8 Reasons to be Optimistic About the Litigation Economy

by Ken Lopez
Founder/CEO
A2L Consulting

We are all celebrating a painful milestone. It has been five years since the beginning of the financial downturn that would come to be called the great recession of 2008-2009. We recall major Wall Street institutions failing or needing to be rescued, the jobless rate skyrocketing, homes foreclosed, and a general feeling that things were collapsing. We have come a long way since then.

Although we are not back to “normal” yet – since 2008, the main driver of the economy has been government spending – we are able to look with some optimism toward the rest of the decade.

I think sometimes we forget just how rare a recession of this type is. While recessions come on average every seven years, some would say that rate is shortening somewhat. However, a major economic downturn of the magnitude we have experienced is a once every 50 years type of event.

Of course, litigation as an industry has not been immune from this downturn. The legal market has shed tens of thousands of jobs and we have seen a slowdown in litigation activity. In 2012, federal civil case filings fell by 3.7 percent, and anecdotally we saw more cases settle and more pressure to trim costs. This week, we've seen our largest competitor in the litigation consulting market conduct mass layoffs of roughly half of their staff, and last month we saw another West Coast competitor go out of business entirely.

There’s a great deal of talk of changing business models, and as we have written in this blog on more than one occasion, the “new normal” for law firms is here to stay. Law firms are dealing with a new economic reality, and the halcyon days of, say, 2005, are gone forever.

Sounds pretty gloomy, right? Well I think that things have changed and that the near future is actually quite bright. We've seen a number of reasons to be optimistic. Here are my top eight:

1. Federal civil case filings are beginning to rise on a nationwide basis. We see this data using LawProspector already, and I expect the Federal Judiciary report for 2013 that closes on September 30 to reflect increased civil case filings relative to 2012.
    
2. Specific areas are actually quite hot. For example, 2013 patent litigation filings are up 20 percent over the same period last year, and last year they were up 37 percent over the previous year.
    
3. Case spending is up. Both my conversations with managing partners and my own experience suggests that corporations are investing more in winning cases by using more lawyers, more law firms and more litigation support services.
    
4. Cases that could settle are headed to trial anyway. During economic downturns, cases that would be relatively easy to win at trial often settle. During economic expansions, even tough cases head to trial. On balance, we're seeing more of the latter than we did even a year ago.
    
5. Economic activity is up generally. As someone with an economics degree, I am a big fan of leading indicators. Most leading indicators look good for the economy as a whole. Even a majority of managing partners are forecasting growth for next year.
    
6. Corporate profits are higher than ever. Q2 corporate profits were up 5 percent over the second quarter of 2012 after a scary Q1 decline.
    
7. Anecdotally we are really really busy. We had a record year last year on a smaller number of cases than the year before. This year, we are seeing the number cases and size of cases in our pipeline increase quite significantly.
    
8. First-cut services are back in vogue. One of the areas where we are the busiest is in our mock trial, trial consulting, witness prep and jury consulting space. If the economy were going anywhere but up, companies and law firms would not be investing in this type of work.

Of course we are not entirely out of the woods yet. There continue to be almost-daily rumors of law firm layoffs and law firms teetering on the edge of failure. Still I think the future is quite bright and we're seeing more proof of it on a daily basis in our narrow corner of the litigation support market.

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