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Four months ago, David Stevens and Derek Westberg hunkered over a table with their calculators. Would it be worthwhile, the Gray Cary Ware & Freidenrich associates asked themselves, to strike out on their own? The answer, they decided, was a resounding yes, and the two gave notice. On Oct. 1, they launched Stevens & Westberg in San Jose, Calif. Thus far, it’s proven to be a smart move. “We’re close to doubling our income,” Stevens said. And they’re not alone. In the last five years, at least 19 patent prosecution boutiques have been formed by refugees from larger IP and general practice firms. “Ninety percent of [California Bay Area] patent firms didn’t exist five years ago,” IP consultant Katharine Patterson said. Founded by senior associates and junior partners, these firms primarily file patent applications. Their emergence highlights the booming business in the patent arena and the advantages of operating in a smaller environment, particularly as San Francisco old-timers Limbach & Limbach and Majestic, Parsons, Siebert & Hsue are about to shutter their doors. The newcomers say they relish the independence, greater income and reduction in billable hours that having their own firm gives them. Some say it’s also an advantage to separate themselves from general practice firms where they are often overshadowed by litigators and corporate attorneys. MONEY, INDEPENDENCE, PRESTIGE The trend toward smaller patent prosecution firms hit Limbach & Limbach particularly hard. The firm, which will close on Dec. 31, has seen attorneys leave to set up at least three different shops: Dergosits & Noah, Medlen & Carroll and Haverstock and Owens. Former attorneys from IP firms Townsend and Townsend and Crew in San Francisco and Los Angeles’ Blakely, Sokoloff, Taylor & Zafman have also spun out their own boutiques. Former Townsend associate Michael Ritter, for example, had a brief stint with patent boutique Hickman & Beyer (which has since split into two different firms) before launching Ritter, Van Pelt & Yi in 1997. His co-founders, also from Hickman, had previously been with general practice firms. Lee Van Pelt had worked at Heller Ehrman White & McAuliffe, and Susan Yi had come from Cooley Godward. Patent attorneys say their practice lends itself to smaller firms with a handful of attorneys. “Unlike litigation, business and other types of practices, you don’t need a big group to do patent prosecution work,” Stevens said. And they say the advantages of splitting off from a larger firm far outweigh the risks of starting a new business. Besides the luxury of independence, patent attorneys say they are able to boost their incomes dramatically, primarily due to the lower overhead of a small firm. That math alone has convinced many of them to take the plunge. “The average associate at Limbach earns a percentage of billed hours,” Patterson said. “They’re not stupid. They wake up after four years” and realize that they earn 40 percent of a $7,000 assignment. With their own firm, they could get a client to give them the work directly, “set up a home office and earn 100 percent” of the billings, she said. In addition to compensation, patent attorneys say that splitting off from general practice firms can boost their image. “A lot of times prosecutors are treated as second-class citizens” in terms of billing, said Anthony Murabito, of San Jose’s 17-attorney Wagner, Murabito & Hao. They find it “more palatable to be on their own.” Westberg agrees. Patent prosecutors are “near the bottom of the list in profitability,” he said, which is “a source of strife between practice groups.” It comes down to the nature of the work, Westberg said. While litigators can crank out 2,700 to 3,000 billable hours, he said that’s “virtually unheard of for patent associates” who struggle to hit the billable hour target writing complex documents. He added that corporate attorneys also are able to leverage their work to get equity in a client. C. Scott Talbot, who heads Palo Alto, Calif.-based Cooley Godward’s patent group, said this perceived disparity is “sort of a caricature.” Firms that don’t integrate the patent practice “can be less profitable so the practitioners feel less valued,” he said. Cooley, he contends, has taken special pains to make sure patent prosecutors get the kudos that lawyers in higher-profile practice areas receive. So far, the strategy appears to be working. In the past 18 months, Cooley’s patent group has doubled in size to 43 lawyers. SIZE ADVANTAGE The small boutiques don’t regard general practice firms as big competitors. They say their size attracts clients since they can offer significant cost savings. “We can write an application for under $10,000,” Murabito said. “It’s impossible for Morrison & Foerster and Wilson Sonsini Goodrich & Rosati to write a case under $10,000.” Virginia Medlen, of Medlen & Carroll, said clients are also interested in the alternative billing methods, such as flat rates for certain tasks, that smaller firms can offer. Larger firms don’t have the freedom to make adjustments “without going through the management committee,” she said. “Meanwhile the client is out there wondering if they should stay.” Small firms say they also can be more responsive than larger firms and handle a bigger volume of less desirable work. Murabito said, for example, that most big firms focus on startup patents that venture capitalists require as a condition of financing. They aren’t interested in building portfolios of hundreds of patents that small firms can do more cost effectively, he said. The founders of these young firms are optimistic about the future and even hint that they can avoid the pitfalls that face specialized patent prosecution firms that grow too large. “The work is virtually unlimited,” Stevens said. “There is no reason you can’t grow to any size.” But Yi, who was with Hickman & Beyer when it split into two entities, believes a smaller number of attorneys may function better. “There seems to be a magic number that boutiques feel comfortable with,” she said. “When you get big enough there is some friction.” Murabito, who was with Blakely before co-founding Wagner, Murabito in 1995, acknowledges that it’s difficult to keep a firm together. “You have to grow a firm to keep it alive,” he said. And given the current market, that’s tough to do as associates jump to other firms, go in-house or go back to the engineering field. “Hiring somebody and counting on them to work for you for two to three years is challenging.”

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