AALL WASHINGTON AFFAIRS REPRESENTATIVE
Robert L. Oakley
Director of the Law Library & Professor of Law
Georgetown University Law Center
March 26, 1996
Ms. Anne K. Bingaman
Assistant Attorney General of the United States
United States Department of Justice
Constitution Avenue and Tenth St., N.W.
Washington, D.C. 20530
SUBJECT: Proposed Merger of West Publishing with Thomson Corp.
Dear Ms Bingaman:
The American Association of Law Libraries is pleased to comment on the proposed sale of the West Publishing Company to the Thomson Corporation. As should be readily apparent, A.A.L.L. has a strong interest in the outcome of the proposed merger of the two largest legal publishers because, as A.A.L.L.'s current President, Patrick E. Kehoe, said, "the merger of Thomson and West will change legal publishing forever."
The American Association of Law Libraries is a nonprofit educational organization headquartered in Chicago with nearly 5,000 members nationwide. Our members build legal and law-related collections in over 1900 libraries, and they respond to the legal and governmental information needs of attorneys and law students, judges and legislators, and the general public. We are probably the largest single identifiable consumer group for the products of the legal publishing industry.
A.A.L.L. does not oppose the sale of West Publishing to Thomson Corp. We have had a long and cordial relationship with both companies, and we hope that those relationships will continue well into the future. In fact, A.A.L.L.'s Executive Board was pleased that the proposed sale will keep West Publishing in a company with deep roots in American legal publishing, rather than move it to a venture capitalist which might hold the company for a few years and then spin it off in unknown directions. The overall goal of the Association in this matter is not to oppose the change, but to work with you to ensure the continuation of high quality legal information products at reasonable prices in a healthy competitive environment.
Although the Association is not opposing the merger, it does have some serious concerns about the impact of the sale on the marketplace. Members of our Association are concerned about the potential of the merger to increase concentration in the industry and reduce competition in the availability of print materials for their libraries. They are concerned about limitations on choice of format resulting from reduced competition. They are seriously worried about the potential for increased prices. Law firm and law library budgets have been severely squeezed in recent years and a cycle of substantially increasing prices could be devastating. There is also significant concern among our members that the concentration of so many primary-source print products in one company could have the effect of reducing competition in the online environment as well. Finally, there is a concern about the impact of the proposed sale on the emerging CD-ROM market.
The American Association of Law Libraries wishes to offer comments in these five specific areas. Supporting documentation is attached.
Product Competition and Industry Concentration. There is currently significant overlap in the product lines of West and Thomson, giving subscribers a choice of products. The merger of the two companies will almost certainly increase the concentration in the print legal publishing industry and reduce competition through the elimination of overlapping products.
For many years, our members have been able to choose among some of the most important legal publications. Although there are some differences in organization and the ancillary materials included in these publications, the basic underlying content is substantially the same. It is highly unlikely that a single publisher would continue to produce two different products that would compete with each other and cover the same basic material. Examples of such parallel publications include:
WEST PRODUCT THOMPSON PRODUCT
United States Code Annotated United States Code Service
Supreme Court Reporter United States Supreme Court
Reports, Lawyers Edition
United States Supreme Court Digest United States Supreme Court Digest,
Corpus Juris Secundum American Jurisprudence, 2d
West's Federal Forms Federal Procedural Forms
West's Legal Forms Am.Jur. 2d Legal Forms
Am.Jur. Pleading and Practice
Nichols Cyclopedia of Legal Forms,
One of our members, Kendall F. Svengalis of the Rhode Island State Law Library, has recently published a comprehensive book on the legal publishing market titled Legal Information Buyer's Guide & Reference Manual, 1996 (Barrington, R.I. 1996). A copy of his book has been sent to the Department by Mr. Svengalis under separate cover. Svengalis has analyzed a selection of basic titles such as those listed above, and he has concluded that in each area, West-Thomson will control a significant percentage of the market, ranging from 76% of state legal encyclopedias to 100% of the certain codes, court reports, and other basic legal material. A copy of Mr. Svengalis' analysis is provided as Attachment I to this letter.
