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The king of securities class actions is getting into the IP game. Having seen its near-monopoly over securities litigation slip in the last two years, New York-based Milberg Weiss Bershad Hynes & Lerach has set its sights on a new, and potentially lucrative, area of the law. The idea: represent small companies that claim that larger businesses have infringed their patents. That’s likely to mean more grief for high-tech companies, many of which have already been hit by Milberg Weiss with stock-drop suits. The firm has already taken on its first patent infringement case and is in the process of building an IP department. “We’ve now decided that patent infringement is a big area of practice development,” said partner Melvyn Weiss. “A lot of companies are taking advantage of those with patents” because they believe the patents won’t be enforced. Weiss said his firm decided to jump into IP to fill a void in litigation that patent boutiques are unable to provide — an assertion that IP attorneys vehemently reject. But the bulk of Milberg’s clients are unlikely to come from Silicon Valley, where many companies regard the firm as a bully because of the stock-drop suits it has filed against them. “Milberg Weiss has sued virtually every one of our clients at some time, so they would be unlikely to represent them in a patent case,” said IP litigator Michael Ladra, a partner at Palo Alto, Calif.-based Wilson Sonsini Goodrich & Rosati. That means the firm will have to drum up business elsewhere — a strategy Milberg Weiss is already pursuing. The attorneys in the new practice group are based in New York, not in tech-rich San Francisco or San Diego. “Naturally we’re looking for the underdog, the little guy who can’t afford to prosecute or defend his patent,” said Reed Kathrein, a partner in Milberg Weiss’ San Francisco office. He added that for the firm to be interested in a case “it has to be a sizable matter.” The new focus in IP comes as the firm faces greater competition for lead counsel status in securities litigation. Patent litigation may provide a new source of revenue — particularly if the firm is able to help small companies target larger businesses with deep pockets. Milberg’s exact financial situation is something of a mystery. Last January, partner William Lerach told The Recorder that the firm has had an average of $65 million in profits per year over the last decade. However, the firm has lost high-profile litigators and has struggled — according to former partners — to land institutional investors as clients. That’s key if the firm wants to hold on to lead counsel status in securities class actions. Branching into patent litigation could prove a formidable revenue generator for Milberg. That was the case for Denver-based attorney Gerald Hosier, who made millions of dollars defending patents held by inventor Jerome Lemelson. TAKING ON BIG COMPANIES Milberg Weiss may have found such a treasure trove in General Patent Corp., one of the firm’s initial IP clients. General Patent manages and enforces intellectual property for a half-dozen companies and has filed five patent infringement suits in recent years against defendants including IBM Corp., Motorola Inc. and 3M Company. Based in Suffern, N.Y., General Patent recently hired Milberg Weiss to enforce a patent on cable modem technology widely used in communications. General Patent Corp. general counsel Paul Lerner said the patent could be worth hundreds of millions of dollars. General Patent Corp. has sent letters to several companies requesting them to license the technology. Lerner declined to say which companies have been contacted. “We had decided to develop an IP practice,” Weiss said, and General Patent Corp. provided “an opportunity we had been looking for.” The firm already has three attorneys on staff with prior experience litigating patent infringement suits and is looking to hire an experienced patent litigator, Weiss said. “We’ve found a lot of people aren’t happy with patent lawyers as litigators because they’re too technical and not courtroom savvy,” he said. Of course, patent firms scoff at that notion. They say their ability to master the technical is what makes them so valuable to clients. “It’s a myth that patent attorneys are not able to litigate,” said Guy Chambers, a partner at San Francisco’s Townsend and Townsend and Crew. “It’s essential to have an attorney that understands the technological issues and can present them convincingly at the early stage in litigation.” A look at who is handling patent cases shows that IP firms are among the go-to firms for patent disputes. Recorder affiliate IP Worldwide magazine did an analysis of 1,120 patent suits filed in the first six months of 2000. It reported that two patent firms — Townsend and Howrey Simon Arnold & White — were among the top five firms handling plaintiffs’ cases. Four of the top five firms on the defense side were IP firms. PATENT ENFORCERS Milberg Weiss, however, may be able to carve a niche by representing companies like General Patent — which makes a business of enforcing other people’s patents. “Several companies go to other companies with a patent portfolio and tell them, ‘We think XYZ is infringing. You pay us a percentage, and we’ll go after them,’ ” said Henry Bunsow, a partner with San Francisco’s Keker & Van Nest. He cited Patlex Corp. and Dallas-based Mahr Leonard Management Co. as two companies that buy or license patents and then pursue infringers. Chicago-based TechSearch is another such company. It has sued several major corporations for infringing an Internet-related patent and obtained licensing agreements from about 100 companies. Ladra said Lemelson is probably the most notable example of a nonmanufacturing licensor — someone who doesn’t make any products but licenses the technology. Lemelson amassed hundreds of millions of dollars in royalties from more than 100 companies using technology covered in his patents. Despite the potential financial windfall, Milberg Weiss attorneys may have their work cut out for them, patent attorneys say. With the decline in the economy, companies are more willing to litigate than pay out a percentage of their profits in royalties, Bunsow said. Bunsow said the U.S. Court of Appeals for the Federal Circuit is now siding more with defendants than it has in the past. “The breadth of infringement you can claim is being progressively narrowed,” he said. Morrison and Foerster partner Harold McElhinny added that while courts love individual inventors, they “don’t like companies that try to merchandize the patent business,” he said. Nevertheless, Milberg Weiss is pushing forward and contends that demand for the firm is high among potential clients. “More than a handful of cases have presented themselves,” Kathrein said. “People have inquired [in the past] and for one reason or another have been rejected.”

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