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A pall has fallen over law practices in Northern Virginia’s once-bullish technology corridor. Just a year ago, venture capital was flooding into the region, and scores of local companies were poised for public offerings. Law firms were right there, paying top dollar to secure office space and hire scarce corporate lawyers. Today, local dot-coms are not going public — they’re going belly-up. Investors are not funding new projects at anywhere near the pace of the past year. And more lawyers than ever are fighting for a piece of what few deals are getting done. Local technology attorneys concede that business is down and their offices may struggle, at least in the short term. “It’s going to be harder to get clients. It’s going to be a riskier proposition with respect to getting paid. And it’s going to be a challenge for all of us to grow our practices as we’d expected,” says David Sylvester, head of the local corporate practice at Boston’s Hale and Dorr. On a brighter note, Sylvester adds, “We think that Northern Virginia is clearly still a viable market. But I think it’s going to be quite a different place for the short term.” At least publicly, the quick slip of the Nasdaq and the chill in local investing has not profoundly affected lawyers’ enthusiasm for expansion. “I personally still feel extremely good about our decision to open this office,” says Joseph Conroy, managing partner of the Reston office of Palo Alto, Calif.’s Cooley Godward. “The market is going to cycle up over the medium to long term, and there could not be a better place for Cooley to establish an East Coast presence.” At firms like Morgan, Lewis & Bockius and Akin, Gump, Strauss, Hauer & Feld, which laid plans to open sizable Northern Virginia offices during the heady days of 1999 and early 2000, attorneys say they will stick it out through the downturn. Some even predict that a business slump will increase work for lawyers in countercyclical areas like litigation, bankruptcy, and employment. From firm to firm and even lawyer to lawyer, there is little agreement on the state of the market. Some lawyers swear by life sciences; others claim that venture capital is still flowing into telecommunication infrastructure plays. One thing is clear. No one is happy with the current market climate, but no one is giving up on Northern Virginia yet. “I think everybody is taking a breath and waiting to see what happens,” says Steven Meltzer, co-chair of Shaw Pittman’s technology group. “I’m here for the duration of my law practice and I don’t ever plan to hang it up and go back to Washington.” As a longtime player in Northern Virginia’s technology community, Shaw Pittman is among those firms well-positioned to weather a downturn, Meltzer says. Last year the firm handled two high-profile local IPOs — Varsity Group Inc. (previously VarsityBooks), which has seen its stock price plummet from a peak of $13 to about 25 cents per share, and WebMethods Inc., which enjoyed one of the biggest first-day bounces of the year and has remained above water at more than $60 per share. Even between Thanksgiving and Christmas, among the slowest periods since the firm opened in Tysons Corner, the group closed several financing deals, Meltzer says. Late last year, Shaw Pittman took on new office space to accommodate up to 120 lawyers. “We’re doing well, and I’m optimistic. We feel like we ought to continue to attract the best companies,” Meltzer says. But Meltzer says he sees potential problems ahead for firms that came into the market too late and without a solid client base. “In any boom market you get an excess of folks running in and it will be a challenge for them to maintain momentum.” Meltzer is not the only one wondering whether some firms may have moved too aggressively into Northern Virginia during the peak of a frenzied market. “When we were looking at how many attorneys some firms were sending into Northern Virginia, we felt we’d be more comfortable with more judicious growth,” says Hale and Dorr’s Sylvester. His firm, counsel to six local technology IPOs in the past two years, currently has only 18 lawyers based in Reston, Va., and approximately 50 in Washington. By comparison, Cooley Godward, currently at 80 lawyers, has leased space to accommodate more than 100 attorneys in pricey Reston Town Center. And Morgan Lewis is slated to take on space in Tysons Corner for 70 lawyers over the next two years. D.C. managing partner Michael Kelly says he had to decide whether to sign the lease within hours of seeing the construction site in August or risk being shut out of the overheated market for months. According to local lawyers and real estate agents, premier space in Northern Virginia can go for more than $40 per square foot. After a glimpse of soaring real estate prices last summer, Cleveland’s Jones Day Reavis & Pogue nixed plans to open an office in Northern Virginia, says D.C. partner Joe Sims, head of the firm’s technology practice. “It was a sellers’ market. Landlords were looking for top dollar, and rents in mediocre buildings were topping $30 per square foot,” Sims says. “It left us a little uncertain about whether now was the right time.” Price also came into play as Piper Marbury Rudnick & Wolfe late last year sought new office space in Reston for approximately 35 lawyers. Ultimately, Piper passed on space in Reston Town Center in favor of relocating to a campus office outside the main hub. The price differential of approximately $10 per square foot was part of the calculation, says Edwin Martin Jr., co-chair of the firm’s business and technology group. But those that leapt