Legal Information: Globalization, Legal Information: Globalization,

Conglomerates and Competition--Conglomerates and Competition--

Monopoly or Free MarketMonopoly or Free Market

July 15, 2007July 15, 2007

Kendall F. SvengalisKendall F. SvengalisRhode Island LawPressRhode Island LawPress

Relative Market Shares of Major Relative Market Shares of Major Legal Publishers: 2006Legal Publishers: 2006

Thomson 41.5%

Reed Elsevier 23%

Wolters Kluwer 20%

Other 15.5%

A Concentrated IndustryA Concentrated Industry

The Big Three control about The Big Three control about

85% of the market for legal 85% of the market for legal

information.information.

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)

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.

Operating Profit Margins of Operating Profit Margins of The Big Three: 2006The Big Three: 2006

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%

Wolters Kluwer 17.0%

Reed Elsevier 24.20%

Thomson/WestLegal &Regulatory 31%

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

Market Segments: 2006Market Segments: 2006

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00% Financial 19%

Health Care 22%

Scientific 25%

Tax & Accounting 28%

Legal & Regulatory31%

““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

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.

Average Annual Increase in Average Annual Increase in New Costs, 1995-2007New Costs, 1995-2007

Average Annual Increase in Average Annual Increase in Supplementation Costs, 1995-2006Supplementation Costs, 1995-2006

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

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

% cost increases, 1995-2006% cost increases, 1995-2006

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 2007Reference Manual 2007

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: $2,373; 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; CD-ROM: $1,404 per year. May also possibly be purchased in tandem with Fletcher Corporate CD-ROM (LawLink) at discount pricing for set and all future upkeep.

1995-2006: 296% - 13.5% 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

Impact of Thomson/West Price IncreasesImpact of Thomson/West Price IncreasesIt’s impossible to approach this topic without addressing the central role Thomson/West has played. It’s like trying to ignore the raging bull elephant in the room who has just finished trampling all the law libraries in the territory and then invites you to an SIS reception it is sponsoring and hands you a glass of merlot.

It should come as no surprise that these 13% annual price increases have had an enormous impact on law libraries everywhere. And, clearly, the impact is unprecedented. Even the dark days of Matthew Bender in the late 1980s and early 1990s came nowhere near having the impact that Thomson/West has wrought since 1996. What Bender did was short-lived and unsustainable. It caused such a precipitous decline in subscriptions that the company was on the verge of collapse, a collapse only averted by firing its president, freezing its prices and sharp reversal of direction. When the price freeze was lifted three years later, Bender’s supplementation cost increases averaged 4.5% annually.

Interestingly, at the time Thomson acquired West Publishing the word among insiders at Thomson was that Matthew Bender was a corporate model to emulate. In other words, they could increase supplementation costs as Bender had done, but be successful at it. And its control of the largest segment of the legal information market and many essential legal information tools would allow it to achieve success where Bender had failed. Sadly, that view has turned out to be true, to the detriment of law libraries everywhere.

My posting to law-lib produced dozens of illuminating responses on the impact of Thomson/West price increases:

One PA county law librarian lamented that she was $60,000 over budget last year because of Thomson/West price increases. She indicated that 80% of her West titles have been cancelled over the past 15 years and that the collection has been reduced from a national collection to a PA state collection. She wrote: “I can’t even afford to go to a local seminar, let alone an AALL meeting to

get the free PIG in a blanket. If I had to pick one phrase to describe the impact of West price increases since 1996, it would be “Collection devastating.” Or maybe “tsunami of collections.””

An Ohio county law librarian wrote to say that his budget had fallen 23% since 1996 in the face of double-digit West price increases. Like the PA example, his library has been reduced to an Ohio collection from a national collection, having cancelled over 700 titles since 1999 and eliminated three employees.

An academic librarian indicated that “as West prices have increased we have cancelled more West titles to try to keep what we pay West within our budget limitations. As was the case with Matthew Bender titles a decade plus ago no one missed them.”

A law school librarian with 4% annual budget increases is faced with cutting $100,000 of the budget every year for the foreseeable future. And he didn’t agree to an LMA because he didn’t want to be locked into subscriptions he needs to cut.

A state law library has substantially reduced its West collection. Reporters have been reduced to only the state offprint, and the exchange of state statutes has been eliminated because they could no longer afford them.

A major academic library director indicates that she is cutting what they spend on treatises with supplementation by 25% and implementing a $500,000 cut in the collection budget.

One bright note: an Ohio county law librarian negotiated a 50% reduction in the cost of all West print titles and proceeded to tell all her colleagues before she signed the confidentiality agreement. Her current contract does not include a confidentiality agreement. The upshot: Her colleagues called West and asked for the same deal. Transparency is our best friend.

