Bradley J. Hillis is a member of the Bar of State of Washington and the United States Court of Appeals for the 9th Circuit, author of several articles, including: “Considerations When Placing Court Opinions on the Internet,” “Internet Multimedia and Domestic Violence Prevention,” and “Internet Experiments in Electronic Court Filing.” Mr. Hillis graduated from Colorado College and holds Juris Doctor and Master of Arts degrees from the University of Washington.
(Archived January 1, 1999)
Summary
Providing legal information in electronic form at no charge is the best means of assuring a market for the information. It helps identify consumers and create the demand and interest of those who do not have experience with the technology and content of the Internet. This document addresses electronic commerce, methods for publishing legal information in electronic form, and the advantages the government has in this evolving market.
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INTRODUCTION
At a recent conference in Seattle I put the question to Gary Dunn, a leading Internet lawyer from Vancouver, British Columbia, Canada: Why should government place law free on the Web? “To promote democracy,” he said. “It’s the right thing to do.” With a recent Nielsen poll finding that 34 percent of Americans are already online, Dunn has a point.
A more inclusive observation is possible with electronic commerce: what is good for democracy is good for the market. In 1995 when I placed the State of Washington court forms on the Web, revenue from sale of both the paper forms and the electronic version on disk went up. Earlier this year both Alabama and Kentucky abandoned their paid subscription services for access to case law in favor of free access on the Web because the subscription revenue was not worthwhile. The world’s most successful legal Web site, Findlaw, in Palo Alto, California, provides free access to all content. It even turns a profit thanks in part to advertising revenue.
In 1998 we are talking about a specific set of circumstances: all United States Supreme Court case law since 1893 is free on the World Wide Web, all U.S. Court of Appeals cases are free since 1995 (and a company in India that converted the print version to electronic copy is shopping around the last 30 years worth for a modest sum), almost all 50 states in the U.S. have their law free online. As to other categories of materials? Court rules: free. Legal news: free. Law reviews: about half are free.
Switzerland has put online case law since 1930, Spain has an amazing array of local codes for free, as well as the Boletin Oficial, and Brazil boasts hundreds of courts with Web sites. Finland and Iceland are the leading nations in integrating the Internet into their communications system and, more importantly, into the fabric of their daily lives.
At the same time, revenues at legal publishers are up. Prices of legal materials are up dramatically, but more importantly revenue from use of the same materials that are online for free have apparently increased. Project Gutenberg and other e-text initiatives have placed over 7000 full text books on the Internet and sales of these texts in printed form are undiminished. The market for electronic legal information is growing more rapidly than the movement of users to adopt use of free law. The market for paper publications of legal materials is strong because people remain loyal to books: the text is sharper and the layout more familiar, plus there is concern that material on the Web is not guaranteed available when you need it.
Analysis of publishing law on the Web must account for the cost model, and the best explanation is that the role of free law over the past three years for sellers of law is to attract a larger share of regular visitors to a Web site. The story of the success of Amazon dot com is that market share means everything.
ELECTRONIC COMMERCE AND LEGAL PUBLISHING
Publication of law on the Internet is a form of electronic commerce. Because e-commerce will change and grow so rapidly over the next several years information on market needs, experience in adapting to the market and building consumer loyalty are valuable commodities, more important than some marginal amount of revenue. For the near future, making the law accessible at no cost is an effective method of promoting increased revenue in the long run, given the need to develop paths of familiarity between consumers and publishers, often referred to in advertising as the value of brand recognition (consumers do not decide whether to buy “Kellogs” brand corn flakes each time they visit the grocery store, they decide occasionally and then buy out of habit).
There are three branches of e-commerce on the Internet for public and private legal publishers, as articulated at the August 1998 Aspen Summit on E-Commerce sponsored by the Progress and Freedom Foundation. First, selling the traditional legal materials such as books in a new way. Second, selling relatively new materials, such as CD-ROMs, in a new way. Finally, selling products which are created by the medium of the Internet, such as hyperlinked treatises with multimedia components, or arranging interaction in communities of online users. Before discussing these opportunities in detail, a framework of e-commerce will help explain the role of free law in promoting the publishing industry.
