Finding a foothold in the Chicago market isn’t as easy for the elite ‘big law’ firms as they might like to believe, reports Claire Bushey of Crain’s Chicago.

The article looks at three national firms that had big aspirations for growth upon their respective moves to Chicago: Paul Hastings, Ropes & Gray, and Morgan Lewis & Bockius.  New York-based Paul Hastings, for example, opened its Chicago doors in 2006, initially recruiting top partner talent and reporting goals of a 100+ lawyer office.  Ten years later, the office boasts of only 42 attorneys.  Former managing partner of the office, Rick Chesley, says that its the tough Chicago competition that forces firms to really consider their client base: “If you haven’t thought about who your clients are, who you’re going to compete with…you’re going to fail,” he said (as quoted in Crain’s).

Similarly, Boston-based Ropes & Gray opened eight years ago with predictions of a 100-lawyer headcount within two years.  The Chicago office has only 64 attorneys to date–a stark contrast to their London office, which went from 2 attorneys at their 2010 opening to 129 today.

Anthony Nasharr, Managing Partner of the Chicago office of Polsinelli, believes that firms looking to expand into Chicago need to be “chasing work characteristic to the city, like agribusiness or financial services” (as quoted in Crain’s).  Polsinelli, a firm headquartered in Kansas City, has proven that they have the right approach for Chicago growth, successfully growing their six-attorney starter office to almost 100 in just eight years.  Nasharr also notes that a new Chicago office requires strong support from their headquarters to help the office thrive–like supplying the funds to bring on quality lateral partners.  Much Shelist Managing Partner Mitchell Roth agrees that the need for good talent is critical to success in any major market, but argues that acquiring that talent can prove difficult: “To open a five-person office and expand to 100 in one or two years, when everyone’s trying to buy the exact same talent?  It’s next to impossible,” he says (as quoted in Crain’s).

Despite the difficulties, six out-of-town firms merged with Chicago firms last year–more than in any other city, Crain’s reports.  However, former Kirkland & Ellis partner Steven Harper warns the newcomers not to be fooled into thinking their high-profile reputations will be their be-all, end-all for attracting clients: “These firms believe that…clients will flock to the brand.  Well, maybe not.  Probably not,” he cautions (as quoted in Crain’s).

Seeming to defy the laws of supply and demand, hourly billing rates at national corporate law firms have increased 3 to 4 percent per year since the recession, according to Citi Private Bank’s Law Firm Group (The Wall Street Journal).  In fact, they report, these rates have continued to rise in spite of weak demand and low inflation.

A recent study of bankruptcy cases revealed that “senior partners routinely charge between $1,200 and $1,300 an hour, with top rates at several large law firms exceeding $1,400” (The Wall Street Journal).  Legal consultant Bruce MacEwen observes that “you have a very few people at the very top where price is almost no object,” allowing for the best-of-the-best lawyers to charge an astounding $1,800-plus hourly rate (as quoted in The Wall Street Journal).

While demand for legal services has only risen 0.5% in the past year, revenue has risen by 4%, according to Wells Fargo Private Bank’s Legal Speciality Group.  Heightened rates help to increase this revenue, and are consistently raised to soften the blow of client-demanded discounts, an increasingly common practice.  By implementing an annual rate increase, says an Altman Weil legal consultant, law firms are able to offset clients’ requests for discounts (The Wall Street Journal).  

John Altorelli, finance lawyer at DLA Piper, laments that “we just raise them every year,” referring to the hourly rate system as “anachronistic” (as quoted in The Wall Street Journal).  However, many firms contend that raising rates are a way to “guarantee salaries or ensure a partner’s pay doesn’t fall, even in the down years,” allowing them to attract and keep the top talent (The Wall Street Journal).

Still, argues legal consultant Bruce MacEwen,”if clients are pushing back on rates, the answer isn’t to raise them, and then ask for a discount…the answer is to provide a better total value” (WSJ).

