Hot and Cold Trends

Red Hot

• Intellectual Property. Patent litigation is red, red hot and will continue to be.
• Energy. Natural gas is the principal driver, but oil is not far behind. Coal is cool and alternate energy is close to cold.
• Regulatory. This is one of the areas that keeps Chief Legal Officers awake at night. It covers a wide range of matters, including cybersecurity and social media.

Hot

• Labor & Employment. The NLRB and the EEOC just keep on pushing.
• Immigration. Whether or not there is any real reform.
• Health Care. Although the Affordable Care Act's employer mandate has been delayed one year, there continues to be a huge demand for firms that can backstop overloaded in-house teams and guide clients through what is still a regulatory minefield.
• Malpractice. Lawyers are finding themselves on the wrong end of lawsuits as angry clients are hitting them with multi-million dollar claims over conflicts of interest as well as other issues.

Cool

• Bankruptcy, unless the economy goes back in the tank again.
• Commercial Litigation, except for “bet the company” suits.
• IPOs. But some sources say there will be a lot coming in the global market this fall.
• Securities Fraud. The SEC is filing significantly fewer cases.

'

Marketing and Business Development

Marketing Segmentation is increasing among MidLaw and even SmallLaw firms as they strategically shift from being “all things to all people” to focusing on specific practice areas, industries or geographic markets. Combined with their more reasonable rates, these firms are doing well.

Other Trends and Issues

• Full Realization is declining. Many firms, particularly BigLaw ones, have been raising their rates again. However, full realization, the percentage of collections to the Dollar Value of Billable Time at standard rates (DVBT), continues to decline because these firms are then discounting their rates when billing. For firms in the Peer Monitor database, full realization now averages 83.6% and for AmLaw 100 firms it is 82.8%. This is well below the historic 90%.
• Alternate Fee Arrangements are cooling off. In its annual Litigation Trends Survey, Fulbright & Jaworski found that the percent of companies using AFAs dropped from 62% in 2011 to 52% in 2012. Have AFAs run their course, at least for litigation? Several major corporations reported last month that over half their legal fees are now on an hourly basis, although often discounted.
• MidLaw and SmallLaw firms continue to benefit as large corporate clients shift work to them because their rates are lower, they have skilled lawyers and have fewer, if any, conflicts.
• Litigation Funding. A new wave of investors is funding lawsuits in hopes of collecting when verdicts come down. Some law firms are even seeking funding arrangements for clients that need help to carry their suits.
• Outsourcing to “virtual law firms” such as Axiom Legal, Paragon Legal and VLP Law Group, that provide lawyers to clients at less cost than law firms.
• Project Management. Workshops and certain consultants continue to provide training on this. However, at least one highly regarded COO says the process is so complex that it gets priority over the results. Improvement is needed but is the tail now wagging the dog?
• Chief Legal Officers' responsibilities are increasing, particularly in large companies, to include far more than practicing law and setting legal policy. Now members of the C-suite, CLOs are providing oversight in such areas as corporate governance, compliance and risk management because of the increased regulatory environment.
• International mergers and alliances continue. But, faced with challenges including management, capital, marketing and cultural differences, how many will survive? I address this question in an article, “Can All the Multi-National Firms Survive?” in the summer symposium issue of The Advocate, published by the litigation section of the Texas State Bar.
• Intellectual Property Boutiques. BigLaw firms have been acquiring them to add the needed technical expertise to their litigation practices. So can IP boutiques survive? Definitely if they develop strong litigation capabilities.
• Succession Planning, for both management and client responsibility, has become a major concern and strategic issue for not only BigLaw firms, but MidSize ones as well.
• Law Schools. The number of applicants for this year is the lowest in 30 years. As a result, law professors are predicting large faculty layoffs and even some school closings. Various groups, including the ABA's Task Force on the Future of Education, are wrestling with ideas on how to “fix” legal education. One idea is the “three and three program,” in which students receive both undergraduate and law degrees in six years. Other ideas that have been advanced include eliminating C grades and allowing students to take the bar exam after two years. The bar exam change would have to be decided by each state's supreme court. Arizona recently approved a three-year pilot program.
• Equity Partner Compensation. According to several sources, the average spread between the highest and lowest paid equity partners is now 7:1. It is much wider in many large firms. And the average compensation of equity partners is now 2.5 times the average of non-equity partners.
• No-frill legal services continue to grow. One is from Wevorce, an online service started by lawyer Michelle Crosby and digital marketer Jeff Reynolds to “walk a family through all the steps involved in divorce.” If you're getting divorced in New Jersey, Philadelphia-based Fox Rothschild now has a free iTunes app for that.
• Multi-tier partnerships continue to increase. 85% of the AmLaw 200 firms now have a multi-tier structure, and over 60% of the attendees at a recent conference for mid-size firms reported they have created at least one non-equity tier. Of course de-equitization is the way to increase reported profits per partner, a tactic that K&L Gates opposes. Our firm does too.
• Pro Bono. New York State recently increased the voluntary pro bono goal for lawyers from 20 hours/year to 50. The Chief Judge denied this is a prelude to mandatory pro bono, which bar groups in many states besides New York have opposed for years.
• Hiring. According to the National Association of Law Placement, entry-level hiring nationally was flat last year and still is this year. That continues to be the picture in the AmLaw 100 according to The American Lawyer. However, the AmLaw “Second Hundred” are now adding lawyers in anticipation that more clients will be giving them more work because of their more reasonable rates. Is this another case of “Hope springs eternal in the human breast”?

