The Death of Big Law . . .
and Birth of What?
Larry E. Ribstein, University of Illinois
Theoretical and Interdisciplinary Perspectives on Law, Lawyering
and Judging
University of Illinois College of Law
September 27, 2010
1
Introduction
• Why should we care about Big Law?
– Law’s dominant business model
– “Trickle down” effects on all lawyers
• Is law really a business?
• The nature of the law business
– “Bespoke” advice
– Legal information as market commodity
• A non-traditional look at law practice
– Theory of the firm
– Intellectual property
2
The Big Law business model
Partners
Profit share (Firm reputation=monitoring,
mentoring, screening [mms])
Professional
advice
Client
services
Profit
Fee
Expenses
(including associate pay)
3
What drives the business model
• Why clients pay the Big Law premium
– Reliable referrals
– One stop shopping
– Firm reputation (monitoring, mentoring, screening)
• Features that sustain Big Law’s reputation
– Equal or lockstep compensation
– Partnership “tournament”
– Vicarious liability
4
The weak link in the business model
• Firm value = monitoring, mentoring and screening
• Partners will leave for better offers
• This depends on value of
– Firm
– Partners’ individual books of business
• Lawyers must decide how to allocate efforts
• This depends on what other lawyers do
5
Pressures on Big Law
• Client demand
– Global competition
– De-professionalization
– In-house counsel
– Technology and markets
– M & A environment
• Reputation
– Increased associate leverage
– Limited liability
– Decline of hourly billing
6
Big Law’s vicious cycle
Reduced MMS
Hire more
associates to
pay laterals
Reputation and
profits decline
Lateral hiring
replaces departures
Outside offers
induce departures
7
Lessons from busted firms
• When reputational capital dissipates, firms unravel:
– Partners leave because profits can’t bind them
– Group exits reflect personal networks
– Dying firms try to hire profits
– Undiversified firms are exposed to sector shocks
– Short term bank debt can hasten collapse
8
What’s next?
• Breakdown of the reputational capital model
– Increased leverage (=vicious cycle)
– Horizontal (all partner) firms
– Vertical (one-owner) firms (Marc Dreier)
• And beginning of what?
– Wal-Mart/Tesco model
– Non-lawyer financing
(?)
– Beyond law firms and clients: Legal information firms
– Examples: software, r & d, litigation finance
9
Regulatory impediments to
changes in law practice
•
•
•
•
Non-lawyer ownership
Restrictions on non-competes
Lawyer licensing
Choice of law rule
10
Pressures on rules: non-lawyer ownership
Litigation finance
Who is an
owner or
partner?
Rule 5.4
Management
services
Global competition
UK’s Big Bang (1986) 
US firms compete with UK 
UK’s Legal Services Act (2007) 
UK firms compete with US?
11
Toward the legal information firm
• Beyond one-to-one legal advice: the market for
legal information
• How we get from here to there: incentives
• Incentives=property rights
• Some policy issues
– General use vs. creation tradeoff
– Limits of intellectual property law
– Due process concerns with access to law
– Protecting clients: one-to-one advice vs. market
12
Copyright law
• Limits of copyright law: Doesn’t protect. . .
– Data
– Legal ideas
• Preserving public access to law
– Court opinions and statutes
– Complaints
– Private codes
• The licensing option
13
Patent law
• Patenting business methods:
– Prior law: some abstract ideas
– Bilski (Federal Circuit): Machine or transformation
– Bilski (Supreme Court): ???
• Patenting legal ideas
– Poison pills?
– Due process concerns
– Unocal case: California law required gasoline
companies to deal with Unocal
14
Contracts and firms
• Contracts supplement intellectual property law
• Legal information firms
– Protect intellectual property by owning it
– Contract with employees for confidentiality
– License information to other firms
15
The new role of in-house counsel
• The “buy-side” of the legal information market
• Clients can replace law firms to
– Coordinate legal talent
– Evaluate lawyers
Client
Big Law
Specialists
16
The future of law-only firms
• Only where customized legal advice is important
• Big Law
–
–
–
–
A few big transactional firms
Where “legal capacity insurance” is necessary
Firms can maintain reputational bond
Large specialist firms?
• Boutiques
–
–
–
–
“Horizontal” firms
Less infrastructure cost
Moderate reputational capital
Non-diversified
17
Legal software and forms
• Types of products
– Transactional software
– Software + legal advice
– Mass tort complaints
– Legal research
• Firm structure
– Lawyers work for software firms
– Law firms may make software as byproduct of advice
18
Multidisciplinary firms
• Many specialists may use the same information
• Information needs to stay in the firm
• Firm may uniquely combine specialties
– Accountants
– Lawyers
– Engineers
– Finance
– Consultants
19
Legal information + capital
• Types of products
– Litigation finance
– Asset valuation
– Patent-trolling
– Bankruptcy claims
– Legal risk management
• Firm structure
– Firms protect information by employing lawyers
– Confidentiality and non-compete agreements keep
the information in the firm
20
Legal idea producers
• Private firms can produce legal ideas
– Law firms can bundle with legal advice
– Non-law firms can produce research
• Industry groups
• SSOs
• Xerox Parc for law
– Firms might copyright or patent some products
• Private firms can produce litigation
– Alternative to public courts
– Firms own the case law, clients pay for it
– Enforcement via public-private hybrid (Delaware)
21
The death of big law school
• Effects of Death of Big Law 
– Reduction of graduates’ expected wage
– Reduced training and mentoring
– Shift in demand for legal information
• Effects of the new legal information industry
– Competing with private training and research
– Need for technical expertise
– What is legal expertise?
1817-?
22
Conclusion
•
•
•
•
•
The traditional Big Law model is already dead
Law’s business model is archaic
Public policy demands broader access to law
Some kind of change is coming
Lawyers can manage it or watch it happen
23