Read more and see the top law firm billers at the Wall Street Journal.

The frenzy of mergers between IP boutiques and national full-service firms shows no signs of abatement, The American Lawyer reports.  Since April, at least eight IP firms have been acquired by Am Law 200 firms, driven largely in part by the recent changes in patent law, according to the article.

The America Invents Act, passed in 2011, allows the Patent Trial and Appeal Board to review patent challenges, creating a quicker and less costly alternative to litigating in federal district courts.

However, patent litigation “remains hot,” the article argues, citing the results of a Lex Machina study, which found that patent litigation in the U.S. increased by 15 percent last year.  The struggle for boutique patent firms, according to shareholder Thomas Anderson of Gifford Krass, a firm that merged with Dinsmore this past fall, is acquiring and keeping the larger clients.  Anderson says that it “becomes hard for a firm of our size to attract large-scale patent litigation [because] Fortune 50 companies want large firms with lots of resources” (as quoted in The American Lawyer).

Larger, full-service firms view the bolting on of IP boutiques as a quick and easy way to build up their patent practice, an area which is “incredibly important” to clients, says Lewis Rose, managing partner of Kelley Drye.

With boutique IP firms across the country continuing to battle to maintain revenue and retain partners, it looks like this merger rush won’t be slowing down anytime soon.

Partner moves were at their highest count yet in 2015, the “strongest year since 2009 for lateral partner moves at big law firms,” according to The American Lawyer.  ALM’s Legal Intelligence branch (ALI) tracked lateral partner moves at Am Law 200 firms and found an astounding 43.5 percent increase since 2010, as well as a 5.6 percent increase from 2014.

‘Lateral lift-outs,’ the co-departure of a group of attorneys from a firm, have also been increasingly popular.  Gretta Rusanow of Citi Bank’s Law Firm Group notes that a firm “may look to bring on a group of partners, believing that it increases the likelihood of the laterals’ clients moving to a new firm,” (as quoted in The American Lawyer).

Nearly thirty percent (28.1) of the lateral partner hires were litigators, followed by corporate, banking and finance, and intellectual property attorneys (The American Lawyer).  Chicago, along with New York, D.C., Boston, and Los Angeles showed active lateral partner activity, according to the report.

Intellectual property boutique Brinks, Gilson, & Leone lost four litigation partners to Midwest-based Barnes & Thornburg last week, according to The American Lawyer.  This follows the recent trend for IP boutiques, many of which have either been absorbed by larger firms or have also had an unusually large number of partners depart.

John Gabrielides, one of the four partners that moved to Barnes, explained that they felt “limited in the services we could offer to our clients” at Brinks Gilson, and that joining a full-service firm “gives us a lot more flexibility and latitude” (as reported by The American Lawyer).

Who do the Fortune 500 corporations turn to when they need intellectual property litigators?  According to a recent survey by The American Lawyer, these companies don’t rely exclusively on the giant brand-name law firms, but instead often depend on mid-sized IP firms for their defense.  See the survey results at: http://www.corpcounsel.com/id=1202737903224.

The world’s largest law firms are still feeling the heat from their stagnated approaches, as discussed in last week’s post.  A report released by CounselLink concluded that firms with 201 to 500 attorneys–termed “large enough” firms–are “increasingly winning the market share at the expense of the largest U.S. law firms.”

CounselLink Strategic Consulting Director Kris Satkunas suggests that the success of these ‘large enough’ firms is generally due to lower billing rates (for similar levels of service) and the increased willingness to engage in AFAs, the ‘Alternative Fee Arrangements’ widely preferred by clients today.  She reports that as a result, corporate clients are “finding the same value from this size law firm for less or at least more predictable costs–and that is driving the migration of legal work into this segment of the law firm market.”

This trend is exemplified in the recent layoffs by megafirm Reed Smith, a 1750+ attorney firm who laid off 45 lawyers and a “comparable” number of administrative staff in January 2016, according to their press statement.  Sandy Thomas, the global managing partner at Reed Smith who gave the statement, blamed the layoffs on the “fundamental shift in the nature of the demand for, and the delivery of, legal services in recent years.”

