Legal Information: Globalization, Conglomerates and Competition-- Monopoly or Free Market May 19, 2009 Kendall F. Svengalis Rhode Island LawPress

Legal Information: Globalization, Legal Information: Globalization,

Conglomerates and Competition--Conglomerates and Competition--

Monopoly or Free MarketMonopoly or Free Market

May 19, 2009May 19, 2009

Kendall F. SvengalisKendall F. SvengalisRhode Island LawPressRhode Island LawPress

Relative Market Shares of Major Relative Market Shares of Major Legal Publishers: 2008Legal Publishers: 2008

Thomson Reuters 39.22%

Reed Elsevier 31.46%

Wolters Kluwer 29.32%

Relative Market Shares of Relative Market Shares of Parent Companies: 2008Parent Companies: 2008

Thomson Reuters 48.93%



A Concentrated IndustryA Concentrated Industry

The Big Three control about The Big Three control about

90% of the market for legal 90% of the market for legal

information.information.

Attributes of Legal PublishingAttributes of Legal Publishing

High profitabilityHigh profitability Reliable cash flow from subscription Reliable cash flow from subscription

sales (85%)sales (85%) Affluent customer baseAffluent customer base Purchasing decisions driven by Purchasing decisions driven by

content, not pricecontent, not price Customer inattention to publisher Customer inattention to publisher

practicespractices

Thomson/West, 1979-dateThomson/West, 1979-dateCallaghan & Company (1979)Callaghan & Company (1979)

Clark Boardman (1980)Clark Boardman (1980)

Warren, Gorham & Lamont (1980)Warren, Gorham & Lamont (1980)

Lawyers Cooperative (1989)Lawyers Cooperative (1989)

Research Institute of Amer. (1989)Research Institute of Amer. (1989)

Maxwell Macmillan (1991)Maxwell Macmillan (1991)

Counterpoint Publishing (1994)Counterpoint Publishing (1994)

Information Access (1994)Information Access (1994)

Information America (1994)Information America (1994)

Barclays (1995)Barclays (1995)

Shepard’s (treatises only) (1995)Shepard’s (treatises only) (1995)

West Publishing Company (1996)West Publishing Company (1996)

Banks Baldwin (1996)Banks Baldwin (1996)

Foundation Press (1996)Foundation Press (1996)

Federal Publications (1998)Federal Publications (1998)

Dialog (Info. Services) (2000)Dialog (Info. Services) (2000)

Findlaw (2001)Findlaw (2001)

Harrison Company (2002)Harrison Company (2002)

Andrews Publications (2003)Andrews Publications (2003)

Elite Information Systems (2003)Elite Information Systems (2003)

Glasser LegalWorks (2004)Glasser LegalWorks (2004)

Hildebrandt International (2005)Hildebrandt International (2005)

Global Securities Info., Inc. (2005)Global Securities Info., Inc. (2005)

Quantitative Analytics, Inc. (2006)Quantitative Analytics, Inc. (2006)

Reed Elsevier, 1979-dateReed Elsevier, 1979-date

CIS (1979)CIS (1979)

R.R. Bowker (1985)R.R. Bowker (1985)

Univ. Pubs. of Am. (1988)Univ. Pubs. of Am. (1988)

Martindale-Hubbell (1990)Martindale-Hubbell (1990)

Butterworths (1994)Butterworths (1994)

Michie (1994)Michie (1994)

LexisNexis (1994)LexisNexis (1994)

Shepard’s (1998)Shepard’s (1998)

Matthew Bender (1998)Matthew Bender (1998)

Mealey’s Publications (2000)Mealey’s Publications (2000)

Book Publishing (2001)Book Publishing (2001)

Courtlink (2001)Courtlink (2001)

Anderson Publishing (2002)Anderson Publishing (2002)

Seisint (2004)Seisint (2004)

Gould Publishing (2004)Gould Publishing (2004)

Weil Publishing (2005)Weil Publishing (2005)

Wolters Kluwer, 1994-dateWolters Kluwer, 1994-date

Aspen Law & Business (1994)Aspen Law & Business (1994)

Commerce Clearing House (1995)Commerce Clearing House (1995)

Little, Brown treatises (1996)Little, Brown treatises (1996)

Wiley Law Publications (1997)Wiley Law Publications (1997)