Electronic Commerce Requires Experience Which Only Free Law Publishing Can Provide
The remarkable movement of law to the Web, which by now observers accept as unstoppable, teaches us several things. It teaches us that policies prohibiting access to information are so difficult to implement that one is better off learning to take advantage of the future, through e- commerce, than to pine for the tightly controlled past, which is too often incorrectly referred to as traditional principles of copyright law.
Within both public and private organizations two camps have emerged: those who view the Web as undermining intellectual property, who in a cowboy Western movie would wear the black hats, and those who perceive new markets and improved profits from precise positioning and subtle presentation of copyrighted assets in cyberspace, that is, the ones who wear the white hats. The former group argues that we must hire lawyers to sue the infringers, and through threats of legal action we can tame the new world.
Restriction on Publication of Law, Content Management Systems
Innovations in so-called content management systems are technology solutions to this problem of how to control use of an electronic text (or movies, music or images) by payment, a sort of vending machine for electronic files (that is built in to the file). See Craig Matsumoto, “Proposal Addresses Copy Protection of Digital Data,” February 20, 1998. (“The film and recording industries have been afraid that the pirating of digital media–which can still be viewed in perfect condition through multiple generations of copying–will run rampant once consumers have DVDs and digital TVs in hand.”)
This black cowboy hat group would say that if law is migrating to free sites on the Internet, we should pass a database protection statute to prohibit that. For this group, power within the publishing industry means they have sufficient influence to create what I would argue is counter- productive legislation, even while the technology speeds by all around them and start-up companies snap up market share almost without competition. (There is nothing wrong with content management to derive revenue from assets: the flaw is in the argument that organizations have no value to derive from publication prior to wide use of a content management system.)
The latter group, wearing white cowboy hats, seeking the same goal as the former group–improved business opportunity– wants to hire the copyright infringers. The infringers would serve as consultants to teach techniques of community building among the Net’s domains, just as the best hackers are hired as network security consultants. This maverick group in governments and corporations accept that electronic information is unprotected but, instead of fearing the circumstance, want to learn how to master the new consumer patterns to maximize profits.
This group would observe that all law is going to end up free on the Internet, now let us learn how to improve our revenue from selling law. They understand that the legal publishing industry is going to expand as a result of the Internet, unless poor policy and planning crush the growth of cyberspace. For this group, power within the publishing industry means they recognize they have the resources to succeed under nearly any economic model, even if the new model is quite different than the old.
Governments have investment incentives to publish law at no cost but the value derived depends on a constellation of proper strategies, few of which are in place today.
Publishing Law to Improve Internal Innovation
A good way to build experience with e-commerce is placing law on the Internet. The benefit to government from free access to law, if the Internet is skillfully handled, is faster adoption of electronic commerce in society and an improved business climate, with lower barriers to entrepreneurial business formation, perhaps even more open connections between democratic government and citizens.
For private corporations, the risks are higher than for government in placing free law on the Internet but the benefits are more tantalizing. While loss of revenue from giving away law is harmful to private legal publishers in the short term, it is an essential sacrifice to become educated about the Internet and discourage new market entrants, given low barriers to competition with e- commerce. But as noted above, in some cases making law free can result in increased revenue.
These ideas were discussed at a recent conference at the Harvard Business School. Professor Hal Varian of the University of California posed the questions as follows:
Intellectual property. People should focus on value of property, rather than purely on rights. However, this is not the legal perspective on the matter, and the legal perspective has framed the discussion to date. A value-based perspective would understand that if you have broad conditions of use, it will enhance the value to the user. But the producer will sell fewer copies, so he or she needs to understand what the economics are. The “Dyson Dictum” (after Esther Dyson) may be the best perspective of all: Treat intellectual property as if it were free, not because it is free or should become free, but because it puts you in the mindset of “how can I add value by putting it online?”
Harvard Business School Conference on the Economics of the Internet, Session 7: Saturday January 25, 1998, 1:15 p.m.
