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"Hot Practices: Eight practice areas are sizzling in California's legal market, not in spite of the recession but because of it."

08/01/2002 California Lawyer

By Benjamin Howell, Lucia Hwang, and Deborah Rosenthal

The economic downturn has affected the law business in predictable ways: associate layoffs, elimination of practice groups, and shrinking partnership draws. But the downturn has also turned the heat up on vast areas of commercial law. Business-related specialties are particularly active, meaning that lawyers specializing in life sciences, intellectual property, securities, land use, employment, white-collar defense, privacy, and insurance have no shortage of work. Litigation increasingly plays a role as companies, individuals, and government agencies turn to the courts to divvy up the crumbs left over from the dot-com boom. Managing partners and legal recruiters tell us they can't fill litigation positions fast enough.

The hottest practice areas show signs that they will continue to stay busy for months to come. Other practice areas, such as energy work and construction-defect litigation, are still thriving but haven't grown substantially in the past year-at least not like the practice areas we highlight below. There was one surprise in our research: The much-anticipated boom in bankruptcy work never materialized in California because many failing companies were incorporated in Delaware and chose New York-based firms to handle their insolvencies. What follows are eight of the state's hottest practice areas.

Intellectual Property

During this economic slowdown, the name of the game for many companies is "cover your assets."

On the patent side, litigation has boomed. With less money to go around, companies are fiercely protecting what they have. In fact, companies are taking the offensive with litigation and using it as a business tool to thwart rivals from bringing a product to market, says Nancy J. Geenen, the Northern California regional chair of litigation for Foley & Lardner. "It's relatively new to talk about it in those terms, but they definitely look at it as a way of slowing down or squashing the competition."

On the copyright side, it's never been easier to find work protecting digital assets, though much of it seems to consist of attacking the individuals and companies that produce the tools plaintiffs claim help infringers rather than going after the infringers themselves. Even now, months after the demise of Napster, not a week goes by, it seems, without a big media company suing yet another new peer-to-peer system.

A growing number of companies (and the government) are also using the anticircumvention provision of the Digital Millennium Copyright Act (DMCA) to block others from distributing, changing, adding to, or reverse engineering products that control access to and use of copyrighted materials. "None of them really involve any copyright infringement," says Fred von Lohmann, an attorney with the Electronic Frontier Foundation. "They just don't like people messing around with their product." Some copyright attorneys expect DMCA claimants to begin suing for damages. Meanwhile the Department of Justice's (DOJ) closely watched case against ElcomSoft, a Russian company that develops software that converts encrypted Adobe PDF files to plain vanilla PDF files, is set for trial this month.

In the meantime, the U.S. Supreme Court's pending decision on the constitutionality of the Sonny Bono Copyright Term Extension Act, which extended protections by 20 years, could alter the whole copyright landscape.

White-Collar Defense

Throughout the state, especially in Los Angeles and the Bay Area, white-collar attorneys are awash in inquiries and investigations by the Department of Justice, the Securities and Exchange Commission, the Federal Trade Commission, and other government agencies regarding allegations of securities and accounting fraud, improper revenue recognition, and other anticompetitive activities such as antitrust violations, trade secret theft, and violations of the Foreign Corrupt Practices Act and the Economic Espionage Act. Allegations of health care fraud have also brought about a rise in false claims investigations and litigation. And there's also been a surge in requests for proactive legal work, with attorneys conducting records-management audits for their clients, reviewing and revising internal corporate policies, and counseling companies on compliance with federal and state regulations.

Practitioners say the rise in white-collar work results in part from the widespread loss of consumer confidence following the financial scandals involving Merrill Lynch, Enron, Arthur Andersen, WorldCom, and other corporate giants. In addition, low interest rates and poor stock market returns have encouraged people with money to look for other kinds of investment opportunities, while entrepreneurs start looking for investors and making promises of returns that they can't deliver. "You have good money being chased by bad investment opportunities, which then gives rise to disappointment and loss, followed by litigation," explains San Diego business crimes litigator Robert D. Rose. "What we are seeing is payback for the 1990s."

Indeed, many of the prosecutions currently under way resulted from investigations that began in the 1990s, and matters being investigated today will likely yield some future prosecutions. Because both the DOJ and the FBI still list white-collar crime as a top priority for the coming year, practitioners predict that white-collar work will continue to be plentiful for at least another few years.

Insurance

Last year the insurance industry lost more than $30 billion because of an unprecedented number of claims payouts and poor investment returns. The crisis made insurers redouble their efforts to find ways to limit their liability, including pulling out of certain markets in which they bear the most risk, says San Francisco insurance attorney Robert N. Schiff. The insurance industry's problems, however, generated "run-off" work for lawyers, who are now helping insurance companies wrap up claims so they can get out of expensive markets, such as California, and costly lines of coverage, such as construction and professional liability. Meanwhile, policyholders paying higher premiums for less coverage have become more aggressive in seeking out lawyers to help them maximize their insurance protection.

