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Technology and Billing Dilemmas: How Do You Bill for Extranets?
National Law Journal - June 22, 1998

If every partner billed as much and as consistently as do the photocopy and fax machines, a firm's legal services could probably be given away for free.

The amounts clients are billed for expenses other than legal counsel--faxes, online research, secretarial overtime, document imaging--can reach staggering levels, and the inclination to mark up these expenses is as tempting and generally as unethical and as undetectable as is the padding of timesheets.

In December 1993, the American Bar Association's Standing Committee on Ethics and Responsibility issued a formal opinion, 93-379, stating that a lawyer may not charge for overhead, but may recoup expenses "reasonably incurred in connection with the client's matter." But, notes the opinion, "inquiries to the Committee demonstrate the profession has encountered difficulties in conforming to the ethical standards in this area."

Proliferating technology, from CD-ROMs to expensive document imaging and docketing systems, muddy the murky ethical waters.

"We struggle with this problem," says William R. Charyk, former managing partner and member of the executive committee at Washington, D.C.'s Arent Fox Kintner Plotkin & Kahn. The firm may soon install a document imaging system, says Mr. Charyk, that would photograph every document in a litigation. It's not expensive to do so, but it is expensive to catalogue the papers on the system, as information about each item--type of document, client and matter number--must be entered in computer fields for easy retrieval.

On the one hand, notes Mr. Charyk, "If you have a large case and it takes people many, many hours to search and organize the paper," then their time is expensive. An imaging system would greatly reduce these clerical and storage costs, while increasing attorney search capabilities. But how much do you charge a client for putting 100,000 documents on a CD-ROM in a firm's imaging system? "I don't know," says Mr. Charyk. "What will clients pay?"

Back to Basics

Even familiar expenses such as photocopies and faxes can be tricky in these times. Columbus, Ohio-based Bricker & Eckler L.L.P., is typical: "We charge 20 cents a [page] for copies," e-mails Roger L. Yeley, the firm's executive director. "We charge $1.00 per page plus the cost of [the] long-distance call for outgoing faxes. We do not charge for incoming faxes." But what about desktop faxing?

Now that documents can be faxed directly from an attorney's workstation to the client, questions of whether and how to bill for faxing arise. There are also expenses associated with scanning a document into a computer to be faxed. How much to charge per page for scanning?

The ABA opinion states only that lawyers should charge "no more than the direct cost associated with the service (i.e. the actual cost of making a copy on the photocopy machine) plus a reasonable allocation of overhead expenses... (i.e. the salary of the photocopy machine operator)."

One ethics professor, who requested anonymity, disagrees with the ABA opinion. "You can charge the client anything the client agreed to pay for," says this expert, noting that some clients are now retaining firms with a list of what can and cannot be billed. "If clients are willing to pay $1 per page for photocopying, then a lawyer can charge that. You can charge what the market will bear."

Peter Krakaur, a San Francisco attorney and technology consultant who is co-authoring a book on technology ethics, says the touchstone should be ABA Model Rule 1.5: "A lawyer's fee shall be reasonable." Says Mr. Krakaur: "It's not reasonable to charge $1 a page for photocopying when you can go down to the corner and do it for a nickel."

But as technology progresses, a "reasonable" charge is not easy to ascertain. If firms and clients start to share documents over extranets and shared electronic databases, it may be difficult, if not impossible, to allocate costs. "Technology muddies the waters between what is overhead and what is a reasonable expense," concedes Mr. Krakaur.

Sometimes an attorney will apply his own personal litmus test. William J. Linklater, a partner and director of professional responsibility in the Chicago office of Baker & McKenzie, recently stared at a $2-a-page charge for an incoming fax in a Brussels hotel. "I am paying for the hotel's fax machine, which they probably paid for long ago," he says. Although the firm's policy is to charge clients for outgoing faxes, Mr. Linklater personally does not do so, charging neither for incoming nor outgoing faxes. "It doesn't make clients happy," he says, just as it didn't make him happy when he saw the hotel's fax charge. "Certain things are built into my hourly rate," he says, which is $350.

Legal Research Issues

The most difficult issues arise where the technology choices are greatest: legal research. If an attorney goes to the law library and reads a treatise, only the time is billed. If the attorney accesses the identical treatise on an electronic data base such as Westlaw or Lexis, the fees charged by the online service are usually passed on to the client.

But suppose the treatise is on CD-ROM, the equivalent of an electronic book, for which the firm paid a fixed fee per license for repeated use, just like a book? It's clear that many firms are charging clients for CD-ROM use, since CD-ROM publishers are starting to provide space to enter client and matter charge information on the opening screens, as West and Lexis do.

Some firms are even charging for Internet research, such as accessing cases on Findlaw, located at www.findlaw.com, which is a free Web site.

But most firms do not charge for CD-ROMs. "When the firm owns it, and uses it for multiple clients, there is no incremental cost incurred, so we don't pass that on," says Arent Fox's Mr. Charyk.

But firms are now negotiating flat fees with West and Lexis, so no incremental cost is incurred per search. Says Mr. Charyk, "A theoretical approach is to divide our monthly fixed fee by the task per client...but the technology does present all kinds of challenges in billing."

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This article is reprinted with permission from the June 22, 1998 edition of The National Law Journal. © 1998 NLP IP Company. LawNewsNetwork.com.


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