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 new set price increases: West new set price increases: 2005-20072005-2007

Lane. Goldstein Trial Technique $462--$630--$715--$911--97%

Modern Workers Compensation $580--627--$795--$885--53%

Federal Procedure $2,798--$3,293--$3,618--$4,026--44%

Am. Jur. Pleading & Prac. Forms $2,700--$3,886--$4,080--51%

Fletcher Corp. Forms Ann. $1,263--$1,600-$1,888-$2,373--88%

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

No Pot of Gold here!

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

Thomson/West’s Rationale for LMAsThomson/West’s Rationale for LMAs

1.1. Inject a level of predictability in revenues from law Inject a level of predictability in revenues from law libraries hard hit by price increases. If Thomson/West libraries hard hit by price increases. If Thomson/West can’t get 13% from libraries receiving 5% budget can’t get 13% from libraries receiving 5% budget increases, it can aim for 8% predictable revenue increases, it can aim for 8% predictable revenue growth.growth.

2.2. Stem the tide of cancellations.Stem the tide of cancellations.

3.3. Oil the squeaking wheels (law libraries) and still have Oil the squeaking wheels (law libraries) and still have your way with the attorney population.your way with the attorney population.

4.4. Use print/online linkages to increase Westlaw market Use print/online linkages to increase Westlaw market share.share.

5.5. Keep customers in the dark with confidentiality Keep customers in the dark with confidentiality agreements.agreements.

Library Management AgreementsLibrary Management AgreementsLibrary Management Agreements are multi-year agreements for managing large print collections held by T/W customers. The encouraged contract is three years, but two-year contracts are allowed with management approval. One-year contracts are not allowed. If titles are cancelled during the term of the contract, the library is still required to pay the full LMA amount.

LMAs are typically pushed by the sales reps. with the warning that subscription costs will increase by 12-13% in their absence.

Sales pitches also typically include claims that agreements must be signed within a specific time frame or the opportunity will be lost.

Rates are negotiated, but typically average 7-8 % in the 2d and 3d years, sometimes with a teaser as low as 2% in the first year.

Although LMAs have the potential to reduce costs, many law librarians are skeptical because of: (1) failure to agree on the titles to be included in the LMA; (2) failure to agree on the list of titles to which the library

subscribes; (3) fluctuations in law library budgets which prevent them from being locked in for an extended period of time; (4) high pressure tactics; (5) the non-disclosure provisions.

One academic law librarian indicated that “What was once a relationship based on trust, honesty, and open acknowledgement of mutual dependency is now a relationship like… being stalked, especially about the LMA.  For example, two unknown-to-us reps showed up AT NIGHT and tried to get our head of reference to make a commitment!”

She went on to say: “I think their non-disclosure [of LMA terms, for example] are monopolistic in the extreme.  I just tell them, we are a public institution in a state with a strong FOIA statute, and I do not have the power to keep a non-disclosure agreement.  I also tell them, and my colleagues, that I think the non-disclosure agreements are not in anyone's best interest (vendor or purchaser).” 

How much better would it be if Thomson West simply reduced its annual supplementation cost increases to 7-8%, gave us reason to stop the cancellations, and gave law libraries the freedom to buy and cancel what they want, when they want.

Price Index for Legal Publications, 1973/74 - 1995/96

Bettie Scott and Margaret Maes Axtmann

Number of Indexed Serial Titles: 1,263

Price Index for Legal Publications 2d, 1998-2004

AALL Price Index Committee

Number of Indexed Serial Titles: 914

Price Index for Legal Publications 3d, 2005-date

AALL Price Index Committee

Number of Indexed Serial Titles: 584

Price Index History Price Index History

Coverage of Price Index 2d Coverage of Price Index 2d v. v.

Price Index 3dPrice Index 3d

Total Titles 2d 3d % Reduction

Serials 527 260 50.66%

Encyclopedias 9 3 66.66%

Statutory Codes 62 33 46.77%

Digests 62 1 98.40%

Reporters 14 0 100.00%

Why the sharp reduction in Why the sharp reduction in indexed titles?indexed titles?

1. Thomson/West refused to provide the Committee with supplementation cost data for the period 1998-2004.

2. AALL has been unwilling to confront them on the issue.

3. The AALL Board requested that the Committee not pursue Thomson/West pricing, even indirectly, a strategy the Committee had employed from 1998-2004.

The result?The result?With the costs of the world’s largest legal publisher removed, the Index is an empty exercise, methodologically unsound and statistically meaningless. And law libraries have been deprived of their most important budgeting tool.

