Online Legal Research Cost Recovery: Is it an Oxymoron?

Editor’s Note: Reposted from the Legal Executive Institute’s blog with permission.

By Grace Carr Lee, Executive Director at Hoge Fenton, a midsize, multi-practice firm with offices in the Silicon Valley and the Tri-Valley areas of Northern California.

For decades, law firms have billed their clients for “soft costs,” including online legal research charges. Clients have always hated seeing these nickel & dime charges on their invoices, believing they are more fairly considered part of a law firm’s overhead. Who hasn’t heard a client argue that since they aren’t charged for updating books in a firm’s law library, why should they be charged for online legal research? Annoyed clients have increasingly pushed back on these soft costs, and many law firms have capitulated by reducing or eliminating them.

And today, that has resulted in law firms being faced with decreasing soft cost realization — a direct impact to the firm’s bottom line. Consequently, some firms have taken a more aggressive approach, doggedly charging clients for everything they can think of, including copies, scans, prints, postage and secretarial overtime. Other firms have simply thrown up their hands, deciding that any attempt at soft cost recovery is just not worth the effort. Some firms even have increased their hourly rates to account for the lost revenue, while others have imposed an administrative fee (usually, a percentage of the legal fees) that essentially does the same thing.

For those law firms that believe soft cost recovery makes sense, regardless of the method employed, any pricing strategy they employ must be ethical, transparent, reasonable and justifiable. Their clients deserve nothing less.

Several years ago, our law firm — a mid-size, multi-practice Silicon Valley firm — decided that we were not ready to throw in the towel on cost recovery for online legal research. But, we knew there had to be a better way. We set out to adopt a fair approach that clients would understand and accept.

Working with our legal research vendor, we came up with a three-tiered cost recovery plan which we believe to be ethical, transparent, reasonable and justifiable. Unlike the “admin fee” which is assessed against every client (even if no legal research is performed on that client’s behalf), our tiered plan charges clients only when higher value resources are used. This is how it works:

Tier 1 — No Charge

Anything a lawyer can otherwise get on the internet for free should never be charged to the client. For example, cases, statutes, court rules, regulations, proposed and enacted legislation, and administrative decisions and guidance are freebies.

Tier 2 — 75% Discount

Research in secondary sources like practice guides, treatises, jury instructions, journals, law reviews and encyclopedias are charged to the client, but at a hefty discount.

Tier 3 — Full Price

These are the resources that provide a high-value benefit to the client. They include briefs, dockets, jury verdicts and settlements, trial court documents, profiles and dossiers, and aggregated public records. When we utilize these materials on behalf of our clients we charge full price as advertised by our vendor’s standard charge guide, and still our clients receive great value. This legal and factual research may be difficult — or even impossible — to develop without subscribing to a trusted legal research provider, and our clients benefit from the efficiencies of having this information at our fingertips.

Currently, our firm recovers about 40% to 45% of its cost — about what we were recovering before we adopted the three-tiered model. The difference is that our clients understand our charges and appreciate the value being delivered, and therefore are no longer objecting to seeing these costs on their invoices.

Cost recovery for online legal research will continue to present a challenge. Law firms that do not adopt a fair and transparent approach may find themselves suffering by comparison to those that do.

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