Published on:

Network effects and law department management

The economist’s concept of a network has application to law department management. Networks show increasing returns, because there is little or no additional cost to adding a user and the more people who use it the more valuable it is to everybody. Facsimile standards are an early example of a bandwagon effect once a critical mass adopted the standard.

As illustrations of network effects relevant to law departments, look to the Uniform Task Based Management System (UTBMS), the Legal Electronic Data Exchange System (LEDES), PDF files, and the efforts of the Open Standards Institute to create a whole suite of benchmark standards.

Network effects from standards are freely available (think of the tragedy of the commons in reverse). I have explored the idea of the network of data sharing among law departments (See my posts of Oct. 14, 2005 on collective actions by law departments; April 15, 2007 on shared fee data; and March 14, 2006 on shared evaluations of law firms.).

E-billing vendors who have trained many law firms on their system enjoy a network effect (See my post of Nov. 11, 2007 on DataCert and Marsh and McLennan). All benchmarking surveys that are broad based strive to reach a critical mass and unleash network effects. In a winner-take-all situation, network benefits create a monopoly of the firm that commands it (think of E-Bay at its zenith). Roundtables for general counsel (See my posts of Feb. 2, 2005 on the General Counsel Roundtable; and Feb. 2, 2005 with others listed.) try to create network effects. User groups of vendors try to enhance network effects