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The French and Dutch rejection of the European Union constitution may have Europeans pondering the future of their unity. But inside the Brussels legal community, some law firms are preoccupied with their own daunting prospect � that the capital of the new Europe may never hold the pot of gold they once expected. After a wave of recent office openings in Brussels � including those of Howrey, Arnold & Porter, Latham & Watkins, and O’Melveny & Myers, to name a few � law firms are finding it a slow and even costly endeavor. Firms have been fighting over the limited pool of top talent. A sharp drop in mergers-and-acquisitions activity since 2001 has sliced antitrust work, leading some of the more-established firms to scale back their operations. And a change in the European Union’s antitrust rules has begun shifting some legal work into the member states’ national courts � and outside of Brussels. While few firms have packed their bags, the road ahead remains rough, and lawyers say it’s unlikely that many new firms will enter anytime soon. “Brussels is overlawyered,” says Christopher Bright, a London-based EU lawyer with Shearman & Sterling who was recently appointed to the United Kingdom’s Competition Commission. “In the next couple of years, we’ll see a shake-up as a number of them find it doesn’t pay.” This isn’t the first time that firms have had trouble in Belgium. Although a few foreign law firms made inroads into the Brussels market as early as the 1960s, U.S. firms began to set up shop in large numbers shortly before the European Union was established in 1992. But many of the firms that banked on a united Europe found the city a less-than-welcome business prospect. Some, like Gibson, Dunn & Crutcher and what was then called Mayer, Brown & Platt, went home. “It’s not an easy market,” says Thomas Mueller, an antitrust partner with Wilmer Cutler Pickering Hale and Dorr who shuttles between Washington and the firm’s 25-attorney Brussels office. “It’s not as big as a Washington � not by a stretch.” A FADING PICTURE Optimism ruled the day for many law firms when they began scouting Brussels for office space and local talent in the late 1990s. Those days, after all, saw one big merger after another. MCI and WorldCom in 1998. AOL and Time Warner Inc. in 2000. At its peak in 2000, the European Commission received 345 notifications of mergers. As activity grew, so did the European Commission’s power. It opened investigations into corporate powerhouses like the Microsoft Corp. and displayed its newfound authority with its 2001 veto of the General Electric Co.’s $42 billion merger with Honeywell International Inc., which had already been given the green light in the United States. “It cranked up the awareness that they are important,” says Alec Burnside, Brussels-based co-head of antitrust at the international firm Linklaters. Brussels, it seemed, was the new Washington. Newcomers on the scene since 2000 included Crowell & Moring; O’Melveny & Myers; McDermott Will & Emery; Shearman & Sterling; Howrey; Latham & Watkins; Willkie Farr & Gallagher; Steptoe & Johnson; Arnold & Porter; Sidley Austin Brown & Wood; and Paul, Hastings, Janofsky & Walker. And Gibson, Dunn returned. But Brussels holds many barriers to entry. A country roughly the size of Massachusetts, Belgium has few domestic companies for law firms to draw on. Instead, firms must count on their own clients � or find new ones � to keep their Brussels attorneys busy. Smaller offices face the added challenge of “how can they present their operations in Europe as being sufficiently large to be able to handle work,” says James Ashe-Taylor, a London-based antitrust partner at Gibson, Dunn who recently moved from Crowell & Moring’s Brussels office. New arrivals come up against a market that has long been dominated by a handful of major players like Linklaters, Freshfields Bruckhaus Deringer, and Cleary Gottlieb Steen & Hamilton. Competition for the major mergers or cartel work is often severe, and, lawyers say, tends to favor those with an established track record. “The kind of lifeline for work for a lot of these Brussels offices is just not there, and that probably has been exacerbated by this recent wave of expansions,” says Dennis Oswell, an attorney at Weil, Gotshal & Manges who divides his time between Brussels and Frankfurt. And even during the boom times, the European Union’s regulatory apparatus is a poor cousin to the bureaucratic web in Washington. There is no equivalent to the Federal Communications Commission or the Federal Energy Regulatory Commission to feed other practice areas. Such cautionary tales have made other U.S. firms “think twice” about staking out in Brussels, says Paul Downes, who heads the international planning for Heller Ehrman. His firm, for one, is not making a commitment anytime soon. SPROUTING UNCERTAINTY Few firms will admit publicly that their operations are suffering. But Brussels-based attorneys are quick, at least among themselves, to point to other firms that show signs of strain. Some of the biggest players in Brussels like Linklaters and Freshfields have lost attorneys over the past few years. Others have seen some turnover. Howrey, for example, opened with a team of 18 lawyers and economists in 2002 only to see a third of its original staff leave. Trevor Soames, head of the office, says the first year was “a struggle.” But he says the office has brought its head count up again and has begun hiring more attorneys. Dorsey & Whitney, which has seen a fair share of office downsizing across the globe, shuttered its decade-old office two years ago. “We were experiencing some downturn in activity,” says Barry Glazer, a former resident of Dorsey’s Belgian office. And recruiters say hiring is stalled. “We don’t get nearly as many inquiries for searches in Brussels,” says Anna Ponton, a London-based legal recruiter for Odgers Ray & Berndtson. Firms that are trying to beef up their office ranks are poaching off of each other. Sidley opened its office in 2003 with two attorneys from Hogan & Hartson. Latham snagged a pair of partners in 2002 from Wilmer Cutler. “It’s not easy to find good international talent there,” says David Wood, a Brussels-based partner in Gibson, Dunn’s four-attorney office. Rates have also caused some difficulties. Antitrust is one of the few areas that can command premium billing, often as high as $700 an hour for major deals and cartel work. Firms with local Belgium practices often have rates close to half of that � making it difficult to bring in sufficient revenues, Brussels-based lawyers say. Most of the legal work in Brussels centers on antitrust activity, which has taken a hit since 2001 when mergers-and-acquisitions activity plummeted. According to figures from the European Commission, the number of companies applying for merger approval has dropped by one-third in the past three years. Some of the antitrust work is already heading out of Brussels. Changes last year to the European Commission’s rules sent many antitrust cases to national agencies, giving member states the power to rule on EU law. Lawyers disagree on exactly how much work will leave town. Major cases � like the European Commission investigation of the Microsoft Corp. � will stay. And while some believe they ultimately may increase the overall legal business throughout Europe, the rule changes will shift the center of gravity. Indeed, some firms � Cleary Gottlieb and Gibson, Dunn, for instance � are focusing antitrust recruitment on other European offices, such as those in Germany, to prepare. Antitrust filings “used to make smaller operations profitable,” says Antoine Winckler, a longtime partner in Cleary Gottlieb, which, in 1960, became the first U.S. law firm to open a Brussels office. “It’s not going to be there � at least not to the same extent.” Whatever the challenges, Brussels remains a critical legal center. There are signs that at least some business may be returning. Mergers and acquisitions have been creeping upward. The European Union is stepping up its cartel investigations, which is likely to rejuvenate antitrust work. And many firm leaders say they are in there for the long haul. “No one is marching in there with the expectation that you’re going to make a fortune,” says Daniel Swanson, head of Gibson, Dunn’s antitrust practice. “On the flip side, if you’re going to be a serious player in the antitrust world, you have to be in Brussels. There is no substitute to being near the commission.” Emma Schwartz can be contacted at [email protected].

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