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Intellectual property firms seemed to be nestled in a safeharbor as the economic storm began to lash the San Francisco Bay Area’s SiliconValley. After all, as tech-focused firms saw their corporate workplummet, they touted intellectual property as one of their strongest practices.But that hasn’t necessarily been the case at Skjerven Morrill MacPherson. Withtwo rounds of layoffs — 11 associates in October and another 18 earlier thismonth — Skjerven shows that IP firms aren’t immune to hard times. While several Silicon Valley firms have laid off associates,Skjerven is the only IP firm in the region to do so. Two factors have perhapsmade Skjerven more vulnerable to the recession than other IP boutiques: itsclient base and the fact most of its business is based in one place — SiliconValley. The firm primarily represents semiconductor, electronics andsoftware companies, which have been hardest hit by the downturn in the economy.By contrast, Townsend and Townsend and Crew, Skjerven’s primary localcompetitor, has included several biotech and medical device companies in itsmix of clients. Other IP firms with outposts in Silicon Valley — such as NewYork-based Fish & Neave, Washington, D.C.’s Finnegan, Henderson, Farabow,Garrett & Dunner and Boston’s Fish & Richardson — also have a widerrange of clients. And since they have a broader geographic base, they aren’t asaffected by the upheaval in a single market like Silicon Valley. Skjerven sees its experience as more akin to that of PaloAlto, Calif.’s Cooley Godward or Wilson Sonsini Goodrich & Rosati — bothof which rely on the Valley for the bulk of their client base — than other IPboutiques. “How we’ve been affected is similar to other techfirms,” said Skjerven managing partner Edward Anderson.”Historically, we’ve had the largest Silicon Valley patent and litigationpractice. Other [IP] firms have not had as large a Silicon Valleypractice.” Skjerven nearly doubled in size during the technology boom,growing from 70-odd attorneys in 1998 to 140 in October 2001. After completingtwo rounds of layoffs this month the firm has 103 attorneys. The firm had a higher percentage growth in revenue than manyother Bay Area firms last year. Revenue was up 15 percent, from $53 million in2000 to $61 million in 2001. But 150-attorney Townsend fared better with a 23 percentjump in profits from $74 million in 2000 to $91 million in 2001. The firm’sprofits per partner shot up 41 percent, from $425,000 to just under $600,000,giving Townsend the No. 8 ranking among Bay Area firms in partner profits.Skjerven does not release its profits per partner, but if its profit margin issimilar to that of other Valley firms, the per-partner average is likelybetween $400,000 and $500,000. Fish & Neave’s revenues grew at the same pace asSkjerven’s, increasing 14.6 percent, from $96 million in 2000 to $110 millionin 2001. The 170-attorney firm has 31 lawyers in its Palo Alto office. Susan Spaeth, Townsend’s managing partner for finance,attributed the firm’s revenue hike last year primarily to the patent andcommercial litigation practice. “One of our strategic decisions was to further grow thepatent litigation practice,” Spaeth said. Townsend has about 46 full-timelitigators. While there is a substantial amount of litigation work outthere, the competition for it is fierce. And while 40 percent of Skjerven’spractice is litigation, it doesn’t have the go-to name that other firms haveestablished. In its October issue, IP Worldwide magazine, anaffiliate of The Recorder, surveyed 50 of the Fortune 500 companies asto who they rely on for IP litigation and counseling. Skjerven did not make thelist, while Finnegan, Townsend, Fenwick & West, Morrison & Foerster,Cooley Godward, Fish & Neave and Fish & Richardson were among the top11 firms cited. MoFo partner Michael Jacobs said general practice firms haveincreasingly gotten IP litigation over the past decade. “One of thedrivers of the trend is the significance of major patent litigation,”Jacobs said. “To support major patent litigation you need a majorlitigation infrastructure generally.” That’s not true for all IP firms, of course. Finnegan, whichranked No. 1 in litigation in IP Worldwide‘s survey, had 151 new casesin 2000 and 164 in 2001, said Scott Mosko, a partner in Finnegan’s Palo Altooffice. While its workload is significantly smaller than Finnegan’s,Anderson said Skjerven has continued to get substantial litigation matters. Ithandled about a dozen cases in 2000 and 2001 and currently represents AppliedMolecular Evolution Inc. in a patent suit against MorphoSys AG and MoselVitelic Inc., which is being sued for infringement by Hitachi Ltd. It’s alsohandling several antitrust cases, including litigation for Borders Books. Competitors also speculate that Skjerven’s efforts to builda corporate practice and its hike in associate salaries last year affected thefirm’s bottom line. Skjerven’s corporate practice is primarily concentrated inthe San Francisco office, which opened two years ago. Anderson said the firmhad three business lawyers in 1998 and 17 prior to the layoffs. The number isnow 14. On salaries, Skjerven was one of a handful of Bay Area firmsthat followed Brobeck, Phleger & Harrison’s lead, increasing first-yearassociate salaries from $125,000 to $135,000. Brobeck cut its associate ranksthrough a voluntary buyout and the other firms that boosted salaries have laidoff associates. But Anderson said neither salary hikes nor its buildup inthe corporate area were a factor in the firm’s decision to cut its associateranks. “The simple answer is, we, like other law firms heremade hiring decisions based on historic growth patterns,” Anderson said.The economic downturn in the fall of 2001 “wasn’t foreseen by us or anyother law firm.”

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