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Legal Report: Boutiques

Long live IP boutiques
|Written By Kirsten McMahon
Legal Report: Boutiques

IP boutiques face increasing competition from the growing number of national and international full-service law firms, with their bigger litigation departments and broader array of legal services. But that doesn’t worry Canadian IP boutique operators. That’s because they say big firms don’t get it and fail to grasp the investment needed to run a proper IP shop.

The recent news that the entire intellectual property department of Torys LLP’s New York office jumped ship to join Arnold & Porter — a 600-lawyer U.S. firm with 85 lawyers in its IP department N has reignited debate that the end is nigh for IP boutiques.

Torys is hardly a boutique, true. But the recent example shows how aggressive the U.S. market can be. Does the competitive and lucrative marketplace bode well for the boutique IP firm north of the border? Is the changing industry going to force IP boutiques to merge with either large general practice firms or other boutiques in order to stay competitive?

Most IP lawyers Canadian Lawyer talked to gave a resounding “No.”

“In the U.S., the situation tends to be very different than it is in Canada,” says Marcus Gallie, a partner at Ridout & Maybee LLP in Ottawa.

He says that while the core boutiques are doing quite well in the United States, general practices are gobbling up other boutiques at a quick pace.

“The general practice firms look at IP and see dollar signs. What they don’t see is the huge investment that has to go into running the practice,” he says. “The investment in technically qualified people, systems you have to purchase to run the business, the level of time that needs to be put into the business to nurture and develop.

“It’s not the kind of thing where you just hang a sign out saying ‘We do IP law’ and clients come flocking to you. It requires huge amounts of marketing and involvement and nurturing of clients,” Gallie says.

Daniel Bereskin, a founding partner of Bereskin & Parr LLP, also notes this trend in the United States, but doesn’t anticipate it happening here any time soon.

“Our litigation department is going flat-out and we have many different litigations going on at the same time and everybody is very, very busy. So it hasn’t been our experience that we’re losing any work to the larger corporate firms,” Bereskin says.

“What has changed is that IP litigation has become much more prevalent, especially in the pharmaceutical field but not exclusively so. IP litigation is very labour intensive and consequently the large law firms both in Canada and the U.S. have realized over the last 10 years that IP litigation is a potential significant growth area for the firm’s practice,” he says.

Mark Evans, managing partner of Smart & Biggar/Fetherstonhaugh, says that while the general practice firms in the United States have gone on a real tear in terms of getting into the IP field, the same is not happening here.
“When you look at it from a macro level, by and large, I don’t think the marketplace is all that different in IP from where it was 40 years ago,” he says. “You’ve got some large boutique firms and you’ve got a relatively small number of general practice firms with an IP department.

“I think the one thing that is different is specific to patent pharmaceutical litigation. And that’s the one area where you’ve had a small number of general practice firms get into that field. It’s not a widespread phenomenon. It’s really limited to that focus predominantly.”

While these large, established IP boutiques may not feel the crunch, the small boutiques certainly do, says Patrick Hofbauer, whose firm Hofbauer & Associates joined Lang Michener LLP’s growing IP group last fall.

“I ran my own firm for pretty much 15 years and then prior to that I ran the department within a general firm in Hamilton, so it’s come full circle,” he says. “I’m now back to a general firm that already had an existing IP practice. So I’ve seen all sides of it except corporate. There are benefits to joining a larger group and there are disadvantages of being in a boutique.”

He said the biggest problem he had running a boutique was getting qualified practitioners in the area, particularly on the patent side. While the small boutiques are a great training ground, he says, they are also a great springboard for young lawyers.

“There is something to be said for training in a boutique,” Hofbauer says. “The problem is we become training grounds and we lose people to the bigger firms after a couple of years to the larger firms.”

With the high cost of losing an associate and training a new one, estimated to be $300,000, it causes a financial strain.

“In my particular case, we were as many as four lawyers and as few as two. It takes a toll if you constantly have a turnover like that. For me that was a real problem. It is a growth area, and continues to be, and we had no shortage of work. In fact, I was turning away work for probably a good two years,” he says.

Hofbauer says he enjoys the ability to have litigation in-house.

“That was a major reason as well for us to join Lang Michener,” he says. “I’ve already benefited from having in-house litigation support. They know I don’t have to outsource the litigation. We’ve avoided litigation in several cases where I think litigation might have ensued had I not been in-house, because they know we have the bench strength and the reputation to back up what we say.”

That erosion of business on the litigation side can be felt slightly in Canada, although not at all on the level it’s at in the United States, says Gallie.

“In Canada, it’s not as extreme by any means. We have some very large general practice firms, which have IP departments. However, we’ve seen huge false starts by some of the big firms. They’ve taken in IP specialists, they’ve tried to build their practices, and by and large they’ve done a pretty bad job of it. I think the corporate mentality doesn’t understand what you need to do to run this business well.

“There are some firms who do it well in Canada,” he adds.

Obviously the huge exception to the rule is Gowling Lafleur Henderson LLP, say those at the boutiques. Rather than being the large general practice that bulked up an IP department, it’s the IP firm that bulked up a general practice.

“[Gowlings’ national managing partner] Scott Jolliffe is an IP guy, so he knows what it takes,” says Gallie. “I think because of that, the firm runs an IP practice very well. But the other firms who started off as tax or M&A firms, they tend to not be able to do it well at all.

“Do we feel threatened by general practice firms? Our firm doesn’t at all. We do what we do very well. Do we get as much litigation as we would like? No. That’s really tailed off and I think that’s being done in the same way, on a smaller level, as it is in the U.S.”

Bereskin feels the same way and says, “It’s one thing to have the objective and it’s another to realize the objective. Very few large corporate firms have been able to sustain this in the long run.”

So is the lucrative and specialized nature of the business making it harder and harder to hold on to talent, especially when the skill set can require not only a law degree but a science or engineering background as well?

“Many of our people are canvassed regularly — sometimes as often as once a week — by headhunters,” says Bereskin, “and with very few exceptions over the years, they tend to stay.”

Evans says, “IP does have significant barriers to entry because of the general desirability for individuals in the patent field to have significant experience or expertise in either engineering or the sciences.

“A firm like ours, for example, we have three dozen individuals whose background is at a master’s level and a dozen who have PhDs,” he says.

“I think the keys to having people stay in a firm are no different than having people stay at a corporation,” Evans says. “You treat people well, you treat them with respect, you encourage them to excel, and you give them opportunities.”