Oct. 15, 2014 – The tides are changing in how law firms, large and small alike, approach cost recovery of electronic legal research services. Print library collections are being replaced with electronic counterparts. Clients demand greater value and efficiency more than ever. These changes mean many firms are reevaluating their cost recovery strategies and transitioning some or all electronic legal research costs to an overhead expense in lieu of billing clients for these costs. Computerized legal research is now viewed by many as a cost of doing business and not a client recoverable cost.

The Slow Evolution

Billing clients for computer-assisted legal research was commonplace when Lexis and Westlaw were first introduced in the legal research marketplace in the mid-1970s. When initially released, these systems were intended to supplement and enhance, not replace, print collections. The tremendous time savings easily justified billing clients for online legal research. In fact, many firms routinely added a surcharge to the electronic legal research fees to help recoup the cost of the associated technologies.

Fast-forward a few decades to the 1990s and many law firms engaged in fixed-fee contracts with these vendors in lieu of pay-as-you-go retail rate pricing. During this time, law firms of all sizes employed various cost-recovery strategies to recoup electronic legal research costs. Some firms billed clients at full retail rates, some continued to add a surcharge to retail rates, while some prorated or discounted costs and passed through to clients their fixed fee cost savings.

In 1993 the American Bar Association issued formal ethics opinion 93-379, Billing for Professional Fees, Disbursements and Other Expenses, which is considered the cost recovery ethical standard.¹ The ethics opinion states that “[t]he lawyer's stock in trade is the sale of legal services, not photocopy paper, tuna fish sandwiches, computer time or messenger services.”

Lawyers are allowed to recoup expenses reasonably incurred for a client's matter, including “computer research” according to this ethics opinion. Firms under fixed-fee pricing agreements must calculate their cost savings and extend these discounts to clients. Furthermore, how such fees are handled is to be addressed during client engagement. Firms that continue to bill clients for some or all electronic legal research must be mindful of the principles addressed in this ethics opinion.

Most law firms have never billed clients for their print library collections. Because of the numerous benefits of electronic legal research, print collections are diminishing at a rapid rate. Many argue that if the books were not billed to the clients, why should their electronic replacements be billed to clients? Electronic versions of cases, codes, citation research tools, and secondary sources are now more current, integrated, and time-efficient to use than ever, and thus offer greater value and efficiency to attorneys and their clients.

Law firm library collection development is shifting from an ownership approach to an access approach. Collection balancing should be done to review print and online collections and eliminate redundancies. For decades law firm libraries developed collections based on a “just-in-case” collection development philosophy, meaning they were based on potential information needs. The economic recession forced libraries to shift their collection development practices to a “just-in-time” philosophy, meaning resources are available on an as-needed or on-demand basis. This shift led to the increase of virtual library collections supplanting print library collections.

Where We Are Today

There are valid bottom-line financial concerns for moving electronic legal research charges to an overhead expense. Making these costs nonrecoverable overhead expenses means firms absorb more costs. Dramatic cost savings can be achieved by canceling print subscriptions that duplicate electronic content. Risk is mitigated when lawyers use authoritative and current research tools instead of relying solely on low-cost and free Internet sources for legal research. In short, saving time, achieving greater efficiency, and reducing risk and malpractice concerns by conducting thorough legal research are equally as valuable as recovering out-of-pocket costs. Lost recoveries can be offset by print collection downsizing and efficiency gains.

The American Bar Association's Legal Technology Survey Report indicates that firms billing clients at cost for computerized research is decreasing, and increasingly, firms do not bill clients. American Lawyer Media's annual “Law Librarian Survey” reports that AmLaw 200 firms are recovering less online charges from clients each year, year-after-year, since 2005. A downward trend in client cost recovery of electronic legal research has been developing for nearly a decade, and it is forecast to continue.

Firms that move some or all electronic research costs to an overhead expense often find they are better leveraging their fixed fee unlimited usage pricing arrangements. Attorneys not concerned about the ramifications of billing clients for legal research are likely to take better advantage of electronic research tools and conduct more in-depth legal research. When surveyed, a second-year associate at a large national law firm with an overhead legal research billing model said “overhead research has made me a much better lawyer,” implying that the ability to use a comprehensive online research tool without concern for client cost recovery enables her to do more thorough research.

Given the tremendous changes in the legal publishing arena over the last 40 years, the previous cost recovery model is not aligned with current legal research practices and client value and efficiency expectations. The end may be nigh for client cost recovery of most electronic legal research. If your firm still bills clients for the bulk of electronic legal research, a reevaluation of your firm's cost recovery strategy, coupled with a print collection rebalancing, is a worthwhile endeavor.

Endnotes

¹ ABA Comm. on Ethics & Prof's Responsibility, Formal Op. 379 (1993).