When we speak of a company learning about the Internet, an important measure of effectiveness is how the company organizes internally. Professor Richard Nolan of the Harvard Business School analyzed the concepts addressed by Professor Varian above in terms that ring true to private industry: “What’s happening in terms of the notion of a knowledge worker? Business is about how you organize to do work. Now, the knowledge worker is the central focus of interest. The leading companies have moved from an average of $100,000 per employee in terms of revenue, to a point where some exceed $1 million per employee (Merrill Lynch). This is about leveraging people using technology.” Ibid.
Business can exploit new opportunities more readily than government, and business is better positioned to take the lead with e-commerce in the immediate future. But academic study of e- commerce can yield little helpful information: the most important insights are gained by experience unhampered by bias. To use a navigational metaphor, one must view the river of Internet technology, and its shoals, as it truly meanders instead of how it might appear on an outdated survey map, or else the ship of progress is in peril. When we begin our voyage of e-commerce, we accept the river’s path will shift and flood its banks and we adjust our course accordingly.
The central argument for free law has shifted from 1996 to today. In 1996, echoing the comments of Gary Dunn quoted above, scholars argued the Internet permits democracies to fulfill the long-desired goal of making government more open to the public. In 1998, the growing knowledge about e-commerce suggests that new forces are overtaking political motives, principles of creating new markets for legal materials means that free law leads to increased revenue, both for that material that is free and subsidiary texts.
Legal scholar Eric Schlachter argues that giving away some law improves the market for other, withheld products, resulting overall in marginal revenue that meets marginal cost: “An intellectual property owner can use a myriad of alternative business models to extract value from the free distribution of intellectual property. If successful, these business models will permit the cross- subsidization of intellectual property creation. Internet entrepreneurs will be induced to create intellectual property if they are able to use it to make a profit from alternative revenue sources.” Schlachter, “The Intellectual Property Renaissance in Cyberspace: Why Copyright Law Could Be Unimportant on the Internet,” 12 Berkeley Technology Law Journal: Issue 1 (Spring 1997), at IV (B).
What Schlachter fails to appreciate is that free law creates a market for the law that is free, in addition to his point that it serves as advertising for materials that would not justify advertising expenditures of their own accord. Thus, the opportunity that both government and private publishers should pursue is to expand the market for their products, though admittedly the best way to do this is far from obvious.
In explaining next the three branches of e-commerce, the essential role of free law in creating and defining expanded markets will become better understood.
Branches of Electronic Commerce: Books, CD-ROMs and New Formats
Books and Other Traditional Legal Materials Sold Over the Net
The most familiar face of e-commerce is selling law books at a Web store. A firm can order books for its law library from Amazon dot com, or any number of legal publishers. Since industry watchers predict business-to-business sales will compose the large majority of e-commerce for the near future, the legal industry is particularly suited to the medium. Law firms and legal publishers have long-standing business relationships for sale of treatises, statutes and newsletters.
With e-commerce, these transactions are accomplished at the lowest possible cost. Assuming price remains constant, a higher profit results because of the lower cost of sale in what Bill Gates, CEO of Microsoft, calls the “frictionless marketplace.” Customer service can also improve because the store can process the order at any time and can provide a rich array of background information. The publisher can suggest additional, related materials in linked sales. Publishers can also gather consumer preference data, which raises privacy concerns, but allows the publisher to say, “since we see you bought the treatise by Smith on Tax Law you might also like this new book by Jones on International Trade.”
Electronic Legal Materials Sold Over the Net
The second branch of e-commerce involves the sale of new forms of legal information. The markets for electronic books in CD-ROM format partially overlap with the market for the same material delivered directly over the Internet. Some people prefer to purchase tangible formats of electronic material, and CD-ROMs can be easier to install, or offer paper instructions for getting started, or carry superior search engines. Obviously, delivery of an electronic file downloaded off the Web has cost advantages, and can offer more timely products so is especially suited to news, pending legislation or other time sensitive information.
Within the music industry, CDNow is a popular Web store selling everything from Pink Floyd to Beethoven on CD format. What will change in the future is CDNow will sell the music in electronic format so that the user will directly download to a hard drive or a “make your own” CD- ROM or DVD format. This transition may occur in small steps. Along these lines, RealNetworks is selling a third-party software product that permits transfer of a regular music CD to a computer hard drive in RealAudio format.
