lawyers to first go to law school, then to pass a bar exam, and then to stay out of big enough trouble to force disbarment proceedings doesn’t have much effect on fancy lawyering. For something complicated, you probably want someone who went to law school anyway. Or, if you happen to come across some self-tutored legal genius, you’ll find a way to make sure of his talents, perhaps by having him serve as “assistant” to your team of licensed lawyers. It’s like requiring a PhD to be a physics professor— pretty much every good candidate will have a PhD, but it’s not a binding constraint.

The current system does have an effect on everyday lawyering, but not a good one. First, it forces all the lawyers to go to law school. Thus, as often brings complaint, three years after starting their legal training, lawyers still aren’t ready to practice everyday law. To be sure, after a month’s supplemental training many of them have acquired all the book-learning they need to practice in a particular jurisdiction. But imagine the comparison between someone aged 21 who spent three years in law school and someone who had spent three years working in a law office. Who would you rather have file your amicus brief or your patent extension?

And, of course, teaching Marbury v. Madison, Chevron, and Hadley v. Baxendale to prepare someone for everyday lawyering is a waste of time. It’s part of their heritage, and part of a liberal education in the law, but it won’t help you do divorce cases.

A bar exam might be a good idea. I would certainly like to know whether a lawyer I find in the yellow pages has passed a bar exam somewhere in the world or not, though I’m not sure I’d insist on the Indiana exam. More important than that, I’d like to know his score— truly useful information. If he passed the Indiana exam 20 years ago, what he learned may well be obsolete, but if he was in the 8th percentile of those passing, that’s still relevant.

And having disbarment be the penalty for bad conduct is definitely a good idea. Just as someone who has been convicted of child molesting shouldn’t be allowed to start a daycare center, so someone who has been convicted of embezzlement shouldn’t be allowed to practice law. And, ideally, this shouldn’t be left up to judges. It takes a long time to obtain a criminal conviction and “beyond a reasonable doubt” is a tough standard to meet. I’d prefer a speedy tribunal with a preponderance of evidence standard, with the possibility of the guilty lawyer appealing to the courts afterwards for reversal.

Going back to Story 2, let’s also have more public information about incompetence in everyday lawyering. Mistakes there are easy to verify, unlike mistakes in appellate argument. So let’s have a bulletin board with official publication of bloopers. In teaching Story 2 to my undergrads, I’d like to know the names of the WilmerHale lawyers who blew it, and the story of what happened to them. I haven’t found that yet, but with a bulletin board, it would be easy. And how can they complain if all it does is tell the truth?

Thus, let’s get rid of the law school requirement but keep the bar exam and disbarment. Let’s even make the bar exam and disbarment more important, by disclosing more information to the public and by speeding up how they work.

In Intellectual Property, Legal Profession, Patent, Unlocking the Law Symposium , , ,
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Walter Olson on Careful What You Unleash

totmauthor —  19 September 2011

As a libertarian, I mostly concur in the critique of occupational licensure made famous by (among others) Milton Friedman. For the most part, licensure is a consumer-unfriendly affair that protects incumbent practitioners from competition, locks out promising new methods of service provision, and interferes with voluntary dealings between professional and client. It is dubious enough as applied to occupational groups such as doctors and plumbers, and downright ridiculous (as the Institute for Justice keeps reminding us) as applied to groups like cosmetologists, florists and interior designers.

But lawyers are different. No, seriously — they are. Most other professional groups deal with a clientele that, even if unsophisticated, is at least participating voluntarily and exercising a choice of providers. This is true of lawyers as well for the majority of the services they provide — advising on the state of the law, drafting contracts, negotiating business deals, devising estate plans. But lawyers also are given a litigator’s hunting license to initiate compulsory civil process against unwilling (often wholly innocent) opponents and third parties, and deregulating that power is a good bit more problematic.

The coercive powers wielded by private lawyers are more akin to the powers wielded by prosecutors and other government officials than to the powers wielded by, say, optometrists or dentists. They include the power not only to initiate a lawsuit — something that, even if disposed of at an early stage, can inflict hundreds of thousands of dollars of financial cost (plus reputational damage and distraction) on an adversary — but also the power to pursue discovery under our remarkably broad American rules, an extraordinarily coercive and invasive process by which opponents are compelled to hand over private emails, memos and doodles for hostile scrutiny, attend and endure hostile depositions in person, undertake vast file searches at an unreimbursed cost that can exceed the value in controversy in the suit, and more. I am not convinced that deregulating the power to commence this sort of civil process and demand money from an opponent for calling it off — in effect, to widen the existing pro se exemption so as to allow anyone to proceed pro se on behalf of anyone else they can get to sign up — would reduce the amount of unjustified legal aggression in a system that already has plenty of it and to spare.

It will not do to say that abuse of the power to litigate can be sorted out after the fact as it allegedly was in the cases of Scruggs and Lerach, years after the ethical lapses began. Much experience suggests that sanctions, disbarments, countersuits and prosecutions are typically belated and spotty as it is (for many examples, check my website Overlawyered). True, abusive lawyering would be far better checked if we had loser-pays, a strong Rule 11, serious constraints on the use of discovery for cost infliction, and so forth. But we don’t — and the Law Lobby will not let us win those remedies any time soon.

The way forward might be to split the tasks of a lawyer in two, moving to deregulate the advisory and document-preparation functions (which could indeed be a way of saving consumers large sums) while continuing to apply appropriate scrutiny to those in the profession who presume to wield coercive litigation powers. Although the British separation of highly regulated barristers from less highly regulated solicitors does not precisely track this distinction, it is worth keeping in mind as a possible model for a division between an “outer” legal profession whose operation might be entrusted to general business principles and an “inner” group of professionals of whom more is expected, as we expect more ethically and legally from judges themselves, public prosecutors, and others cloaked in public authority.

In Legal Profession, Regulation, Unlocking the Law Symposium , , ,
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Being a business lawyer

Larry Ribstein —  5 July 2011

Peter Mahler’s excellent NY “business divorce” blog has a must-read post on “what it means to be a business divorce lawyer.” Bottom line:  you have to know not just law, but “hand-holding,” “your client’s business,” accounting and valuation, and “the purposes and limitations of litigation.”

Of course this applies to all business lawyering.

Mahler’s analysis raises broader questions, including how are law students trained for this?  Can non-lawyers or what I’ve called “legal information products” do some of this, with or without collaboration with lawyers?

In Legal Profession ,
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