The number five has special meaning these days for Cooley Godward Castro Huddleson & Tatum, arguably San Diego’s hottest information technology and life sciences specialty law firm. Five years ago, based on requests from five local companies, the Palo Alto company moved five attorneys here to open a permanent office.

    But the story of the relative San Diego newcomer isn’t only a matter of a quality reputation and wide referrals. To become a firm that served as counsel in 1996 for more than 40 venture-capital transactions, 19 initial public offerings, the $130 million cash tender offer of Millipore for Tylan General and the $2.2 billion acquisition of FHP by Pacific Care, Cooley Godward used a series of strategies and business practices that made it an expert marksman. By consciously applying industry expertise and getting into the San Diego market at the right time, Cooley's local office amassed a client list that includes Amylin Pharmaceuticals Inc., Cytel Corp., Allergan, Isis Pharmaceuticals, Stac Electronics, Qualcomm Inc., DataWorks and Computer Associates International, and a net profit per partner of $430,000.

    In late 1991 and early 1992, Cooley Godward had completed six large initial public offerings for five San Diego biotech, software and communications firms: Cytel ($52 million), Qualcomm ($64 million), Corvas International Inc. ($36 million and $41.4 million), Amylin ($56 million) and Stac ($36 million). The five companies expressed the desire for a permanent office in San Diego, which at first was a Silicon Valley satellite staffed by then-associate Tom Coll and former partner Frank Cassou. Partners Fred Muto and Cassou recognized that Sorrento Valley was becoming a center of wireless communications technology and life sciences, and these efforts were complemented by the presence of research institutions such as Scripps Research Institute, the Salk Institute and UCSD.

    They then proposed a business plan to Cooley management for a San Diego office. In March 1992, Cooley complied, opening a Golden Triangle office with partners Muto and Cassou and then-associates Wain Fishburn, Michael Rhodes and D. Bradley Peck. "It was a big leap of faith," Muto recalls, thinking of the mostly-empty office building where the firm found space. By mid-1992, the three associates were made partners. Since then, the San Diego office at 4365 Executive Drive has grown to 12 partners and 25 associates. There are more than 330 attorneys in the entire firm, which has 95 partners.

    The parent firm's faith in San Diego has been rewarded. Of the $2.78 billion from 71 initial and secondary offerings Cooley helped raise for clients nationally in 1996, the Golden Triangle office brought in 19.5 percent of the dollars ($543.1 million) and 26.8 percent of the deals (19). The office is off to a hot start in 1997, having last month assisted Qualcomm with a $550 million private placement of 5.75 percent trust convertible securities.

    In getting to this stage, the first component in the firm's success was its Silicon Valley experience, especially its venture-capital community contacts in Menlo Park and ties to San Francisco investment banks. This gave the firm the ability to make introductions that led to venture-finance deals, as well as an entrepreneurial sense to which big-idea, cash-hungry start-up companies responded. Next, the firm cemented its relationships with local and national organizations such as UCSD Connect, San Diego Venture Group, BIO/COM, the Biomedical Industry Council, the American Electronics Association, the Software Industry Council, the MIT Enterprise Forum and the International Forum for Company Directors. Sitting on panels and participating in conferences was instrumental in the office's "missionary outreach" stage, and lawyers always sat near board directors, who were often venture capitalists.

    In this early stage, the office also put on "roll-up-your-sleeves" seminars on the process of going public and programs on intellectual property rights. But both Muto and Rhodes note that these practices weren’t particularly innovative and are used by other firms, such as Brobeck Phleger & Harrison and Wilson Sossini. What made the difference, says Rhodes, was that "no other firm in town had the depth we did." According to Muto, the San Diego attorneys' specialized knowledge of technology transactions and focused client service made them especially attractive when companies interviewed prospective law firms.

    The major advance in putting San Diego Cooley ahead of the game was building on the life cycle of emerging-growth companies. These software, telecom, multimedia and life science companies are primarily venture financed and show a quick revenue growth of 30 to 50 percent. When seeking legal counsel, venture-driven firms are concerned about the bottom line. Cooley met that need by keeping its costs low (between $140 and $350 per hour), keeping its teams small, arranging fixed fees and offering "risk-reward" arrangements if the company was going to work with Cooley's lawyers for an extended period of time.

    To address the quick growth mentality of the high tech companies, Cooley Godward pushed its entrepreneurial experience to the fore. "We represent our clients as corporate and take them to the next level," says Rhodes. "We know accountants and financial advisers and we understand the growth process of companies, exit strategies, capital formation, how to access private and public markets and how capital formations are interrelated to intellectual property concerns."

