The impact of competition law on advertising regulations for lawyers
- December 17, 2008
Rule 36 of the Bar Council of India Rules even prescribes that sign boards need to be of 'reasonable size'. (Photo: Ronnie Abraham)
Competition is now universally acknowledged as the best means of ensuring that consumers have access to the broadest range of services at the most competitive prices. Producers will have maximum incentive to reduce their costs and meet consumer demand. Such compelling economic arguments have been presented to the effect that regulation can have the effect of severely limiting competition. However, professional service markets like legal service have peculiar qualities that can justify some form of regulation to protect consumers and ensure quality. Restrictions on advertising in the legal profession are at the centre of this debate.
In India , Rule 36 of the Bar Council of India Rules, a provision with Victorian Era origins, restricts advertising by lawyers in all forms. The rule states that a lawyer cannot solicit work directly or indirectly in any medium whatsoever. Among other things, the provision even exhorts an advocate to keep his name-plate or sign-board to a “reasonable” size and to ensure that they do not disclose any kind of specialization.
The logic behind these provisions was echoed by the Supreme Court in the 1976 case of Bar Council of India v. M V Dhabolkar where Justice Krishna Iyer noted that the “law is not a trade, not briefs not merchandise, and so the heaven of commercial competition should not vulgarise the legal profession.” As late as 2003, the Punjab and Haryana High Court had this to say: “the legal profession is not a trade or a business rather it is a noble profession and advocates have to strive to secure justice for their clients within legally permissible limits.”
The Government of India made its intentions clear in the Statement of Objects and Reasons to the Competition Act, 2002 “ to prevent practices having adverse effect on competition, to promote and sustain competition in markets, to protect the interests of consumers and to ensure freedom of trade”. Accordingly, section 18 affixes the duty of ensuring this on the Competition Commission of India. The Act also seeks to prohibit “anti-competitive agreements”, “abuse of dominant position by an enterprise” and to regulate certain “combinations” which include acquisition of shares, acquiring of control and mergers/amalgamation between and amongst enterprises. Further, under section 21, on a reference from a statutory authority, the Commission is mandated to give its opinion on a competition issue arising during the course of proceedings or suo motu referred to the Commission by any statutory authority.
The popular perception that the quality of a lawyer’s work is sufficient to generate publicity and that “commercialization” may lead to unethical practices is undergoing a change. Ironically enough, the greatest symbol of this churn came from the Supreme Court itself, when it classified the legal profession as a “service” for the purposes of the Consumer Protection Act in K Vishnu v. National Consumer Disputes Redressal Commission. The increasing visibility of lawyers who have entered into careers in transaction advisory work and have not seen the inside of a courtroom, have also contributed to this shift. The recognition of the legal profession as a service in the WTO sectoral list is only reflective of the several trade laws around the world to which the legal profession had become subject to.
This was not always the case. It was only in 1977 that the Supreme Court of the United States in Bates v. State Bar of Arizona rejected the argument by the Arizona Bar that advertising adversely affected professionalism and that attorney advertising was “inherently misleading.” The Court found “the postulated connection between advertising and the erosion of true professionalism to be severely strained,” and noted that “lack of legal advertising could be viewed as the profession’s failure to “reach out and serve the community.” Even in December 2007, a study conducted by the Competition Bureau of Canada found that rules that limit advertising in self-regulated professions go further than necessary to protect the public interest. Further, these rules contribute to higher prices, limit choice and restrict access to the type of information consumers need to make decisions. Apart from regulations that limited the number and choice of words and the size of advertisements, the Bureau was particularly concerned by the regulations on comparative advertising. “Such restrictions obstruct competition between service providers and make it difficult for new entrants to advertise any distinct features of the services they offer, protecting incumbents from the full forces of competition.”
In 2004, the European Commission brought professional services within the ambit of Community rules on competition. Rules which restrict competition in this sector and were not justified on general interest grounds were to be amended or discontinued. The Commission said in its communication that the services offered to the consumer will be not only be “more competitive but also of higher quality”. However, as the restrictions concerned were national, it was primarily for the Member States, the national competition authorities and the professional bodies to end them. On advertising regulations, the Commission said that it may facilitate competition by informing consumers about different products and allowing them to make better-informed purchasing decisions. It also recognised that advertising, and in particular comparative advertising, can be a crucial competitive tool for new firms entering the market, and for existing firms wanting to launch new products.
Economists have traditionally been highly critical of many aspects of professional self-regulation. Very often, it is characterized as having the effect of a cartel with the argument that restrictions on advertising and prohibitions on using fee-levels to attract business restrain competition between existing suppliers. An older view however, was that regulation rises from a need to address market failure in public interest.