The Thomson/West ResponseThe Thomson/West ResponseQ: Why doesn't West disclose detailed pricing information for third-party reports?

A: Third-party pricing reports or price indices purport to give librarians an accurate view of book prices, and help them plan budgets for maintaining their print collections. It follows that the value of such a report or index hinges on the accuracy of the information it presents. We provide new purchaser pricing on our Web site. But West does not view print pricing in isolation, and instead structures individual pricing plans for each customer based on their print and online research needs. Thus, a "one size fits all" model simply does not provide an accurate picture, as contract pricing will generally be lower than new purchaser prices. 

Charles B. Cater Executive Vice President, Chief Marketing Officer posted on law-lib, May 4, 2006

The Svengalis ResponseThe Svengalis Response1. Thomson/West is using packaged (LMA) pricing plans and

anti-competitive confidentiality clauses to shield the true cost of legal publications from the buying public.

2. Thomson/West maintains both a list and subscriber cost in its own system for every title it sells. Without access to this annualized data, customers cannot calculate the level of savings provided by the LMA.

3. The vast majority of Thomson/West customers, including most practicing attorneys, are not eligible for an LMA.

4. Customers have a right to demand transparency in pricing, particularly supplementation cost history, in order to make intelligent product choices and budgetary projections.

What AALL Needs to Do:What AALL Needs to Do:1. Resuscitate the AALL Price Index for Legal Publications

to include Thomson/West publications, with or without Thomson/West’s assistance.

2. Tighten Principle 2.3(I) iv of the AALL Guide to Fair Business Practices regarding publishers providing information on supplementation, specifically “where possible, historic data on the cost of supplementation for the product.” Such tightening should preclude using confidential contractual arrangements as a pretext for refusing to provide generic annual subscriber supplementation costs.

3. Demand that “partnerships” reflect mutual respect between legal publishers and AALL and the interests of its member libraries.

What you as consumers need to do:What you as consumers need to do:

1. Get access to accurate data regarding the annual costs of supplementation for legal publications and services.

2. Reduce your exposure to publications with high supplementation costs and annual % increases which exceed your expected budgetary increases.

3. If you sign a Library Maintenance Agreement, cancel all marginal publications prior to doing so.

4. Refuse to sign any non-competitive confidentiality clause.

5. Use the Law Library Cost Saving Tips in Appendix J of the Legal Information Buyer’s Guide & Reference Manual.

6. Play off the major online services against each other. Re-negotiate terms and conditions, numbers of passwords, etc. Be prepared to drop one service if the company is not willing to meet your terms. Chances are they will come around when they know you are serious and they risk losing your account.

7. Promote Casemaker as a low cost default alternative to the premium online services. If your state bar association is not a member of the Casemaker consortium, urge it to join and volunteer to join its planning committee and help set rules for public access.

CasemakerCasemakerCasemaker is an online legal research service developed in 1999 between the Ohio Bar Association and Lawriter Corp. of Cincinnati. Access to the Casemaker database is available to any bar member as a membership benefit. Since 1999 an additional 27 state bar associations have joined the Casemaker Consortium. Consortium members meet twice annually at the meetings of the National Association of Bar Executives.

Each state bar contracts with Casemaker to create a database of legal materials for that state. As members of the Consortium, members of each state bar have access to the libraries of the other 27 states. Last year, Casemaker added cases and statutes for the states not yet part of the consortium. The marginal cost of Casemaker for a bar member ranges from $4.00 to $20.00 per year because the cost of creating and maintaining the state’s database is shared by all bar members.

Starting on Monday, Casemaker will be begin Beta testing its cross-file searching capability of cases for all fifty states. And within two months, it

hopes to offer cross-file searching of all state materials.

While initially, Casemaker was made available only to bar members, the Ohio State Bar Association is now making the service available to public law libraries for in-house use and providing training for law library staff. Other states are free to make whatever arrangements they wish for access by those who are not bar members. Therefore, public law librarians, in particular, should lobby their state bar associations to allow public law library access and offer to assist in making recommendations for enhancements to the state’s library of materials.

Law students can obtain passwords after joining the state bar whose membership is generally free to law students. Academic law librarians should become involved in training law students in the use of Casemaker as that is the service they will most likely use once they enter the real world and the free Westlaw and Lexis usage dries up.

Casemaker is not Westlaw or Lexis, but it offers a very good basic research service which may be adequate for most attorneys and a default starting place for others who can then go on to use the premium services on an as-needed basis.

The cost to bar members ranges from $4.00 to $20.00 annually.

finifini