Patent litigator John Gallagher worked for 20 years at IP boutique Morgan & Finnegan. But this spring, as he left to join the general practice firm Dickstein Shapiro, Gallagher predicted that "few if any IP boutiques [will be] around" in the future.

Sound familiar? Similar predictions have been made for more than a decade. IP specialty firms faced extinction. They were dinosaurs destined to die out in a changing climate -- struck by the meteor of general practice firms that were recognizing that IP was increasingly important to their corporate clients and a lucrative avenue for law firm growth. Indeed, highly respected IP boutiques such as Fish & Neave, Pennie & Edmonds, Lyon & Lyon and Cushman Darby & Cushman have vanished -- they've been swallowed up in mergers with general practice firms or have simply perished. This spring Welsh & Katz, a Chicago-based IP boutique specializing in IP litigation, announced plans to merge with the general practice firm Husch Blackwell Sanders. New York-based Morgan & Finnegan has lost 10 partners in the past year, and its overall head count is down considerably.

Despite years of such news, many IP boutiques still thrive. Large IP specialty firms such as Fish & Richardson and Finnegan, Henderson, Farabow, Garrett & Dunner have more than held their own, even in high-stakes patent litigation.

Many smaller IP boutiques are growing, helped by increasingly cost-conscious clients. And there is little sign of total destruction.

"Boutiques have survived the prophesized demise," says Robert Sterne, co-founder of the Washington, D.C.-based IP boutique Sterne, Kessler, Goldstein & Fox -- a firm that started out 30 years ago with a handful of lawyers and now has 80 attorneys, plus scores of other professionals, including patent agents and technical specialists.

Without doubt, big-ticket IP litigation, with its potential for multimillion-dollar fees, is where general practice firms have made the biggest inroads on what was once specialty-firm turf. In IP Law & Business' survey last November of "Who Protects Innovation in America 2007," IP specialty firms accounted for only four of 31 firms listed as handling IP litigation in the United States for the world's 50 most innovative companies.

Welsh & Katz partner A. Sydney Katz says large firms once sent his firm much of its litigation business, but that changed as the large firms devoted resources to developing their own IP litigation departments. "Over the last decade, many of our referral sources have become our competitors," Katz says.

One big factor in the switch: Corporate general counsel are more involved in managing IP litigation than they used to be, says Jesse Jenner, who was managing partner of Fish & Neave before it merged with Ropes & Gray. So, he says, they "take the work to the general practice firms they are familiar with." Indeed, says Aditya Krishnan, senior patent counsel and director of IP at digital imaging company Zoran Corp., "general counsel usually come from large general law firms" themselves.

In choosing between an IP specialty firm and a general practice firm for patent litigation, in-house counsel at large corporations may find themselves weighing which is more important: litigation firepower or a truly in-depth understanding of the technology at issue.

Peter Schechter, an IP litigator who in 2007 left the IP boutique Darby & Darby for Edwards, Angell, Palmer & Dodge, believed for most of his career that general firms could not practice intellectual property law well. He now believes that skilled litigators -- especially, those who can turn to IP attorneys within their firms for help -- can be very successful. "Intellectual property has become just another area of federal practice," he says.

Rees Morrison, a consultant who helps in-house lawyers choose law firms, says that in big, complex litigation, the scale has been tipping toward general practice firms more often "because discovery has become so expensive and dangerous."

Still, Morrison says, it's easy to overemphasize the importance of behemoth suits in the overall sphere of patent litigation. "There are plenty of smaller companies that want to use smaller law firms for patent litigation," Morrison notes.

For instance, Seattle-based Widevine Technologies Inc., which provides content security technologies to movie studios and video operators, considered retaining a general practice firm when it started out 11 years ago because of the diversity of services such a firm could offer, says general counsel Mani Aliabadi. But it decided instead to "go with the best people available" in each specialty. "It really comes down to what kind of attention you want your law firm to give you, and since we're not a Microsoft, attention is critical," says Aliabadi. Darby & Darby handles both patent prosecution and patent litigation for Widevine.

The ability to do a good job for lower fees is one factor now working in boutiques' favor with inside counsel at companies both big and small. With economic times uncertain, legal expenses are being monitored and scrutinized more than ever, law firm partners say. Clients are requiring their outside counsel to use sophisticated billing software programs, which they put into place to better track expenditures, analyze bills and watch for padding, says Larry Iser, a partner at the boutique Kinsella, Weitzman, Iser, Kump & Aldisert in Los Angeles.

What's more, as legal fees have increased and starting salaries at top-tier firms have hit $160,000 for first-year associates, CEOs and general counsel have started to protest. Wal-Mart Stores Inc. told its law firms last year that it was instituting a moratorium on across-the-board rate increases and would only consider individual requests for rate increases for those attorneys who are performing at an exceptional level.

Also last year, Thomas Sager, then litigation chief and now general counsel of E.I. du Pont de Nemours and Co., warned that law firm mergers aren't in the clients' best interest -- in part because consolidation creates a bloated management structure that results in higher fees with no gain in efficiency. DuPont's law department, he said, had parted ways with a few of its primary law firms "because their mergers produced some untenable situations."

Japan-based Roland Corp., one of the world's largest makers of electronic musical instruments, retains the services of several different U.S. law firms, but it relies on Kinsella Weitzman to handle its patent litigation. Roland general counsel Jun Yamato and Kinsella's Iser have had a strong working relationship for over a decade, and Yamato says he uses the Kinsella firm largely because he is confident that its lawyers will get good results. "But cost is also a major factor behind choosing a boutique," he says. "General practice firms overstaff cases -- something boutiques just don't do."

