Troubling Signs for Non-Equity Partners

The legal services industry, along with much of the country, is coming to terms with the reality that COVID-19 is not the short, temporary interruption many had hoped. We are beginning to see law firms make more permanent adjustments. Headlines in publications like the American Lawyer are already highlighting the acquisition of stars in hot practice areas, but what won’t be included in the press releases is what will happen to less-desirable practices areas and less-favored attorneys.

While winners in bankruptcy, internal corporate investigations, and healthcare may be sought after right now, a larger number of attorneys work in areas of litigation and transactions that are slowing down. Behind many announcements of new partners will likely be untold stories of other lawyers at those firms who have been demoted from the ranks of partner or had their compensation reduced.

Through the end of the year and into the first quarter of 2021, we expect to continue seeing attorneys who represent certain industries, such as retail and hospitality, suffering severely. Lawyers whose work is focused on serving these industries should start to create options for themselves now. Many partners, regardless of the clients they serve, will need to consider making a move during the first quarter of 2021 when bonuses are usually paid. Given the magnitude of the economic, societal, and health-related changes that are buffeting our lives, some lawyers who have always felt secure at their firms will find themselves looking for an exit in the months to come.

While we may be in physical isolation, this is not the time to isolate from one’s network. For non-equity partners whose clients have been hit especially hard, avoid the temptation to wait for the bad news to come to you. Likewise, it’s a sign of intelligence, not weakness, to begin identifying allies with whom you can discuss forthrightly your situation and your concerns.

By starting the process now, attorneys can give themselves the time to cultivate strong relationships within their networks before asking for any favors. This is also the moment to be present for one’s existing clients through the hard times. When economic activity returns to more normal levels, the demand for legal professionals will return for a vast majority of lawyers. But non-equity partners first need to cross some very choppy waters.

Is This the Time to Pursue Antitrust Litigation?

Even the biggest law geeks tend to have a MEGO (my eyes glaze over) moment when they hear about antitrust law. To be sure, antitrust law can be daunting. It has its own jargon, and litigating an antitrust case is at the intersection of complicated law and sometimes even more technical economic analysis. As a former antitrust lawyer who focused on securing governmental approval for large-scale mergers, it’s never been a mystery to me why more lawyers are interested in class action lawsuits than are looking to pursue antitrust cases.

This is the time to reconsider that position. The primary reason is that antitrust law is becoming an increasingly potent way to address one of the biggest trends in the U.S. economy: the growing consolidation of service providers in many sectors. How many cable companies serve your area? How many choices did you have in selecting a health insurance provider? The answer to either of these questions for most Americans is one or two. And, of course, tech giants like Google and Apple dominate their respective markets.

Increasing consolidation is not entirely accidental. One factor causing it has been the growing influence of the financial sector. Private equity companies and venture capitalists look to form monopolies or, at the very least, oligopolies (when a small number of service providers dominate a market). And the rise of technological platforms has caused industries that once had large numbers of competitors to become more concentrated (think Airbnb, Lyft, and Uber).

As discussed by Matt Stoller in this post from the BIG newsletter, the same thing is happening to one of the most competitive industries around: restaurants. Specifically, food delivery apps are forming connections directly with consumers and, in some cases, squeezing out the restaurants or placing a lot of pressure on those restaurants to join the apps in order to remain viable. In most cities, one or two food delivery apps control a lion’s share of the market. In New York City, for example, Grubhub makes up 4.5 times the share of the market represented by its closest competitor, 67% with Postmates on the bottom rung at only 4%.

Not surprisingly, large sources of capital are often subsidizing these apps, sometimes for many years before they show profits. Even before Covid-19, Airbnb, Lyft, and Uber struggled to make profits. And the pattern of subsidization continued, as detailed in Stoller’s post, when one of Uber’s former CEOs got tons of Saudi money to support his new venture in the food app business.

Historically, the federal government, in the form of the Federal Trade Commission (FTC) and the Antitrust Division of the Department of Justice, has played an important role in regulating mergers. The federal government still has the capacity to file antitrust lawsuits, but over the past few decades (under both Democratic and Republican administrations), such suits are less common. Antitrust policy hasn’t received a ton of publicity on the campaign trail, but, as mentioned in this blog post from Patterson Belknap, candidates are addressing their policies on antitrust law at least to some degree.

Joe Biden, for example, includes a statement on his campaign website which notes antitrust measures as a strategy to “protect small and medium-sized farmers and producers” in rural America, promising to strengthen enforcement of the “Sherman and Clayton Antitrust Acts and the Packers and Stockyards Act.” He broadly supports using antitrust to conduct investigations but has shied away from calls to break up huge tech companies like Google. So, we shouldn’t necessarily expect a significant change in federal enforcement actions to accompany a change in administration.

Some aspects of competition policy are therefore moving to the state level. And that makes a private antitrust lawsuit filed in federal court a more important tool.

It can seem daunting, and lawyers who step into this space will be suing companies often represented by Am Law 200 firms (the legal services industry itself has seen a lot of consolidation). But antitrust work can also present good opportunities for smaller firms to pool resources and spread the risk that would come with taking on cases individually. Given the financial potential that antitrust litigation presents, more mid-sized firms should consider getting into the action.