Some of the activity stems from new concerns, such as terrorism, exposed by the September 11 attacks, and the increased public awareness about the potential health hazards of mold. But practitioners also attribute the increase in their workloads to the field's maturation. "At the start, insurance companies were just saying no to everything," says Scott P. DeVries, managing partner at Nossaman, Guthner, Knox & Elliot in San Francisco. "Then various issues were resolved by the courts-for example, coverage for environmental cleanup costs-and then you start reaching other issues, such as which insurers have to pay, and what are the consequences to those who settle and those who don't."

Although some of those issues will soon be decided by appellate courts (DeVries, for example, has argued four different insurance issues in four cases before the Third Appellate District of the Court of Appeal since December), such judicial guidance will not likely curb the growth of legal work in the increasingly complex field of insurance. "Since 1995, cases have been going this way and that way depending on the unique facts of each," says insurance litigator Jordan S. Stanzler of Stanzler Funderburk & Castellon. "There's no clear-cut resolution as to how to do this." That means lawyers will continue to be needed to find solutions on a case-by-case basis.

Life Sciences

Futurists are cashing in on universal fears of death and body fat. "What's more basic than staying alive and looking good?" asks Bruce W. Jenett, who is very busy as cochair of Heller Ehrman White & McAuliffe's life science practice group in Silicon Valley. The life science industry-which produces everything from genetically engineered soybeans to custom-made molecules-is generating work for attorneys who know proteins from polymers. And biotech giants such as Amgen and Genentech show that a successful life science business is not science fiction.

As the industry matures, competition becomes more fierce. "It used to be that the technologies weren't developed enough to be worth fighting over," says Lester Savit, an IP litigator for Jones Day in Irvine. "But when a company hits prime time by taking a product from the research market to the consumer market, all hell breaks loose. That's when you look around and say, 'Here are my competitors. How can I knock them out or form a partnership that benefits us both?' "

Transactional lawyers are busy drafting licensing agreements for proprietary products such as genes that can be used by other biotech companies or even drug developers, which envision being able one day to use genetic engineering to "grow" pharmaceuticals. Although funding a life science company isn't cheap (developing a drug takes about ten years and $800 million), venture capitalists (VCs) still salivate at the prospect of a pot of patent gold, making the life sciences industry one of the few sources of work for high-tech deal makers.

"There is plenty of money available, but it's much tougher to get a deal done," says Alan C. Mendelson, a Menlo Park partner at Latham & Watkins. "The VCs often want to see a patent opinion certifying that there's no prior art. The diligence process takes a whole lot longer these days."

"When you say you work in life sciences, lawyers tend to run in the other direction because they think you're talking about technical regulatory work representing hospitals or HMOs," says Paul Scholtes, an Orange County attorney who sits on the boards of several life sciences companies. "But not only is this work exciting, success in the biomedical field allows you to do good as you do well." Scholtes says that in Orange County the life sciences companies are feeding work to other practice areas, including labor, corporate finance, and, usually about two years after a new product hits the market, product liability.

As the industry's demand for science-savvy lawyers continues to rise, so will the demand for ethicists to review bioengineering issues. "This stuff is so complex it makes software look like building blocks," says Jenett. "And we're still in the Stone Age."

Employment

John L. Barber, an employment attorney with Lewis D'Amato in Los Angeles, likes to quip that his work is much like being in the mortuary business. "When the economy is good, there are lots of employment-related lawsuits," he says. "When the economy is bad, there are even more."

With the Bureau of Labor Statistics reporting that almost a quarter of the nation's 3.2 million layoffs since 1999 occurred in California, it's no wonder that employment practices here are seeing a significant increase in wrongful-termination and sexual-harassment claims. Pregnancy discrimination, wage and hour, and whistle-blower claims are also in vogue, and many firms have found work advising companies how to put their employees out of work.

But there are larger changes driving the area's expansion. Lawyers must now have a national, if not international, scope of knowledge, says Raymond L. Wheeler, the Palo Alto- based chair of Morrison & Foerster's labor-employment department. Hundreds of employment statutes and regulations apply to employment work, and it's not just the California Legislature that's constantly adding new ones but also international bodies such as the European Union. "As more and more companies become global, they're not just interested in state law, they want to structure their personnel system to deal with issues around the world," Wheeler says. According to Barber, appellate and supreme courts are also handing down decisions weekly, if not daily, that dramatically change the liability picture.

The shift from manufacturing to information technology has also placed an unprecedented emphasis on preventing workers' specialized knowledge from falling into the wrong hands. As a result, the enforceability of restrictive covenants and noncompete agreements across state lines is being fought in the courts. And ever-advancing technology in the workplace is spawning a growing volume of suits protesting violations of privacy rights, whether it's employee or customer data that's divulged.