Loislaw.com (2000)Loislaw.com (2000)

Bowne Publishing (2002)Bowne Publishing (2002)

Casenotes Publishing Co. (2002)Casenotes Publishing Co. (2002)

Building blocks of a successful Building blocks of a successful legal publishing enterpriselegal publishing enterprise

Online legal research serviceOnline legal research service State and federal primary lawState and federal primary law Substantial body of secondary and Substantial body of secondary and

analytical resourcesanalytical resources Citator serviceCitator service

Thomson Reuters: Legal & TaxThomson Reuters: Legal & Tax

Westlaw (online primary and secondary Westlaw (online primary and secondary resources)resources)

Primary law in print for all jurisdictionsPrimary law in print for all jurisdictions Largest body of secondary and analytical Largest body of secondary and analytical

materials in print formatsmaterials in print formats KeyCite (on Westlaw)KeyCite (on Westlaw)

Reed Elsevier: LexisNexisReed Elsevier: LexisNexis

LexisNexis (online primary and LexisNexis (online primary and secondary resources)secondary resources)

Primary law in print for many Primary law in print for many jurisdictionsjurisdictions

Substantial body of secondary and Substantial body of secondary and analytical resources in print formats analytical resources in print formats (Matthew Bender, Michie)(Matthew Bender, Michie)

Shepard’s Citations serviceShepard’s Citations service

Wolters Kluwer: Tax, Wolters Kluwer: Tax, Accounting & LegalAccounting & Legal

Loislaw (primary law and modest Loislaw (primary law and modest secondary resources)secondary resources)

No print primary lawNo print primary law Substantial secondary/analytical Substantial secondary/analytical

resources (CCH, Aspen, Wiley)resources (CCH, Aspen, Wiley) Global Cite (bare bones citator Global Cite (bare bones citator

service) service)

What they said in 1996:What they said in 1996:Anne Bingaman, Chief of U.S. Anne Bingaman, Chief of U.S. Justice Department’s Antitrust Justice Department’s Antitrust Division:Division:

““We are all consumers of legal We are all consumers of legal information from time to time information from time to time and as citizens we rely on and as citizens we rely on access to information about access to information about our nation’s laws. Competition our nation’s laws. Competition in the legal publishing industry in the legal publishing industry helps keep costs low,helps keep costs low, improves product quality and improves product quality and increases innovation.”increases innovation.”

Toronto StarToronto Star, June 20, 1996, June 20, 1996

Thomson General Thomson General Counsel Michael Harris:Counsel Michael Harris:

““The merged companies The merged companies have no plans to have no plans to discontinue products or discontinue products or raise pricesraise prices.”.”

As quoted in As quoted in ABA ABA JournalJournal, May 1996., May 1996.

What Svengalis said in 1996What Svengalis said in 1996

““Svengalis also worries that Thomson will Svengalis also worries that Thomson will increase prices. In 1987, Lawyer’s Co-op increase prices. In 1987, Lawyer’s Co-op marketed its American Jurisprudence legal marketed its American Jurisprudence legal encyclopedia for $584. Thomson bought that encyclopedia for $584. Thomson bought that company in 1989, and by 1994 the price was company in 1989, and by 1994 the price was $1,450 [a 148% increase]. There are lots of $1,450 [a 148% increase]. There are lots of similar price increases that run throughout their similar price increases that run throughout their secondary materials.” secondary materials.”

34 ABA Journal / May 199634 ABA Journal / May 1996

““Profit margins are probably the Profit margins are probably the most mean-reverting series in most mean-reverting series in finance, and if profit margins do not finance, and if profit margins do not mean-revert, then something has mean-revert, then something has gone badly wrong with capitalism. gone badly wrong with capitalism. If high profits do not attract If high profits do not attract competition, there is something competition, there is something wrong with the system and it is not wrong with the system and it is not functioning properly.”functioning properly.”

