Is the US IP boutique an endangered species?

Fish & Neave. Lyon & Lyon. Pennie & Edmonds. Morgan & Finnegan? Years ago, Morgan & Finnegan was the kind of firm that New York intellectual property (IP) lawyers were proud to call home. It had history, which could be traced back to 1893, and current hits, including multimillion-dollar verdicts for clients such as Procter & Gamble and Stryker Corp.

But the recent story of Morgan is less glowing. Its partner headcount has dropped from 31 last year to 21 now. Overall headcount is down 24% in its flagship New York office and San Francisco and Washington DC branches.

"That's the wave of the future, where few, if any, IP boutiques are around," says John Gallagher, who left Morgan in late April to join Dickstein Shapiro.

General practice firms are hovering over Morgan like vultures circling a wounded antelope. Since last fall, Dickstein has taken four Morgan lawyers, and Cadwalader Wickersham & Taft has taken seven. Covington & Burling, Goodwin Procter and Crowell & Moring have also feasted on choice morsels.

A merger with such a general practice firm typically marks the end of an IP boutique these days. But Morgan has resisted a combination, largely to preserve its tight-knit culture and IP focus. "We constantly get offers," says senior partner James Gould. "We have thought about it, but we like what we are."

Gould admits, though, that that feeling was not shared by some partners who left. For example, Christopher Hughes, one of the firm's most important rainmakers, left for Cadwalader in August. Gould says that Hughes wanted Morgan to consider a merger.

At least one of the firm's clients probably would have preferred a merger as well. Gallagher says that clients' desire for 'one-stop shopping' encouraged his group to jump to Dickstein. That desire became clear when EI du Pont de Nemours and Company, which for years had turned to both Dickstein and Morgan for IP work, took the unusual step of being quoted in the press release announcing Gallagher's move.

Morgan pays competitively, Gould says, but when it comes to laterals, money is always an issue. Kenneth Sonnenfeld had been at Morgan for 16 years. But following what he calls an 'expensive' divorce in 2005, Sonnenfeld says he needed more financial stability than Morgan offered. He found it at King & Spalding, then got into a dispute with Morgan about the return of capital after he left (The case settled a month later for an undisclosed amount). "For a long time, Morgan was a great firm," Sonnenfeld says. "But things change."

Gould says the firm is interviewing several potential new laterals. "The numbers are down, but we are trying to bring them up again," he says. For his firm's sake, they'd better hurry.