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Intellectual property law firms have been around for more than a century. And during most of that time, they had the pick of the litter in terms of cases and clients. But over the last decade or so, general practice firms began to aggressively step into their territory. With deep benches of trial lawyers, the large firms have sought — and more often than not received — increasingly profitable patent litigation work. And in recent years several national and regional IP firms have either folded or merged into large firms. The effect of all this is that IP boutiques have been playing defense, trying to either find their marketplace niche or grow their firms to compete with the behemoths. Local IP firms are wading in the same uncertain waters as general practice firms circle around looking to add large groups of patent lawyers to keep pace with the competition. The Philadelphia marketplace has seen two of its top IP boutiques — 28-attorney Panitch Schwarze Jacobs & Nadel and 16-attorney Seidel Gonda Lavorgna & Monaco — join forces with large firms in the past five years. The city’s largest IP firm, 85-attorney Woodcock Washburn, flirted with Dechert a few years ago before deciding to stay independent — although the two will become neighbors next year when both move into the Cira Centre across from 30th Street Station. In terms of size and capability, IP lawyers say Woodcock Washburn is in a league of its own among local boutiques. The next largest IP firm in the Delaware Valley is 28-attorney Ratner Prestia, followed by 26-attorney Synnestvedt & Lechner, 26-attorney Caesar, Rivise, Bernstein, Cohen & Pokotilow and 20-attorney Volpe & Koenig. Woodcock Washburn has dealt with the 2001 death of arguably its most prominent partner, John Mackewicz, as well as the loss of rainmaking partner Philip Johnson, who left in 1999 to become chief patent counsel to Johnson & Johnson. The firm has grown rapidly — it had only 48 lawyers in 1999 — focusing on the more profitable patent litigation while still maintaining a strong patent prosecution and licensing practice. Woodcock Washburn partner John Donohue said the Cira Centre space will be able to accommodate 120 lawyers, showing that the firm plans to continue its aggressive growth strategy. Unlike most other IP firms in town, Woodcock Washburn has a deep enough bench of litigators to handle work for Fortune 500 clients such as Johnson & Johnson, Bayer and Microsoft. But Donohue admits that the firm has made adjustments to the increasing competition from general practice firms. It recently overhauled its associate compensation system to become more compatible with general practice firms and has raised starting salaries to $125,000 — putting it in a class with only Dechert and Morgan, Lewis & Bockius. Ward Bower, a principal at Newtown Square, Pa.-based legal consulting firm Altman Weil, has been studying the shifting marketplace for IP practitioners. He said even larger boutiques like Woodcock Washburn must make sure they have enough litigators to compete with general practice firms for Fortune 500 clientele. But he said having survived the loss of its first and second generation of partners, the firm must continue to be aggressive with its marketing. “I think if an IP firm wants to survive, it must realize that its competition is now coming from large firms and not boutiques,” Bower said. “And the large firms need to realize that when they bring in IP lawyers, they have to constantly feed them work through cross marketing because those lawyers lose their referral work once they join a large firm.” As for smaller boutiques, Bower said they have fewer choices for competing in the marketplace. He said they can diversify by adding more litigators, but that will come at great expense. Or they can start an alliance with a general practice firm or a litigation boutique. Ronald Panitch has been managing partner of Akin Gump Strauss Hauer & Feld’s Philadelphia office since the 900-attorney giant acquired Panitch Schwarze in 1999. He said Panitch Schwarze grew from six lawyers to 28 lawyers despite the fact that it did not have the critical mass of litigators needed to compete with the large firms. It did so by aligning itself with firms such as litigation powerhouse Hangley Aronchick Segal & Pudlin. He said the two firms would market the relationship to clients as a great combination of technical expertise and litigation strength. But he said it became more and more difficult to recruit top talent from law schools and other firms, so he sought out merger options. Panitch said that there is less room for error for IP firms and that smaller ones will have to market themselves to talent on the basis of lifestyle and to clients on the basis of billing rates. “There will be room for well-managed boutiques,” Panitch said. “They will be able to keep a certain level of work to themselves and survive. So I don’t think they are endangered by any means. But things will always be shaky when there is a management turnover and they will never be able to compete for the best and the brightest or the top litigation work. “But I think the real issue will be if they can transition successfully to the next generation. If not, the way to transition out is by joining a Dechert or a Pepper Hamilton or a Blank Rome. That way you get a nice payout and you protect your people.” Synnestvedt & Lechner managing partner Alexis Barron said his firm has been approached by general practice firms and has found that there would be advantages with