FTC Staff Comment Before the Professional Ethics Committee of the State Bar of Texas Concerning Online Attorney Matching Programs

UNITED STATES OF AMERICA
FEDERAL TRADE COMMISSION
WASHINGTON, D.C. 20580
Office of Policy Planning
Bureau of Economics
Bureau of Competition
May 26,2006
via facsimile and first-class mail
Mr. W. John Glancy
Chairman
Professional Ethics Committee for the State Bar of Texas
1414 Colorado Street
Austin, TX 78701
Re: 	Comments on a Request for Ethics Opinion
Regarding Online Attorney Matching Programs
Dear Chairman Glancy:
We understand that the Professional Ethics Committee currently is considering whether it
is ethical for a Texas attorney to participate in an online legal matching service. Specifically, we
understand that you are considering whether Ethical Rule 7.03, which prohibits a lawyer fiom
paying a non-lawyer to solicit prospective clients or to refer clients, except for paying reasonable
fees for advertising, also prohibits attorneys fiom participating in online legal matching services.
The staffs of the Federal Trade Commission's ("FTC" or "Commission") Office of Policy
Planning, Bureau of Economics, and Bureau of Competition appreciate the opportunity to
provide comments on this issue.'
h his letter expresses the views of the Federal Trade Commission's Office of Policy Planning, Bureau of
Competition, and Bureau of Economics. The letter does not necessarily represent the views of the Federal Trade
Commission or any individual Commissioner. The Commission has, however, voted to authorize us to submit these
comments.

Online legal matching services are a valuable option for Texans: they are likely to reduce
consumers' costs for finding legal representation and have the potential to increase competition
among attorneys. Further, we see no likely prospect of consumer harm that would justify the
prohibition of online legal matching services in Texas.
The Federal Trade Commission has been entrusted by Congress with enforcing the
federal antitrust laws.2 Pursuant to this statutory mandate, the FTC encourages competition in
the licensed professions, including the legal profession, both through enforcement of the antitrust
laws3and through competition adv~cacy.~	Indeed, one area in which the FTC enjoys substantial
expertise is the analysis of the competitive implications of regulatory restrictions on advertising
in the professions.
Although debate about how attorneys advertise involves important policy concerns, it is
important to recognize that competition benefits consumers of both the traditional manufacturing
and the professional services industries? 	Based on our experience, it is our view that absent
2 Federal Trade Commission Act, 15 U.S.C. 5 45.
3 See California Dental Ass'n v. FTC, 526 U.S. 756 (1999); FTC v. Superior Court Trial Lawyers
Ass 'n, 493 U.S. 41 1 (1990); In re South Carolina State Board of Dentistry, FTC Docket No. 931 1 (2003); In re
Massachusetts Board of Registration in Optometry, 110 F.T.C. 549 (1988); Bureaus of Consumer Protection and
Economics, Federal Trade Commission, A COMPARATIVE 	OF COSMETIC 	BY	ANALYSIS 	LENSFITTING
OPHTHALMOLOGISTS, 	AND OPTICIANS 	OF RESTRICTIONS 	AND	OPTOMETRISTS, 	(1983); THEEFFECTS 	ON ADVERTISING
COMMERCIAL 	IN THE PROFESSIONS: 	FTC Bureau of Economics Report (1980);	PRACTICE 	THECASEOF OPTOMETRY,
see also C. Cox & S. Foster, THECOSTSAND BENEFITS 	REGULATION,	OF OCCUPATIONAL 	FTC Bureau of Economics
Staff Report (October 1990).
4 See, e.g., Letter from the FTC and the Department of Justice to the Kansas Bar Ass'n (Feb. 4,
2005), at http://www.ftc.gov/be/v050002.pdf;	Letter from the FTC and the Department of Justice to Task Force to
Define the Practice of Law in Massachusetts, Massachusetts Bar Ass'n ( Dec. 16,2004), at
http://~~~.ft~.~0~/0~/2004/12/04 	Letter from the FTC and the Department of Justice to Task	1216massu~lltr.~df;
Force on the Model Definition of the Practice of Law, American Bar Association (Dec. 20,2002), at
http://www.ftc.gov/opa/2002/12/1ettertoaba.htm;	letter from the FTC to the Supreme Court of Alabama (Sept. 30,
2002), at http://www.ftc.nov/be/v020023.pdf;Brief Amicus Curiae of the United States of America and the FTC in
Lorrie McMahon v. Advanced Title Services Company of West Virginia, No. 3 1706 (filed May 25,2004), available
at http://www.usdoi.gov/atr/cases/f203700/20379O.htm;Brief Amicus Curiae of the United States of America and
the FTC in On Review of ULP Advisory Opinion 2003-2 (filed July 28,2003), available at
http://www.usdoi .gov/atr/cases/f201100/201197.htm. The FTC also has studied the effects of restrictions on
competition in the professions. See Bureaus of Consumer Protection and Economics, Federal Trade Commission, A
COMPARATIVE 	OF COSMETIC 	BY OPHTHALMOLOGISTS, 	AND OPTICIANS	ANALYSIS 	LENSFITTING 	OPTOMETRISTS,
(1983); THEEFFECTSOF RESTRICTIONS 	AND COMMERCIAL 	IN THE PROFESSIONS:	ON ADVERTISING 	PRACTICE 	THE
CASEOF OPTOMETRY,	FTC Bureau of Economics Report (1980); see also Cox & Foster, supra note 3.
5 Nat'l Soc 'y of Prof1 Eng'rs v. United States, 435 U.S. 679,695 (1978) (quoting Standard Oil Co.
v. FTC, 340 U.S. 23 1,248 (195 1)) (''As the United States Supreme Court has observed, "ultimately competition will
produce not only lower prices, but also better goods and services. 'The heart of our national economic policy long
(continued...)

