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Things have shifted dramatically for Cooley Godward’s Kenneth Guernsey, a partner in the San Francisco office, since Nasdaq started showing signs of vulnerability in March. At the market’s peak in late 1999 and early 2000, Guernsey — a member of the firm’s new business intake committee for the Bay Area — had stopped bothering to return phone calls to prospective clients. Now he’s not quite so picky. It’s a quiet afternoon in May, and Guernsey methodically works his way through the pink message slips on his desk. At 4 p.m., he calls a meeting to discuss a client his firm turned down work for back in September. After the past year’s frenzy, the slight slowdown is a welcome respite, says Guernsey, who spent five years in the 1990s as firmwide managing partner. “Enough steam has been taken out of the system that it is feasible to take on new business again,” he says. “I think we’re all breathing a sigh of relief on the way to panic.” It’s a feeling familiar to many lawyers practicing at ground zero of the Internet revolution. Even if deals are still flowing, there’s a new reality descending on high-tech law firms. The market correction that has tempered the plans of so many dot-com clients is also prompting soul-searching among attorneys. Many law firms are starting to take a broader view of what it means to build a technology practice — broader geographically and broader in approach. It’s not just about “emerging companies” anymore. While the era of 500 percent gains on the IPO market may be over, they say, the real tech revolution — the transformation of global business — is just getting started. It promises to lift some Silicon Valley firms to the top tiers of the legal industry. Meanwhile, other firms — older, more-established firms not known for their tech expertise — see an opening to make Internet plays of their own. “Every firm is coming at this from a different direction,” says Francis Currie, a former partner at Palo Alto, Calif.’s Wilson Sonsini Goodrich & Rosati who joined the new Silicon Valley office of New York’s Davis Polk & Wardwell in 1999. “Silicon Valley firms are trying to migrate up the ladder, while Davis Polk is trying migrate down the ladder.” “I think migrating down is easier than migrating up,” he adds. Others see it differently. Call it a changing of the guard, a revolution, or a paradigm shift. There’s been a lot of talk lately, despite the market jitters, about Silicon Valley firms coming into their own. Local lawyers who remember when Palo Alto was viewed as a backwater are intoxicated with the knowledge that it was Silicon Valley that brought the legal market to its knees by announcing 40 percent associate pay raises in January; that it was Silicon Valley firms leading the nation in IPOs; that it was Silicon Valley lawyers changing the way lawyers get paid and even the way they get dressed. “When I first started practicing law, Palo Alto was not a consideration for most people,” says John Roos, a member of the executive committee at Wilson Sonsini. “Now there’s a perception that this is the center of the legal community.” J. Terence O’Malley, chairman of Palo Alto- and San Diego-based Gray Cary Ware & Freidenrich, notes that his firm has doubled its revenue and increased its attorney ranks by 90 percent since 1996. “The same firms that were central players in the technology sector 10 years ago are the central players today,” O’Malley says. “If anything, our share of the market has grown.” But even as firm leaders revel in their unexpected prosperity, they must reflect on what comes next. For the past decade, Silicon Valley firms have been shielded from major competition — first by obscurity and then by an overheated market with a voracious demand for legal services and without enough lawyers. No one can count on that imbalance continuing forever. And the increasingly fickle investment climate is a sobering reminder that, like the Internet economy itself, the business model of the Silicon Valley law firms is largely untested. There’s an argument to be made that focusing on early-stage companies is inherently short-sighted. “I think as the technology revolution moves into the next stage, you will see the maturation of Silicon Valley firms,” O’Malley says, noting that Gray Cary is exploring expansion opportunities in major markets including New York and Los Angeles. He projects the approximately 350-lawyer firm will reach 600 lawyers within the next two years. And Cooley is shoring up its full-service capabilities in order not to be pigeon-holed as an emerging company firm. “For years, the refrain was that firms like Cooley are fine for little companies but not for more mature industry players. We’re trying very hard to make that not true,” Guernsey says. Mozhgan Mizban, the firm’s director of client services, says Cooley is bringing on lawyers who can meet the needs of public corporations in commercial litigation, and who are sophisticated in securities law and leveraged buyouts. The firm’s expansion into Reston, Va., its first East Coast office, signifies a commitment to becoming more than a regional player, Mizban adds. Wilson Sonsini is also making a major statement with its entrance into the northern Virginia market, considering the 600-lawyer firm’s historically conservative approach to expansion. Other targets on Wilson Sonsini’s ambitious to-do list, according to Roos: New York and London. But some high-tech lawyers wonder if Valley firms can adapt quickly enough. Longtime Silicon Valley lawyer Alan Mendelson recently shook the Bay Area legal community by leaving Cooley Godward for the three-year-old Palo Alto office of Los Angeles’ Latham & Watkins. Mendelson says his decision to leave the firm that he joined fresh out of law school 27 years ago came from a belief that Latham — with nearly 1,000 lawyers and more than a dozen offices worldwide — has a lot to offer