April 7, 2003
THE SAN FRANCISCO DAILY JOURNAL
By John Ryan
SAN DIEGO – Chaotic circumstances can lead law firms to act out of character.
Take Paul, Hastings, Janofsky & Walker, the law firm equivalent of a reliable, cargo-carrying truck chugging along the highway at a conservative, pragmatic speed.
In February, the Los Angeles institution went from zero to 35 lawyers in San Diego in less than 60 seconds, or about three weeks in law firm time. The firm went into overdrive like a natural, beating out 40 competitors interested in the same attorneys.
The shift in gear was a reaction to the collapse of Brobeck, Phleger & Harrison. Paul Hastings established its first-ever San Diego presence in style, scoring the highly touted Brobeck Phleger intellectual property group led by Douglas Olson and John Benassi.
With fellow partners Steven Korniczky and Jessica Wolff included, the San Diego quartet boasts a combined book of business valued between $25 million and $30 million, $30 million, according to sources familiar with the group.
For these partners, it’s proof that the second time’s a charm. When leaving intellectual property boutique Lyon & Lyon three years ago, Paul Hastings was among the firms they considered before going to Brobeck Phleger.
Brobeck Phleger was a more attractive choice in 2000 because it had a growing intellectual property practice and an existing San Diego office.
This time, however, the partners are confident Paul Hastings has the right blend of practice group strengths, geographic reach and financial stability. They expect Paul Hastings to be what they thought Brobeck Phleger would be three years ago – a permanent home.
“We did not want a firm that looked like Brobeck [Phleger],” Benassi says of his mid-February move to Paul Hastings.
Specifically, Benassi explains, the group did not want another firm with an overreliance on certain practice groups and overextended debt and real estate obligations.
Brobeck Phleger announced Jan. 30 that it was disbanding, one day after merger talks with Morgan, Lewis & Bockius failed. The San Diego intellectual property group received countless inquiries from law firms and headhunters in a matter of days.
The partners refuse to name the firms that courted them. However, they confirm that almost every type of firm – diverse West Coast firms, Northern California high-tech firms, smaller regional boutiques, New York elites and other East Coast and Midwestern-based powers – expressed interest.
“It was very flattering,” Benassi says.
In addition to Paul Hastings, firms that successfully recruited attorneys from Brobeck Phleger’s San Diego office include San Francisco-based Heller, Ehrman, White & McAuliffe, Morrison & Foerster and Pillsbury Winthrop.
Because Brobeck Phleger was scheduled to close Feb. 14, decisions had to be made quickly. Attorneys demanded honesty from the suitors, many of whom were friends.
“You had to tell them, ‘If I’m walking into another Brobeck [Phleger], I’m going to strangle you, as much as I value you as a friend,'” Benassi says, letting out a hearty laugh. “‘You have to tell us if there are skeletons hidden in the closet.'”
“It was kind of nerve-racking in some respects but also pretty interesting,” Olson adds. “It was an interesting opportunity to get better knowledge and insight into the practice of a whole lot of firms around the country.”
The partners started at Paul Hastings Feb. 15. They’ve been working in the same Brobeck Phleger offices, but Paul Hastings recently finalized a lease agreement for a new location.
Their new firm is unlike Brobeck Phleger in that it does not suffer from overcapacity or high debt.
In addition, the firm’s profitability has been on a steady rise for a decade. With per-partner profits of $940,000, Paul Hastings is the nation’s second most profitable law firm with a San Diego office. Los Angeles rival Latham & Watkins, with per-partner profits of $1.1 million, is also in San Diego.
Paul Hastings has a balanced practice. According to San Diego managing partner Don Daucher, 25 percent of the firm’s work is litigation, 35 percent to 40 percent is corporate, and real estate and employment represent 18 percent each.
“I think the diversity of our practice is something that appealed to the group, especially in the context of what had just happened to them at Brobeck [Phleger],” Daucher says.
