Tip Top

Intellectual property is the trophy practice for many firms in 2011. LB examines the current popularity of IP at law firms and the story behind a spate of lateral hires in the past year

Whisper it, but for the global legal community the demise of Howrey brought two pieces of good news. First, its collapse meant a credible competitor had fallen away in the areas of intellectual property (IP), litigation and antitrust. The other bonus was that a number of excellent IP specialists were suddenly on the market. While Howrey’s decline has been well documented, the speed with which other firms scooped up many of the survivors is worth noting.

In Europe, the first high-profile IP partner departure was Richard Willoughby, who joined Rouse in May 2010. In the 12 months that have followed, 26 IP partners have left Howrey in Europe, including a 14-partner team that spun off to form Hoyng Monegier, comprising European managing partner Willem Hoyng, head of European IP Benoît Strowel and Amsterdam managing partner Bart van den Broek. Five partners from London and Germany also joined Field Fisher Waterhouse, including London IP head Mark Hodgson and German managing partner Joachim Feldges. In the US, once merger talks with Winston & Strawn fell apart, it didn’t take long for most of the IP teams to be snapped up, with the main beneficiaries being Winston itself and Hogan Lovells.

But it isn’t just the vultures picking over the corpse of Howrey that have accounted for the incredible amount of hiring that has taken place in IP in the past 18 months. The level of movement between firms (see table, ‘Key UK lateral IP hires (non-Howrey) 2010-11’, below) has reflected the rise in the importance of IP to international law firms. There are few practice areas more vibrant than IP right now. While it is not strictly counter-cyclical work, IP does not suffer as much from dislocation in the financial markets, and most lawyers in the area have remained busy through 2010 and 2011.

‘We have seen a number of UK and US firms aggressively pursuing greater depth in IP.’
Paul Roxburgh, Macrae Roxburgh Appleby

The highly publicised, high-stakes litigation taking place in the fiercely competitive digital media marketplace looks set to drive a large amount of work. Apple in particular is fighting a war on many fronts against a host of rival companies, launching an action against Samsung in April, claiming the Korean electronics company has infringed its IP rights in the iPhone and iPad with its Galaxy smartphones and tablets. This is in addition to ongoing litigation against HTC, Motorola and Amazon. Samsung has counter-sued. And while this type of battle royale between major electronics companies rarely makes it all the way to judgment – a grudging handshake is usually the outcome – the IP lawyers involved will enjoy the stage and the astronomical fees. Apple spent more than $2bn on advertising the iPhone between 2007 and 2010, so the legal fees spent protecting its monopoly rights are just a drop in the ocean. Lest we forget, BlackBerry owner Research In Motion was happy to pay Allen & Overy £6m in fees in one of the biggest cases of its kind to enter the UK courts to date (see ‘Cash cows’, LB187, page 32).

‘I think IP’s stock is higher than it has ever been and it’s going to continue to rise,’ says Edward Nodder, head of the IP department at Bristows. Although IP has always been a trophy practice at firms like Bristows, Bird & Bird and Taylor Wessing, IP teams at many other firms are enjoying their day in the sun right now. Margins are often unspectacular, and the flow of litigation can be sporadic, but there’s no doubt that IP is bringing revenues in, making it a precious commodity.

Dry well

It seems that everyone wants a decent IP practice these days, but achieving this is far easier said than done. The situation in London illustrates this. A number of US firms in the City are desperate to get their hands on respected IP litigators, particularly patent or ‘hard’ IP specialists. Paul Roxburgh, director of recruiters Macrae Roxburgh Appleby in London, recently told LB: ‘We have seen a number of UK and US firms aggressively pursuing greater depth in IP. This has been primarily driven by a desire to broaden their practice and have some kind of hedge against the drop off we have recently seen in transactional work.’

Such is the demand for decent IP practitioners that some claim firms have taken to trying to hide their prized specialists. Tim Powell, co-founder of IP litigation boutique Powell Gilbert, says that recently the firm was trying to find a direct dial for an associate on the other side of a case and there was no record of that person on the firm’s website. ‘I think some firms are careful not to put biographical details on websites in case recruiters take an interest,’ he speculates.

Powell Gilbert has recently hired lawyers from Freshfields Bruckhaus Deringer, Linklaters and Hogan Lovells, and Powell’s co-founder Penny Gilbert says she has seen a marked increase in hiring activity in IP of late. ‘If you go back 12 months I think it was quite different then,’ she says. ‘There were a large number of people with pretty good CVs adrift in the market; now I think it’s definitely tighter. Certainly the trainee retention rate seems to be much higher.’

