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Silicon Valley is moving on to the next new economy. In a recent radio interview, Oracle Corp. chief executive Larry Ellison announced the future, and it was biotechnology. “The great new companies,” he said, “will be in the biotech field.” Ellison is not just predicting from the sidelines. He owns two biotech companies: Israel’s Quark Biotech Inc., and South San Francisco’s Advanced Medicine, a company devoted to discovering gene-based drugs. His archrival, Microsoft Corp. chairman Bill Gates, is gearing up, too. Gates is on the board of ICOS Corp., a Bothell, Wash., biotech company researching erectile dysfunction. And where Larry and Bill travel, of course, lawyers are sure to follow. If the economic success story of the 1990s was about connecting to the outside world through software and the Internet, this decade’s tale will be about fixing aging bodies by turning the mysteries of genetic science into commercial products and cash revenue. The San Francisco Bay Area, Boston, San Diego and Montgomery County, Md., are the hot spots for the emerging biotech industry. In California especially, where the health of so many firms was tied to the Internet economy, many of them are latching on to biotech as a way out from under the dot-com debris. (For a list of firms that prosecuted the best biotech patents, see Power Prosecutors) Biotech is the logical next step for Silicon Valley. Without ultra-fast processors, there would not be DNA sequencing and gene chips, which are the building blocks of the biotech revolution. Gene chips are plastic-enclosed glass plates containing a synthetic strand of DNA sequence. They are used to identify abnormal mutations in a gene sequence, and their manufacturing process is similar to that of computer chips. Twenty-two years after the Supreme Court ruled in Diamond v. Chakrabarty that living organisms could be patented, biotechnology has blossomed into a robust firm practice area. In 1996 the U.S. Patent Office received 12,000 applications for biotech-related patents; by 2000, that number had doubled. And where patents go, litigation follows. A December 2001 study by two economists from Cambridge, Mass.’ National Bureau of Economic Research found that for every 1,000 biotech patents filed through 1999, there were 25 infringement suits. For nonbiotech patents, there were just 19 cases per 1,000. The cases tend to have huge stakes, says Gerald Dodson, a partner at San Francisco’s Morrison & Foerster. In 2000, Dodson won $200 million for the University of California in its suit with Genentech Inc. Now Dodson is lead trial counsel for the University of Rochester Medical Center in an infringement suit with Pharmacia Corp. and other pharmaceutical companies for the popular antiarthritis drug Celebrex. The case, pending in a Rochester federal court, could bring the university billions of dollars. It takes more than a fierce litigator to build a biotech practice. Increasingly, a crack patent-prosecution team is key to a firm’s biotech IP strategy. Patent prosecutors offer the kind of deep scientific background that clients relate to and demand. And patent prosecutors, who often hold Ph.D.s in the life sciences, are frequently brought in as experts in biotech litigation. Firms that know about software and chips need this expertise to move into the scientific arena. “Biotech credibility is a little harder to invent than information technology expertise,” says David Marsh, a partner at Washington, D.C.’s Arnold & Porter. Venture capitalists are intensely interested in the quality of patent protection that these new companies receive, says Morrison & Foerster partner and biotech expert Thomas Ciotti. “We represent many VCs and when doing due diligence, we look at a company’s IP and gauge the strength of protection,” he says. In biotech more than other fields, prosecutors can bring in clients. IP lawyers must know enough science to be able to communicate intelligibly with scientists, says Carl Gulbrandsen, managing director of the Wisconsin Alumni Research Foundation (WARF). More than 40 law firms have worked with WARF over the years, including San Francisco’s Heller Ehrman White & McAuliffe, which handled a stem-cell licensing dispute with Geron Corp. that settled in January. Says Gulbrandsen: “Our first test [for hiring counsel] is, does the scientist say, ‘You gotta hire this guy’?” Henry Beck, a partner in Heller