It's official: 2007 was the best year yet for the nation's largest law firms. The top 50 U.S. firms generated a total of $46.6 billion in revenue in 2007, a 16 percent increase over the 2006 total of $40.3 billion, according to this week's issue of the Lawyer, a British trade paper.

Three firms had more than $2 billion in annual revenue—a first for each of them. DLA Piper, the product of a 2005 merger among three firms—DLA of Britain and two U.S. firms—topped the list from the Lawyer, with $2.3 billion in revenue, followed by Skadden Arps Slate Meagher & Flom, with $2.002 billion and Latham & Watkins, with $2 billion.

At the same time, however, there are signs that business overall will slow. Some firms have already announced layoffs of associates. Business will be lost as a result of the takeover of Bear Stearns and will decline further if more funds close their doors.

It's indicative of the time warp in law firm profits. Law firms "don't feel it until anywhere from two to three months down the road," says Ward Bower of Altman Weil, the law firm management consulting group. Bower says he has spoken with the managing partners or chairmen of a number of the firms on the top 50 list, who have said their revenues have been down 10 to 15 percent in the first two months of 2008.

The $2 billion club is a watershed. "Historically, law firms of that size would have been unimaginable." The main driver is law firm mergers and consolidations. Bower calls DLA Piper a classic example of the phenomenon. "Through merger, they have surpassed the traditional leader, Skadden Arps," Bower says.

The Lawyer, which opened a New York office last year, is heating up the competition with American Lawyer Media, which was purchased last July by Incisive Media, a company that owns Legal Week, another British trade. This top 50 list beats the American Lawyer's 100 list to the punch by two months. The AmLaw 100, the most anticipated and well-read issue of the monthly magazine, comes out in May.

The lawyers themselves tend to obsess over profits per equity partner, rather than gross revenues. Wachtell Lipton Rosen & Katz of New York has topped the list for many years. And the top 50 list compiled by the Lawyer confirms Wachtell's top-dog position once again. Wachtell's profits per equity partner were $4.48 million, followed by Cravath Swaine & Moore with $3.3 million, and Sullivan & Cromwell with $3.13 million.

The average profits per equity partner among the top 50 firms was $1.72 million, up 11 percent from $1.44 million in 2006. There were some losers: Akin Gump Strauss Hauer & Feld and Cadwalader Wickersham & Taft posted the highest fall in profits per equity partner, according to the Lawyer. Cadwalader, a key law firm for Bear Stearns, had a big practice in mortgage-backed securities and has been hit hard by the subprime crisis, already announcing associate layoffs. Its profits per equity partner in 2006 was $2.72 million, down 6.2 percent from 2006.

The biggest loser was San Francisco-based Heller Ehrman, which dropped off the top 50 list altogether.

As the economy slows and goes into a recession, Bower predicts "second-tier firms will feel this more. There will be fewer deals, but they will tend to gravitate to the top firms that are perceived to have the best reputations."