‘The aftermath of the recession has chilled the recruitment market compared to earlier years, but there has still been a lot of movement in terms of lateral partner hires,’ says Richard Binns, head of IP at Simmons & Simmons, which picked up Howrey partner Marjan Noor during the mass exodus in 2010. ‘In particular, the collapse of Howrey provided opportunities for firms to hire some highly talented lawyers.’

According to Taylor Wessing’s 2011 Global Intellectual Property Index, which ranks 24 countries on the quality of their IP regimes, 62% of organisations surveyed said that they had been spending more time on IP issues, the highest percentage in the three reports released by the firm to date.

The reasons behind the recent rise in popularity of IP lawyers are rather more opaque. Certainly the fall off in corporate and property transactions at larger full-service firms has been a factor, meaning that revenue streams need to come from other areas of the business. However, many technology, media and telecoms (TMT) teams in the City were used to a rich diet of corporate-driven non-contentious IP work, which was dependent on the vagaries of the market. Transactional IP was a popular focus for the Magic Circle and larger US firms in London. That said, the economy has meant that companies have been looking for more ways to exploit their IP assets in leaner times, so IP enforcement and strategic advisory work has surged in popularity.

‘I think some firms are careful not to put biographical details on websites in case recruiters take an interest.’
Tim Powell, Powell Gilbert

According to Carina Healy, an IP partner at Dundas & Wilson, the recession has made businesses look closely at their assets and where they are investing their limited development funds. Business models have become much more focused on what is ‘core’ to the business. This has led, in some cases, to a divestment of IP assets, and in others to the acquisition of new technologies. ‘We have continued to be very busy advising on licensing arrangements, and on co-development and partnering arrangements,’ she says. ‘While there has naturally been a decrease in corporate transactions such as investments and M&A, those that have gone ahead have been more rigorous in relation to due diligence, including IP. Of course, IP is an asset class that needs to be considered in insolvency-related work and we have seen an increase in IP support for insolvency-related transactions.’

David Wilkinson, head of IP at Stevens & Bolton, argues that a geographical shift in economic power means that more of a premium has been placed on IP than ever before. ‘The single most important factor in the rise of IP has been the realisation by businesses in the West that ours is now a knowledge-based economy,’ he says. ‘With most manufacturing now taking place in Asia, very often the key asset of western businesses is their IP, hence its rise towards the top of the corporate agenda.’

Certainly the emphasis governments have placed on innovation recently has been noticeable. In 2010 UK prime minister David Cameron announced a review of how the IP system can better drive growth and innovation, referring to the suggestion that companies such as Google would never have got off the ground in the UK because of restrictive IP laws. The review was released in the middle of May and concluded that a clear change in the strategic direction of IP policy was needed to ensure that the UK has an IP framework better suited to supporting innovation and promoting economic growth in the digital age. Specifically, it called for an overhaul of copyright law to allow greater copying of text, data and images essential to digital communications and urged the government to join the efforts to create a unified patent system in Europe.

Driving ambition

With IP firmly at the forefront of corporate thinking right now, law firms have seized the opportunity to capitalise. FFW is one firm that has taken full advantage of the fluidity in the IP recruitment market and Howrey’s demise to enhance its IP offering. While consistently strong for ‘soft’ IP work in trade marks, designs and copyright, it has historically lacked the requisite strength in ‘hard’ IP to challenge some of the premium practices in London, according to The Legal 500. But the arrival of Mark Hodgson, one of the most respected patent experts in the UK, along with key client Eli Lilly and Company and the landmark Eli Lilly v Human Genome Sciences Supreme Court case, could change all that.

In July, this case, which has run since 2008, will be the first IP case to come before the Supreme Court. It hinges upon a patent for a gene sequence identified by HGS, which Eli Lilly insists cannot be valid without a clear industrial application. The opening of two new offices in Germany and the hire of one of the country’s most prominent patent experts in Joachim Feldges has also enhanced FFW’s position.

Mark Abell, a partner in FFW’s IP group, says that while Hodgson and Feldges could have had their pick of leading IP firms, FFW’s recently announced ‘virtuous triangle’ strategy was a major attraction. The three-year strategy highlights three key areas of business – corporate, IP/IT and regulatory – that dictate the firm’s policy on geographical expansion, partner recruitment and client targeting. This approach means that IP takes a front seat in driving FFW’s business.