New Legal Products Based on the Net and Sold Over the Net
An entirely new market arising from the Internet is for legal products that are based on the characteristics of the Internet. With children’s video games, this includes multiple players in different locations engaged on a battle field. A chess game with players in different locations is another example. With law, a book may incorporate hypertext links, video clips, or animation. Arguably, a CD-ROM-based electronic book could use these features without the Internet. Truly unique features of the Internet include updating texts with periodic downloads, chat or threaded discussion with other users of the text, or interactivity with the author.
Distance learning is an important new market that is based on the Net. Education about law has several segments, including mandatory continuing legal education for lawyers, courses in law school for students or graduate students of law, and even courses for non-lawyers in such areas as how to prepare a will or how to do your own divorce.
Predicting the size of the market for Net-based legal products is problematic. Much depends on the sophistication of the lawyers who use the technology. Currently, there are a large number of attorneys on the Internet, perhaps one million world-wide, but the majority are novice users, say compared to other sectors such as university, engineering or medicine.
Placing free law on the Web is done to encourage lawyers and judges to become more adept at using computers, and thus create a demand for the new market of legal materials. There are other ways to accomplish this goal, but they do not make economic sense.
For example, government could keep law off the Internet and spend money on training programs. Or private publishers could send sales people to their customers to explain the great advantages of hypertext legal materials–just click on the case name to read the full text of the case. But consumers in the legal industry will tend to train themselves about the Internet if they perceive the advantage of improving their knowledge of the Internet. Free access to law accomplishes this.
Who Runs the Virtual Store?
The issues with e-commerce book sales are only beginning to emerge. Who will run the Web store? One answer might be a city book store will open a Web store to improve customer service. The local bookseller can offer to mail the book to the lawyer or to have it waiting on the counter if he or she prefers to stop by to pick it up. Keep in mind that the Web is sometimes about strengthening traditional relationships.
Another approach is a wholesale distributor will open a Web store to serve both law firms and book stores. The advantage is the wholesale distributor can offer better prices, more titles and may have materials in stock. Once a distributor invests in an online store, there is no reason to limit the audience. However, even bigger fish swim in this ocean.
The publisher could bypass the warehouse distributor and sell directly. Application of “just in time” inventory practices to publishing would encourage small quantities of printing to avoid over supply, perhaps just the number of books needed to fulfill each day’s orders. This is how Dell Computer sells personal computers; it waits for the order before it builds the unit.
Taken to the extreme, the author would skip the publisher: water from the natural spring tastes best! The consumer and producer would do business directly. This model has some viability for established authors with strong reputations.
Why legal authors this will not sell directly to consumers illustrates the role of free law e- commerce, as explained below:
Once scholars can communicate without the intervention of a publisher, once research can be freely published and mass-distributed on the Internet, once commerce is no longer a constant in the information-exchange equation, it begs the question: Will scholarly publishers become obsolete in the new information order?
Probably not, according to Susan Driscoll, vice president for product and technology at HarperCollins College Publishers. In the May 1995 issue of Educom Review, Driscoll argued that publishers bring more to the knowledge dissemination process than merely distribution services and revenue collection. They provide editorial guidance and quality control. They scout for talent, help the author fine-tune and polish his work, and ultimately put their stamp of approval on a publication – separating it from the tide of unpublished or self-published debris that washes up daily on the shores of cyberspace. In the absolute information democracy of the Internet, that seal of approval becomes even more meaningful.
Publish or perish? The economics of book publishing, Volume 8, Number 4, March/April 1998. In sum, the Internet is a chaotic assortment of links, and just as a manuscript submitted to a publisher benefits from editing, so too the Web improves with professional sorting and filtering. Direct producer to consumer transactions assumes a pre-existing relationship so one can find the other. This is why existing juggernauts in legal publishing will benefit most from the economic opportunities of the Internet: they can afford to advertise and inform consumers about how to find them on the Web. Even if consumers could find authors, they may still prefer the value added by publishers. Law reviews are not going away on the Internet, Web versions are just extending their availability.