Robert Denney, a member of this newsletter's Board of Editors, is President of Robert Denney Associates, Inc., a firm that provides strategic management and marketing counsel to law firms throughout the U.S. and parts of Canada. The firm's website is www.robertdenney.com. Mr. Denney can be reached at 610-644-7020 or [email protected].

By Robert Denney

As we move into early fall, the overall demand for legal services remains soft, particularly with larger firms. Nevertheless there are certain practice areas, trends and issues that are hot or, if they are cold right now, could be harbingers of things to some. These are the most significant ones that firms should watch on their radar screens.

Practice Areas

Red Hot

• Intellectual Property. Patent litigation is red, red hot and will continue to be.
• Energy. Natural gas is the principal driver, but oil is not far behind. Coal is cool and alternate energy is close to cold.
• Regulatory. This is one of the areas that keeps Chief Legal Officers awake at night. It covers a wide range of matters, including cybersecurity and social media.

Hot

• Labor & Employment. The NLRB and the EEOC just keep on pushing.
• Immigration. Whether or not there is any real reform.
• Health Care. Although the Affordable Care Act's employer mandate has been delayed one year, there continues to be a huge demand for firms that can backstop overloaded in-house teams and guide clients through what is still a regulatory minefield.
• Malpractice. Lawyers are finding themselves on the wrong end of lawsuits as angry clients are hitting them with multi-million dollar claims over conflicts of interest as well as other issues.

Cool

• Bankruptcy, unless the economy goes back in the tank again.
• Commercial Litigation, except for “bet the company” suits.
• IPOs. But some sources say there will be a lot coming in the global market this fall.
• Securities Fraud. The SEC is filing significantly fewer cases.

'

Marketing and Business Development

Marketing Segmentation is increasing among MidLaw and even SmallLaw firms as they strategically shift from being “all things to all people” to focusing on specific practice areas, industries or geographic markets. Combined with their more reasonable rates, these firms are doing well.