‘Our ambition is to become the leading adviser to IP-rich and technology-driven corporates,’ says Abell, pointing out that to do that it is important to have the strongest bench of talent. ‘IP is not an area for also rans – you have to be at the top of your game. Everyone in the team has to be a leader in their field.’

‘The aftermath of the recession has chilled the recruitment market, but there has still been a lot of movement.’
Richard Binns, Simmons & Simmons

One of the main reasons behind FFW’s recent success, according to Abell, is sustained long-term investment in IP. This is something that newcomers that have seen the opportunities and thrown money at them have perhaps failed to understand.

‘I think IP is doing well, but only for those who have invested in it heavily over a long period of time,’ he says. ‘I think that what can be seen over the past 12 months is that just because a firm hires a few choice practitioners, it doesn’t guarantee a successful IP practice. It requires a great deal of investment that has to mature over a couple of years.’ Abell will have to hope that the Patents Court case list in a couple of years time will show that FFW’s recent investment was worth it.

At FFW, like Bristows and a handful of other firms in the UK, IP has always enjoyed a strong position within the firm, while Magic Circle firms, with the notable exceptions of Allen & Overy and Herbert Smith, have generally viewed their IP teams more as a support service. However, the recent security of revenue streams has allowed IP teams to enjoy a rise in prominence within their firms. A small shift may have taken place in the balance of power. ‘While the extremely high margins that come with corporate transaction work may not be present, the consistency of the work flow has allowed IP teams to remain fairly stable,’ says Healy.

But while some firms are seeing IP as an antidote to a heavy dose of corporate and the lateral hiring market is buoyant, it is unclear whether the increased profile IP lawyers are enjoying at some firms is sustainable. Certainly the latest round of partner promotions in London does little to allay any concerns that firms’ love for IP is anything other than short-term. Of the round of promotions that have been announced so far, only a handful of firms stand out for acknowledging IP. FFW has put its money where its mouth is with a couple of promotions. Of the larger firms, the only two that stand out are Herbert Smith, which promoted one partner in the IP team and another in its TMT sector group, and the recently merged Hogan Lovells, where two of the seven partners made up in London in February were patent litigation specialists, with a further promotion in Germany and another in Alicante. Herbert Smith and Hogans’ legacy firm Lovells have always held IP in high regard, as have Simmons & Simmons and Norton Rose. At other, principally international firms, it appears the IP star is not burning quite as brightly.

‘While IP may be “in the ascendant” at present, one can anticipate that as and when large corporate and banking transactions make a comeback these things will be reversed,’ says Gary Moss, the former managing partner of Taylor Wessing, now head of the London IP group at McDermott Will & Emery in London.

Transfer value

Given the importance of IP to clients and the fact that some firms will continue to worship at the altar of corporate and M&A – even when it isn’t loving them back – now is the optimum time for the disenfranchised associate, who can see their partnership prospects being blocked by a long line of transaction colleagues coming through the door, to seek greener pastures. Premium IP law firms are often only too willing to take on neglected talent from larger law firms to ensure their own firm’s future. However, for the London-based IP partner at a full-service firm looking for a fresh challenge, there are two obvious choices: go American, or go it alone.

US firms are particularly keen to develop IP litigation practices, as companies often come to London to co-ordinate their European IP strategy. The holy grail for these firms is to effectively service their key IP clients on both sides of the Atlantic. Bristol-based Burges Salmon, for instance, says it is seeing increased referral work from US firms who are unable to service their clients on this side of the pond, with recent litigation work coming from sports drink manufacturer 5-hour ENERGY and Discovery Channel. ‘We expect to see more US firms establish or extend their IP presence in London in the year ahead,’ says partner Jeremy Dickerson.

The obvious barrier for a partner wanting to jump ship from a UK firm to the City practice of a US powerhouse is seniority. You have to be an éminence grise to cut it for most American law firms. US law firm partnerships are famously less ageist than their UK counterparts and often prefer to bring in an established name, a rain-maker and build an expensive practice around them. Examples are legion but the most recent is Winston & Strawn setting up its London IP practice through Taylor Wessing IP veteran Richard Price and Gareth Morgan, who joined from DLA Piper but had previously worked with Price at Taylor Wessing. Price is certainly one of the most established names in London for patent litigation.

‘For a leading UK IP practice, a US merger is bad news because it cuts off all but one US referral source.’
Edward Nodder, Bristows

Others at leading UK firms argue that the US firms’ targeting of older IP partners is borne more out of necessity than design. But hiring partners whose best years may be behind them could be an expensive mistake, says Nodder, who can call on 30 years’ experience watching IP partner moves. ‘US firms offer great deals tempting to partners near retirement who may be looking to top up their pensions,’ he says. ‘Sometimes reputations live on beyond the reality. If you can postpone retirement and get taken on by a US firm it might be a couple of years before you’re rumbled as past your best.’

