Big L.A. Law Firms Finally Put High-Tech Into Practice
Recognizing that the Internet spells new and needed opportunity for big law firms, O’Melveny & Myers is building a high-technology practice--often taking stock in lieu of legal fees.
The move by O’Melveny, a major Los Angeles firm, confirms Southern California’s growing status as a center for venture capital and technology companies.
It strengthens the “infrastructure” of business services available to new companies in this area, says Tony Hung of DynaFund Ventures, a Torrance venture capital company.
And it’s about time. For two decades and more, Northern California law firms have had the lucrative business of serving high-tech start-ups largely to themselves.
Wilson Sonsini Goodrich & Rosati and Brobeck, Phleger & Harrison grew with Silicon Valley and even attracted the business of Southern California high-tech companies.
Locally, only specialized smaller firms such as Riordan & McKinzie, founded in 1975 by the current mayor of Los Angeles, and Troop Steuber, Pasich, Tobey & Reddick, invested in and did legal work for high-tech start-ups.
Investing in its clients is new for O’Melveny, whose 760 lawyers are more accustomed to serving Ford, Citigroup, Walt Disney, Goldman Sachs, Marriott and hundreds of other large companies. The firm was a pioneer of movie industry law in the 1930s, but always operated strictly on a fee basis.
It didn’t pay much attention to small companies. “We thought they couldn’t pay our fees,” says C. Douglas Kranwinkle, the firm’s New York-based managing partner.
Those fees, averaging $250 to $300 an hour--more for senior partners, less for non-partner associate lawyers--bring law firms a highly profitable living. As reckoned in American Lawyer magazine’s annual listings, O’Melveny ranks 18th largest in the United States and earned $141 million profit on $328 million in revenue in 1998.
But the business had to change its focus. Many of O’Melveny’s big local clients--Security Pacific and First Interstate banks, Pacific Enterprises, Lockheed Corp.--have merged and moved their headquarters.
Also, opportunity was banging on the door. As Internet commerce has grown dramatically since 1997, it has become increasingly involved--converged--with entertainment. Content was needed for Web sites, companies sought brand identities and legal questions arose about intellectual property.
Intellectual property law--copyrights to films, television shows, music and scripts--is the stock in trade of entertainment industry law firms. “The Internet presents many issues in use of entertainment materials and in creation of brands. It’s a natural extension for us,” says Christopher Murray, the head of O’Melveny’s entertainment practice and an authority on intellectual property law. By no coincidence, Murray heads the new technology practice too.
The new practice is based at the firm’s 80-lawyer Century City office, where these days partners come to work dressed as casually as their entrepreneurial clients.
As always with high-tech, don’t let the blue jeans fool you. Legal services for Internet and other tech businesses can be a very lucrative practice, and not only because of the equity investments.
The $15,000 to $25,000 equity O’Melveny takes in clients is a good start on a long-term relationship. “The companies want us to have a stake as a bond of partnership,” says Robert Haymer, an O’Melveny partner in Century City.
O’Melveny is not looking for a “pop in the stock,” Haymer explains, but for years of “high end” legal work, as the young company offers its stock, makes acquisitions, needs patent protection and help with employment issues.
It’s a vision of the lawyer as business consultant and partner, not very different from the traditional lawyer’s role but a closer relationship because the client companies are smaller. “They don’t have in-house counsel and need more hand holding,” says venture capitalist Hung.
Yet smaller clients don’t mean less legal business. On the contrary, says William Woodward of Avalon Partners, a Santa Monica venture capital firm. “Internet businesses need a lot of legal services because they do a lot of licensing. And telecommunications firms need legal work because they form partnerships and transmission deals.”
That’s one reason that cash-rich companies, able to pay legal fees, welcome the equity stake. Lance Rosenzweig, head of PeopleSupport, a Westwood company that provides links so that customers of online retailers can ask directly about merchandise, has raised $25 million in venture capital. He likes having O’Melveny on call.
“Things move very fast in this business. Your lawyer must be with you every step of the way, able to respond instantly,” says Rosenzweig, whose Westwood-based company has grown from 30 employees to 350 since July.
O’Melveny’s move, and its plans to open high-tech offices in northern Virginia and Silicon Valley, is significant because the firm is large and global. Other big law firms--notably Gibson, Dunn & Crutcher in Los Angeles--are readying similar high-tech practices.
It is a healthy trend because it assures this region’s entrepreneurial companies a great range of legal support. And because the trend marks once and for all the transition of Southern California from a regional outpost of corporate America to a leading center of global technology and business development. It’s about time.
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James Flanigan can be reached by e-mail at jim.flanigan@latimes.com.
