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“With the amount of money that is floating around, clients don’t care if you’re billing them $200,000 on due diligence work for a billion-dollar deal,” Ciotti said. “They just want the work done right.”

The due diligence group now boasts seven senior attorneys, and pulls in many lawyers from other practice groups as the occasion arises.

Each deal brings $10,000 to $100,000 in billings per project in a matter of weeks, according to Mayer. Last year, the senior associate pulled in around $1 million in billings for her due diligence work.


MoFo isn’t the only firm drawing this lucrative work. San Francisco IP legal consultant Katharine Patterson says there are a few other firms with IP expertise matched to strong corporate and litigation practices.

“This practice is a three-legged stool,” Patterson said. “You need attorneys who are excellent corporate attorneys, great litigators and talented IP attorneys. If a law firm can bring all those attorneys to work together, then this is a fantastic business opportunity.”

IP due diligence not only generates a huge amount of billing time, but could also serve as a pipeline for corporate and other high-revenue work, such as litigation.

“There’s decent money in it, but the real money comes when you find that the client suddenly needs to file a patent suit or will likely be sued,” Patterson said.

Only a few firms, however, have combined those practices seamlessly to offer a sophisticated team of lawyers that can perform high-quality IP due diligence.

“There are so many cultural barriers within a law firm that there are not a lot of firms that have an easy time doing this,” Patterson said. “There’s been a historical antipathy between the litigation group and the corporate transactional group and the patent group. And in a lot of law firms, the patent people are still stuck in the litigation department.”

Law firms that report having a steady stream of IP due diligence work include Fenwick & West and Latham & Watkins. Both firms, like MoFo, have active life-sciences and technology transaction groups. The firms also have corporate attorneys with science and engineering backgrounds.

Fenwick’s technology licensing practice leader Lisa Kenkel, for instance, is a biochemist and was the former general counsel of Canadian software firm Corel Corp. Kenkel’s practice focuses on IP due diligence in the technology sector.

She said the firm decided to focus on IP due diligence as a way to develop the licensing group and “create a competitive advantage” for the firm’s M&A team.

“A lot of companies are growing by acquisitions, and they need sophisticated due diligence work,” Kenkel said. “Our group is geared to doing M&As and is not just checking the big legal issues, but also business issues relating to IP and valuation.”

Kenkel’s group has done due diligence for all 32 of Cisco’s acquisitions in recent years, including its $6.9 billion purchase of Scientific Atlanta in November.

It has been a valuable practice area for the firm. “IP due diligence in 2004 was very strong and represented over 40 percent of the Fenwick licensing practice,” she said. “IP due diligence work grew over 40 percent in 2005 as compared to 2004, and represented over 50 percent of the licensing practice.”

Latham corporate partner Anthony Klein, head of the firm’s venture and technology transaction groups, said IP due diligence has become very high-end work.

“In the private equity sector, where investors are not necessarily working in the tech space, and yet they are looking at companies with a very strong tech focus, they really need us to be part of their teams,” Klein said.

At times, clients also expect attorneys to help them integrate their acquisitions.

“We’re instrumental both on the inception and execution of the deal,” Klein said.


The rising number of shareholder and antitrust lawsuits are also driving companies to obtain a more thorough IP due diligence report, said John Wehrli, a senior corporate associate at Latham’s life science group.

“We get a steady stream of IP due diligence work from public offerings,” said Wehrli, an engineer and patent attorney by training. “Securities law specifically requires underwriters to have a due diligence defense, and underwriters know that if they do not do their due diligence properly, they might be open to liability.”

But not everyone can do the work, according to Wehrli.

“You really have to have a team of attorneys that not only know IP law and have the technical expertise, they also have to know securities law to really do a good job,” Wehrli, who also has an MBA, said. “Not every firm has that expertise.”

As a result, some companies have been forced to hire IP specialists to do the due diligence when they feel their outside corporate counsel can’t do the job thoroughly. And that’s good news for IP specialty firms like Finnegan, Henderson, Farabow, Garrett & Dunner � a Washington, D.C., firm with an office in Palo Alto.

The firm recently formed a 40-person due diligence group to accommodate and facilitate multiple client queries for the service, according to Palo Alto Managing Partner Jean Fordis.

“The risk of overlooking things is high and the pressure is intense, because you have to turn these things around quickly,” Fordis said. “If you can’t staff the team appropriately, then costly mistakes can happen.”

Companies can get in trouble with shareholders if they pay too much for an acquisition. Or if they find out after the deal went through that the target company’s technology infringes someone else’s patent.

“The stakes are just higher these days, and sophisticated clients know that,” Fordis said.

Other large general practice firms are also starting to take notice, Ciotti said. In the last few months, he’s been fielding a lot of calls from other firms trying to get him to move his due diligence practice.

“This is certainly a very fast-paced exciting work and a great avenue to attract new clients and new work,” Ciotti said. “We’ve become key players in deal making.”