Other Trends and Issues

• Full Realization is declining. Many firms, particularly BigLaw ones, have been raising their rates again. However, full realization, the percentage of collections to the Dollar Value of Billable Time at standard rates (DVBT), continues to decline because these firms are then discounting their rates when billing. For firms in the Peer Monitor database, full realization now averages 83.6% and for AmLaw 100 firms it is 82.8%. This is well below the historic 90%.
• Alternate Fee Arrangements are cooling off. In its annual Litigation Trends Survey, Fulbright & Jaworski found that the percent of companies using AFAs dropped from 62% in 2011 to 52% in 2012. Have AFAs run their course, at least for litigation? Several major corporations reported last month that over half their legal fees are now on an hourly basis, although often discounted.
• MidLaw and SmallLaw firms continue to benefit as large corporate clients shift work to them because their rates are lower, they have skilled lawyers and have fewer, if any, conflicts.
• Litigation Funding. A new wave of investors is funding lawsuits in hopes of collecting when verdicts come down. Some law firms are even seeking funding arrangements for clients that need help to carry their suits.
• Outsourcing to “virtual law firms” such as Axiom Legal, Paragon Legal and VLP Law Group, that provide lawyers to clients at less cost than law firms.
• Project Management. Workshops and certain consultants continue to provide training on this. However, at least one highly regarded COO says the process is so complex that it gets priority over the results. Improvement is needed but is the tail now wagging the dog?
• Chief Legal Officers' responsibilities are increasing, particularly in large companies, to include far more than practicing law and setting legal policy. Now members of the C-suite, CLOs are providing oversight in such areas as corporate governance, compliance and risk management because of the increased regulatory environment.
• International mergers and alliances continue. But, faced with challenges including management, capital, marketing and cultural differences, how many will survive? I address this question in an article, “Can All the Multi-National Firms Survive?” in the summer symposium issue of The Advocate, published by the litigation section of the Texas State Bar.
• Intellectual Property Boutiques. BigLaw firms have been acquiring them to add the needed technical expertise to their litigation practices. So can IP boutiques survive? Definitely if they develop strong litigation capabilities.
• Succession Planning, for both management and client responsibility, has become a major concern and strategic issue for not only BigLaw firms, but MidSize ones as well.
• Law Schools. The number of applicants for this year is the lowest in 30 years. As a result, law professors are predicting large faculty layoffs and even some school closings. Various groups, including the ABA's Task Force on the Future of Education, are wrestling with ideas on how to “fix” legal education. One idea is the “three and three program,” in which students receive both undergraduate and law degrees in six years. Other ideas that have been advanced include eliminating C grades and allowing students to take the bar exam after two years. The bar exam change would have to be decided by each state's supreme court. Arizona recently approved a three-year pilot program.
• Equity Partner Compensation. According to several sources, the average spread between the highest and lowest paid equity partners is now 7:1. It is much wider in many large firms. And the average compensation of equity partners is now 2.5 times the average of non-equity partners.
• No-frill legal services continue to grow. One is from Wevorce, an online service started by lawyer Michelle Crosby and digital marketer Jeff Reynolds to “walk a family through all the steps involved in divorce.” If you're getting divorced in New Jersey, Philadelphia-based Fox Rothschild now has a free iTunes app for that.
• Multi-tier partnerships continue to increase. 85% of the AmLaw 200 firms now have a multi-tier structure, and over 60% of the attendees at a recent conference for mid-size firms reported they have created at least one non-equity tier. Of course de-equitization is the way to increase reported profits per partner, a tactic that K&L Gates opposes. Our firm does too.
• Pro Bono. New York State recently increased the voluntary pro bono goal for lawyers from 20 hours/year to 50. The Chief Judge denied this is a prelude to mandatory pro bono, which bar groups in many states besides New York have opposed for years.
• Hiring. According to the National Association of Law Placement, entry-level hiring nationally was flat last year and still is this year. That continues to be the picture in the AmLaw 100 according to The American Lawyer. However, the AmLaw “Second Hundred” are now adding lawyers in anticipation that more clients will be giving them more work because of their more reasonable rates. Is this another case of “Hope springs eternal in the human breast”?

Robert Denney, a member of this newsletter's Board of Editors, is President of Robert Denney Associates, Inc., a firm that provides strategic management and marketing counsel to law firms throughout the U.S. and parts of Canada. The firm's website is www.robertdenney.com. Mr. Denney can be reached at 610-644-7020 or [email protected].