That's why even boutiques that pay top rates to associates can offer savings to clients. Many general practice firms routinely assign several associates to each case. IP boutiques, on the other hand, run leaner, says Sterne of Sterne Kessler. Clients, who are getting more sophisticated, now question the necessity of having five lawyers at a deposition when one or two would suffice, he says.

Anne Craig, an attorney and the director of IP at the Office of Technology Development at Harvard University, says she uses both boutiques and general practice firms to handle the university's patents. "But I find there is more flexibility on staffing and pricing arrangements at boutiques," she says, noting that seven of the top 10 firms she uses for patent prosecution and opinion work are boutiques, including Boston-based Wolf, Greenfield & Sacks and Lahive & Cockfield.

Cost-effectiveness, however, is only one reason boutiques remain strong. Though some boutiques such as New York-based Fross, Zelnick, Lehrman & Zissu and Chicago-based Pattishall, McAuliffe, Newbury, Hilliard & Geraldson do well specializing in copyright and trademark work, it's the technical expertise that many specialized firms offer in the patent arena that boutiques would argue is unmatched. Many boutique patent attorneys are scientists and engineers as well as lawyers -- self-described "geek lawyers" with advanced degrees in electrical engineering, inorganic chemistry or biotechnology. "We speak the clients' language," says Jim Hanft, a partner at Darby & Darby who has a degree in electrical and computer engineering. "Boutiques have people with stronger technical skills," agrees Krishnan of Zoran Corp.

A strong technical background is of course an asset for patent litigators, says Ruffin Cordell, a partner at Fish & Richardson with a degree in electrical engineering. "It's great when you're as knowledgeable about the science and technology behind a patent as the other side's expert witnesses," he says, adding that he loves to cross-examine his opposition's experts.

But it's in patent prosecution that the boutiques really score. In the "Who Protects Innovation in America" survey, all but four of the 26 firms listed for patent prosecution for the top 50 innovative companies are boutiques. Their ranks include Silicon Valley-based Blakely, Sokoloff, Taylor & Zafman, which has grown along with clients such as Intel Inc. and Hartford, Conn.-based Cantor Colburn, which works with General Electric. EMC Corp., a Fortune 500 manufacturer of information storage systems, relies on boutiques to handle the company's prosecution work, says vice president and assistant general counsel Krish Gupta. "When lawyers understand the technology it's more efficient: less time needed from our engineers and lower fees for us," Gupta says.

Because of the thinner margins on patent prosecution, boutiques face much less competition from general practice firms in that business. "It's hard for a general practice firm to make patent prosecution profitable," says Peter Zeughauser, chairman of the law firm consultancy The Zeughauser Group. Notes Harvard's Craig: "A patent prosecution practice requires a whole different docketing system and financial management system, and large firms often have a hard time implementing the systems needed."

And corporations continue to recognize the importance of patent prosecution, say boutiques. "The patent is the key to the whole thing," says Gregory Maier, president of Oblon, Spivak, McClelland, Maier & Neustadt. "It is the poorly prosecuted patents that have problems and end up in litigation."

Offering quality patent prosecution "has allowed us to differentiate ourselves from general practice firms," says Peter Devlin, managing partner of Fish & Richardson, which handled more cases than any other firm, according to IP Law & Business' 2008 patent litigation survey. "A boutique that handles a client's patent prosecution becomes steeped in knowledge of the client's products, its competitors and its future."

Indeed, many firms find that patent prosecution can lead to higher-margin business like strategic planning and licensing. "You just can't fake the technology know-how needed for these tasks," explains Karl Hermanns, managing partner of Seed IP Law Group in Seattle.

The IP boutique Lee & Hayes, for instance, does no litigation at all and specializes in patent development and the commercialization of IP portfolios for large multinational corporations. The firm recently increased the size of its Spokane, Wash., headquarters staff and announced in June that it is expanding its office in Seattle and opening an office in Austin, Texas. Its clients include Microsoft Corp., Hewlett-Packard Co., Honeywell International, Intel Corp., and Boeing Co.

Finally, boutique attorneys say their firms have an organizational advantage: "We don't have to make compromises between practice groups," says Thomas Jenkins, partner and chairman of the management committee at Finnegan Henderson. "We devote all of our resources to IP."

The arguments about the virtues of boutique versus general practice firms are likely to continue for at least as long as the debate about what really caused the death of the dinosaur. For instance, general practice firm attorneys point out that IP cases have gotten more complicated and often involve more courts, complicated cross-border problems and tax matters that require input from other kinds of experts.

"A general practice firm can offer these services seamlessly," says David Bernstein, an IP litigator and partner at Debevoise & Plimpton. "Clients often prefer the one-stop shop."

Boutiques counter that at many of the big firms, compensation is based on success at the internal cross-sell -- getting a client to go to a lawyer at another part of the firm, even if he is not the best in that specialty. "Sophisticated clients see through this and direct the work to attorneys who they know are tops in their respective fields -- which in many cases are attorneys at boutiques," says Hermanns.

Then there is the somewhat bitter argument over the marquee value of big-firm brands. Boutique attorneys claim that they lose litigation business to general practice firms because "no matter what the outcome, the general counsel can tell the CEO, who in turn can tell the shareholders, they hired the biggest name available," says Darby's Hanft.

This holds true for startups backed by venture capital firms as well, says Harvard's Craig. "Venture capitalists are wowed by big names, so if a particular technology looks like startup material, we need a firm that's recognized and can do more than IP," she says.

Certainly, some IP boutiques could do better at burnishing their brands. Some specialty firms will continue to falter, with the culprit often being lackluster management, poor planning and internal disputes, just as with big general practice firms that fail. But, says Debevoise's Bernstein, IP boutiques "have an important place in the legal profession and aren't going away." In fact, it's time for the dinosaur metaphors about IP boutiques to become extinct.

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