Law And The Judiciary

Is Market Capping Lawyers' Fees?

Despite the huge legal fees involved in current anti-tobacco litigation, data show that fees paid to lawyers have stabilized. After double-digit growth during the 1980s, growth in law firm revenues in recent years has been more or less flat, observers say.

  • In 1996, the median amount large companies spent on legal services -- around $20 million -- was about the same as in 1993, according to inflation-adjusted figures submitted by 80 companies in an annual Price Waterhouse LLP survey.

  • Because the companies grew significantly during that period, legal expenses actually dropped as a percentage of revenue -- from 0.42 percent in 1991 to 0.29 percent in 1996.

  • The inflation-adjusted amount consumers spend on legal services has been stuck at about $45 billion annually since 1989 -- dropping slightly as a percentage of gross domestic product.

  • According to American Lawyer magazine, average profits per partner at the five most financially successful New York law firms dropped 26 percent between 1989 and 1996, on an inflation-adjusted basis.

While total revenues at U.S. law firms rose 7.4 percent between 1995 and 1996, that was a far cry from the 1980s -- when they were raking in annual increases between 12 percent and 19 percent a year.

Experts say the reasons for the trend range from new technologies that reduce paperwork to clients' closer scrutiny of billing practices. A cottage industry has emerged that subjects law firms to the kind of "utilization review" that is now routinely done on medical bills.

These firms second-guess legal bills by applying computer software that detects everything from padded time sheets and long-distance bills to excess copying charges. And other currently popular cost-cutting measures, such as retainers and flat rates, were the norm before 1960.

Source: Edward Felsenthal and Paul M. Barrett, "Not So Fast: It Only Seems Like Legal Fees Are Still Skyrocketing," Wall Street Journal, May 27, 1998.


Home | Support Us | All Issues | Social Security | Debate Central | Contact Us

Dallas Headquarters: 12770 Coit Rd., Suite 800 - Dallas, TX 75251-1339 - 972/386-6272 - Fax 972/386-0924
Washington Office: 601 Pennsylvania Ave. NW, Suite 900 South Building - Washington, DC 20004 - 202/220-3082 - Fax 202/220-3096
© 2000 NCPA