Attorney Advertising and the Contingency Fee Cost Paradox
Engstrom, Nora Freeman, Stanford Law Review
IV. THE PARADOX: PERSONAL INJURY ADVERTISERS APPEAR TO BUCK ECONOMIC PREDICTIONS
To this point, we have considered theoretical explanations for why advertising might reduce prices, and we have also reviewed a number of studies that, with a couple exceptions, appear to confirm the theory works. We have also seen that legal clinics, the first and most aggressive advertisers, did appear to charge reduced prices for routine legal services, just as theory would dictate and experience from other markets might predict. (185) But, we have also seen that, since the late 1980s or early 1990s, personal injury lawyers have supplanted legal clinics as the biggest attorney advertisers, by far. (186)
Having laid that factual foundation, we can confront the puzzle this Article exposes and explores: though advertisers typically charge less than non-advertisers, there is no evidence that advertising personal injury lawyers charge less, on a percentage basis, than their non-advertising counterparts. Nor is there evidence that, despite the swell of personal injury attorney advertising, contingency fees--the near-uniform method of payment for PI services (187)--have dropped over the past four decades. (188) True, contending that attorney ads haven't reduced contingency fees is perilous because data here are notoriously spotty. There is no requirement that attorneys publicly report the fees they charge, and there have been few systematic studies. (189) But fragmentary evidence suggests that, if anything, advertising PI lawyers charge higher contingency fees, on a percentage basis, than non-advertising PI lawyers, and that, with some notable exceptions, (190) contingency fees for legal services are--and have long remained--sticky around 33%. (191)
In an ideal world one could directly test assertions about promotional activity's effect on contingency fees. One could, for instance, compile copious data from a representative group of PI specialists and specify a regression model, regressing fees (whether by contingency fee percentage charged or effective hourly rate realized (192)) on an indicator variable set to one if the firm advertised and zero otherwise along with a range of independent variables that theory and evidence suggest will impact fees or are logically necessary controls, including firm size, attorney experience, subspecialties within PI, and so forth. Better still, one could further refine the model to account for a firm's advertising intensity, as a single Yellow Pages ad and blanket TV coverage might generate very different effects. While even such a sophisticated research design would fall considerably short of a causal model, it would capture the correlation (or relationship) between advertisements aired and fees charged. (193) Unfortunately, though, that data is not currently available and, without it, I am left to rely on either dated or descriptive information, meaning that conclusions are necessarily tentative.
Three prime sources of data inform the study of the relationship between contingency fees and attorney advertising. The most systematic evidence ever collected, by far, was compiled by the staff of the FTC. As noted, that study found that, unlike for all other specialties, in the three out of seventeen cities with statistically significant results, personal injury advertisers charged higher contingency fees than their non-advertising counterparts. (194)
Herbert Kritzer's empirical work also sheds light on this question. In a survey of Wisconsin contingency fee practitioners, he found that lawyers in firms that employ media or direct mail advertising earn higher mean and median effective hourly rates, as compared to non-advertisers. (195) Specifically, he found that advertisers earn mean effective hourly rates of $326, compared to $220 for non-advertisers, and median effective hourly rates of $182, compared to $122 for non-advertisers. (196) When weighted to adjust the sample to the Wisconsin population, the difference becomes more stark. …