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Frank Slattery, USWeb/CKS Group Inc.’s general counsel, initially flinched when he heard the premium Wilson Sonsini Goodrich & Rosati demanded to handle the company’s March merger with Chicago’s Whittman-Hart. The price was double Wilson’s regular hourly rate. “I balk, but I understand,” Slattery said. “The reason we paid it was because we needed the expertise of the firm we hired, and we were willing to give them a premium price for that transaction.” With demand for their services soaring, San Francisco -area technology firms are regularly commanding premium, New York-style rates. They’re asking for flat fees or premiums above and beyond their regular hourly rates to handle initial public offerings and mergers and acquisitions. Though clients have mixed reactions to the practice, firms say the hourly rate doesn’t adequately compensate them for their expertise or their round-the-clock services. Lawyers want to be paid for the so-called “human sacrifices” they make to get deals done as fast as their Internet-driven clients want them. Firms and clients are still wrestling with the new fees. Lawyers increasingly want to get paid for their strategic advice, just as investment bankers do. In an M & A deal, investment banks take a percentage of the total value of the deal, which can generate millions. Lawyers, meanwhile, may get paid a fraction of that based on an hourly rate. And local firms have been a relative bargain for IPOs. Securities and Exchange Commission documents show that San Francisco-area firms collect an average $420,000 in fees for an IPO, while New York firms took in an average of $818,000. Los Angeles lawyers billed an average of $663,000. Silicon Valley firms don’t necessarily relish the idea of being a bargain basement. The premium rates are a move away from that. “We often bill value-added work at premium rates,” Mark Bonham, Wilson’s primary contact partner for USWeb/CKS Group. “The demand for our services is just more than we can cope with,” Bonham said. “There’s also an element of experience where we’ve done lots of billion-dollar M & A deals.” As the deals get larger, so do the stakes, Bonham said, forcing lawyers to run down even details that would get cursory review in a smaller deal. The billion-dollar deal has to be “bulletproof.” In USWeb’s case, the company had a deal in place on fees with Wilson for some time. The firm offered discounts on routine work in exchange for premiums on specialty work — like mergers or acquisitions. The merger of USWeb/CKS Group and Whittman-Hart, both Internet consulting firms, created an international behemoth worth $3.3 billion. Lawyers have typically made special arrangements for premium fees on a limited basis, and only with certain clients. Even Wilson has yet to develop a firmwide policy on premium billing and addresses the issue on a case-by-case basis. “We’re spending an increased amount of time on appropriate billing methodology,” partner Jeffrey Saper said, adding that flat fees for specific projects “is just one of the things we’re looking at.” An exception is Menlo Park, Calif.-based Venture Law Group, which several years ago incorporated premium fees for some transactions — like the sale of the company — in all of its engagement letters. “[We] say there may be circumstances where it will be appropriate for us to charge a premium,” said VLG partner Donald Keller Jr. “You’re better able to negotiate a premium if they’re already used to the concept.” In-house lawyers are divided over when — and whether — Silicon Valley firms can command premiums over the going hourly rate. Lisa Berry, general counsel at Mountain View’s Juniper Networks Inc., said she doubts she’d go for it if her longtime counsel — Wilson — responded to a call for services with a premium request. “I’d be very hard-pressed to agree to that,” Berry said. “I feel like I could go, if I had to, to a New York or Los Angeles law firm and get equally good service.” Berry said she strives to keep tasks well-defined when farming them out to outside counsel and expects firms “to bill me appropriately.” Berry chafes at the idea, though, of paying more because the firm she chooses is overworked. She said like all businesses, law firms should consider whether taking on new projects is appropriate. And Berry said she doubts a premium really buys a lawyer’s undivided attention since paying more cannot stop other clients from calling with pressing demands. Van Dang, director and associate general counsel at Cisco Systems Inc., said she would be equally hard-pressed to pay extra — in some circumstances. An acquisition-happy Silicon Valley company, Cisco uses Brobeck, Phleger & Harrison for all of its acquisition work. Dang said that after doing nearly 60 deals for Cisco, Brobeck should be more efficient, not more expensive. And the higher hourly rates for senior partners already reflect rising experience levels, she added. Cisco and Brobeck, she said, do not have a premium or a flat-rate fee structure in place, but she’s not against developing a flat-rate structure so legal fees are more predictable. Cisco has also tried to work with Brobeck on efficiency and stemming lawyer departures, which Dang said are just as disruptive to her as they are to Brobeck. But she torpedoed the idea that an hour of lawyer time at 2 a.m. should be worth more than an hour at 2 p.m. because of lifestyle. “If a lawyer is working nonstop for 24 hours on my deal, that’s one thing,” she said, “but if that’s just when a lawyer turns to my deal, then why should I pay more?”

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