Why We Cannot Prevent Free Law on the Web Even If We Wanted To
The above discussion has focussed on the e-commerce benefits from placing free law online. Another analytical approach is to say that the benefits to government and private publishers need to be placed in context, because law is going to end up online anyway.
There are several reasons why government and private companies cannot prevent the emergence of free law on the Web, even if they wanted to. The primary reason for this is the lessening distinction between paper and electronic format. In the early years of the World Wide Web, scholars paid attention to the ability of individuals to place existing electronic material on the Web. The majority of law currently online was already in electronic format in 1995, situated on mainframes and personal computers.
While more electronically-stored law is moving to the Web, the greater body of resources remains exclusively in print. The best example is case law before 1990. As optical scanning from paper to electronic format continues to improve, more case law will come online. Individuals have a difficult time sustaining large libraries of law, though there are some notable exceptions. The more powerful role individual publishers accomplish is to motivate governments to release the same material. Some governments placed law online to help improve access to justice, but more often it was done after a private publisher had already made the point moot of whether it would undercut sales of the product.
More sophisticated tools continue to provide individuals with greater ability to publish law. Large hard drives, processor speed that doubles every two years and multimedia editing software all contribute to greater individual control over electronic information. And the corollary is that government-produced law will end up on the Web.
What government can contribute to free legal publishing is a trusted role of accuracy and high standards of editing. Lawyers may hesitate to use case law posted by someone they do not know, but will trust the supreme court to accurately publish its own cases.
Models For Maximizing Revenue From Publishing Free Law on the Net
The above argument is that e-commerce skills are derived from publishing free law on the Net. The models for using these Internet skills to maximize revenue in the future for government and private publishers are in cutting internal costs, reducing transaction costs with consumers, selling more units of information, and obtain higher profit margin per unit sale due by adding value. These are discussed next in turn.
Cutting Internal Operating Costs
Organizations are starting to create operating efficiencies with Internet technology but more needs to be done. The greatest efficiency realized so far is with e-mail. While some complain that email within an organization has gotten out of hand, and has become a distraction, to the extent the messages are meaningful there is a significant cost savings in email. The electronic medium is simply so much cheaper than paper. The best evidence of the cost savings is the wide-spread adoption of email. Yet paper notices continue to appear at offices. Most meetings are occasioned by handing out paper. New employees at organizations receive paper welcome packets. Most of this can disappear and find a no cost replacement with email.
Improvements are available in email with use of HTML (hypertext markup language) or formatted, instead of ASCII, text. Digital signatures can provide email with better security, which is especially important when sending messages outside of an organization. Encryption is a related, and equally crucial, technology that will help email become an even more integral part of a legal organization’s cost cutting plan. Today almost nobody is using digital signatures or encryption even though they are both widely available. Software plugins to better enable users to open and read attachments to email are also important.
Given the wide acceptance of email, it is surprising that directories of judges and lawyers’ email addresses are largely unavailable. There are some large commercial directories, the Web sites of large law firms will often list email addresses, but no state in the United States has a comprehensive email directory. Only Canada has a reliable email directory of federal employees. The first project a government should undertake to cut spending, once email is deployed, is creation of an online post office so people can find each other.
The overlap between email and the Web is little understood. To date, email has proven the “killer app” that all lawyers use; the Web is the next step down the road in advanced use of the Internet. The current movement is to use the Web to warehouse large numbers of documents, provide search capability and make multimedia available. The vision in 1995 was for all individuals to publish their material directly to the Web. Today what has emerged is that judges and lawyers view Web publishing as akin to computer programming instead of merely typing.
The next plateau of cost cutting in an organization, after email, is training people to publish to the Web. The purpose of this technique is that the greatest cost savings arise from empowering the grass roots. Most organizations do just the opposite. They develop an Information Technology strategy, with articulated projects, and then put a group of computer professionals in charge. The more powerful technique is to have no plan or projects, give everybody access, watch what bubbles up from below, and adopt the best ideas as the “IT Strategy.”