Beyond the basic materials themselves, West and Thomson have also competed with their different approaches to finding the law. The West key number system has been a cornerstone of the West research system for over 100 years. It allows users to find cases in one jurisdiction or in many jurisdictions by means of a system of abstracting key points of law from individual cases and organizing them into an overall organizational framework. By contrast, the Total Client Service Library of Thomson provides a system of cross references for a researcher to move easily from one Thomson product to another. (A list of the products included in the Total Client Service Library is included as Attachment II.) As products are consolidated after the merger it seems unlikely that both systems will remain, at least in the form they are now.
The post-merger situation with respect to secondary materials is similar, if not quite as dramatic. Using the material from his book, Mr. Svengalis has analyzed treatises from 43 different legal subject areas. A copy of his detailed analysis is provided as Attachment III to this letter. Across all those subjects, Svengalis found a total of 534 treatises, of which 283 or 53% percent are West-Thomson publications. Of those publications owned by West-Thomson, approximately 1/3 are from West and the remainder are from Thomson. This analysis clearly demonstrates that West-Thomson will control more than half of the market for legal treatises, while the rest of the market will be divided among all other publishers.
Product Pricing. Increased concentration and reduced competition is likely to lead to increased prices.
If product redundancy is reduced or eliminated, price competition will be reduced at the same time. Although predictions about future price changes are somewhat speculative, our members are very concerned about the issue because they have observed patterns of significant increases in Thomson products over the past several years. West products, by contrast, have remained relatively more stable in their supplementation costs. As a result of these observations, many of our members fear that under Thomson ownership and without the restraining influence of competition, there will be a cycle of significantly increasing prices that they can ill-afford.
By way of illustration of the difference between West and Thomson, I picked at random the payment records of my own library for two competing sets of products on the list above. In both cases, the Thomson title was priced higher than the West title. In one case, it was significantly higher:
TITLE 1995 UPKEEP
United States Code Annotated $ 820.00
United States Code Service $ 930.00
American Jurisprudence, 2d. $1325.00
Corpus Juris Secundum $ 525.00
Mr. Svengalis has done a more systematic analysis of the competitive pricing of the Thomson and West product lines. I have included his analysis as Attachment IV to this letter. In general, it shows that West supplementation is lower in price -- often significantly lower than the corresponding Thomson title.
Moreover, in many cases, the pattern of price changes following the acquisition of a product by Thomson is dramatic. For the titles on Svengalis' list, the price change since 1989 ranges from a doubling of the price to an increase of several hundred percent. The supplementation for Couch on Insurance, for example, was priced at $ 91.40 in 1988. By 1995, it was $ 695.00. Am. Jur. Trials went from $ 195.00 to $ 745.00 over the same period.
Price changes such as these are difficult for any organization to sustain. In a competitive environment, however, there is at least some incentive to keep prices under control, and our members are concerned that after the merger there will be much less restraint on prices than there has been in the past. The consequences of unrestrained price increases would be devastating for law libraries, whose budgets have been severely squeezed in recent years.(1)
Significant price increases would also make it more difficult for ordinary American citizens to learn about the law that now affects so many aspects of their lives. Fewer public libraries will be able to obtain the material, and even law libraries may be forced to cancel some publications. Access to the law, including access to information about the law, is a basic right in the American Constitutional democracy that ought not to be jeopardized by unrestricted increases in the prices of basic legal information.
The increases would also have spillover consequences on other legal consumers -- law students and legal clients alike -- since the increased cost of legal research will undoubtedly translate into a higher cost for a legal education as well as a higher cost of doing business for the ordinary lawyer. As such, it will almost certainly increase the already significant cost of access to justice.
Choice of Format. With less competition for particular products, there is also likely to be less choice of competing formats.