compelling evidence that consumers are likely to be harmed by online legal matching services,
the Professional Ethics Committee should not issue an opinion that would have the effect of
prohibiting Texas consumers from accessing these services.
Internet-based Client-to-Attorney match in^ Services
We understand that currently several businesses provide Internet-based attorney/client
matching platform^.^ Typically, these services recruit licensed attorneys who pay a one-time
application fee and a regular annual or monthly flat fee to participate. In their applications,
member attorneys may disclose their areas of practice, years of experience at the bar, affiliations,
and any other pertinent information. The legal matching service usually conducts background
checks to ensure that the attorney is in good standing with the Bar. We also understand that
some of these services may provide attorneys with Web pages similar to an attorney's own Web
page.
A potential client accesses the service via the Internet. The client can examine the
service's Web site to learn how attorneys become members of the service and how the service
can help the client identify an attorney to satisfy his or her legal needs. If the client would like to
seek legal assistance from a member attorney, he or she typically completes a short online
questionnaire describing the legal issues, the practice area of the attorney being sought, the
amount of experience desired for the retained attorney, the geographic region or jurisdiction of
the representation, and the requested fee range. The client also may send any other descriptive
information he or she wishes to disclose. The client submits the questionnaire to the service,
thereby inviting qualifying attorneys to contact him or her. Without disclosing the identity of the
client, the service transmits the information disclosed in the questionnaire to member attorneys
who fall under the delineated criteria of subject area and geographic region.
Interested attorneys may then post, through the service, a response to the client, which
typically will contain information such as fees, experience, and other qualifications. With this
information, the client determines which attorneys -if any -to contact, and initiates the contact.
In some instances, the application may invite an attorney to contact a client directly.
5 ( . ..continued)
has been faith in the value of competition."'); see also id. at 689; Goldfarb v. Virginia State Bar, 421 U.S. 773,787
(1975); United States v. Am. Bar Ass'n, 934 F. Supp. 435 (D.D.C. 1996).
6 Although not all services are identical, many share the same general business model. See, e.g,
LexisNexis/Martindale Hubbel's Attorney Match (http://www.lawers.com/find a lawer/am/am aop 1ist.php);
Casepost (http://www.case~ost.com);Legalconnection (FindLaw) (http://www.leg;alconnection.corr);
and Legal Fish (www.leg;alfish.com).	(	-	;	LegalMatch