maturing startup clients. “I think Wilson will continue to succeed. I think Cooley will continue to succeed. I think they will all continue to be successful,” Mendelson says. “But if you want to be cutting-edge, you want to be at a place that can bring resources to bear from all over the place.” Mainstream law firms are beginning to target the maturing technology industry with just that message. Over the past three years, New York’s corporate titans have set up shop in Silicon Valley, betting that even scrappy technology companies would turn to experienced deal-makers for big-time transactions. Now firms such as Akin, Gump, Strauss, Hauer & Feld; Cleveland’s Jones, Day, Reavis & Pogue; and Chicago’s Mayer, Brown & Platt are reinventing themselves for the Internet Age and plotting expansion to the Bay Area. Their refrain is different — emphasizing the benefits of one-stop shopping and global reach. “The trick for traditional firms like ours is to take the unique skill sets and resources we have, and make sure we’re able to deliver them in a way that is compatible with the needs of technology companies,” says Joseph Sims, a D.C. lawyer who heads Jones Day’s new technology group. “Even dot-coms need labor advice, tax advice, litigation advice.” For the moment, these fledgling technology practices seem to involve a fair amount of smoke and mirrors: recruiting brochures, marketing slogans, and new policies for taking equity in clients. But don’t count the Akin Gumps and Jones Days out yet. As Fortune 100 giants like the General Electric Co. and Procter & Gamble Co. tackle the Internet, traditional law firms are gaining legitimate experience in the high-tech sector. Consider business-to-business, or B2B, Internet exchanges. Embraced as the next big thing by entrepreneurs and venture capitalists, the B2B market has been hijacked by established industry players. Instead of becoming participants in exchanges constructed by outsiders, major corporations are creating their own networks — global partnerships raising hosts of antitrust, international trade, and tax issues. And they are relying on their regular outside law firms for counsel. Seth Weinberger, a corporate technology partner at Mayer Brown in Chicago, says his firm currently represents parties in about 15 B2B Internet markets. “When you’re talking about the e-commerce activities of automakers or chemical manufacturers, now you’re talking about our regular target market,” Weinberger says of his approximately 900-lawyer firm. “We’re used to dealing with large legal departments on complex issues.” Then there’s the small matter of globalization. Up until now, geography has been the root of Silicon Valley firms’ phenomenal success. But as startup prospects begin to look brighter in overseas markets, geographic limitations may become an Achilles heel. For all their rapid growth, Silicon Valley firms have only recently tuned in to business opportunities beyond the shadow of the Santa Cruz Mountains. Neither Cooley nor Wilson Sonsini have foreign offices, though both say they are exploring London. In the meantime, international presence is an ace in the deck of larger firms. “Some companies that were taken public or financed early on by a Cooley or a Gunderson or a Wilson will come to us because of the global reach we have,” says Latham managing partner Robert Dell. For Latham and other general practice firms looking to parlay their global position and practice diversity into high-tech market share, the critical challenge may be overcoming the perception that Old Economy lawyers just don’t understand the needs of New Economy clients. To some extent, the past year’s hot market has dispelled the stereotype. According to Mendelson, Latham has entered a strategic partnership to handle deals for Menlo Park’s Mayfield Fund, a major Silicon Valley venture capital investor. “That would never have happened a few years ago,” he says. “Venture capitalists are finding that the traditional Valley firms cannot service them on the front end, and I think they’re becoming more open to firms that they might not traditionally have worked with.” James Snipes, managing partner of D.C.-based Covington & Burling’s 11-lawyer San Francisco office, also reports a softening toward outside firms. When Covington first arrived in the San Francisco Bay area in February 1999, prospective clients were unimpressed. But those same companies are now calling for help, Snipes says. “We’ve been fortunate in that this is a booming economy and we’ve had the winds at our backs,” he says. With one foot squeezed in the door, Snipes thinks his firm — known best as home to Washington insiders like former White House counsel Charles Ruff and former head of the Justice Department’s Antitrust Division Charles Rule — can build a successful technology practice. “A Cooley or a Brobeck has a long way to go in becoming a full-service firm to a public company in the life sciences area,” Snipes says. “What matters most to the client, then, is no longer raising funds, it’s getting their drugs approved and on the shelf. We know that [in the same] way Wilson knows how to set up a startup.” Going forward, the prospects of firms only now turning toward the technology sector depend largely upon the economy and whether or not Nasdaq’s “correction” takes on a more permanent cast. Still, it seems unavoidable that all firms will end up doing an increasing amount of technology work — both because there’s a lot of work to be done and because their existing clients are going to need it. Over time, that experience will provide entree into the Silicon Valley market. And by the same token, as Valley firms expand and diversify, they will become formidable competition to large mainstream firms. The convergence is already under way.
Counseling Start-Up Companies: Special Challenges and Considerations.September 19-October 2.

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