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Fenwick & West is wasting no time cashing in on the possibility of an economic recovery in Silicon Valley. After two years of holding billable hour rates for partners steady, Fenwick announced to clients last week it is raising rates by 10 percent. Fenwick’s decision illustrates a growing optimism among Silicon Valley law firms that a steady increase in corporate work in the autumn means the economy may be on the rebound. Fenwick’s management, at least, seems to believe in-house lawyers who have been trying to slash legal spending during the downturn may be willing to absorb larger legal bills. “It’s a sign of bullishness that the economy is coming back,” said Peter Zeughauser, a partner with law firm consultant Zeughauser Group. Fenwick may get some company in raising rates. Law firms typically review their billing rates at the end of the year and raise them in January in anticipation of rising expenses. Managers at several Bay Area law firms say they continued to review rate hikes even during the downturn. In a letter to clients, Fenwick partners said their billing rates beginning Jan. 1 will range from $400 to $700 an hour and hourly fees for associates will range from $190 to $400 per hour. Those fee ranges represent a 10 percent increase in partner rates and a more modest increase for associates, the letter said. Zeughauser said the move could also mean that Fenwick needs the money and is boosting fees to increase profitability to help counter the slowdown in corporate work. “The additional incremental dollars go right to the bottom line,” Zeughauser said. “This is all profit and that helps a lot.” Fenwick’s revenue and profits soared during the boom, and the firm’s gross peaked in 2000 when it logged $148 million. Profits per equity partner that year were $800,000. By 2002, the firm’s revenue had slipped to $142 million, and profits per partner dropped 19 percent to $650,000. Fenwick had held most partner fees at 2002 levels and associate rates at 2001 levels, according to the letter to clients. After comparing the firm’s billing rates with competitors, firm managers decided Fenwick wasn’t charging enough, the letter said. “As a result, we have reluctantly concluded that increases in our rates are necessary in order to continue to attract and retain the best talent while maintaining our commitment to providing value to our clients commensurate with the fees charged,” said one partner’s letter to a client. Gordon Davidson, Fenwick’s chairman, said the firm did not keep pace with rate increases made by its competitors. “Recognizing the economic downturn among our clients, we determined to hold our rates flat to be a good business partner,” Davidson said. “We reviewed independent, third-party surveys and learned our rates, which had been held flat for two or three years, were significantly below the Silicon Valley and San Francisco firms,” Davidson said, “and even farther behind the New York, Los Angeles and Chicago firms which have offices in Silicon Valley.” Fenwick is not alone among firms considering rate increases. Pillsbury Winthrop is currently conducting its annual survey of partner and associate rates and any changes to their practices over the last year. Marina Park, Pillsbury’s managing partner, said rather than instituting across-the-board rate increases, the firm considers the experience level of each lawyer, particularly the partners, and where they’re practicing. “We have to be sensitive if there’s a downturn in a particular area of the country,” Park said. “That’s something we’re very cognizant of for the coming year.” The firm doesn’t set limits on how much fees may go up, however. Park said some partner fees could go up by 10 percent or more while others could remain unchanged. Holding firm on most hourly rates put Fenwick in the unenviable position of increasing fees by a larger percentage than firms usually do in a typical year, said Ward Bower, a principal at Altman, Weil Inc., a law firm consultant. Bower said firms have been increasing billable hour rates by 2 to 4 percent since the economy began to contract. “They’re inviting resistance,” Bower said of Fenwick. “It’s one thing to increase a little bit every year but to try to put across a big increase will cause clients to raise their eyebrows.” The new fees put Fenwick’s partner rates just below the fees charged by bigger players, like Latham & Watkins and Skadden, Arps, Slate, Meagher & Flom, according to data compiledby The National Law Journal, an affiliate of The Recorder. Skadden partners command hourly rates ranging from $495 to $725, and Latham’s partners pull down $450 to $725 per hour, according to the data culled from law firm surveys and public records. Fenwick’s announcement drew mixed reviews from clients. Several in-house lawyers said they’re resigned to price increases for some work. Fenwick’s decision may prompt some of them to shop around litigation, real estate and similar kinds of work to other firms. Nicholas Spaeth, general counsel of Intuit Inc., said he will likely shop around some work — though he stressed the larger fees won’t affect Fenwick’s representing the company on securities and corporate governance issues. “There’s some work that is immune from rate increases,” Spaeth said. “You have a relationship with a law firm, and they provide certain core services, and they know your business.” Spaeth added that he was somewhat surprised by Fenwick’s decision to boost fees now with a full recovery still uncertain. “At some point, it’s inevitable,” Spaeth said. “It’s just not my sense the Valley has heated up yet.” Jason Mendelson, general counsel of Mobius Venture Capital, said the firm is still reasonably priced even with the increase. He also lauded the firm for holding rates down during the worst of the downturn. “They certainly got the attention from some of my portfolio companies by doing that,” Mendelson said. “Hourly rates at law firms is something we track closely on a habitual basis to make sure the portfolio companies are not overpaying for legal services.”

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