The firm has 12 offices, four of them overseas, with 12 attorneys in London and 100 attorneys in offices in Beijing, Hong Kong and Tokyo. This Asian presence separated the firm from much of the pack and is something the intellectual property group desired.
The partners believe there will be major intellectual property needs in Asia in both the life sciences and computer areas. The group has existing clients looking to do business in Asia and expects to land new clients based on a longer international reach.
“I’m just convinced that, probably more than any other area of law, intellectual property law is going to be totally seamless from an international point of view,” Olson says. “And I think in the future that’s going to be a huge part of our practice.”
In 1999, many attorneys at Lyon & Lyon were drawn to the full-service model. They were frustrated by the boutique’s inability to provide clients with services outside the intellectual property arena.
Olson says that he and other partners weren’t losing intellectual property work to other firms. However, they recognized that the long-term trend clearly favored bigger competitors that could offer a diverse range of services. Many partners also desired a firm that could deliver services on an international scale.
Several of them, including Benassi and Olson, seriously considered joining Paul Hastings. Negotiations with Daucher, the firm’s managing partner in 1999, reached an advanced stage.
Benassi says that Brobeck Phleger won out because it had a San Diego office. At the time, the Lyon & Lyon partners were less interested in launching a new office for another firm.
“I think I saw the glamour and glitz of the IPOs and this high-profile law firm as sort of an attractive model,” Korniczky adds, referring to Brobeck Phleger in its glory days. “That’s maybe one of the reasons we went there.”
Benassi and Olson led a 17-attorney exodus to Brobeck Phleger, cutting Lyon & Lyon’s San Diego presence in half. Like many intellectual property boutiques, Lyon & Lyon suffered as general practice firms raided smaller competitors to expand their practices. The firm went out of business last year.
The Lyon & Lyon team brought new strengths to Brobeck Phleger’s intellectual property group, which was chaired by James Elacqua. Elacqua joined Brobeck Phleger in 1997 from Arnold White & Durkee and expanded the practice from 15 to 90 attorneys before departing for Dewey Ballantine with 10 partners last year.
Those partners took with them business reportedly in the $15 million to $30 million range.
Outside San Diego, Olson says, most of the Elacqua-led group focused on electrical and semiconductor intellectual property law. The San Diego attorneys share a more rounded practice, with a particular strength in life sciences and biotechnology areas.
Olson, who began practicing at Lyon & Lyon in 1965, has represented clients in the pharmaceutical, genetic engineering, medical device and semiconductor industries. Benassi, whom Olson recruited from law school in 1974, has had a similarly diverse practice, with additional experience in Internet commerce.
Wolff has more of a strict focus on representing pharmaceutical and biotech companies. Korniczky is the group’s leader in high-tech areas, including wireless, telecommunications, semi-conductor and computer industries.
Another key group member and Lyon & Lyon alumnus is Kurt Kjelland, who focuses on biotech matters. Kjelland made partner at Brobeck Phleger in January and joined Paul Hastings as of-counsel.
Olson says that the Lyon & Lyon group stood out in other ways once it arrived at Brobeck Phleger.
“We did more than litigation,” Olson says. “We did patent prosecution, client counseling and transactional work. That’s the kind of thing clients value, but the rest of the firm couldn’t do that.”
Elacqua confirms that the Lyon & Lyon team’s biotech focus and comprehensive range of skills were great additions to his group.
“For both of those reaons, they were a really good complement to what we had at the time,” Elacqua says.
Most large firms have expanded their intellectual property practices without developing significant patent prosecution practices. Intellectual property litigation practices tend to grow out of existing commercial litigation groups. Large firms generally do not consider patent prosecution profitable enough to invest in developing the capability.
“It’s very complicated to set up a patent prosecution practice,” Benassi says. “You need special docketing systems and secretaries and administrative assistants that specialize in the prosecution of patents.”
Another problem is that patent prosecutors – usually the firm’s most accomplished experts in science, technical and medical matters – don’t always mesh well with a large firm’s complex litigation practice.