Jeremy GranthamJeremy Grantham

Operating Profit Margins of Operating Profit Margins of The Big Three: 2008The Big Three: 2008

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%25-year CorporateAverage 8.30%

Current CorporateAverage 10.3%



Thomson/WestLegal & Regulatory32.10%

Thomson Corporation: Thomson Corporation: Operating Profit Margins of Operating Profit Margins of

Professional Divisions: 2008Professional Divisions: 2008

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35 Health Care 18.2%

Scientific 27.2%

Tax & Accounting 25.4%

Legal & Regulatory 32.1%

Average Annual Increase in Average Annual Increase in New Costs, 1995-2009New Costs, 1995-2009

Average Annual Increase in Average Annual Increase in Supplementation Costs, 1995-2008Supplementation Costs, 1995-2008

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

New Cost Supp.Cost

Aspen

BNA

CCH

LexisNexis MatthewBenderLexisNexis Michie

Thomson/West

History of Antitrust EnforcementHistory of Antitrust Enforcement

1890 Sherman Antitrust Act

1914 Clayton Antitrust Act

1890-1920 limited enforcement 1920-1950 lax enforcement

1950-1970 aggressive enforcement (Warren Court)

Warren Court decisionsWarren Court decisions

United States v. Vons Grocery Co., 384 U.S. 270 (1966)

The court rejected a merger of two grocery chains in the Los Angeles area whose combined

market share was 7.5%

United States v. Pabst Brewing Co.,United States v. Pabst Brewing Co.,384 U.S. 546 (1966)384 U.S. 546 (1966)

The Supreme Court disallowed a merger of two brewing firms that

together accounted for 24% of beer sales in Wisconsin, 11% of sales in three states of upper Midwest, and

less than 5% nationally.


1970s Rise of the “Chicago School”

A body of lawyers and economists associated with the University of Chicago, including Robert Bork, Richard Posner, Harold Demsetz,

and others.


Bork and his allies argued that

The likely prospect of net efficiency gains, coupled with ease of market entry, should preclude government intervention in business conduct except where economic theory indicates that harm will result.

The Warren Court denied consumers the benefits of free market resource allocation by protecting small, weak, poorly managed, inefficient and inadequately funded businesses.


A monopoly based on efficiency benefits consumers and should be left alone.

Market entry by new competitors will invariably erode market dominance that is not based on efficiency.


1981- Reagan-era appointment of William F. Baxter to head the Antitrust Division ushered in a new era of neglect.

In the field of legal publishing, this was best exemplified by the approval of the Thomson-West merger in 1996.

Current era of antitrust marked byCurrent era of antitrust marked by

Excessive patent & copyright Excessive patent & copyright protection.protection.

The right to curb retail price The right to curb retail price competition.competition.

Tactics that exclude new challengers Tactics that exclude new challengers from a marketfrom a market

Unopposed mergers that create Unopposed mergers that create overpowering market giantsoverpowering market giants


There is a rising sense that the pendulum has swung too far in the direction of lax enforce-ment. Two recent books promote this view:

Pitofsky, Robert, ed. How the Chicago School Overshot the Mark: The Effect of Conservative Economic Analysis on U.S. Antitrust. New York: Oxford University Press, 2008.

Reback, Gary. Free the Market!: Why Only Government Can Keep the Marketplace Competitive. New York: Portfolio, 2009.

Characteristics of Legal Characteristics of Legal Publishing OligopolyPublishing Oligopoly

1. Oligopolies are often characterized as markets in which the four largest firms control 40% or more of the market. Indeed, Thomson/West alone accounts for 41% of the market.

2. Generally speaking, oligopolies compete on product differentiation rather than price.

3. The concentration of products and services in the hands of three legal publishing conglomerates between 1979 and the present effectively swept the decks clear of potential sources of competition.

4. Potential rivals are, most likely, candidates for acquisition by one of the cash-rich Big Three.

Characteristics of Legal Characteristics of Legal Publishing Oligopoly (cont.)Publishing Oligopoly (cont.)

5. Short and near-term potential for serious potential rivals is limited by market power of existing players, current legal research habits, and concentration of authors and editors.

6. Thomson/West, alone, has been able to corral a critical mass of legal products and services, including the two major systems of legal information, a commanding share of primary law and analytical tools, and a substantial share of the online market, which has allowed it to increase prices at rates far in excess of its rivals.

7. Thomson/West has uniquely been driven to increase prices and profit margins at the expense of its customers and to fundamentally alter the law library landscape.

