Welcome to the Inaugural MyShingle Ethics Opinion. Regulators aren’t providing guidance quickly enough, and while large firms have access to in-house ethics advisors, solos and smalls don’t. The MyShingle Ethics Opinions include hyperlinked sources, draft language, and practical guidance for easy implementation. If you have an ethics question you’d like us to address, email elefant@myshingle.com. With that, you can read MyShingle Ethics Opinion 2026, The One About Passing AI Costs Through to Clients below or download the PDF here.
MyShingle Ethics Opinion 2026-1
The One About Passing AI Costs Through to Clients
Issued July 10, 2026 · MyShingle.com
Background
On July 12, 2026, Anthropic is expected to shift access to Claude Fable 5 from subscription bundles to metered, pay-per-token usage available only through usage credits or API calls, so each serious use will generate a per-token charge. Pricing trackers put Fable 5 at about $10 per million input tokens and $50 per million output tokens, making it Anthropic’s most expensive generally available model and roughly twice the listed price of Opus 4.8.
Fable is just one of many price increases as law firms accelerate their adoption of AI. Agentic AI is also pricier than the chat bots of two years ago. Last month, Artificial Lawyer predicted that token costs for large law firms could reach millions of dollars, while many businesses claim that their AI bills now exceed the cost of the workers AI was intended to replace. The market is already responding: Legora announced consumption-based pricing for its agentic models, presumably to shift responsibility for burgeoning AI costs from the platform to users. Commenters are asking here and here whether lawyers may appropriately pass the cost of AI on to clients.
That is the question presented in this inaugural MyShingle Ethics Opinion: May lawyers pass the costs of artificial intelligence, from subscriptions and platform licenses to metered per-token usage charges, through to clients, and should they?
AI costs reach a law practice in two forms, and the answer differs for each. Subscriptions, platform licenses, and tools that equip the practice generally are overhead: a lawyer may not bill them to clients or pro-rate them among clients, any more than the lawyer could bill for the research subscription or the case management system. Metered charges are different. A lawyer may charge a client for metered AI usage, but only when the charges are attributable to the client’s specific matter, billed at actual cost without markup, disclosed in advance and preferably in writing, and not duplicative of costs the lawyer already recovers as overhead. A lawyer who cannot isolate the actual cost for a particular matter may not charge the client at all. But the ability to trace a charge to a client’s matter does not by itself justify billing it. It is our position that as a matter of policy, ordinary AI usage should be absorbed as overhead even when the platform attributes every charge to a particular client. Pass-through billing is appropriate in only two situations: extraordinary AI consumption attributable to a single matter and engagements in which the client expressly directs the lawyer to use a particular tool. A lawyer whose ordinary AI costs rise should raise rates or adopt flat fees rather than itemize tokens.
Rules discussed: Model Rule 1.5
Discussion
Costs in a law practice fall into two categories, and the classification controls whether they may be billed to clients. ABA Formal Op. 93-379 (1993) draws a line between overhead costs and client expenses. Overhead is the cost of operating a law office and includes costs like rent and reception services, maintaining a library, malpractice insurance, purchasing utilities and the like. Absent advance disclosure, overhead costs are not appropriately passed on to clients because (1) the client should reasonably expect that these costs would be subsumed within the charges for professional services” and (2) the benefits associated with these costs inure to the firm. By contrast, client expenses are those costs incurred for a particular matter, such as filing fees, court reporters, and in-house services like photocopying. These may be billed to clients but only at “the direct cost associated with the service” plus “a reasonable allocation of overhead expenses directly associated” with providing it, and never with a surcharge absent client agreement. See ABA Formal Op. 93-379 (1993).
The Westlaw Era: How the Profession Classified the Last Metered Technology
Technology and new business models can change how costs are characterized. Consider the treatment of legal research tools which has evolved over time. When lawyers conducted research in firm law libraries stocked with hard copy digests and reporters, they never passed the cost of books or librarians on to clients because these costs were considered overhead. When Lexis and Westlaw arrived in the mid-1970s, they charged by the search and by the minute of connection time or search units.