Regardless of the origins or effect, many would argue that there exists a particular market failure in legal markets: that of information asymmetry, i.e. the service provider often knows more about the product than the consumer. Even though this argument does not work well for astute corporate clients who are likely to be repeat purchasers of legal services, it is relevant for other clients including small businesses. George Akerlof’s paper on “The Market for Lemons” describes how the interaction between different levels of quality and asymmetric information can lead to a situation where since quality is undistinguishable beforehand by the buyer, incentives exist for the seller to pass off low-quality goods as higher-quality ones. The buyer, however, takes this incentive into consideration, and takes the quality of the goods to be uncertain. Only the average quality of the goods will be considered, which in turn will have the side effect that goods that are above average in terms of quality will be driven out of the market.
One of the solutions offered to this problem has been the imposition of penalties on suppliers or the restriction on entry of suppliers, who fail to meet a certain standard. Of the twin options of self-regulation and regulation by an external body, the cost of an external regulator acquiring information needs to be balanced with the potential for cartel-like behavior.
Thus the economic analysis of regulation have placed positions on either side of the debate on advertising in the legal profession: while some argue that these restrictions increased the cost of consumer search and were inefficient, others say that advertising will drive down the quality of services offered. Economists who examine the relationship between price advertising and quality have found that except in a scenario where it is undertaken only by low quality suppliers, price-advertising directly communicates information about quality. Empirical analysis of the relationship between advertising and fees in professional services has repeatedly found that the more advertising there is, the lower the fees are.
The Report of the High Level Committee on Competition Policy and Law under the Chairmanship of S.V.S. Raghavan has been categorical that the present state of regulation in the legal profession is curbing competition. The report said that “while there can be no two opinions that interests of maintaining quality will have to be paramount, yet it is a fact that there is an inherent and covert desire on the part of established elements in the profession, to limit competition by restricting new entrants.” Further, “the legislative restrictions in terms of law and self regulation have the combined effect of denying opportunities and growth to professional firms, restricting their desire and ability to compete globally, preventing the country from obtaining the advantage of India’s considerable human expertise and precluding consumers from the opportunity of free and informed choice.”
Vivek Kohli, Senior Partner at Zeus Law Associates is quite clear about the effect of advertising regulation in the legal profession. “Rule 36 is against the principles imbibed in our competition law and policy. Dissemination of information is the key to upholding these principles.” However, he remains concerned about the “accuracy and quality” of such information and says that “the Bar Council of India should be involved in controlling the quality of the disseminated information and the Advocates who misrepresent should be penalised.” He is also certain that “Rule 36 should be amended in such a manner that it allows advertisements by Advocates, so as to ensure free passage of information to consumers.” The existing laws relating to advertisements (under the Consumer Protection Act and other laws) are, in his opinion, sufficient to govern advocates as well.
Whereas Vivek Kohli (L) of Zeus Law Associates is quite clear that Rule 36 is against the principles of competition law and policy, Rajan D. Gupta of FoxMandal Little says competition laws in India do not apply to lawyers as they would apply to ordinary business professionals.
Samir R Gandhi who is part of the International Trade and Competition Law Practice Group at Economic Laws Practice however, is less than convinced about the role that competition law has to play in this debate. “The scope of the Competition Act extends to the regulation of “agreement”, “an abuse of dominant position” or a “combination” insofar as any of these have an appreciable adverse effect on a relevant market. A statutory provision, such as the Indian Bar Council Rules would not appear to fit into either of these three categories of regulated conduct.” Rajan D. Gupta, a partner at FoxMandal Little, agrees. “Competition laws in India do not apply to lawyers as they would apply to ordinary business professionals.” He says that “due to the nature of their professional obligations as well as their role in society, lawyers are treated differently from ordinary businessmen engaged in trade, and that’s why legal profession is governed by a separate law.” The professional obligations of a lawyer are distinguished from the ‘business commitments’ followed by the trading community. Echoing the Supreme Court, he said that “the legal profession owes social obligations to the society in discharge of the professional services to the litigants”.
Earlier this year, in what was perhaps a sign of things to come, the Bar Council of India passed a resolution allowing advocates to provide information about themselves over the internet, within certain fixed parameters. Advertising still remains tightly regulated. Despite near unanimity of opinion that Rule 36 violates the policy behind Indian competition law, it is not clear whether an amendment of this rule can be achieved through the vehicle of the Competition Act.