Another ‘big law’ firm, global giant Dentons, (now, with a 6,600 employee headcount, the largest law firm in the world), has been the subject of skepticism for its continued ‘bigger is better’ growth philosophy.  Jordan Furlong of global law firm consultancy Law21 argues that since there are already many multinational firms, “having dozens of offices and thousands of lawyers isn’t enough to set you apart, and I’m not sure if 80 offices and 8,000 lawyers will do it either” (as quoted in The American Lawyer).

Time will tell if “bigger really is better” for today’s law firms, but for now, all signs seem to point to an ideal amalgamation of factors for middle market firms to flourish.

Big law firms have always been pathologically conservative in updating their policies, but has this mentality begun to affect their overall profitability?  The American Lawyer recently released an article investigating whether large firms’ aging partners, who often control a majority of the client base, habitually put their self-interests above the firm’s longevity—to the point that the partners’ “short-term gains could become the institution’s long-run catastrophe.”

The New York Times released a statistic in their Dealbook stating that nearly half (46 percent) of all managing partners are between 60 and 70 years old, with only 3 percent under age 50.  And, according to The American Lawyer, these partners are hoarding their clients with an “eat what they kill” mentality–which, AmLaw argues, makes the eventual succession of new partners that much more difficult.

Interestingly enough, this problem does not go unnoticed at the big law firms.  A 2011 survey by Altman Weil found that 47 percent of firm leaders identified the “retirement and succession of baby boom lawyers in their firms” as their greatest concern.  Yet, in Altman Weil’s 2013 survey, “only 27 percent of managing partners reported that they had a formal succession planning process.”

The American Lawyer concludes that aging partners should work to “encourage long-term institutional stability,” through prioritizing client service, encouraging partner cooperation, helping partners prepare for their “second acts,” and encouraging them to sacrifice some self-interest for the long-term betterment of the firm.

However, while Big Law partners should certainly concerned be about the futures of both their firms and themselves, many big law firms are already feeling the heat from their stagnated approach.  In 2013, a study of over $10 billion in client fee invoices by LexisNexis/Counsel Link found that mid-sized firms (termed “large enough” firms, of 201-500 lawyers) are quickly grabbing the market share from biggest firms (those with 750+ attorneys).  In fact, the study found, while big law firms saw a drop in their market share from 2010 to 2013, ‘large enough’ firms successfully grew theirs from 18 to 22 percent.

So, while the biggest firms continue to turn a blind eye to future strategy, it’s safe to conclude that their mid-sized competitors are eagerly seizing the opportunity to thrive.

The National Law Journal recently released a review of the major legal news in Washington’s ‘big law’ for 2015, including reports on the paramount moves and mergers, influential administrative changes, and the “reinvention” of the D.C. law practice.

Dentons continues its reign as the world’s largest firm, announcing ten “tie-ups” with other firms in 2015, including those in China, Australia, and Mexico, among other countries (as reported by the National Law Journal).

Litigators with multi-millions in portable business and experience in the federal government were in high demand, according to the National Law Journal, since “the hotbed of white-collar enforcement activity is now centered squarely in Washington, D.C.” (Debevoise & Plimpton partner David O’Neil, as quoted by The National Law Journal).  Many former representatives and senators flocked to the ‘big law’ D.C. firms in search of positions in lobbying and legislative practice groups.

In fact, despite the financial drawbacks of lobbying as a legal practice, the National Law Journal announces that “the large law firms in Washington still want to do it.”  And lobbying certainly got its fair share of the limelight when Former House Speaker Dennis Hastert, a Washington lobbyist, pleaded guilty to federal charges of evading currency-reporting requirements by illegally structuring cash withdrawals.

Read more about these and the other legal trends of 2015 in the National Law Journal.