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Silicon Valley’s Internet boom began with the initial public offering of Netscape Communications Corp. in 1995. For the U.K., it was the IPO just 14 months ago for Internet service provider Freeserve. Since then, the British e-commerce market has taken off, with software and hardware entrepreneurs springing up around the U.K.’s tech centers. Following close behind are U.K. firms and other U.S. firms. Besides Brobeck, the firms trying to tap into the growing European tech boom include Dorsey & Whitney, Shaw Pittman, and Arnold & Porter. Like the U.S., the U.K. has been hit by the slump in confidence affecting dot-com companies. Boo.com, the sportswear e-tailer, went bust in May, and other less prominent companies have closed, reflecting the suddenly crowded e-commerce market and a new skepticism toward business-to-consumer start-ups. But the U.K. dot-com market had not reached the frenzied heights of the U.S. This is because the U.K.’s development, depending on whom you ask, is between one and three years behind the U.S., and U.K. venture capitalists have been more risk averse than their counterparts across the Atlantic. The IPO market has faltered, but the shakeout has, on the whole, trimmed out unviable businesses before they consumed too much money. And in new areas like m-commerce (e-commerce through mobile telephones) Europe has the edge over the U.S., which lags behind countries like Sweden and the U.K. in mobile telephone use and technology. Almost every commercial firm in London claims it is a New Economy firm, presumably on the assumption that if you say it enough, it may become true. Some firms, like Olswang and Bird & Bird, saw the future and have built their practices on top of intellectual property, media, and telecom practices to become almost solely focused on technology work. Other midsize firms, like Field Fisher Waterhouse, Berwin Leighton, and Paisner & Co., have been building e-commerce practices to distinguish themselves from the pack. Some lawyers say London is not just the dot-com center of the U.K. but of Europe. Taylor Joynson Garrett’s David Kent says that Germany and Scandinavia were seen as the New Economy centers of Europe two years ago, but now “Silicon Valley is London.” Kent’s firm concentrates on U.S. inbound work for clients including eBay.com and BroadVision, Inc. These companies head for the U.K’s capital partly because a common language makes it the natural first move into Europe. But they are also lured by the U.K.’s flexible labor market, skills base, and relatively benign tax system, which are attracting German and French tech companies to the U.K. U.S. companies are “buying up the U.K.,” according to Paisner & Co. partner Adam Rose, and U.K. law firms are keen to foster links with their California cousins. Osborne Clarke OWA, a firm with U.K. offices in London, Bristol, and Reading, may open an office in Silicon Valley to forge stronger links with California’s Stradling Yocca Carlson & Rauth and Fenwick & West. A spokeswoman says the U.S. firms may become full members of Osborne’s international alliance, and “we might not rule out a full merger.” The big City firms have woken up to the rich pickings available. Linklaters grabbed the front page of Financial Times last December, when it announced it would take equity in lieu of fees. Smaller firms like Field Fisher had already done so, but Linklaters is the only magic circle firm to take the plunge. Chris Kelly, co-head of Linklaters’s e-commerce business group, says the firm made the decision because prospective clients for its core corporate practice could not afford magic circle fees. “People we have started with are now serious players with a lot of cash,” he says. Other firms are not so ready to take the risk. Bird & Bird has set up a fund to invest in clients but has ruled out taking equity in lieu of fees because of possible conflicts. Linklaters’s magic circle rival, Clifford Chance, set up an internal review in January to weigh the case for taking equity. Despite recently going year-round casual in the spirit of the new economy, the firm has yet to make a decision on investing in clients. Idealab! Europe Limited corporate counsel Jonny Crowe says he is now giving less work to magic circle firms. “It’s a combination of high fees and a lack of real hunger for the work in the way they treat some clients. … They’ve been inflexible in terms of fee arrangements like equity in lieu of fees, discounts, and caps.” But when it comes to the big deals, investment banks advising on mergers or IPOs usually insist on a top-tier firm. Bird & Bird had advised bargain ticket start-up Lastminute.com since it was founded in 1998, but when it made its IPO in London and on Nasdaq in February, Morgan Stanley Dean Witter said the only firm to do the IPO was Linklaters. This is a market that could provide rich pickings for U.S. firms with their longer experience of working with technology companies and, as European companies grow, their access to capital markets. And the Brobeck Hale and Dorr branch office isn’t the only sign that the major U.S. firms are waking up to this potential. Here’s another: In July, Shearman & Sterling formally decided it will take equity for fees. The new policy applies to S&S clients worldwide.

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