Because each Wexis search was attributable to a specific matter, the profession classified metered research as a client expense. Philadelphia Bar Op. 87-23 (1987) rejected that computerized legal research was overhead, but determined that the cost could be included as part of contingency fee recovery with advance disclosure to clients and an option to opt out. And two decades later, the prevailing view of federal circuits in fee recovery cases is that the cost of computerized legal research, if documented, was appropriately included in fee awards. See In re UnitedHealth Grp. Inc. S’holder Derivative Litig., 631 F.3d 913, 919 (8th Cir. 2011).
Then the vendors changed their pricing, and the classification flipped. In the late 1990s, Lexis and Westlaw began offering fixed-fee “commitment pricing” contracts, and a flat subscription has no per-matter cost. Firms that kept billing clients at retail per-search rates against flat contracts were no longer recovering an expense; they were marking up overhead. The practice persisted long enough to become a litigation risk: a 2021 lawsuit accused a large firm of billing more than $100,000 in per-search charges against its flat-rate LexisNexis contract. Soon after, recovery of online research charges among large firms declined year over year beginning in 2005, 43 percent of surveyed firms reported absorbing more research cost by 2012 as clients balked or refused outright to pay, and computerized research settled where it remains today: “a cost of doing business and not a client recoverable cost.”
The AI Opinions
Classifying AI Costs
Metered usage is an expense only when (1) the charge would not exist but for a specific client’s matter and (2) the lawyer can measure its actual cost. So for example, under this test, firm-wide agents that monitor files and flags work to be done would fail the first prong regardless of token consumption, because it serves the practice generally. Where both conditions are met, the charge may be billed at actual cost, without markup, without duplicating amounts recovered from any client, with provider discounts passed along, and with the charge and its basis disclosed in advance and in writing. So the cost of usage tokens incurred by an agent that prepares and reviews discovery in connection with a specific client file could be passed through to the client.
Permissible, however, does not mean advisable. Just because firms can ethically recover metered charges doesn’t mean that they should. Recall, FO 93-379 explained that recovery of overhead is not appropriate because clients expect overhead costs to be subsumed in hourly rates or the cost of legal services. Likewise, in 2026, clients expect professional service providers to incorporate AI seamlessly throughout all aspects of practice. Just as clients wouldn’t expect a hospital to include a line-item charge for a robotic arm used in surgery, so too, they are increasingly less likely to expect a separate charge for AI research. Moreover, token line item charges on an invoice smack of nickel and diming, and invite disputes over token counts.
Even as token charges increase, law firms have options. They can raise hourly rates, or charge a flat fee for service that covers all charges.
Finally, there are two narrow situations that might justify pass-through. The first is extraordinary consumption attributable to a single matter. Because overhead is spread across every client through the fee, a five-figure AI bill for a single client absorbed as overhead forces every other client to pay for one client’s matter; the client whose matter created the cost should bear it. The second is the client-directed tool: when the client instructs the lawyer to run work through a specified platform, the charges are a client-directed expense, and may be billed at actual cost and documented in the engagement agreement.
Best Practices
Rather than run up hefty AI bills and pass them off to clients, the better discipline is to absorb AI costs and manage them prudently, applying these best practices:
Sample Disclosure: If you plan to pass on token consumption costs, here’s some sample disclosure language for clients:
Where the Firm incurs metered, usage-based AI charges directly attributable to your matter, those charges will be billed to you as a case expense at the Firm’s actual cost, without markup, and with any provider discounts passed on to you. These charges will be itemized on your invoice. If the Firm cannot determine the actual cost attributable to your matter, no charge will be made. By signing this agreement, you consent to this billing arrangement.
Conclusion
Are AI costs overhead or client expenses? Subscriptions and platform licenses are overhead and may never be billed. Metered charges attributable to a single matter may be billed at actual cost with advance written disclosure, but the view of this Opinion is that firms should absorb all AI-related costs as overhead subject to two narrow situations only: extraordinary single-matter consumption that functions like an outside vendor charge, and tools the client directs the lawyer to use.
MyShingle Ethics Opinions are advisory commentary by Carolyn Elefant to provide guidance to attorneys but similar to Ethics Hotline guidance is not binding and does not constitute legal advice. These opinions may be cited by researchers, ethics committees and courts. Lawyers should consult the rules and opinions of their own jurisdiction.