We understand that online legal matching services are not involved in the retainer
agreement struck between the attorney and the client, receive no compensation from the attorney
or client relative to the representation, and take no part in the representation.
Competitive Effects of Increased Consumer Information
In Markets For Professional Services
When consumers face large costs to obtain information about marketplace prices and
quality, businesses have less incentive to ~ o m p e t e . ~	Indeed, a large amount of empirical research
has found that restrictions on advertising in professions lead to higher prices and either a negative
or no effect on quality? In the same way that advertising has been shown to benefit consumers of
professional legal services, online legal matching services are likely to make it less expensive for
consumers to evaluate providers of legal ser~ices.~
The information sent to inquiring clients is likely to allow consumers to compare the
price and quality among several competing attorneys more cheaply than other methods of
comparison. For example, a referral service that assigns the next attorney on a predetermined list
to a client requires the client to meet the attorney and then seek a second referral simply to
formulate a basis for comparison. Similarly, a directory such as the yellow pages is time-
intensive because it requires the client to search for several attorneys and formulate his or her
I Several economists have developed models that predict firms will be able to charge higher prices
when consumers face high costs of obtaining marketplace information. See, e.g., Dale 0.Stahl, Oligopolistic
Pricing with Sequential Consumer Search, 79 AM.ECON.REV. 700 (1989); Kenneth Burdett & Kenneth L. Judd,
Equilibrium Price Dispersion, 5 1 ECONOMETRICA	955 (1983); John Carlson & R. Preston McAfee, Discrete
Equilibrium Price Dispersion, 9 1 J. POL.ECON.480 (1983); Steven C. Salop & Joseph E. Stiglitz, Bargains and
Ripofis: A Model of Monopolistically Competitive Price Dispersion, 44 REV. ECON.STUDIES293 (1977). Using
these models as a theoretical framework, several authors have found evidence that the Internet has led to lower prices
by reducing consumers' costs of comparing prices. See, e.g., Jefliey R. Brown & Austan Goolsbee, Does the
Internet Make Markets More Competitive? Evidencefiom the Life Insurance Industry, 110 J.PoL. ECON.
48 l(2002); Erik Brynjolfsson & Michael D. Smith, Frictionless Commerce? A Comparison of Internet and
ConventionalRetailers, 49 MGM'TSCIENCE	563 (2000); James C. Cooper, Price Levels and Dispersion in Online
and Ofline Marketsfor Contact Lenses, FTC Bureau of Economics Working Paper (2006), at
htt~:Nwww.ftc.aovlbe/workpaperslwp283	.pdf.
8 See Timothy J. Muris, California Dental Association v. Federal Trade Commission: The Return of
Footnote 17, 8 Sup. Ct. Econ. Rev. 265,293-304 (2000) (collecting citations to empirical literature on the effect of
advertising restrictions in the professions); In the Matter of Polygram Holdings, Inc, et al, FTC Docket No. 9298
(F.T.C. 2003), at 38 n. 52 (same).
9 A pair of studies find that consumers who use an online service that sends consumer requests to an
affiliate car dealer that sells cars matching the consumer's inquiry pay approximately 2 percent less for the same car
compared to those who did not. Also, the authors found that those who were likely to be poor negotiators were more
likely to use these services to increase their bargaining power. See Fiona Scott Morton et al., Internet Car Retailing,
49 J. INDUS.ECON.501 (2001); Florian Zettelrneyer et al., Cowboys or Cowards: Why are Internet Car Prices
Lower? (2005), at http://flomac.haas.berkeley.edu/-florianl Papers/selection.pdf.