Land Use

Although California's commercial real estate market is cold, demand for housing couldn't be hotter: The Department of Finance estimates that to keep pace with population growth, California will have to build 220,000 new housing units each year for the next 23 years. But the supply of land, especially in Southern California, is running out. And when developers are forced to think outside the big box, they put their lawyers on speed dial.

"Historically, it was common for developers to buy only entitled land with the basic government authorizations for development already in place," says Howard D. Coleman, chair of Nossaman, Guthner, Knox & Elliot's real estate department in Los Angeles. "But as property runs out, developers are turning to unentitled land and working to secure the entitlements." Coleman notes that consolidation in the construction business has created large development companies that are better able to bear the risks and time delays of obtaining entitlements.

However, with overlapping government agencies each looking to exact concessions from developers, securing entitlements isn't getting any easier. And limited real estate makes for problematic projects. Revitalizing downtowns with high-density mixed-use projects is good urban planning, but getting such projects built can be difficult. "Philosophically, everyone seems to agree that urban redevelopment is better than suburban sprawl," says Mary G. Murphy of Farella Braun & Martel in San Francisco. "But practically speaking, there are lots of difficulties with achieving that goal." In fact, Murphy suggests, the current adversarial system of city planning may be the biggest obstacle of all to smart growth. "There will always be people who oppose a project," she says, "but there are plenty of imaginative solutions that allow neighbors to enjoy the public benefits exacted from the developer instead of having the developer's money get lost in a general fund."

Environmental lawyers, for their part, have already seen their roles shift from frustrating development to participating in healthy growth. "In the boom days of the 1980s, all environmental lawyers did was kill deals," says Jennifer L. Hernandez of Beveridge & Diamond in San Francisco. "We'd identify the environmental problem and move on to the next site. Now we're part of the solution of how California can grow while also preserving its natural resources."

Also, the state's infrastructure, much of which dates back to the postwar public-building boom, is show-
ing its age, and land use attorneys are needed to help improve it. And if financing is ever secured for the largest capital investment project ever undertaken in the United States-California's proposed $25 billion high-speed rail corridor-you can bet that land use will be a hot practice until at least 2016.

Information Security/Privacy

First hackers, then seekers of "business intelligence," and finally the threat of terrorism have in recent years called the nation's attention to the value of information and the vulnerability of the electronic systems that store it. Add recent legislative activity aimed at regulating the storage, use, and exchange of private data, and what emerges is a burgeoning practice area. "It's not just confidentiality. It's the security of computer systems," says Michael R. Overly, a partner in the e-business and information technology group at Foley & Lardner in Los Angeles. "In most cases, the entire life of a business turns on its computer system. If those systems are compromised, intentionally or unintentionally, the business could be crippled."

Such concerns began bubbling to the surface only two or three years ago. That led to a gradual increase in legal consulting and policy drafting work, as well as First Amendment and privacy rights litigation. But since the Y2K scare, reports of economic espionage and high-profile instances of computer cracking have called executives' attention to the magnitude of their potential losses. Moreover, adds Bingham McCutchen's privacy and security group chair Michael E. Arruda of San Francisco, a growing awareness of the liabilities that can arise from working online and dealing with confidential information have caused businesses to more aggressively seek out attorneys who can educate them on their obligations and help them navigate the developing body of international and federal law regarding financial, medical, and online data protection. With Congress and the California Legislature currently working on additional regulations, as well as continued media coverage of controversies between privacy advocates and data controllers, information practitioners say the demand for their services will only continue to grow.

Securities Litigation

Corporate misbehavior has gotten securities litigators juiced up. In 2001, shareholder class actions were up 60 percent over the previous year, according to Stanford Law School's Securities Class Action Clearinghouse, and 2002 looks to be even busier.

In New York and California, where most securities class actions are filed, it's not uncommon to see ten such cases filed a day, according to Susan S. Azad, a securities litigator with Latham & Watkins in Los Angeles. "You had a situation where people had gotten used to making money in the market. It was almost as if pre-IPO investors had come to believe they were guaranteed a profit. With the downturn you have a situation that is ripe for plaintiffs lawyers."

The class action filed by Milberg Weiss Bershad Hynes & Lerach against Enron executives, directors, and its accountants, lawyers, and bankers is of interest for more than just its jaw-dropping scale. The key question is to what extent professionals will be held liable for their conduct. "On the one hand, the Private Securities Litigation Reform Act of 1995 and a series of court decisions have made it more difficult to pull professionals into a shareholder suit," says Michael L. Cypers, a securities litigator with Heller Ehrman, White & McAuliffe. "On the other hand, you have plaintiffs attorneys trying their damnedest to get around those blocks, especially when the company is insolvent."

Benjamin Howell, Lucia Hwang, and Deborah Rosenthal are associate editors at
CALIFORNIA LAWYER.

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