Ehrman’s New York office, says that 15 years ago his firm made a bet on biotechnology — not information technology — as the dominant Valley paradigm. “In a way we missed the boat on the information-technology side,” Beck says. “So money didn’t fall from the sky on us from the dot-com thing.” Today, Heller has about 100 lawyers and Ph.D.s in its life sciences group. Besides WARF, the firm’s clients include Aventis Pharma Deutschland GmbH and Sunesis Pharmaceuticals. Many of Heller Ehrman’s peers in the Valley and San Francisco are only now falling in love with biotech. If they acquire biotech expertise, they may be able to dust off their dealmaking skills. In 2001, for example, Big Pharma spent approximately $60 billion buying biotech companies — nearly double 2000′s number — according to a PricewaterhouseCoopers study. Palo Alto, Calif.’s Fenwick & West is one of those firms trying to catch up. Earlier this year, Fenwick nabbed technology litigation superstar Lynn Pasahow from San Francisco’s McCutchen, Doyle, Brown & Enerson. Pasahow has brought in some blue-chip biotech clients, including Dr. Stanley Prusiner, who won the Nobel Prize for medicine in 1997 for his work on prions — proteins that can cause neurological disorders. Pasahow has his work cut out for him. Fenwick & West rests on a foundation of hardware and software clients. There isn’t a biotechnology specialist in the partnership. Biotech is “not where we are now,” says Fenwick spokesman Brian Colucci, who adds that the firm would like to move in that direction. While Fenwick builds, Palo Alto’s Cooley Godward rebuilds. Cooley feasted on the Internet economy, representing clients like MP3.com. Although the firm has a life sciences group, it is more active on the transactional side than in the IP arena. Cooley’s clients include Aventis SA, Bayer AG, Bristol-Myers Squibb Co., and Elan Corp. In 2000, the corporate side took a hit when transactional partner Alan Mendelson, a biotech specialist, left for Los Angeles’ Latham & Watkins. That same year, the firm suffered a setback on the IP side when partner and biotech expert Richard Neeley, who holds a Ph.D. in chemistry, decided to scale back his practice. Neeley is now vice president for IP for Signature BioScience Inc, a company established to discover new drugs for the treatment of cancer and other diseases. He kept his ties to Cooley, though, retaining of counsel status. Last fall, Cooley started to recover when it snared Ann Pease, an associate and patent prosecutor at New York’s Pennie & Edmonds with a Ph.D. in biochemistry. According to partner Scott Talbot, the firm plans to build the practice around Pease, who is a special counsel. Today the firm has nine lawyers devoted to biotech patent prosecution, but none of them are partners. Palo Alto’s Wilson Sonsini Goodrich & Rosati dominated the deal economy in Silicon Valley, but the firm doesn’t know much about DNA. Wilson Sonsini’s only biotech patent prosecution partner, David Weitz, left in May to go in-house at Syrxx Inc., a San Diego�based biotech company. His departure leaves the firm with a handful of lawyers who can handle a biotech patent, and none of them is a partner. “We’re not known as a biotech powerhouse, for sure,” says Kenneth Clark, managing partner of Wilson Sonsini’s technology transactions group, “but we don’t intend to stay that way.” The firm may have a tough time rebuilding. “It’s very difficult to start from zero, [in such a complex area of science and law],” says Richard De Lucia, a partner at New York’s Kenyon & Kenyon. The firm has been handling biotech cases and deals for a long time. And De Lucia is happy to have the head start. San Francisco’s Brobeck, Phleger & Harrison knows the value of experts. Two years ago the firm lured six biotech specialists — all partners — from Los Angeles’ Lyon & Lyon. Today, Brobeck has nine lawyers with doctoral degrees in sciences doing patent prosecution work. The Lyon & Lyon contingent brought over Genentech as a client. Minneapolis’ Dorsey & Whitney has taken more of a “big bang” approach to building biotechnology expertise on the West Coast. In May it acquired San Francisco’s 27-lawyer Flehr Hohbach Test Albritton & Herbert. The IP boutique has been representing Genentech and other West Coast biotech companies since the 1980s. This avenue, however, carries a different set of risks, as Los Angeles’ Irell & Manella discovered the hard way. In 1987 Irell acquired Ciotti & Murashige, a Menlo Park, Calif.