recruiting, marketing and administration. But he said none of it is enough to make up for the disadvantage of losing independence. Barron said the firm has a niche in patent prosecution work and also certain forms of patent litigation. “Competing against the large firms is a challenge,” Barron said. “But that doesn’t mean you can’t have a litigation practice unless you represent GM or Merck.” Fred Koenig of Volpe & Koenig said his firm was split almost evenly between patent litigation and prosecution work as recently as eight years ago. But he said the fact that large firms have shown more of an interest in litigation than prosecution work has created more opportunities on the prosecution side. He said it has also helped losing direct competitors for that work such as Panitch Schwarze and Seidel Gonda. Now he said the firm’s practice includes only 25 percent litigation. “We have been approached but don’t really have an incentive to go to a large firm,” Koenig said. “You give up control. We will give up control but we’d rather do it with the people we have here.” Bower said another threat to boutiques focusing on prosecution work is outsourcing. He said outsourcing prosecution work to a country such as India is more than four times as cheap for clients looking to have their patents registered. He said he expects that trend to increase in the coming years. Caesar Rivise managing partner Manny Pokotilow said he has not sensed a major change in competition because his firm, which has more of a litigation focus than others its size, has found a niche with pricing. “I think it is actually easier to compete with the large firms because we typically charge less than they do,” Pokotilow said. “I know we aren’t going to get a client like Merck, for example, because we represent the generic [drug producers] and you can’t play both sides of the fence. But we are still involved in that kind of litigation and are happy to be representing the generic.” Coleman Legal Search’s Michael Coleman said about 90 percent of the calls he gets in the IP world come from large firms looking to add capability in that area. “My experience is just that the big are getting bigger and there is a sense of ‘Why should I leave any money on the table,’” Coleman said. “You get more bang for your buck from a larger firm. I know some of the deals [between large firms and boutiques] haven’t fully worked out but it still is the market trend.” Jack Michel, chairman of Drinker Biddle & Reath’s business and finance department, said that his firm’s IP practice has doubled in lawyer count and revenues since acquiring Seidel Gonda four years ago. He admitted that Drinker Biddle needed to get used to the structure of a patent prosecution practice. Patent prosecution work comes with a much larger overhead than other practices due to the need for patent agents and a large number of paralegals to supplement the lawyers. Michel also said many general practice firms are “horrified” when they discover the billable pricing arrangement that most patent prosecutors have with clients. He said Drinker Biddle has gone from having 40 percent of its IP work on an hourly fee arrangement to 80 percent. “It’s not a problem,” Michel said. “You just need to make sure they record the time and price it correctly.” Michel said the firm also worked feverishly to integrate its new practice into the firm by forming an IP associates committee, designing a specific marketing plan and modifying the accounting systems of both firms into one that was workable for all sides. “If we worked this hard on each of our practices, they would all be great but I would probably keel over because it’s hard work,” Michel said. Michel admits that patent prosecution work is much more price sensitive than prosecution or licensing work, especially on the electrical side of the practice. It is for that reason that both Michel and Panitch believe IP firms could make a comeback, focusing on clients not willing to pay the billing rates of large firms. Duane Morris IP group chairman Lewis Gould has worked at boutiques and general practice firms during his nearly four decades of practice. He said the only IP firm in town that can compete with large firms for major litigation work is Woodcock Washburn. But he said not even Woodcock Washburn can compete from a geography standpoint. He said Duane Morris has 20 offices across the United States and Europe, allowing the firm to not only cross-sell from between practices but also between different markets. And unlike some large firms that have acquired IP practices, he said Duane Morris has made it clear that it wanted a significant presence in litigation, transactional and prosecution work. “I know it’s the most profitable but I don’t think that a general practice firm can have a good IP practice with just the litigation side,” Gould said. “To really sell an IP practice you need prosecution work both in the U.S. and internationally. The litigators need the prosecutors and vice versa for it to really work.” Bower said he expects to see the current market trends in IP practice to continue as patent litigation work shows no signs of slowing down in profitability. “I think you will continue to see IP boutiques go belly up, some defensive mergers and consolidation of small boutiques into larger ones or the addition of litigators,” Bower said. “But I think the Philadelphia area will continue to be a good market for IP because you have a lot of knowledge businesses growing here. And that’s what fuels the competition.”

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