Thomson/West print publications: Thomson/West print publications: average annual supplementation average annual supplementation

% cost increases, 1995-2008% cost increases, 1995-2008

0%

5%

10%

15%

20%

25%

Digests 22%

NRS Advance Sheets 11.5%Statutory Codes 11.5%Treatises 11.5%

Legal Information Buyer’s Guide & Legal Information Buyer’s Guide & Reference Manual 2009Reference Manual 2009

Cost and supplementation cost data (chapter 27):

Fletcher Corporation Forms Annotated. 4th ed. By Lenore M. Zajdel. St. Paul, MN: West (Clark Boardman Callaghan), 1980-date. 33 vols. Annual pocket parts and periodic revised volumes.Cost: $2,705; supplementation: 1993: $429; 1994: $528; 1995: $511; 1996: $519; 1997: $599.70; 1998: $750; 1999: $918.40; 2000: $1,097; 2001: $1,302; 2002: $1,052; 2003: $1,152.50; 2004: $1,291; 2005: $2,531.50; 2006: $2,027.50; 2007: $1,575; 2008: $2,909; CD-ROM: $2,220 per year. May also possibly be purchased in tandem with Fletcher Corporate CD-ROM (LawLink) at discount pricing for set and all future upkeep.

1995-2008: 334% - 13% average annual increase

Hypothetical $100,000 baseline budget Hypothetical $100,000 baseline budget projected at 5% and 13%projected at 5% and 13%

average annual increases over 10 yearsaverage annual increases over 10 years

$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

2007 2017

5% Avg. AnnualBudget Increase $162,88913% Avg. Annual WestIncrease $339,456

Deficit After 10 years $176,567

Cumulative 10-yeardeficit $584,181

Supplementation and continuing Supplementation and continuing subscription costs are the name of subscription costs are the name of

the legal publishing gamethe legal publishing game

Lower new set prices and promotions are the bait, but these prices must be increased periodically to limit the “write-for-order” strategy of buy and cancel.

More than 85% of profits are derived from continuing supplementation costs.

West special promotionsWest special promotions

2006 St. Patrick’s Day promotion--20% discount on every order of $150.00 or more. Example:

Fletcher Corporation Forms Annotated2005 Price: $1,263.00

2006 Price: $1,888.00 minus 20% discount = $1,510.00

2007 Price: $2,373.00

2009 Price: $2,705.00

No Pot of Gold here!

The 20% discount is a trifling compared to profits it hopes to make off supplementation costs in future years.

Cost-Saving TipsCost-Saving Tips

Before leasing office space, consider the distance to the nearest public law library.

Spend a few hours determining what resources are available at the law library

before acquiring any of these for your office. You will then be in a better position to make

informed purchases based upon quality, suitability, cost, frequency of usage, and

travel time saved.


Legal information is a virtual minefield for the unwary consumer. Legal publishers

make 80-85% of their revenues from subscription sales, i.e. either subscriptions to online services or supplements to print products. Implement strategies to control

these automatic costs.


Before subscribing to a premium online research service (Westlaw or Lexis), take full advantage of low-cost alternatives, particularly Casemaker (available as a

benefit of bar association membership), the free resources on LexisOne, VersusLaw, or

free state government sources for cases, statutes and regulations.


If you are tempted to subscribe to a premium legal research service, give it a

test run first, on a daily, weekly or monthly basis. Or, if your usage is likely to be

infrequent, schedule your research work within the limits of your short-term

subscription.


If your online research reaches a threshold at which an annual subscription to one of

the premium online services is desired, and you are in a firm of 40 attorneys or less,

you can opt for either a Westlaw PRO or a Lexis Total Practice Advantage

subscription.


Avoid print subscriptions, particularly to the large state or national research sets. If

desired, these materials can be added to a Westlaw PRO subscription for a fraction of

their cost to maintain in print.

Westlaw PRO Savings v. printWestlaw PRO Savings v. print

Westlaw Pro ConnecticutPlusAm Jur 2dAmerican Law ReportsAm Jur Legal FormsAm Jur Pl. & Prac. FormsAM Jur Proof of FactsAm Jur TrialsCauses of Action

$2,208 per year ($184/mo.)

Same titles in print:

Initial cost: $43,302

Supp. Cost (2008) $29,891


Law books are not an investment, but a cost of practicing law. The value of used law

books plummets faster (80-90% once they’re yours) than that of the typical new car (20-

25% in the first year). Yet, West urges customers to “protect your investment” by buying the latest pocket part or release to a

supplemented legal treatise. This is baseless marketing rhetoric and has no basis in reality.