    Most importantly, the San Diego office built its business as the emerging-growth companies developed and demanded more sophisticated services. After Cooley Godward helps a young start-up obtain venture financing, the next stage for which the company often requires counsel is an initial public offering (IPO). Secondary offerings sometimes follow, as with Qualcomm's August 1995 $503 million offering. According to Muto, IPOs are 10 to 15 times as lucrative as venture-financing deals and usually account for 30 percent of the firm's business. In 1996's highly bullish market, however, the branch was consumed with IPOs, which made up 60 percent of its business.

    Initial offerings in 1996 for which the San Diego branch acted as counsel include SIBIA Neurosciences ($23.1 million), Maxim Pharmaceuticals ($18.6 million), Hot Topic ($23.4 million), TriTeal Corp. ($20 million), Amylin Pharmaceuticals ($17.5 million), DataWorks Corp. ($42 million) and Eidos ($36.4 million). Nationally, Cooley ranked second in 1996 for total IPOs and secondary offerings, with Wilson Sossini in first place. Both displaced Brobeck Phleger & Harrison, which was first in 1995.

    Once a company is public, the San Diego office is called upon for mergers and acquisitions, which Muto terms "a natural outgrowth of our practice.

    "Venture-backed companies are frequently acquired," he says. "Half are sold, rather than going public. Those that go public often acquire other companies." Once companies reach the level where they demand counsel for mergers and acquisitions, San Diego Cooley Godward doesn’t need to reach out to them with the same "missionary" efforts extended when it began. Instead, it "services the hell out of clients," says Muto, cultivates the expertise of associate lawyers and builds knowledge in the technical disciplines.

    The next level of the emerging company growth cycle is strategic partnerships, distribution/licensing agreements and intellectual property litigation. Biotech companies develop drugs on a seven to 10 year time line that requires the frequent raising of capital. Simultaneously, little revenue is flowing into their coffers. "Strategic partnerships are a way of life and a way to raise capital," Muto asserts. As an example, he points to Agouron, which currently has no product on market. It has an AIDS drug in Phase III testing, and on the basis of that, signed major distribution deals with Japanese companies. If a biotech company develops a product that is safe, medically efficacious and marketable, it may opt to license its production and establish distribution channels. Amgen, Amylin, Hough-ten Pharmaceuticals, Isis and Scripps Research Institute all have used Cooley Godward's counsel at this level.

    Information technology companies, on the other hand, become commercial more rapidly. Distribution and product sale agreements can enter the picture in as little as a year. Cooley Godward covered this angle in its counsel of DataWorks, NextWave and Qualcomm.

    But it’s technology litigation that is one of the most lucrative areas of Cooley's practice, because it brings in the most hours. Cooley Godward "handles more large-scale complex technology litigation than any other firm in the country," says Muto.

    While Cooley doesn’t assess and write patents, it specializes in patent litigation, which requires technical knowledge of what the patent is supposed to protect, an understanding of the patent's prosecution history and the skill to marshal the case before a jury of 12 laymen.

    The environment in which Cooley works at this stage is high stakes. Multiple year, $1 million plus patent litigation is common. Either a big company tries to bankrupt hotshot companies by going after their patents, or a company must sue others who are infringing on its core patents. Cooley Godward's litigation work is evenly distributed between the two types. Qualcomm, for example, has faced litigation from giants Motorola and Ericsson aimed at lessening its reach while Amgen is trying to put competitors allegedly violating its patents out of business.

    Cooley's San Diego office has fared well in this arena, settling favorably for its client Qualcomm for an undisclosed amount in 1993 when InterDigital claimed it held patents violated by Qualcomm's Code Division Multiple Access technology. It also successfully handled a large trade-secret case, representing Hillen Brand and Block Medical against River Medical and its parent company, IVAC. The parties fought over the ownership rights to infusion pumps. From San Diego, Cooley also handles employment litigation for high-tech companies, such as Computer Associates International, the world's second-largest software firm. In early February of this year, Cooley litigators represented CAI in a federal labor class-action suit.

    What does the future hold for Cooley in San Diego now that the needs of emerging companies have spawned the office's per annum growth rate of 35 percent? Peck, partner in charge here, says it was easier to grow when the firm was small and cautions the fast clip can’t continue forever. He's optimistic about new business and keeping clients, and he's confident that work will continue to roll in. If the market heads for a massive "correction" or some of Cooley's San Diego clients run into trouble, there still will be services to provide. "Lots of different things can happen where a company needs legal services, whether the market is hot or has cooled off," Peck says.