Westlaw rises to legal publishing fame by selling free information

St. Paul company outprofits Gannett, McGraw Hill, New York Times

"No lawyer in his or her right mind would go to Google and start looking for case law. They'd be insane," says Ted Pederson, professor of computer science at the University of Minnesota, Duluth. "They are using Westlaw to make arguments to decide the fate of people and companies. These are very high stakes. This is not like searching for Britney Spears on Google."

Rule 6:

Computers can't do everything

The underlying search technology that West uses isn't complicated. Frankly, it's ubiquitous. Yet lower-cost online legal research services with access to the same search technology continue to lag in the market. Why?

The difference between West and the lower-cost services is its people. CARE may make recommendations and automate processes, but an army of 800 attorney-editors analyzes the cases, writes the summaries, and approves many of the recommendations that CARE provides. No free or low-cost service has anything near West's legion of human editors.

At West, every case goes through a 22-step editorial process. Multiple people work on each case, cross-checking each other's work to ensure that it is 100 percent accurate. Attorney-editors add searchable terms tuned to West's search engine. The editorial process is so specific that it identifies about 100,000 errors in court documents each year, and notifies the courts of the needed corrections.

Rule 7:

Treat content like patented material

In the 1980s, a group of blue suits from IBM walked into the headquarters of Sun Microsystems in Silicon Valley, California. IBM had accused Sun of committing seven patent violations, and the lawyers were there to talk about it.

The attorneys at Sun had looked at IBM's claim and thought much of it was frivolous, according to Sun's attorney at the time, Gary Reback, who tells the story in a 2002 Forbes article. Most glaring of all was IBM's claim to "fat line" technology, in which customers clicked on two points above a line and two below in order to thicken the line into a rectangle.

With animation, the Sun attorneys put black marker to whiteboard to illustrate the absurdity of the claims. IBM didn't have the right to that technology, they argued. Every kindergartener in the country had figured it out.

The IBM men watched, impassive. "Okay, maybe you don't infringe these seven patents," one of the company's men finally acknowledged. "But we have 10,000 patents. Do you really want us to go back [to headquarters] and find seven patents you do infringe? Or do you want to make this easy and just pay us $20 million?"

After some negotiation, Sun cut IBM a check.

What IBM did with its patents, West did with its copyrights. Throughout the 1980s, West and LexisNexis sued each other over a series of copyright claims. In a move roughly equivalent to IBM's broad line argument, West claimed it had rights to the way its information was arranged on a page.

Because judges had for decades required attorneys to cite the page numbers of Westlaw volumes in their arguments, LexisNexis began referring to the West page numbers, too. West objected to the references to internal page numbers, claiming its page numbers were copyrighted material.

"It was really an absurdity. There's no intellectual component," to page numbering, says Kendall Svengalis, a retired Rhode Island State Law librarian and author of The Legal Information Buyer's Guide & Reference Manual.

Nevertheless, LexisNexis found that fighting a court battle was more costly than settling. In the mid-1980s, Lexis agreed to pay West $50,000 a year to reference Westlaw's page numbers. The money was a pittance to both publishers, but the message was clear: West would fight to the death to protect its content.

Rule 8:

Print's not dead, it just needs online help

When Thomson purchased West, it gained control of the leading products in both print and online legal publishing. Some doubted that Thomson could improve on West's 25 percent profit margins as print publishing gave way to online. But Thomson found a way to keep print profitable.

From 1996 to 2005, the price for initial editions of Thomson's legal books went up about 4.5 percent each year—just slightly above the increase in inflation, and comparable to LexisNexis's 4.2 percent annual increase for similar materials.

But during the same period, Thomson's price for supplementation—updates to the initial books after changes in the law occurred—rose 11.5 percent each year, far higher than both the rate of inflation and Lexis's increase in prices for the same service.

That explains in part how in 2005, even after electronic media dominated the market and comprised 57 percent of West's revenues, the company still got 43 percent of its revenues from print.

"Thomson figured out in the early '80s where the money could be made," Svengalis says. "It's in professional publishing. It's certainly not in newspapers. When you're dealing with serial titles, supplementation, a lot of the customers are kind of captive."

The market for legal books is not likely to disappear, since some information is simply easier to absorb in book format. Electronic subscribers get deals on books and do not pay the full price for supplementation, company management says.

Westlaw's core business, though, has become its electronic products; last year, online made up 69 percent of the revenue stream. "Print will always be important, whether it will be one-third or one-fifth" of the business, says Peter Warwick, West's CEO. "But the primary thinking is online."

To keep its electronic market robust, Westlaw constantly develops new products. Says Rick King, head of operations: "If you're not the leader and the innovator, then you'll be overtaken."

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