An example of how the Web can improve court administration was voiced by Lord Justice Mark Saville, who chairs the electronic filing committee for the United Kingdom courts. In the case of Bannister v. SGB PLC, in the Supreme Court of Judicature, Court of Appeal (Civil Division), Royal Courts of Justice, London, England, CCRTI 95/1410/G, April 25, 1997, Lord Saville wrote: “If this country was in the same happy position as Australia, where the administration of law is benefiting greatly from the pioneering enterprise of the Australian Legal Information Institute (AUSTLII), we would have been able to make this judgment immediately available in a very convenient electronic form to every judge and practitioner in the country without the burdensome costs that the distribution of large numbers of hard copies of the judgment will necessarily impose on public funds.”
Reducing Transaction Costs With Consumers
Discussed in some detail above, e-commerce allows organizations to reduce transaction costs with consumers. Within a law school, grades and transcripts are made available to students on the Web. For processing orders for law books, avoiding fax and long distance telephone charges, or the cost of shipping catalogues, improves revenue.
Selling More Units of Information
One model of e-commerce is that organizations can sell more units of information at a lower cost and derive steady revenue. For example, if a 300-page book sells for $40, the same book on a CD- ROM can sell for $20, and the electronic file downloaded from the Web can cost $10, with the publisher making the same $5 profit margin on each sale. Under classical supply and demand curves, the publisher will sell more units of a product at a lower cost, thus improving profits (assuming demand does not drop off for the product due to format change).
The preferred strategy is to offer multiple formats of a product. The significant cost lies in producing the product, and the marginal cost of converting the book to a CD-ROM and electronic file are negligible. These are seen, then, as free revenue. One often encounters arguments that sale of the cheaper electronic file will reduce sales of the more expensive book but that is not true when the consumer deems the book’s format valuable, and the transaction cost is relatively modest, as is the case with most legal information.
As an aside, selling legal material online will become easier with improvements in electronic cash. Content management systems largely depend on the ability of the reader to pay small sums, usually less than one dollar, to access a newspaper article or single legal form. Existing forms of electronic payment, such as credit cards, are used successfully for some online transactions but are ill suited for these small purchases.
Adding Value to Legal Materials
The Web allows publishers to breathe new life and value into existing materials. Treatises can use hyperlinks. Multimedia clips are an effective way to improve learning. Microsoft’s Encarta Encyclopaedia is a good example. With Northwestern Law School making U.S. Supreme Court oral arguments available, constitutional law treatises can include links to both the text of the published opinion and the corresponding oral argument. All that is missing are the briefs and contemporary news coverage of the case. Oral arguments are also online for the courts of Washington, Wisconsin, Georgia and Florida. Florida has even added video of its oral arguments.
Publishers can create links between works to promote sales of related texts. The best model is to allow free access to a secondary work to establish in the customer’s mind the value of the title, which will result in the customer wanting to purchase the book. Remember, even though book stores allow customers to browse through the entire book on the shelve, people still buy the books they find useful. There is no reason to offer less access to material in electronic form if the product has value relative to the price.
CONCLUSION
A common refrain in 1995 through 1997 about free law on the Internet is that it would undermine revenue from commercial publishers, or would deprive governments of revenues from sale of the law. Instead, the opposite has occurred. What has emerged in 1998 is an appreciation of the role of electronic commerce in all aspects of public and private life. Having learned too little in the past about the Internet, the legal industry will derive benefits in the near future from publishing law for free.
Over the next two or three years, organizations must learn as much as possible, at nearly any cost, about electronic commerce. False assumptions about the economic models of information will undermine initiatives and hamper the ability to leverage the Internet to cut internal costs, create new products based on Internet technologies, expand markets for legal materials and add value to an existing catalog.
The issue is simple: who can deploy digital signatures and reap all the attendant advantages. An organization with sophisticated Internet users, or one that is still trying to figure out how to use email?
With a proper understanding of the value of electronic commerce, and the need to continually train a workforce in evolving technologies to derive revenue from new opportunities, one can say: the more law we give away, the more money we will make. In the era of e-commerce on the Internet, revenue is the fruit of an investment in knowledge.
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