“We’ve all been patent prosecutors for a period of time,” Benassi says. “So we know how to do it and appreciate people who are really good at it.”
With a leverage most practices would drool over, the four partners and Kjelland keep 26 associates busy.
Associates in the group are encouraged to move between prosecuting patents and assisting with litigation, so that, like the partners, they are proficient at a variety of tasks.
For the San Diego group, patent prosecution is inseparable from the seamless range of intellectual property services it offers.
Clients that turn to the group for patent prosecution rely on it for the development of long-term intellectual property strategies and portfolios and the licensing of certain technologies to raise funds.
Once a client becomes embroiled in litigation, the group believes, it prefers to use attorneys who understand the intellectual property in question.
“I think that’s what sets our group apart from almost every single group in the country,” Korniczky says. “It’s a broader background from which to provide service to a client.”
As Brobeck Phleger’s corporate practice crashed with the dot-com industry, the intellectual property group, along with securities litigation, became the firm’s lifeblood. In the last few years of the firm’s history, the San Diego outpost was viewed both inside and outside the firm as its most profitable office.
Benassi, who was managing partner of the office, estimates that the intellectual property group accounted for 60 percent of the office’s income in 2002. Half of the office’s 80 attorneys were members of the intellectual property group.
The office also featured William Sullivan and Chris McGrath, key partners in the firm’s securities litigation practice. Both considered a variety of offers before joining Paul Hastings.
“So we basically have kept our two profit centers intact here,” Benassi says.
Intellectual property partners add that the office’s business and technology practice, with diverse strengths in the life sciences, medical device, telecommunications, software and retail industries, weathered the downturn better than many corporate practices. Members of that group joined Morrison & Foerster and Heller Ehrman.
Though successful, the intellectual property group would not have been able to bring most of its business to Philadelphia-based Morgan Lewis.
The San Diego group represents generic drug companies and small pharmaceutical firms, which conflicted with Morgan Lewis’ representation of large pharmaceutical companies. Even Korniczky, who practices outside of the pharmaceutical arena, had conflicts with Morgan Lewis on two major cases.
Paul Hastings, in contrast, does not have large pharmaceutical presentations. The firm’s intellectual property practice historically has focused more on trade secrets litigation, led in New York by partner Roger Milgrim.
Joining Morgan Lewis would have involved dropping clients. The partners say that Morgan Lewis managers made it clear that the firm would give them plenty of time and support to find new clients. But that was not an attractive option.
Wolff explains that she’s represented her clients for many years and has developed a unique understanding of their intellectual property needs.
“I feel a real closeness and responsibility to those clients and did not want to leave them adrift to find new counsel,” Wolff says. “Not just anyone can pick up a pharmaceutical patent or biotech patent and advise a client on it or litigate on it.”
Benassi and Olson believed that the Morgan Lewis merger was good for Brobeck Phleger and held off inking a separate deal while negotiations were continuing. Even if they later had to spin out of the deal for conflict reasons, they didn’t want their departures to create the type of panic that can thwart a deal.
Benassi notes that the late January deal struck by Brobeck Phleger’s Austin, Texas-based partner Steven Zager with Akin, Gump, Strauss, Hauer & Feld seemed to throw the merger talks into a tailspin.
“We stuck with Brobeck Phleger until the end,” Benassi says. “We were asked to be team players and make the merger happen.”
Nevertheless, members of the group began talking to other law firms, including Paul Hastings, several months ago. Because he was on Brobeck Phleger’s policy committee, Olson says he did not feel comfortable playing a lead role in this process. But he knew the group had to be prepared.
“I told other members of the policy committee that I was going to be involved in looking at alternatives,” Olson says.
No one was prepared for the chaos of early February, however, when it was announced that Feb. 14 would be the firm’s last day. Most employees in San Diego and other offices had believed they would have a couple of months to look for new jobs.
