3 Predictions For The Legal Profession in 2015
In-house columnist Mark Herrmann looks back on the predictions he made for 2014, which turned out to be correct, and makes new predictions for 2015.
I heard late last year — a year in which law firms were supposedly doing well — that two legal giants had reduced partners’ draws to offset the firms’ poor financial performance. Based on that empirical evidence, I made three predictions last January about the state of the legal profession in 2014.
I’m returning to gloat.
Did we see, as I predicted , an unusually high number of lateral partner moves early in 2014? I believe so, although I can’t find the online proof. Lateral partner moves were up slightly for the first three quarters of 2014, but I can’t tell if the moves skewed toward the first three months of the year.
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Did the frenetic pace of law firm mergers continue, as I predicted, beyond 2013 into 2014? You bet it did.
And did we see another major firm collapse within 15 months of my prediction? We’re watching it happen right now.
I haven’t heard any startling tales of law firm problems in 2014, so I don’t have any empirical evidence on which to base my predictions for 2015.
But evidence is over-rated anyhow; this year, I’ll base my predictions on common sense. Here’s what my crystal ball foretells:
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First, I’m renewing each of the predictions that I made for 2014: Just as we saw (1) an unusually high number of lateral moves, (2) a frenetic pace of law firm mergers, and (3) a law firm collapse in 2014, we will see those things occur again in the new year. That may or may not be “the new normal” for law firms, but I don’t see anything to change those trends in the near future.
Second, litigation firms will have a harder time in 2015 than corporate firms do. The stock market (as of the time I’m writing this column, in mid-December) is heading up; deal volumes are up; private equity guys are jetting around now more than ever in their private planes. I’m told that there’s currently very little price pressure on law firms doing big corporate deals, because everyone’s wallowing in money. Times will be good for big-ticket transactional lawyers in 2015.
Not so much for firms that rely heavily on litigation. I already sense a great deal of price pressure in litigation. I see (and hear of) firms that historically held up their noses at alternative fee arrangements now scrambling to participate in beauty contests for flat-fee and other deals. And the prices that some firms are offering are remarkably low.
If you’re in-house, litigation seems to be a buyer’s market: Strike your fixed-fee deal now. But if you work at a law firm in litigation, be slightly wary: I feel price compression coming on hard in 2015 for everything other than bet-the-company cases.
Another thing makes me feel relatively confident about predicting storm clouds on the litigation front in 2015. IP litigation seems to be slowing down slightly, and that may well continue in the new year. Here’s why: Samsung held a patent that it said was “standard essential” — the invention had to be used to comply with a technical standard. In June 2013, the International Trade Commission issued an order excluding from the United States certain Apple iPhones that allegedly infringed on the Samsung patent. A couple of months later, President Obama vetoed that ruling, permitting the products to enter the country. People were predicting at the time that Obama’s decision would discourage owners of standard-essential patents from raising their claims at the ITC. Folks who labor in the IP field tell me that this has in fact happened and has hurt the practices of lawyers who were counting on handling matters before the ITC.
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On top of that, the America Invents Act has changed the nature of patent practice and caused many patent cases to be stayed pending review by the Patent and Trademark Office.
Finally, the Supreme Court completed the triple-whammy by holding in Alice Corp. v. CLS Bank International that certain business methods, previously thought to be patentable, are not.
I’m hearing from partners at big firms that IP litigation is already starting to decrease slightly. And I’m hearing from others that the decline is likely to accelerate into 2015 and continue for a while. If run-of-the-mill litigation faces price compression and big-ticket IP cases are fewer and farther between this year, then my crystal ball will prove accurate: Law firms that rely heavily on litigation will experience a weaker-than-expected 2015.
Prediction number three: Bankruptcy practices that count on big debtor cases will be forced to adapt in 2015. Here’s what I’m thinking: Interest rates are currently breathtakingly low, and they’re predicted to stay that way for much of the coming year. The availability of almost-free money lets dying companies struggle on, avoiding bankruptcy. Even if interest rates begin to climb (slowly) in mid-2015, as expected, those rates will not climb quickly enough to kill the zombie companies now on life support. There will thus be fewer large bankruptcies in 2015, and firms that count on big debtor cases will have to retool some of their lawyers.
Finally, a prediction about law firms generally: With capital markets booming and litigation struggling, the divide between rich and super-rich law firms will increase. The big firms with well-respected M&A practices — firms that disproportionately populate the ranks of the super-rich — will have comparatively good years in 2015, while the big firms dependent on litigation will perform less well.
(I’m excluding from this last prediction one particular super-rich firm that devotes itself exclusively to litigation. Contingent fee cases against financial institutions will continue to be big business in 2015, even as the government investigations arising out of the financial crisis wind down. But very few big firms allow themselves to be adverse to large financial institutions, and fewer still take cases against banks on contingencies: I can count on one finger the big litigation-only shop that fits this category.)
It is, of course, hard to make predictions — “especially about the future.” And I feel less certain about the predictions I’ve offered this year than the ones I made in 2014, perhaps because I had empirical evidence to support what I predicted for the year that’s now behind us. But the worst that can happen is that events will prove me wrong, and that will surely be the least of the indignities that I suffer during the next 12 months.
In any event, the game is fun. Feel free to play along: Add your predictions for 2015 in the comments below.
And have a happy and healthy 2015!
Mark Herrmann is the Chief Counsel – Litigation and Global Chief Compliance Officer at Aon, the world’s leading provider of risk management services, insurance and reinsurance brokerage, and human capital and management consulting. He is the author of The Curmudgeon’s Guide to Practicing Law and Inside Straight: Advice About Lawyering, In-House And Out, That Only The Internet Could Provide (affiliate links). You can reach him by email at [email protected].