Inevitably, such an approach can be a bit of a gamble for US firms and, for many, an expensive one. In the London market, there is not one US firm with an IP practice that can be said to ‘trouble the scorers’ and directory rankings bear this out. ‘For every US firm that makes an in-road into the IP market here, it seems another reverses out,’ says Norton Rose partner Jonathan Ball.

It appears the US IP practice doesn’t travel very well. Perhaps the answer is to acquire UK credibility through a merger. Certainly this has worked for Hogan & Hartson, whose merger with Lovells now gives it the ability to offer US clients a market-leading London IP practice. However, observers believe that conflicts could present a problem for the UK practices of a transatlantic firm, especially as commercial conflict issues were cited as a major problem for Howrey’s Dutch IP team, which jumped ship late last year.

‘For a leading UK IP practice, a US merger would probably be bad news because it cuts off all but one US referral source,’ says Nodder. ‘A few years ago a well known London law firm was reported to be discussing a transatlantic merger and it was rumoured the IP partners vetoed that deal.’

Orrick, Herrington & Sutcliffe and Bird & Bird shelved merger plans over a decade ago and it was understood that the IP team at Birds was against it. ‘I’d say conflicts were an insurmountable problem for IP teams at US firms,’ says Abell. ‘It seems to be a pretty well acknowledged fact that if you join a US firm as an IP litigator, you will come up against the wrong end of conflicts on a fairly regular basis.’

Penny Gilbert says that she has heard of instances where a UK practice has cut off referral sources by virtue of a tie-up with a US firm, only for the US firm to seem reluctant to refer work to its UK counterpart. With IP departments at times struggling for status within corporate firms, any IP work that potentially puts the firm at odds with a corporate client in litigation invariably means that the smaller team will lose out. It is clear from speaking to IP experts in London that the problem of conflicts between the US and Europe is putting potential lateral hires off.

Solo performance

If conflicts and under-appreciation are key factors for IP lawyers living at full-size firms, is the answer then to seek the freedom of going it alone and forming a boutique IP practice? Certainly that was the view taken by 14 of Howrey’s European IP partners when they formed Hoyng Monegier in January. Going further back, former Gouldens’ managing partner Charters Macdonald-Brown broke away and formed the successful IP boutique Redd after his firm voted to merge with Jones Day in 2003. And Powell Gilbert, a five-partner spin off from Bristows in 2008, has rapidly evolved to be regarded as the leading IP litigation boutique in the UK. At the end of 2010 Ian Starr, Ashurst’s long-serving leading IP litigator, left for patent and trade mark agent D Young & Co to form a specialist legal practice.

These, however, are the few success stories and IP partners at full-service firms warn that the boutique IP model can only work for a chosen few. Stevens & Bolton’s Wilkinson says that while there are examples on both sides of the Atlantic of successful IP boutiques, ‘The model will really only work if the firm is operating at the top of the market, since the business proposition depends on being able to say, “We are the best in our field, and rather than use your normal lawyers for this case, you should come to us”. Very few firms can say that and retain their credibility.’

‘I think IP is doing well, but only for those who have invested in it heavily over a long period of time.’
Mark Abell, Field Fisher Waterhouse

The casting vote on this debate goes to perhaps the definitive IP boutique, Rouse, which has been doing IP and nothing but for more than 20 years. Although a boutique in terms of focus, its size is certainly not bijou: the firm has more than 500 staff worldwide. Stuart Adams, partner and deputy chief executive, says: ‘We’ve been through a few recessions and always emerged stronger as clients realise that IP needs to be protected, whatever else might be going on in the economy, for long-term survival and success. Naturally we would say it is possible to survive and prosper as a boutique, although it remains the case that if you are limited geographically to the UK there is only so much you can grow without other departments to feed off. For an IP boutique to be truly scalable it needs to be geographically diverse, providing multi-jurisdictional, as opposed to multi-disciplinary, expertise.’

Such a multi-jurisdictional model didn’t work for Howrey, however. Further proof, if it were needed, that the right setup is everything in making a practice successful. Tomorrow’s leaders in IP law may be born from the fallout from the latest global recession. Now is the time to lay the foundations, either by leaving the wrong firm now or by bringing in the talent to build on existing work. Either way, there’s never been a better time to be an IP lawyer. LB