It is important to law librarians as consumers of legal information to be able to meet the needs of their users with information in the format that is most useful to the client. Yet the economics of publishing has clearly shifted in recent years, placing increased pressure on print products for which the cost of paper, printing, binding and shipping must all be added into the production cost. For marginal products where the number of sales is limited, there is now or soon will be substantial pressure to eliminate duplicative formats and to move to a less costly means of production and distribution. With competition, even marginal products would be maintained as long as there was a reasonable profit margin. With less competition, the migration to single formats for single titles will proceed much more quickly.
But many lawyers, law libraries, and law firms are not yet ready to make the shift to electronic publications. This problem is particularly acute for publicly funded law libraries and for smaller law firm libraries. They lack sufficient computers; they lack the technical infrastructure; and they lack the resources to make the conversion. In addition, many lawyers who were educated in an earlier era will not change their system of research, and they will be at a serious disadvantage.
Paper formats also work better for preservation of the historical record. Since they are eye-legible, they are not subject to hardware or software obsolescence, and materials purchased in paper will continue to be available for use for many years following he original purchase.
The American Association of Law Libraries believes that there should not only continue to be competition between publishers and their products, but that there should also continue to be choice -- or competition -- between a variety of formats for legal materials. A.A.L.L. members are worried that the merger may have a negative impact on such choices.
Online Services. The proposed merger could also have a serious impact in the competition for online legal information services.
Over the past 20 years, online systems for legal research -- LEXIS and WESTLAW -- have become increasingly important mechanisms for the delivery of legal information. Beginning with legal information that was created by manual keystroking at overseas sites or by the Air Force, these databases are now automatically updated with electronic feeds from a growing number of courts around the country. They have also expanded far beyond their original court information to include an extraordinary range of legal and non-legal information, including statutes, regulations, bills, journals, newspapers, and a host of other sources.
As the foundation for their competing products, West, of course, had access to its existing book products. As a result, it was relatively easy to make available the codes, legal encyclopedias, and other legal materials already in the West product line. LEXIS, by contrast, needed to look elsewhere. To gain access to some of the state codes, for example, LEXIS bought the Michie Company. They also negotiated an agreement with Lawyers Cooperative and other Thomson companies whereby many Thomson products would be made available online through LEXIS. This agreement gave LEXIS access to a wider range of print products, and it gave Thomson a means of access to the online market.
Among these key Thomson owned legal titles on LEXIS are the United States Code Service and the American Law Reports. In addition, LEXIS also has the California statutes and cases, as published by Bancroft-Whitney, and the following Lawyers Cooperative titles: the Annotated Laws of Massachusetts, Michigan Statutes and Reports, the New York Consolidated Law Service and New York Reports and New York Jurisprudence. A copy of a memorandum from Kathleen Sullivan, the Chair of A.A.L.L.'s Committee on Relations with Vendors, which details some of these state materials on LEXIS is included as Attachment V.
Moving beyond the legal titles, I asked Rachel Jones, a member of our Association and a staff member at Georgetown, to see if we could identify all the Thomson products on LEXIS. She identified a significant number of additional Thomson products, including legal publications, financial publications, and newspapers that are now carried on LEXIS. A copy of the full listing is included as Attachment VI.
From these numbers, it is readily apparent that Thomson titles make up a significant portion of the legal and non-legal products available through LEXIS. When Thomson owns WESTLAW, will they continue to make their products available through LEXIS? If so, on what terms? Thomson will no longer need LEXIS to gain access to the online market. It seems entirely possible that Thomson might decide not to make their materials available to a competitor, at least not for a price that would allow them to remain competitive. If Thomson were to withdraw its products from LEXIS at the conclusion of the current license term, what impact would that have on LEXIS' ability to compete? From the perspective of the Law Librarian, the deletion of these products from LEXIS could leave it in a difficult position indeed. It would not be able to supply the annotated statutes from the Federal government, New York, California, or several other states. It would be more difficult to obtain court opinions from several jurisdictions. And the wealth of Thomson secondary sources would also be unavailable.
Law librarians and their clients have benefitted substantially from the intense competition that has existed in the online marketplace. It has stimulated a high level of product development, price competition, and a richness of electronic resources that is probably unparalleled anywhere else in the world. A.A.L.L. hopes that the competitiveness of this vital sector of the market will not be compromised by the proposed merger.
