Law and Order

COMING TOGETHER – AT A COST

"Even with so much being done on the Internet and by fax and telephone," says Joel Papernik, a New York partner with Mintz Levin Cohn Ferris Glovsky & Popeo, a Boston-based firm of 450 attorneys, New York is "still the easiest place to get the largest number of actors in a single room to deal with either a transaction or a problem." Face-to-face and eyeball-to-eyeball is the only way to do business when millions of dollars are at stake. That's particularly true, says Papernik, when some of the actors are from overseas. "Europeans are ready to jump on a plane to come to New York from London or Munich," he says. "The Japanese don't hesitate to come to New York, either."

But all the expertise and skill that comes with the New York brand of cosmopolitan, connected legal aid to the intellectually propertied costs more. "Everyone knows Skadden's billing rates are higher than the rate in Minneapolis," says Edward Filardi, a patent litigation partner with Skadden, a 1,750-lawyer New York-based firm that claims about half of the Fortune 250 companies in the country as clients. That's OK for many firms: "In a major case with a multi-billion dollar drug, you're not going to worry too much about lawyers' fees," says Filardi.

Real estate rates – which account for much of the overhead in big firms – in San Francisco and Boston have begun to rival those in Manhattan, so there might not be a gaping price differential when it comes to biotech patent services from those cities, Filardi says. However, Minneapolis, Philadelphia, and other thriving IP talent centers can offer cost competition to New York firms.

Biotech companies may be well-advised to use local or boutique firms to land their patents, then haul out the heavy artillery from New York when litigation is in the offing, says Filardi. "We tend to be called in later in the case when it's about to be tried. It works for us."

BOUTIQUES GET SWALLOWED UP

Rising IP service costs are a factor to be reckoned with, particularly in light of increasing merger and acquisition activity in New York patent practices. The city's big firms have taken to regular raids on IP boutique talent, as well as some wholesale acquisitions of the smaller specialized firms that long dominated the history of intellectual property in the United States.

125-year-old Kenyon & Kenyon was the law firm of Thomas Edison, Fish & Neave represented the Wright Brothers, and Pennie & Edmonds was the firm to which Guglielmo Marconi turned when he invented wireless radio. But Pennie & Edmonds shut its doors forever in December 2003, sending most of its partners to big firms and other boutiques and their leaders are seeing pressures to join with the big-ticket firms.

In 2002, Morgan Lewis & Bockius established a IP law beachhead in New York with the acquisition of Hopgood Calimafde Judlowe & Mondolino, a patent litigation boutique. In 2003, New York's 5-attorney Lieberman & Nowak, merged with Dickstein Shapiro Morin & Oshinsky of Washington, DC, bumping the number of intellectual property practitioners in the combined firm to 60. Such moves are typical of what some see as a dwindling population of specialty law firms.

In addition to IP talent, however, some big firms are absorbing pieces of the culture of the boutique firms. Jones Day, for example, inherited a Pennie & Edmonds program of "grow-your-own" patent lawyers that involves recruiting scientists and paying their way through law school.

Not all the smaller firms are shrinking; some New York-based firms are striking out into new markets on their own. Fitzpatrick Cella Harper & Scinto's newest office is in Orange County, Calif., but the firm manages to keep 120 intellectual property lawyers busy in midtown Manhattan as well. Darby & Darby, a 109-year-old New York firm, picked Seattle for its new West Coast presence.

Success, not lack of it, is what is making the specialty firms such attractive targets for the big firms, says James W. Dabney. The New York patent litigator was with Pennie & Edmonds right up until it closed its doors, and says the firm's final year was its most profitable ever. Pennie & Edmonds did not collapse, even though it suffered high profile defections and was hit with some significant malpractice claims for handling of life sciences-related cases. The official explanation was that there were synergies to be achieved by allowing big firms to gobble up segments of the thriving Pennie & Edmonds business. Talk in the legal community is that in-fighting over some significant wins, rather than fear of looming losses, was what rent the venerable boutique asunder.

Intellectual property practices, once considered too pricey and specialized to pay their way in big corporate firms, are now necessities for large firms courting large clients, says Dabney. "The major firms have litigation groups that handle high-stakes sophisticated commercial litigation. In recent years, as more and more of the nation's wealth has been held in the form of intellectual property, firms that traditionally didn't venture into that field are paying more attention to it."

Besides the wholesale mergers and acquisitions, leading individual practitioners are fair game for New York firms. Almost on a weekly basis, IP partners flee from small firms to big firms, and from one big firm to another, toting their client portfolios with them on the New York merry-go-round.

Costly as it might be for clients, the big firm appetite for IP talent is a sign that the products of the life sciences have become central to the nation's economy. In New York, the poaching and merger talks seem never to stop. For example, Alston & Bird, an 800-lawyer firm, has been expanding its New York practice by hiring partners away from boutique firms. Fish & Neave senior partner John Nathan moved to Paul, Weiss, Rifkind, Wharton & Garrison in the summer of 2003. A year later, Fish & Neave's former managing partner Edward Bailey jumped to King & Spalding.

Filardi explains the big firms' recruiting strategy simply: "We want the cream and we can pay for the cream. The billing rate goes up, but the stakes are high anyway."