The Danish Competition Council: Potential gains from competition for legal services provided by the legal profession

Christian Schultz, Chairman of the Danish Competition Council, says:

The legal profession plays an important role in our community of law, and lawyers contribute to ensuring essential public interests such as due process and legal protection of our citizens. The measures recommended by the Danish Competition Council to strengthen competition in the legal profession take this into consideration.

We see clear indications that competition can be strengthened to the benefit of companies, citizens and society as a whole. For example, the profit margin and return on capital are relatively high and have increased significantly since the 00s. This applies particularly to the big law firms, which primarily serve business clients and public clients. Furthermore, the revenue is concentrated on relatively few law firms in a number of specialties demanded by these clients. Here, too, the concentration has increased in the past ten years.

Legal assistance is often based on trust, and the clients are generally very loyal to the law firm they’ve used in the past. It restricts competition that the customer side is relatively passive in its market exploration. Most business clients and private clients thus don’t compare providers of legal services before they purchase such services. The same applies in the public sector.

Quite a large part of the services that lawyers provide are in the nature of legal advice, where there may be competitors who aren’t lawyers – for example accounting firms. However, the analysis shows that the competitive pressure from other service providers is, in fact, quite limited, although it varies depending on the speciality in question. The legal advice that other providers  sell is typically not regarded by the clients as an actual substitute for the services purchased from the lawyer.

The Danish Administration of Justice Act and the code of ethics for the legal profession contain sections and provisions that hamper competition. The Danish Competition Council recommends several changes to the rules that could open up for more competition, while ensuring due process and legal protection of citizens and the independence of lawyers.

Public procurement of legal assistance doesn’t contribute sufficiently to supporting effective competition in the legal profession. For 85 years, the Danish State has purchased a significant part of its legal assistance from the Legal Advisor to the Danish Government (“Kammeradvokaten”). The agreement with the Legal Advisor to the Danish Government runs for an indefinite term and is not covered by the obligation to award contracts through public procurement procedures. Many municipalities and regions could also expose their procurement of legal advice to more competition.

The competition for insolvent estates without assets and estates of deceased persons administered by an administrator is especially limited. It reflects that, in many cases, these assignments are given to lawyers without any competition on, for example, price or processing time.

The Danish Competition Council has analysed the level of competition in the legal profession. In 2018, the legal profession generated revenue of DKK 14.7 billion and comprised 1,800 law firms. Just under 70% of the revenue generated in the legal profession comes from advising business clients, just over 11% from the public sector, while 20% comes from private clients and organisations. The biggest law firms predominantly sell their services to business clients and to the public sector.

In the analysis, the Danish Competition Council presents 16 specific recommendations that can strengthen competition while vital public interests continue to be safeguarded. It is, for example, a central consideration that there is continued trust in the independence of lawyers.

One of the objects of the recommendations is to reduce barriers to entry of new players and obstacles to the growth of existing firms. The aim of the recommendations is to reduce the challenges faced by clients in navigating the market and finding the best legal adviser. The recommendations will also improve competition on legal assistance to the state, municipalities and regions. Finally, the recommendations aim significantly to boost the competition on administration of insolvent estates and estates of deceased persons administered by an administrator. The recommendations provide a basis for new business models which can increase exports and productivity in Denmark and which are expected to benefit Danish business clients and private clients.

The analysis is based on a detailed study of the legal profession in Denmark. Data and other information have been obtained from market players, the Association of Danish Law Firms (Danske Advokater), the Danish Bar and Law Society, the Agency for Public Finance and Management as well as Statistics Denmark’s research database. Surveys have also been conducted among law firms, business clients and private clients, respectively, and findings from Danish and international research have been used. In addition, the Danish Competition and Consumer Authority has held meetings and been in a dialogue with a number of players in the legal profession and has incorporated technical and professional comments following an external consultation procedure with relevant stakeholders.

For more information

Contact Hanne Arentoft, Head of Communication Division in the Danish Competition and Consumer Authority, on telephone +45 41 71 50 98.