What’s Behind the Drop in Litigation Demand? Large Firms Feel It, Midsize Firms Don’t

Topics: Data Analytics, Law Firms, Litigation, Midsize Law Firms Blog Posts, Peer Monitor

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The Legal Executive Institute and Thomson Reuters Peer Monitor recently released the Peer Monitor Economic Index (PMI) for the 4th quarter of 2015. The PMI is produced by Thomson Reuters, and is a composite index of law firm market performance using real-time data drawn from major law firms in the United States and key international markets.

Demand for large law firm services — defined as the percentage of change in total hours worked from the previous period — was essentially flat for the end of last year. But as the various segments are examined, there is far more to the story.

Overall, the trend for demand growth was relatively stagnant throughout 2015, with the quarterly high point coming early in the year. The first quarter of 2015 showed overall demand growth among large and medium law firms of 0.6%. However, each subsequent quarter of last year showed slightly less enthusiastic demand growth. Fortunately, this key metric never ventured into negative territory, at least as far as the all-segment average was concerned.

Looking specifically at Q4, while it was the most lackluster demand-growth quarter of the year with regard to average growth, demand among Am Law 100 firms was actually up 1.9% compared to Q4 the previous year. While promising, this uptick was offset by a 2.2% decline in demand among the Am Law Second 100. Midsize law firms hung in the middle with modest 0.7% growth in Q4.

The overall demand picture can be better understood when examined in the context of practice area demand. Once again, transactional practices led the way for growth in the market, posting relatively strong growth across the spectrum. Among transactional practices, only Tax posted negative demand growth for the quarter, and even then only a meager 0.3% decline in demand. However, the strength of growth in practices like M&A, Real Estate and Corporate, even when coupled with growth in smaller practices such as IP and Regulatory, could not offset the 2.2% decline in Litigation demand for the quarter.

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From a segmentation perspective, Transactional practices among Midsize law firms actually posted the strongest demand growth for the quarter at 2.4%. The biggest drain on overall performance for practice demand within the latest PMI was the 6.7% decline in Litigation demand experienced by the Am Law Second 100.

It’s clear that Litigation continues to be a major drag on demand growth among large and medium law firms. That is not to say that clients no longer have as much need for litigation services, however. Certainly much emphasis has been placed on avoiding litigation through arbitration or more and better proactive work; and increasingly, more litigation work has been going to smaller law firms that specialize in litigation. Thomson Reuters Monitor Suite reports that fully 34% of all litigation matters filed in the federal district courts in the past five years have been handled by law firms with between two and 15 attorneys, while only 11% have been handled by law firms with more than 250 attorneys.

As 2016 continues to take shape, it seems likely that this trend in declining demand for large law firm litigation services will continue. It will be interesting to see if large and medium law firms are able to adapt to counter this trend.