Law firm rates, revenues soar but costs pile up in AI era

By David Thomas and Mike Scarcella

Aug 28 (Reuters) - (Billable Hours is Reuters' weekly report on lawyers and money. Please send tips or suggestions to D.Thomas@thomsonreuters.com.)

Billing rates just keep rising at major U.S. law firms, driving double-digit revenue gains in the first half of the year, fresh survey data showed this week.

The rate growth is helping firms absorb ballooning expenses, legal industry consultants said, as firms are both paying their lawyers more and adopting new artificial intelligence tools that could supplant many attorney tasks.

Spending on generative AI tools and other technology has helped drive up overhead costs excluding attorney compensation by 8.6% during the first half of 2025, according to data released on Tuesday by Wells Fargo's Legal Specialty Group.

But AI has yet to advance to where firms can replace lawyers en masse, so firms are paying for both the headcount and the technology, said Owen Burman, a senior consultant and managing director of the Wells Fargo unit.

"In the meantime, you have both the associates and the AI, and there aren't any expense savings right now, it's just expenses," Burman said.

Law firm revenues during the first half of 2025 increased 11.3% on average compared to the same period last year, and profits per equity partner rose 13.7% across more than 130 firms surveyed by Wells Fargo, driven by a 9.2% increase in billing rate growth.

"It's very strong growth, and rates are a huge part of it," Burman said.

Top partners in at least three law firms – Milbank; Quinn Emanuel Urquhart & Sullivan; and Susman Godfrey – have begun charging more than $3,000 an hour this year, with Milbank's Neal Katyal, a former acting U.S. solicitor general during former President Barack Obama's administration, charging $3,250 an hour.

The rate growth is necessary to support the expense growth, Burman said. Wells Fargo's survey found that increases in attorney and non-attorney compensation helped push up expenses by 9.5% during the first half of the year.

Law firms are also facing increased occupancy costs and costs relating to professional liability insurance, said Kristin Stark, a principal at law firm consultancy Fairfax Associates.

"Expenses are up across the board," she said.

Bruce MacEwen, a law firm consultant at Adam Smith Esq., said generative AI is a "looming unknown" on the legal industry's horizon. He said the technology could force law firms to switch to a project fee-based revenue model.

The billable hour model doesn't make economic or commercial sense if, for instance, generative AI can draft a 15-page motion in less than five minutes, MacEwen said.

Law firm consultant Peter Zeughauser said it's too early to predict the impact generative AI will have on billing rates. He cautioned, however, that people said earlier technological advances like computerized legal research and e-discovery would force "firms to go to value billing."

"It didn’t happen," Zeughauser said.

In the meantime, the pipeline of flesh-and-blood lawyers is growing, and employers appear willing to hire them.

Law schools saw an 18% year-over-year increase in applicants as of August, according to the Law School Admission Council. Last year's graduating class had the highest employment rate ever recorded by the National Association for Law Placement, with 93.4% of them landing jobs within 10 months of graduation, the job-tracking group said last month.

– Lawyers for Epic Games at Cravath, Swaine & Moore and other firms said the "Fortnite" video game maker should receive more than $205 million in legal fees for defeating Google in a major antitrust case over the Alphabet unit's app store practices.

Google is now fighting to undo an appeals court decision that upheld a jury verdict and court order directing the company to make sweeping reforms to its app store.

– Wiley Rein litigation partner William Lane III disclosed receiving more than $1.12 million in salary and bonus from the law firm on a financial disclosure form he submitted as part of his nomination to serve as general counsel to the Air Force.

Lane disclosed he had provided legal work for clients including Amazon.com, Boeing, U.S. Chamber of Commerce and the Firearms Policy Coalition. He did not immediately respond to a request for comment.

– Defunct Philadelphia-based law firm Schnader Harrison Segal & Lewis is facing a $5.4 million lawsuit from the landlord of its former office in New York City's Financial District.

140 BW LLC alleges that Schnader Harrison stopped paying the rent on its New York office space in January 2023, seven months before the firm said it was dissolving.

Leslie Corwin, a Duane Morris lawyer who serves as counsel to Schnader Harrison's wind-up committee, said they are aware of the complaint and will respond. Lawyers for 140 BW LLC did not immediately respond to a request for comment.

Schnader Harrison earlier this month agreed to pay $675,000 to settle class action claims made by one of its former non-equity partners that it unlawfully used pension contributions to help run the firm.

Read more:

Can investors buy in to Big Law? Burford Capital bets on it

US legal jobs are rising again, but gains are mixed

Optum picks new fight to kick law firm Motley Rice off opioids case