Know both the cost and the supplementation cost history of any book before you buy it. Publishers will not tell you this unless you ask. Getting you on standing order is their

goal, which is why they’ll gladly discount the initial purchase 20%. They make their money

by attaching your wallet to their milking machine.


With some exceptions, treat legal treatises as monographs rather than serial

publications. Most of the value will be contained in the base text, providing you with the basic descriptive and analytical

discussion of the subject matter. While the supplements add only marginal value to the base discussion, they add substantially to

the publishers’ bottom line.


Update the information contained in legal treatises by using Shepard’s or

KeyCite, and by tracking cases, statutes and regulations in your jurisdiction and practice areas.

Chances are, the national treatise supplements will not catch the latest

changes in your jurisdiction.


Supplementation is a double-edged sword. You need to be kept up-to-date;

but the supplements to secondary sources are an extraordinarily expensive

way of accomplishing this. Imagine paying for a Shepard’s citator for every

treatise in your library.


Consider alternatives to complete sets, including abridged editions, selected

volumes in your practice area, statutory subject compilations, etc.


Share library and expenses with another firm in your building.


If your firm lacks a law librarian, assign a member of your firm to be the library

gatekeeper, with responsibility for monitoring library acquisitions and

expenditures. One of this person’s tasks should be to maintain a database of all titles in your library, conduct an annual inventory,

and determine the desired level of supplementation for each.


Amazon.com is an excellent source for new, nearly new, or used law books, including most legal monographs and

many serial tiles, often at drastic discounts.


Beware of solicitations disguised as invoices. These may or may not follow

free trial subscriptions. The tactic is based on the premise that you are more likely to renew a subscription to which you think you are already subscribing,

even though you never did so by conscious act.


Don’t become so enamored of one online legal research service that you cannot walk away when

the costs or terms become excessive. Play Westlaw and Lexis off against each other to get the best content and rates. While Westlaw may have a bit of an edge in user preference surveys (much of it a result of heavy marketing at law

schools), both services provide a level of sophistication to satisfy the most discriminating

practitioner.


Take advantage of free Lexis or Westlaw research attorneys when conducting

complicated searches in their respective databases.


If you are in a firm too large for a Westlaw PRO or Lexis Total Advantage plan, be aware that careless, or higher levels of, online usage

will result in more expensive terms when your current “flat rate” contract expires. Cost

effective searching is always a good idea under such circumstances.


Have a strict firm policy of directing all publishers’ telemarketers to the library

staff or contact person. Never volunteer attorney names to telemarketers when

asked for practitioners in particular practice areas.


With the steeply rising costs of print reporters and advance sheets, discontinue subscriptions to hardcopy court reports in favor or online access if you have not already done so. Get used to obtaining your state appellate court decisions off your state court web site, or by periodically doing a date-restricted search on Casemaker or VersusLaw.


When contemplating the purchase of a legal treatise or reference book, consult the Legal Information Buyer’s Guide & Reference Manual for the history of its supplementation costs and the comparative costs of competing works.

Legal Information Buyer’s Guide & Legal Information Buyer’s Guide & Reference Manual 2009Reference Manual 2009

Cost and supplementation cost data (chapter 27):

Fletcher Corporation Forms Annotated. 4th ed. By Lenore M. Zajdel. St. Paul, MN: West (Clark Boardman Callaghan), 1980-date. 33 vols. Annual pocket parts and periodic revised volumes.Cost: $2,705; supplementation: 1993: $429; 1994: $528; 1995: $511; 1996: $519; 1997: $599.70; 1998: $750; 1999: $918.40; 2000: $1,097; 2001: $1,302; 2002: $1,052; 2003: $1,152.50; 2004: $1,291; 2005: $2,531.50; 2006: $2,027.50; 2007: $1,575; 2008: $2,909; CD-ROM: $2,220 per year. May also possibly be purchased in tandem with Fletcher Corporate CD-ROM (LawLink) at discount pricing for set and all future upkeep.

1995-2008: 334% - 13% average annual increase

finifini

Documents

Legal Information: Globalization, Conglomerates and Competition-- Monopoly or Free Market May 19, 2009 Kendall F. Svengalis Rhode Island LawPress