Throughout February, the San Diego office of Brobeck Phleger became a job fair of sorts. Competing firms set up recruiting centers in the office’s four conference rooms. One of those firms was Paul Hastings.
This time, Paul Hastings wasn’t going to let the intellectual property group slip away.
The firm sent down Daucher, managing partner Greg Nitzkowski, Orange County office leader William Simpson and Los Angeles office leader Robert Miller.
Daucher was the logical man to lead recruitment efforts because of his role in the earlier negotiations.
“It seemed like there was a new firm at the office every day, but we had something of a head start,” Daucher says. “Thank heavens the group didn’t hold it against us that the deal didn’t go through with them in 1999.”
In fact, Daucher had remained friends with Benassi and Olson following the 1999 talks.
Daucher stayed in San Diego for the first three weeks of February. He set up a temporary home in the Marriott Hotel and worked on the deal around the clock. He since has relocated permanently from Los Angeles to head the office.
Paul Hastings stood out among the acquisitive firms, Benassi says, because it spent several hundred thousand dollars to keep the office running.
Daucher confirms that, in the days leading up to Feb. 14, Paul Hastings contacted the power company and office-service vendors to prevent a total disruption from taking place.
“We just wound up making some arrangements to keep the infrastructure in place,” Daucher says.
“People were panicking,” Benassi says. “Paul Hastings kept the phones going and kept the computers going even though we hadn’t committed at the time. They built up a lot of good will, not only with people who went with them but people who went to other firms.”
Legal recruiter Larry Watanabe, who represented the Brobeck Phleger partners on the deal, says that Paul Hastings did a phenomenal recruiting job.
“They were attentive and had people on site early to address important issues,” Watanabe says. “It was some of the best work I’ve ever seen in terms of the time, energy and resources devoted to getting a deal done.”
Benassi tried to keep the 80-attorney office together, but such efforts became impossible because of the flurry of offers coming from numerous firms.
Daucher says that Paul Hastings was very interested in the corporate group that eventually went to Heller Ehrman.
The hardest split for the intellectual property group was losing three of its own partners – Alexandra Mahaney, Jeffrey Guise and Daniel Lamb – to San Francisco’s Pillsbury Winthrop.
Once the various deals were finalized in mid-February, Olson had a champagne party in his office for the intellectual property team that went to Pillsbury Winthrop.
“It was just going to be a glass of champagne to say good luck,” Olson says. “A couple of hours later, we had to send people out to get more champagne. It was like we were graduating from high school and going to different colleges.”
Olson, Benassi, Korniczky, Wolff and Kjelland didn’t make the jump to Paul Hastings alone, however.
Making the move from San Diego are securities litigators Sullivan and McGrath, as well as corporate real estate of-counsel Scott Biel.
Biel, who specializes in the development of research facilities and biotech and electronics campuses, works closely with the intellectual property group.
So does intellectual property attorney Frank Ubell, who joined as of-counsel from Brobeck Phleger’s Orange County office. Ubell’s focus is in the electrical and computer industries.
Corporate partner Ken Bender, finance partner John Hilson and securities litigation partner Howard Privette joined Paul Hastings’ Los Angeles headquarters. Litigation partner Mark McKeen joined the firm’s San Francisco office.
Sullivan notes that Paul Hastings is committed to making the San Diego office full-service.
“We’re going to be 50 attorneys pretty soon,” Sullivan says. “That’s going to make us a compelling operation, particularly with the resources we have just a stone’s throw away in Orange County and Los Angeles.”
The intellectual property group considers it a significant bonus that many of their partners from other practice groups have joined them.
Another bonus is that Paul Hastings attorneys from around the world already have contacted them, inquiring about their intellectual property talents and how they can assist existing clients.
For the group, it’s just another sign that they were on to something back in 1999. Though they made their decision under the gun, the attorneys are confident that the move to Paul Hastings will work out well.
“In many ways, we did our due diligence three years ago and in the previous three or four months,” Korniczky says.