Articles Posted in The Billable Hour Business Model

Last Thursday (March 5, 2020) I was, for the umpteenth time, shocked to be reminded of how un-businesslike the legal industry’s billable hour-based business model really is.

I say “un-businesslike” rather than “crazy” — or something more colorful — because the clients I serve are businesses themselves. And their businesses succeed or fail based on their results.

The legal industry (the vast majority at least) demands that their client businesses pay on the basis of lawyers’ inputs. And as I explain below, law firms charging by the billable hour business model routinely misstate what those inputs are.

So it’s no wonder that lawyers and business people have such a hard time understanding each other.

They literally occupy different universes.

From a commercial standpoint at least.

So what shocked me last Thursday?

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P&L executives concerned with managing legal risk and controlling legal costs should know that artificial intelligence (AI) promises greater accuracy and lower costs in litigation tasks. If and when the legal industry adopts the technology.

And last month some of this promise appears to have been realized in some concrete, and economically accessible, terms. Again, conditional on actually acceptance and use of this AI. 

For a business, litigation is (usually) a huge waste of money. And a large chunk of this wasted money goes to formal requests that lawyers make to judges. Requests that they and their adversaries spend lots of time (read “money”) fighting over in front of a judge.

It’s called “motion practice”: Your honor, please dismiss this case; please exclude this testimony; please make my adversary give me the papers in their files that I want to look at; etc.

In a legal industry where the number of hours billed (usually) defines value, this typically results in each law firm assigning not just a litigation veteran whom they put in charge of the case — but also multiple, less-experienced attorneys to maximize those hours billed.

How do these less-experienced attorneys fit in here? Happily (for the legal industry’s business model at least), “motion practice” requires lots of what those recent law grads were trained to do when still in law school: Researching cases, statutes, and rules; and creating “briefs” that describe why those legal authorities require that their client’s requests (via this “motion practice”) should be granted.

Late last month, Casetext, a legal tech firm known for its artificial intelligence (AI) research tool “Case Analysis Research Assistant” (CARA), announced “Compose”, their automated brief-writing product.

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10 Ways That Outside Counsel Disguise Overbilling“. 

Headline of a December 17, 2019 article in Corporate Counsel, a prominent publication directed to in-house lawyers.

Citing the Association of Corporate Counsel’s findings in its “2019 Global Legal Department Benchmarking Report”, the article begins with this statement of fact:

” … Large companies with big legal departments go over budget by about 37% every single year.

“Why do they go over budget? A big reason is overbilling from the outside law firms they hire to do work for them.”

Cost overruns of that size.

And inaccuracies in charges imposed on clients by people who serve as fiduciaries (attorneys) to the clients harmed by those inaccuracies.

Inaccuracies that advantage those outside firms — not ones that result in under-charges.

How did this become business as usual? How can it be that such overruns and billing inaccuracies are normalized?

What’s so wrong with this area of Legal — outside lawyers’ charges to client companies — that the article’s author, Ryan Loro, can be part of an entire industry — “legal bill auditing” — that checks up on the accuracy of what lawyers bill their clients? And gets paid solely from the excess of what law firms charge over what they agreed to charge (i.e., no net cost to the client)?

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The case of Cass v. 1410088 Ontario Inc. contains this one sentence written by an Ontario Superior Court judge in the course of disallowing from an attorney’s fee request the amount designated for “legal research”:

“If artificial intelligence sources were employed, no doubt counsel’s preparation time would have been significantly reduced.”

Padding on the hours billed for researching case law is a favorite method for bulking up legal fees related to court cases — for lawyers in the United States — as well as for those in Canada:

1. Thomson Reuters’ Canadian arm noted this:

“Judge says AI could have been used”, and “Courts mindful of technology”.

2. A Toronto-based intellectual property lawyer offered this observation:

“Really, that judge was saying, ‘If you can do this faster, why are you not doing it faster? Why are you charging your client for something that could be done more efficiently?”

3. And the CEO of legal AI pioneer Ross Intelligence Andrew Arruda tweeted:

“If artificial intelligence sources were employed, no doubt counsel’s preparation time would have been significantly reduced.

“… IT’S HAPPENING FOLKS.”

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Thus began an October 15 article in “Above the Law” — one of the leading news websites directed at lawyers — particularly lawyers employed by law firms as “associates”.

Under the headline “Biglaw Firm Makes It That Much Harder to Get Your Bonus”, here’s the complete text of the first paragraph:

“As we enter the home stretch to make billable hour targets in advance of bonus season, one firm is changing the ground rules on its associates and robbing them of a small but significant chunk of time that they’ve always been able to count toward their 2100 hour minimum.”

Quite appropriately the reporter focuses on what this means for specific interests of the law firm associates who are his readers.

But for a business lawyer concerned with managing a company’s legal affairs, what jumps out is something else. This is a timely reminder of the cockroach-like survival of the billable hour — and of its business model corollary: The pursuit of “associate leverage”.  

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