Latham & Watkins has breached a milestone of sorts, becoming the first law firm to report gross annual revenue of more than $2 billion.

Others are likely to follow, even if the total market for legal services grows slower than it has in the past, because a handful of megafirms are slowly squeezing smaller rivals out of the corporate market, a consultant says.

Being the first to top the $2 billion bar is not as novel as, say, breaking the sound barrier, but it's nevertheless a big deal. Just 11 firms belong to the "billion dollar club," with gross annual revenue of $1 billion or more, as ranked by The American Lawyer magazine's annual AmLaw 100 List (subscription required).

Skadden, Arps, Slate, Meagher & Flom was the first to break the $1 billion mark, pulling in $1.25 billion in 1999, according to the AmLaw 100 list. The billionaire barristers' club has been growing ever since. Seven firms qualified for membership in 2005, according to The American Lawyer.

So what to make of this club? Concentration — and perhaps consolidation.

"Those dozen firms are growing their market share at about half a percent a year, so they are gradually dominating the market for legal services among major corporations worldwide," says Peter Zeughauser, law-firm consultant in Newport Beach, California.

Bottom line: Size matters. "The bigger firms get," says Zeughauser, "they capture a disproportionately large percentage of the market."

For all of the carping we hear from corporate counsel about the big fees charged by big firms, they vote for the large firms by giving them so much business. Corporations have decided "that there is great advantage to breadth and depth, that's what their purchasing patterns indicate," says Zeughauser.

Expect more law firm mergers and consolidations, Zeughauser adds. In September, for example, partners at Dewey Ballantine and LeBoeuf, Lamb, Greene & MacRae approved a merger of the two firms. The combined firm is knocking on the door of the billion-dollar club, according to the 2006 AmLaw 100 figures published last May: Dewey, ranked 62 with $408.5 in 2006 revenues, and LeBoeuf, ranked 45 with $513.5 revenues for 2006. Perhaps Dewey & LeBoeuf, as it is now called, be inducted as a new member when the magazine publishes its new list in May.

Dewey combined with LeBoeuf after merger discussions with Orrick, Herrington & Sutcliffe collapsed. Orrick. of San Francisco, also had very good year in 2007, posting $894 in gross revenues, a 16 percent increase from the previous year.

Still, Ralph Baxter Jr., Orrick's chairman, says that with few exceptions — among them Wachtell, Lipton, Rosen & Katz, which tops AmLaw's profits-per-partner list each year despite its small size — many firms will be face a "fundamental" and "at some point truly irresistible" move toward consolidation that has taken on "a life of its own."

Baxter said he expects many firms of 500 lawyers or so will have trouble competing against larger firms with deeper teams, and may shrink or get gobbled up.

Zeughauser attributes Latham & Watkins's success to its international focus, particularly its London office. In the last recession, law firms counted on litigation as an economic buffer, and in this downturn, "an international footprint is providing a cushion," he says.

Baxter attributed Orrick's success to its international presence, which he hopes to expand with an office in Germany.

But back to the $2 billion club, which, at present, boasts just one member. Latham had a pretty spectacular year: The $2 billion was a 23 percent jump from $1.65 billion in gross revenue for 2006. Its profits per partner also spiked, to $2.27 in million in 2007, a 22 percent increase from the previous year.

"It was a nice year for us," Latham Chairman Robert Dell crowed to the Wall Street Journal in a story published Monday. But the firm isn't talking about the banner figures anymore. "Essentially, the numbers speak for themselves," says Frank Pizzurro, a Latham spokesman.

Latham moved into its pole position, second behind Skadden on the AmLaw 100, in 2005. Skadden's gross revenue was $1.85 billion, and Latham's was $1.62 billion in 2006. Skadden does not report its figures to The American Lawyer, but the magazine's estimates are generally considered accurate.

However, Latham did report its results to The Recorder, a San Francisco daily which, by some weird tradition, reports the numbers early in the year, scooping its glossy sister, which publishes the AmLaw 100 in May.

This year, The Recorder's scoop has raised the possibility that Latham will supplant Skadden for the No. 1 spot in the AmLaw 100.

Skadden has no comment. We must wait until May to find out.

by Karen Donovan