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It’s a long way off, but Austin, Texas, has held special sway over Silicon Valley’s law firms. At the peak of the tech boom, San Francisco-based Brobeck, Phleger & Harrison was the biggest law firm in Austin. And while Wilson Sonsini Goodrich & Rosati chose Seattle as its first satellite outside its Palo Alto, Calif., home in 1998, the firm already had a lawyer telecommuting from Austin. Hailed as the nation’s other Silicon Valley, the Texas capital was a magnet for San Francisco Bay Area law firms in the late 1990s. They were drawn there by its cheap real estate, a dearth of local competition and fledgling venture capital and technology industries growing up around the likes of Dell Computer Corp. and the University of Texas. But since the downturn in technology company work took hold, the corporate practices at Lone Star outposts appear to have suffered more than their California counterparts. For Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, the downturn resulted in the firm cutting deeper into its ranks in Austin than in other offices. When the Menlo Park, Calif.-based corporate boutique laid off 16 associates, or 12 percent of its associate ranks, in October, seven of them came from the firm’s 20-laywer Austin office, a 35 percent reduction in workforce. The same holds true for Gray Cary Ware & Freidenrich, which laid off 46 associates Jan. 4, or 14 percent of its total associate ranks. But in Austin, the four associates cut represented 20 percent of the corporate group. “I think the Texas market got hit pretty hard, and disproportionately hard — it did have a lot of software companies that got hit pretty hard,” said Brian Beard, the Gunderson partner who manages the Austin office. “It’s not quite as diverse as the Valley is.” A greater proportion of the city’s startups focused on the Internet or telecommunications industries, which were more vulnerable as venture capital and capital markets dried up in late 2000. And Austin doesn’t yet have the multitudes of mature, publicly traded companies that can push on with deals even in hard times as in Silicon Valley. In the four years from 1998 to 2001, the state produced only 95 IPO candidates, and still fewer of them were technology companies, according to Thomson Financial Securities Data. A great number were energy-related companies, taken to market by Texas firms like Vinson & Elkins; Baker Botts; and Akin, Gump, Strauss, Hauer & Feld. In 2001 alone, Vinson took public four of the state’s nine IPOs while the Silicon Valley outposts didn’t take any companies public. Tech firms fared better during the boom compared to local firms, but still, the tech sector never produced a flood of deals the way it did in Silicon Valley. In 1999, the state produced 21 IPOs and of those, Valley-based tech firms represented 12 of those companies. The outposts of Brobeck and Gray Cary seem to be slightly better positioned because they have a broader range of practice groups than their Valley-based competitors. At Brobeck, for example, the firm’s Austin-based corporate team of 18 lawyers is slow, while “everyone else is working at 20 percent above where they were last year,” said Steven Zager, who until recently was the managing partner of the office. “All it takes is a couple of significant intellectual property cases.” But even then, Brobeck’s office there isn’t dependent on the Austin market. The bulk of the litigation work the Austin office is handling comes from outside the area. “When it comes to litigation, this is not the hotbed of litigation,” Zager said. “Firms that are built around the dot-com world are going to have challenges,” said Zager. “We were positioned to take advantage of it but our core business has been more broad-based.” And Brobeck has shrunk its corporate group in Austin by 33 percent in recent months through a layoff and a buyout program. Like Gunderson, Wilson Sonsini has felt the pinch of having too many lawyers focused on corporate clients. Of the four large Valley-based tech firms, Wilson’s corporate practice in Austin is the largest, with 21 lawyers. The remaining nine Wilson lawyers are doing IP and patent work. “Less than 10 percent of the office are litigators so in our regional offices, it’s been tough,” said Paul Tobias, Wilson Sonsini’s managing partner in Austin. The firm recently added to its corps of corporate lawyers, transferring partner J. Robert Suffoletta Jr. from San Francisco to Austin in October to help with clients and with marketing the firm. “I’ve been trying since we opened the office to convince another of my colleagues to move here,” Tobias said. The next move in Austin will be the hire of more intellectual property and employment litigators, Tobias said. The office currently has two IP litigation associates. “We are identifying potential candidates both internally and outside the firm to help us expand [litigation] here,” he said. Adding litigators helped Gray Cary plump the bottom line in its Austin office, which opened in January 1998. “We added nine litigators over the last 18 months, and they’ve been able to acquire significant market share in the area of patent litigation,” said J. Terence O’Malley, Gray Cary chairman. The outpost turned a profit after three years, he said. Yet corporate work has been off for the office and will likely remain that way until the economy picks up, O’Malley said. “We’ve been able to establish significant recognition in the Austin technology community,” O’Malley said. When the market took a turn, Gray Cary had four companies in line for an IPO, said Paul Hurdlow, the managing partner of Gray Cary’s Austin office. All were pulled and since then, one company was sold. The other three will likely line up again if the stock market starts looking hospitable. Gunderson’s Beard has similar hopes for a comeback, even though he says his firm’s satellite has a steady diet of work from a handful of strong and loyal clients. “We’ve gone through our slow period,” Beard said, “but it’s been a great move for us.”

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