own method to evaluate lawyers. Indeed, these options may be more costly and yield far less
relevant information than the lawyer matching services under review. By lowering consumers'
costs of obtaining information about price and quality of legal services, online legal matching
services are likely to allow consumers who use them to pay lower prices and/or obtain higher
quality legal services than they would have had they used their next best alternative means for
identifying a legal service provider.
A regulation that limits competition may benefit consumers when it addresses a specific
market failure that has been shown to harm consumers. Thus, in principle, a prohibition on
Texas attorneys participating in online legal matching services could create net benefits for
consumers if the restriction were necessary to provide an increase in the quality of legal services
that consumers valued more than they actually would pay in higher legal fees, and the market
otherwise would not provide this benefit. Given a strong presumption that competition is the
best way to allocate scarce resources among competing needs,'' however, the burden should rest
on the proponents of a restriction on competition to show that it is necessary to prevent
significant consumer harm and that it is narrowly drawn to minimize its anticompetitive impact."
We understand that online legal matching services have operated in Texas for several
years. We are unaware, however, of any evidence that online legal services have caused any
consumer harm. The Texas Bar has informed us that they are unaware of any consumer
complaints about online legal matching services. Further, the bars of North Carolina, South
Carolina, and Rhode Island have issued ethics opinions explicitly allowing such services to
operate,12and the Utah State Bar has partnered with such a service so as to help clients find a pre-
screened Utah lawyer.l3
Although we recognize that there may be legitimate concerns about allowing non-
attorneys to refer potential clients to attorneys,14such concerns do not appear to arise with respect
lo See City ofLafayette v. Lousiana Power &Light Co., 435 U.S. 389,398 (1978) (by enacting the
Sherman Act, "Congress, exercising the fill extent of its constitutional power, sought to establish a regime of
competition as the fundamental principle governing commerce in this country.").
l1 C$ FTC V. Indiana Federation of Dentists, 476 U.S. 447,459 (1986) ("Absent some
countervailingprocompetitive virtue," an impediment to "the ordinary give and take of the market place . . . cannot
be sustained under the Rule of Reason.") (internal quotations and citations omitted).
l 2 See North Carolina Bar, 2004 Ethics Op. 1 (Apr. 23,2004); South Carolina Ethics Advisory Op.
01-03 (Jan. 3,200 1); Rhode Island Supreme Court Ethics Advisory Panel Op. 2005-0 1 (Feb. 24,2005).
13 See Utah State Bar Referral Services, at
http://www.utahbar.ordpublic/lawyer referral service main.html.
l4 For example, there may be concerns if a referral service were to mislead consumers about
attorneys' qualifications or how they select.the pool of attorneys from which they draw, and steer consumers only to
(continued...)

to online legal matching services. These services do not advocate or recommend a particular
attorney, but rather provide a conduit through which a consumer can invite attorneys to provide
information about their ability to handle a consumer's particular legal issue.15 The information
provided by attorneys who participate in these services, moreover, still is subject to existing
prohibitions on misleading or deceptive advertising!
If the Professional Ethics Committee has concerns, based on demonstrated consumer
harm, that consumers may be misled with respect to the pool of attorneys to which their requests
are sent, there are less restrictive alternatives than barring attorney participation in these services.
For example, online legal matching services could be required to disclose the number of
attorneys and firms that participate in their service and that requests are not sent to all Texas
attorneys, but only to member attorneys. Further, online legal matching services could be
required to explain explicitly whether, and if so how, they limit attorney participation.
Conclusion
Online legal matching services have the potential to lower consumer costs of obtaining
information about the price and quality of legal services, which is likely to lead to more intense
competition among attorneys, ultimately benefitting Texas consumers. At the same time, we see
no indication that consumers are likely to suffer harm from online legal matching services that
would justify banning them. We hope that the Professional Ethics Committee will consider the
likely impacts on competition and on Texas consumers of a rule barring Texas attorneys from
participating in online matching services.
We appreciate the opportunity to present our views. Please do not hesitate to contact us
about this issue.
14(...continued)
those attorneys who offer the service at the largest fee.
l 5 We understand that Ethics Opinion 561 prohibits participation in Internet sites that use
"information about participating lawyers for the purpose of identifying or selecting a lawyer or a group of lawyers
whose names are then suggested, offered, or recommended to a consumer for consideration." Although we take no
position on whether the restriction in Ethics Opinion 561 is likely to provide net benefits to Texas consumers, we
suggest that the Professional Ethics Committee clarify that this prohibition applies only to Web sites that actively
"suggest, offer, or recommend," rather than those that merely act as a conduit for competing attorneys to present
information to prospective clients.
See Disciplinary Rule 7.04(a)(3).

Respectfully Submitted,
Maureen K. Ohlhausen
Director, Office of Policy Planning
Michael A. Salinger
Director, Bureau of Economics L/
t
~efferySchmidt
Director, Bureau of Competition