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A new study projects growth of roughly 5 percent in corporate legal spending over the next six months, but corporate lawyers say that fixed legal budgets preclude most increases and that any higher legal spending that is tied to the economic crisis is temporary and unsustainable.

The "BTI Mid-Year Spending Update and Outlook"study by Wellesley, Mass.-based legal consulting shop BTI Consulting Group anticipates that the upcoming growth spurt, in combination with an earlier steep decline, will result in an overall decrease in 2009 corporate legal spending of just 1.4 percent.

BTI data, which were released on Thursday, show that outside counsel spending dropped by an average of 6.7 percent in the first three months of 2009.

An upswing in legal spending on regulatory, compliance, employment, securities and bankruptcy matters will mostly compensate for the sharp declines in spending on corporate, securities, finance and intellectual property, according to the BTI results.

Regulatory work is expected to grow most quickly, by 5.8 percent, followed by an anticipated 2.6 percent upswing in bankruptcy and restructuring, a 2.1 percent expansion in securities and finance and an 0.7 percent increase in employment work.

"The good news is that the spending cuts were so deep it was clear they needed to bring some back," said BTI president Michael B. Rynowecer.

BTI's results were based on 370 interviews with corporate counsel at Fortune 1000 companies that spend an average of $19.4 million on outside counsel bills.

Carey International Inc., a Washington-based limousine and corporate travel company, is "seeing a slight uptick in litigation spending" due to the current economic environment and "plaintiffs lawyers trolling deeper for cases," said Vice President and General Counsel Diane M. Ennist.

Although she's "continuing to watch the legal bills like a hawk," Ennist said the company is spending slightly more on outside counsel.

"We're also cautiously optimistic and releasing a little more legal spend to situate ourselves best for new business opportunities," Ennist said.

But Keith Wexelblatt, senior counsel for Canton, Mass.-based athletic shoemaker Reebok International Ltd., called the results "surprising," given that yearly corporate legal budgets are fixed at the start of the fiscal year, which is the calendar year for many companies.

"Our budget, like I believe many others' [budgets], is cast in stone for the entire calendar year," Wexelblatt said. "Our legal department needs to meet, if not exceed, all of our planned cost-cutting goals. We need to think not only once, but twice, if not three times before sending out legal work."

Legal spending devoted to litigation, employment and compliance is likely to increase, but general counsel are "faced with increased demands to curtail and/or cut expenses" said Todd Keebaugh, in-house counsel at Natick, Mass.-based Cognex, which makes machine-vision systems and software that detects defects and monitors production in manufacturing.

"At Cognex, we have made an effort to absorb a significant portion of the intellectual property and regulatory compliance matters with in-house resources," Keebaugh said.

More legal spending on practice areas related to the economic downturn isn't good news for the economy, or for the legal profession generally, said Frederick Gonzalez, general counsel of network security device maker SonicWALL Inc. of Sunnyvale, Calif.

"Those are areas that point to a continued economic downturn and are temporary," Gonzalez said. "You need to see an uptick in corporate, meaning M&A, initial public offerings and intellectual property, meaning patent filings, or patent litigation, before you see something sustainable."

Gonzalez also said that in Silicon Valley, at least, fierce competition between indigenous California law firms and the many new East Coast and Midwest entrants is keeping a check on corporations' legal bills.

Law firms are offering courtesy discounts, bundling of services for a fixed price and write-offs of fees for work done by first-year associates, Gonzalez said.

"Those kinds of things have helped bring legal spending down," Gonzalez said. "Firms don't want to lose clients. They're doing creative things to keep clients."

Although this particular growth in legal spending may not be sustainable, "this is what's going to help the legal profession until the economy recovers," Rynowecer said.

"I wouldn't want to present this as 'Congratulations the recession is over,'" Rynowecer said. "Even with the uptick, the market is still going to end up down. While there's good news on the horizon, this isn't the final chapter, it's the interim chapter."

Rynowecer also said a rise in legal spending would help only well-positioned firms and practices.

"It is a major opportunity for a group of law firms who are seizing the opportunity at hand to aggressively reach out to their clients and serve these needs until the core needs come back," Rynowecer said.

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