into the market at its peak defend the timing of their moves. “We have great confidence in the marketplace over the long term, and we think we belong there,” says Morgan Lewis partner Robert Smith, who will head the approximately 30-lawyer office. “It’s not like we’re moving 3,000 miles across country to set up an outpost when our principal office is in Silicon Valley.” “I don’t recall ever being in a conversation with anybody where they said we should pull back from Northern Virginia and wait a year,” adds Kelly, a member of Morgan, Lewis’ firmwide management committee. Akin Gump chairman R. Bruce McLean says the firm is enthusiastic about its new Tysons Corner office. “We’re in this with a broader focus than just taking start-ups to IPO. If you’re in that business, this is going to be a hard time,” McLean says. “Our strategy in Northern Virginia and firmwide has been to provide diverse services to mature and emerging technology companies.” CORPORATE GROUNDING Indeed, the bulk of those firms planting stakes in Northern Virginia generate most of their revenue from established corporations, not high-tech startups. While firms may be disappointed by early profits in Northern Virginia and may even close shop if a full-fledged recession hits, it’s unlikely that any will see more than a blip in overall firm finances. For the moment, firm leaders say they are simply slowing expansion and focusing on areas other than venture financing and IPOs. At Piper Marbury Rudnick & Wolfe, lawyers served as counsel to five local technology IPOs in the first three quarters of 2000. Now attorneys are devoting more time to public company clients and branching into so-called carve-out work for more established companies, says Martin. Carve-outs typically involve the creation of a new economy company by a major corporation. Ultimately, the mother company will spin off its creation to seek venture financing. Piper’s model has been to represent the big company and then shift to representation of the new company. “Are we as busy as we’d like to be? No, but we’re well-occupied,” says Martin. Other areas where local attorneys still see growth potential are intellectual property, litigation, employment, and bankruptcy. Morgan Lewis, for instance, will send over about six of its Washington, D.C., labor and employment lawyers when it opens its Tysons Corner office in May, says Smith. “We’ll be there to give companies human resources advice as they launch. And for those companies that have pushed employment behind their financial limit, we’ll help them with downsizing,” Smith says. In Northern Virginia, Hale and Dorr recently brought on board one new employment lawyer and a human resources consultant. Shaw Pittman’s Meltzer says his firm is also looking to pick up some additional employment expertise. Brobeck, Phleger & Harrison partner Kevin Lavin says growth in the corporate area may slow, but the firm will continue to build its local IP and litigation groups. Opinion splits on the outlook for bankruptcy lawyers. Overall, venture-financed companies are more prone to fade away quietly than to require massive debt restructuring. One exception may be local telecommunications companies, which took out large lines of credit in the mid-1990s. While unlikely to match the massive workouts of the early 1990s, the prospect of an uptick in bankruptcy business has some offices staffing up their teams. “People are starting to ask me bankruptcy advice and what they should do when the money runs out,” says Jonathan Aberman, managing partner of Pillsbury Winthrop’s Northern Virginia office. “I’m starting to think about what products to sell to meet profitability targets for next year, and I have my associates studying up on insolvency.” WELCOMING PARTY The timing of the slowdown has been a blow for Silicon Valley firms looking to quickly establish sizable offices in the Washington area. The local outposts of Cooley Godward, San Francisco’s Brobeck, and Palo Alto’s Wilson Sonsini Goodrich & Rosati scarcely had a chance to capitalize on their name recognition before markets closed to IPOs. Of the three, only Brobeck’s Washington, D.C., office has taken a local client public. Lawyers in the new offices are quick to dismiss the significance of public offerings, assuring that they are keeping busy with mergers and acquisition work, smaller financing rounds, and other client matters. “Clearly, the pace of work has changed from the torrid pace we saw at the end of 1999 and early 2000,” says Brobeck’s Lavin, who will serve as head of the firm’s Northern Virginia office. “Our overall strategy has not changed. Nothing we’ve seen changes our basic belief in this market.” For the record, lawyers and firms that have invested in Northern Virginia practices remain optimistic. But privately, some lawyers concede the outlook is grim for the coming months and possibly longer. Some predict that lawyers from local firms will begin to migrate back to Washington even if their Northern Virginia offices don’t officially close down. Others say consolidation among the Northern Virginia practices is inevitable, and the strongest offices will take advantage of the downturn to cherry-pick attorneys. But few say the market has lost its allure all together. “Personally, I think it’s going to be a tough year,” says Pillsbury’s Aberman. He adds: “But if you believe that the economy has changed forever, you have to believe that a technology practice will continue to be relevant over the long haul. If you believe something has fundamentally changed in the local economy, you have to take a long-term view.”

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