September 18, 2015
By Patience Haggin
PALO ALTO – A lot of out-of-town firms have come to the Valley seeking the same thing: booming corporate and intellectual property practices tied to the tech sector.
Sidley Austin is one of just a handful of firms that can claim to have succeeded. The Chicago-based firm opened its Palo Alto office with three lateral partners in 2009 and today has more than 40 there, plus nine more who work from both the Valley and S.F. offices.
This summer, Sidley poached Martin Wellington from Davis Polk & Wardwell, counseled Health Net on its $6.8 billion sale to Centene in May and advised PayPal on its $890 million acquisition of Xoom. Sidley is currently defending Apple against a Texas nonpracticing entity in a suit concerning its push notification service.
Latham & Watkins’ life sciences dealmaker Alan Mendelson said he views Sidley as one of the “most effective out-of-town firms coming into the Valley,” along with Boston-based Goodwin Procter.
Sidley lawyers will say they rode into the Valley on the tailwinds of the Great Recession.
Chicago partner and executive committee member Anne Rea had been cooking up plans to open in the Valley, working with Sharon Flanagan and Sara Brody of the firm’s San Francisco office. But the economic collapse may have given the firm’s entry in 2009 a boost. Firms were reeling, corporate practices were largely idled and layoffs were rampant.
Sidley was determined to staff the office entirely with local hires, said Flanagan. And they scored a key one with Tom DeFilipps, an emerging companies partner from Wilson Sonsini Goodrich & Rosati.
DeFilipps, who left behind him 27 years at Wilson, said the chance to build something from the ground up was the main attraction. “It was a pretty dire time in the legal industry.” So Sidley’s conservative, debt-free management style sounded good to some lateral candidates, DeFilipps said. Recruiting in the hyper-competitive Valley was a bit easier when you could tell potential hires that your firm was a lot more stable than their current shop.
“We’re very fiscally conservative. And that gave us the opportunity to invest at a time when other firms were retrenching,” Flanagan said. “One of the partners who arrived said, ‘I feel like I’m landing on the rock of Gibraltar.'”
Other key early hires included emerging companies partner Deborah Marshall, who came from Howard Rice to co-found the office with DeFilipps, and Cooley’s Hank Barry. The firm plucked IP partner Patricia Thayer from Orrick, Herrington & Sutcliffe in early 2010; Thayer was a refugee of Heller Ehrman’s 2008 bankruptcy.
Plenty of firms have started Valley offices with a similar ascent in mind only to stall out.
“The litany of firms that have tried to do this and failed are many,” said legal recruiter Larry Watanabe of Watanabe & Nason. “They were never able to connect the dots.”
Milwaukee-based Foley & Lardner opened a Palo Alto office in 2004 with nine attorneys, many of them snatched from firms like Wilson Sonsini. But the office still hasn’t seen much growth, reporting only 13 attorneys at the end of 2014. Kirkland & Ellis, Sidley’s hometown Chicago rival, opened a Palo Alto office in 2008 with about 15 lawyers, many of them from its established S.F. outpost. Today, the Palo Alto office has about 20 lawyers.
Of the out of town firms to open in the Valley in the last 10 years, only Sidley and Goodwin Procter have more than 40 lawyers. White & Case, which opened in 1999, has 33.
Like Sidley, Goodwin Procter relied on market veterans to launch its Menlo Park office in 2007. Its growth took off after the recession, when it started scooping up laterals by the handful, and now has more than 70 lawyers.
In 2010 Goodwin picked up a corporate trio from Gunderson Dettmer Stough Villeneuve Franklin & Hachigian. Those partners—Anthony McCusker, Craig Schmitz and James Riley—put Goodwin on the map in the Valley with some big IPOs. Since then, Goodwin’s Valley office has grown by 40 percent, its Silicon Valley chair Lynda Galligan said.
The real test of a Valley outpost, though, is not simply how many lawyers it has, but the degree to which they are generating work from new and existing clients.
DeFillips says the Valley address enabled Sidley to gain additional work from clients like eBay Inc., Apple Inc. and Hewlett-Packard Co. DeFilipps said the Valley office “had the benefit of work that was being exported from outside the offices, especially in the early days.” But, he insisted, the office had always been “a net exporter” of work to other offices, and never rode on work generated by far-flung partners.
Sidley’s success in the Valley has encouraged it to grow its other California offices. The firm has had a San Francisco office since it merged with New York-based Brown & Wood in 2001. That office scooped up international arbitration partner Scott Nonaka from O’Melveny & Myers last October, then dealmaker Jennifer Fitchen from Cooley in March, and K&L Gates IP litigator Michael Bettinger in April. Today the S.F. office has more than 55 lawyers.
“It just gives you a larger brand recognition in the Bay Area if you’ve got two offices to work with,” said industry consultant Mozhgan Mizban.
And the firm is waging a growth campaign in Los Angeles, with a strategy that sounds almost inspired by the success it saw in recession-era Palo Alto. In May, Sidley poached Simpson Thacher & Bartlett’s L.A. managing partner Dan Clivner to open and co-head its Century City office. Clivner has already kicked off a hiring spree, picking up three partners and counting.
Clivner said Sidley was seizing an opportunity it saw in the L.A. market, which Clivner thinks other big firms are neglecting. Sidley’s aim is to swoop in while others are still sleeping and become a major presence there.
The firm is applying growth lessons learned in Silicon Valley, where the legal market can be tough on outsiders.
“Even back then, it was certainly not true that talent was easy to come by,” said DeFilipps. “But our path to success was to find as many local partners as we could.”