-based IP boutique founded in 1982. Ciotti & Murashige had represented biotech clients like SRI International; Scripps Research Institute; Cetus Corp.; California Biotechnology Inc.; and the Collagen Corp.; Kate Murashige, who holds a Ph.D. in chemistry, had practiced patent law at Los Angeles’ Lyon & Lyon and in-house at Genentech. Ciotti had been an in-house patent counsel for both Alza Corp. of Mountain View, Calif., and Chevron Corp. Ciotti & Murashige “had some wonderfully skilled lawyers,” says Morgan Chu, Irell’s co-managing partner. “We thought it was a great merger,” he says. Things went bad quickly. Ciotti experienced what he calls “a significant feeling of isolation and failure” at Irell. Part of the problem was billing. Ciotti & Murashige often charged flat fees. Irell’s lawyers wanted to see the group produce more billable hours. “We billed a lot on a fixed-fee basis — it was very profitable — and they didn’t understand,” says Ciotti. “They were trying to put a square peg into a round hole.” Irell’s lockstep compensation system was also a problem, says Chu. Ciotti lawyers were used to performance-based compensation. “We were sympathetic to that,” Chu says, “but the lockstep policy is so ingrained a part of the firm that we found it hard to make an exception.” The Ciotti and Murashige group went to Morrison & Foerster in 1991. MoFo was “much more interested in what we thought about the practice of the law, and how we’d fit in,” Ciotti says. “They wanted to know whether we’d sit down here [in Silicon Valley] with green eyeshades on and never interact.” Ciotti demanded that his group have autonomy. “We told MoFo, ‘You guys have to trust us. There are some things about our practice that are different. We have different staffing and different billing [methods].’” Today Murashige and Ciotti are key players in the biotech group, which includes 22 lawyers and 10 patent agents. The firm’s biotech clients include Stanford University; Kosan Biosciences Inc. of Hayward, Calif.; AntiCancer Inc., of San Diego; Collagen Corp. of Palo Alto; and American Pharmaceutical Partners Inc. Irell lost momentum when the merger failed but not its ambitions in biotechnology. The firm now has four biotech patent prosecutors; all are partners with Ph.D.s. Most importantly, Irell has Chu, a highly accomplished trial lawyer. Chu represented City of Hope Medical Center in a battle waged in state court in Los Angeles against Genentech over patent licensing revenue from biotech-created drugs. The litigation resulted in a $500 million win for City of Hope. Irell is also currently working with San Francisco’s Townsend and Townsend and Crew to represent genetic-chip maker Affymetrix Inc., in a series of patent cases. Not all mergers crash and burn. John Lynch spent much of the past decade defending Monsanto Co. in a biotechnology infringement suit with Mycogen Corp. over genetically altered plants. During the case, Lynch’s firm, Houston’s Arnold, White & Durkee, merged with Howrey & Simon. While some Arnold White lawyers didn’t join the new firm, those that did are mostly content, according to Lynch. The key to a successful merger, Lynch says, is the willingness of the acquiring firm to integrate prosecutors into the stream of litigation and transactional work. Lisa Haile, a patent prosecutor at Gray Cary Ware & Freidenrich, agrees. “When I was at Fish & Richardson, I was working in a vacuum,” she says, “and was not apprised of the business strategy and the business model [or] where the [client] was going.” She jumped to San Diego’s Gray Cary in 1999, where she heads the biotech IP group, and, she says, has more of a say in firm and client affairs. Clients, not firms, determine how involved lawyers are in strategy, says partner Timothy French of Fish & Richardson. “Some clients look particularly to their own general counsel for general business advice,” he said. “Others view their strategy more broadly and deal with IP attorneys as their primary strategists.” Haile says that she still feels some separation from her partners at Gray Cary. Some partners insist that incoming attorneys should be ranked first or second in their law school classes. “When I have a guy with a Ph.D. from Stanford, who spent seven years in the lab, why does he have to be No. 1 in his class?” she asks. Related chart: Power Prosecutors

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