CD-ROM and other new technological developments. Competition among compact disk products has stimulated significant growth and progress in that industry. It is a medium that may become even more important in the future as a delivery mechanism for large data files including large collections of legal material for use at the desktop. Progress in the development of this medium should not be slowed by diminished competition.
CD-ROMs offer the potential for the distribution of large quantities of data at relatively low cost. Indeed, relying on CDs, it is possible for a lawyer to have a modest sized law library for a single jurisdiction in a small tower attached to a desktop personal computer. By eliminating the cost of renting space for books and also eliminating the hourly charges of the major online systems, use of CD-ROMs provides substantial economic appeal, especially in smaller law firm settings.
Despite these benefits of CD-ROM systems, they have not developed as rapidly as one might have expected. The search engines (user interfaces) are often not as user friendly as those found in the more popular trade environment, and the databases have evolved slowly. Nonetheless, this technology is poised to take off as a significant alternative to both books and online systems. Competition for the development of databases and search engines is keen, and A.A.L.L. hopes that the development of this technology, spurred by competition in the marketplace, will not diminish after the proposed merger.
West Publishing owns a search engine called PREMISE which it uses to make many of its standard products available to the legal community. These products include case reports and statutes for particular jurisdictions, as well as some of the large older sets that a library might like to have in a more compact form (Federal Reporter and Federal Supplement, for example). LEXIS owns a competing search engine called FOLIO which it markets both as a search engine for existing products (statutory codes from the Michie Company and certain case reports, for example), but also as a product that will allow a researcher to create his or her own searchable databases (called InfoBases by FOLIO). They have, for example, begun to distribute some of their own Michie-published casebooks in FOLIO format, and they are encouraging lawyers and law students to create their own InfoBases of frequently used materials.
Just a few years ago Thomson decided to begin to make some of their products available on CD-ROM for all the reasons already discussed. They chose FOLIO as their search engine, thus keeping FOLIO competitive with West's PREMISE software. If Thomson owns PREMISE, it is unlikely that they would continue to market their CD-ROM products using FOLIO. Such a change would significantly reduce FOLIO's competitive position in the marketplace and would reduce the incentive to continue to compete and develop the technology.
The claim of West Publishing to a proprietary right in the pagination of their print products further undercuts the possibility of competition in the CD-ROM environment. Although the technological barriers to entry by new firms are relatively low, if they cannot use the dominant means of reference throughout the legal system, the value of the product to a prospective purchaser is substantially reduced.
According to a source in the industry, the total market for legal CD-ROMs is currently approximately $100 million. Of that, West's sales are approximately $55 million, FOLIO's are approximately $17 million, and LOIS (Law Office Information Systems) has about $10 million in sales. The remainder of the market is divided among a number of smaller firms. If these figures are correct, West already has a dominant position, and the merger between West and Thomson could withdraw a significant amount from FOLIO, thus substantially increasing West's market share and significantly reducing competition.
A.A.L.L. believes that the CD-ROM industry will continue to develop. But neither the search engines nor the databases are mature as of now. Continued competition in this sector of the legal publishing marketplace is essential to stimulate the development of a robust environment for the delivery of legal information in this new format.
* * *
A.A.L.L. is pleased to have the opportunity to make this information available to the Department of Justice in the course of its review of the proposed sale of West Publishing Co. to the Thomson Corporation. We believe that our goal of high quality legal information products at reasonable prices in a healthy competitive environment is consistent with the basic purposes of the review now underway.
A.A.L.L. hopes that this is information is helpful to the Department. If I may be of further assistance to you, please do not hesitate to call. If you would like to discuss these issues with other law librarians, I would be happy to facilitate those contacts.
Robert L. Oakley
1) From 1973 - 1994, the prices of all legal serials grew 456%, while the Consumer Price Index grew only 225%. See Svengalis, Legal Information Buyer's Guide, 1996 at 10 (Barrington, R.I. 1996). The Thomson prices noted here exceed this industry-wide average by a considerable margin. (Return to endnote citation)