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Now that the new economy has sputtered to a halt, the big question facing San Francisco-area law firms is whether their record growth in profits and revenues will do the same. For the past few years, firms such as Brobeck, Phleger & Harrison — which last year unseated Los Angeles’s Latham & Watkins as California’s most profitable firm — have streamlined their practices to target emerging growth concerns. Even old-line firms such as Orrick, Herrington & Sutcliffe and Pillsbury Madison & Sutro (which this year became Pillsbury Winthrop as a result of a merger) expanded Silicon Valley offices last year. But this year is testing whether the law firms’ tech focus has staying power. Initial public offerings and venture capital financings — bread-and-butter practice areas for tech-focused firms — have virtually disappeared. “It hit the wall dramatically,” says Larry Sonsini, chairman and chief executive officer of Palo Alto tech powerhouse Wilson Sonsini Goodrich & Rosati. Only 23 IPOs went to market in the first quarter of 2001, compared to 120 a year previously, according to Thomson Financial Securities Data. Venture capital spending slid to $10 billion in the first quarter of 2001, according to the PricewaterhouseCoopers Money Tree Venture Capital Survey — down from $26 billion in the first quarter of 2000, but still a respectable level. To be sure, firms such as Wilson and Brobeck took plenty of companies public in recent years and can now extract revenue through such things as post-IPO securities filings, board and corporate governance work, and matters relating to layoffs and downsizing. But in this harsh climate, Bay Area firms are increasingly counting on litigation, especially complicated intellectual property matters, to fuel growth. Wilson Sonsini and rival Palo Alto tech specialist Cooley Godward, for instance, are both bulking up on intellectual property litigators. And since the mid-1990s Brobeck has been scaling back its longtime profit engine of asbestos and breast implant work to focus on the kinds of litigation that dog technology companies, such as unfair competition, privacy, and securities suits. Five years ago, asbestos and breast implant matters constituted about 60 percent of Brobeck’s litigation work; now it’s 15 percent. “The same people [who worked on the asbestos and breast implant cases] are rolling into the high-tech and Internet-related litigation,” says Richard Odom, the Brobeck partner who heads the firm’s complex litigation group. From January 1 to mid-May, Brobeck launched defenses in 21 new securities litigation cases. Such cases require more lawyers than the asbestos and breast implant cases do, Odom says. But what about the swollen ranks of the Bay Area firms’ corporate practices? Brobeck, for instance, increased its ranks of corporate lawyers during the tech boom years to 489, or 56 percent of the firm’s 870 lawyers. (It has 381 litigators.) And those numbers are the product of furious growth: In 1998 the firm had 458 lawyers and $250.5 million in revenue; two years later, it had 724 lawyers and $476 million in revenue. In 2000 alone, Brobeck hired about 300 associates. Still, Brobeck chairman Tower Snow, Jr., says that “we don’t have a lot of fat.” He touts his firm’s emphasis on being lean and mean as Brobeck’s best defense against the downturn. “We grew our business in the last three years, but we also really focused intensely on having the leanest infrastructure we could,” Snow says. For example, he says, the firm had shaved its staff-to-lawyer ratio to 1:1 from 1.35:1 three years ago. And it’s cut staff, handing pink slips to 16 people this spring, when the massive litigation project they worked on wound down. The firm also canceled its practice group retreats for a savings of $3 million. Hiring of laterals has slowed from the frenzied pace of the boom years, and the associate exodus to dot-coms has stopped. But the sizes of summer and first-year classes remain at 2000 levels — no firm has yet braved the public relations nightmare of downsizing those groups. And it’s unclear whether Brobeck and the other Bay Area firms will soon turn to cuts in the associate ranks for cost savings. Because Bay Area firms were caught shorthanded when the tech industries took off, they now are reluctant to let go of corporate associates. Reassignment is the preferred alternative: Snow says that about 80 Brobeck associates who were idled in the downturn are being put to work on other, nontechnology matters until the tech sector revives. Among corporate lawyers, idleness varies from firm to firm, and from partner to partner. Work is slow for lawyers who specifically focus on emerging growth companies, with a heavy concentration of dot-com clients. But corporate groups at larger firms with a cadre of public companies in their client base are still chugging along, albeit at a slower pace — an opportunity to regularly leave the office at 6, rather than at midnight. And that may be the closest thing to a silver lining from the tech downturn that Silicon Valley will see for some time.

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