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When Silicon Valley’s Skjerven Morrill decided earlier this year to dissolve, the firm’s fate seemed to confirm an increasingly widespread assumption: intellectual property boutiques are a vanishing breed. In recent years, more than three dozen IP shops have been consumed in mergers. Other boutiques have folded in the face of increased competition from general practice firms. And the spectacular implosion of San Francisco’s Brobeck, Phleger & Harrison shows the peril of over-reliance on one sector for clients. But the prospects for IP-focused firms may also depend on their geographic location. The climate, for example, appears to be more suited to such firms in a city like Washington, D.C. “Firms there are a little more stable,” says Lisa Smith, a consultant with Hildebrandt Inc. “They’ve carved out a distinct niche and, in most cases, will survive.” IP firms in Washington have used their proximity to the U.S. Patent and Trademark Office to dominate patent and trademark prosecution. Still, such firms, along with other located around the country, are paying close attention to the fates of their competitors and adjusting their strategies accordingly. To R. Danny Huntington, chairman of 100-lawyer Burns, Doane, Swecker & Mathis in Alexandria, Va., the recent demise of Los Angeles’ Lyon & Lyon illustrates the risk of relying too heavily on IP litigation. “Their biggest problem was they moved the focus to litigation,” then couldn’t maintain the business, he says. Jorge Goldstein, managing partner of Washington’s Sterne, Kessler, Goldstein & Fox, agrees: “They got eaten alive by the general law firms.” Indeed, as the value of corporate intellectual property has soared, competition for IP litigation, which can yield millions in legal fees, has gotten much more intense. IP litigation can be “life and death” for a company, says consultant Peter Zeughauser of the Zeughauser Group in Newport Beach, California. With so much on the line, “the outside-counsel hiring decision is now made in the general counsel’s office, not the IP counsel’s office, where it used to be.” Instead of the in-house patent lawyer calling up his friends at the IP firm that handles the company’s patent applications, the general counsel is tapping the lawyers he works with most often — those from general practice firms. Plus, hiring a well-known firm provides cover if the matter doesn’t go well. “Except in limited circumstances,” says Zeughauser, “we’re going to see a significant segmentation in the market, with patent prosecution on one hand and firms that do high-stakes IP litigation on the other hand.” Huntington at Burns Doane says his firm is feeling the competition, and while litigation still accounts for one-third of its business, the emphasis these days is on patent prosecution. “We’re concentrating on trying to build work within the U.S., developing relationships with clients, getting to know the individual inventors,” he says. Burns Doane is also stepping up marketing efforts — one of Lyon & Lyon’s reported shortcomings. And it brought on Albert Tramposch, a World Intellectual Property Organization veteran, to build a trademark practice based on the recently ratified Madrid Protocol. “Our vision is that we think there is an alternative to the general practice firms,” says Michael Blanchard, the firm’s first-ever executive director. Conventional wisdom is that firms can’t make much money doing patent prosecution. But Marvin Spivak, a partner at Oblon, Spivak, McClelland, Maier & Neustadt in Alexandria, Va., says his firm’s profit margin for prosecution rivals that for litigation. Oblon consistently leads the nation in number of patent applications filed and issued. When the firm handles an application, it’s almost like an assembly line, with different specialists working on different pieces. Oblon also employs a huge staff — 345 administrators and secretaries for 90 lawyers and 15 technical experts. In 2002, says Spivak, the firm had “the best year ever,” filing more than 5,000 applications at the PTO. In part, that’s because competition has actually lessened, he says, as “smaller patent firms have disappeared or merged into larger firms, and the large firms are not willing to commit to the infrastructure necessary to do a large volume of applications. We’ve had more and more clients coming to us.” When Spivak looks at the fate of Skjerven and Lyon & Lyon, as well as Brobeck, he notes that all were “involved in a lot of startups, venture capital dot-coms, and a large number of them folded.” His conclusion? “You have to look very carefully at who you are taking on as clients.” Another issue for Skjerven, Lyon and Brobeck was the inability to find a merger partner once problems mounted. Since 1996, merger has been an increasingly common option, with 38 IP firms picked up by general practice firms, according to Smith, the Hildebrandt consultant. Notable acquisitions include Washington’s Cushman, Darby & Cushman, which merged with then-Pillsbury, Madison & Sutro, and Houston’s Arnold, White & Durkee, acquired by Howrey & Simon. Oblon, meanwhile, has no intention of ceding litigation to the general practice firms. In ads, the firm highlights its role in the landmark Festo case, in which partner Arthur Neustadt argued before the Supreme Court on behalf of the Shoketsu Kinzoku Kogyo Kabushiki Co. Currently, about half of Oblon’s work is litigation work, says Spivak. Smith is skeptical about whether technical prowess will sustain a litigation practice in the long run. “Clients see more of a distinction between litigation and prosecution,” she says. “IP boutiques tend to view general practice firms as not equivalent, not of the same [technical] quality. Some boutiques still have their heads in the sand on this. Clients want real litigation experience.” The boutique best known for litigation expertise — if you can call a firm with 325 lawyers a boutique — is Washington, D.C.-based Finnegan, Henderson, Farabow, Garrett & Dunner, both Smith and Zeughauser agree. One of its marquee names is Donald Dunner, who helped create the framework for the Federal Circuit U.S. Court of Appeals. Another partner, Ford Farabow Jr., serves as lead counsel for GlaxoSmithKline in a patent infringement case. And the firm is opening its eighth office, in Taiwan. Managing partner Christopher Foley admits Finnegan took a hit when dot-com work dried up, but says its client base was sufficiently balanced that there was other work to do. About 55-60 percent of the firm’s work is litigation, says Foley, with the rest in prosecution and client counseling. When the firm prosecutes patents, he adds, it doesn’t try to match prices with lower-cost competitors. “Sophisticated clients understand that the time to spend money is upfront, not down the road when you’re in litigation,” says Foley. When Foley looks at the demise of Lyon & Lyon and Skjerven, one problem he sees is a lack of cohesiveness. “When one partner in a particular group left, others followed.” At Finnegan, he notes, only three partners in its 37-year history have jumped to rival firms. Jenna Greene is the news editor at Legal Times , a Washington, D.C. publication affiliated withIP Magazine . Her email address is [email protected] .

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