When asked in July whether Townsend and Townsend and Crew would be cutting associate salaries, Chairman James Gilliland said that "all those balls are up in the air."
On Friday, the balls came down and took a bad bounce for some associates.
The firm announced it will reduce first-year associate salaries from $160,000 to $145,000 in 2010. The pay scale for other levels will be reduced, but some associates will see their pay increase as they move up a step.
The 200-lawyer firm also said that it would ditch lockstep compensation altogether in 2011 and move to merit-based pay, a system that has been popularized by national IP firm Howrey.
The news was first reported on the blog Above the Law. Townsend leaders could not be reached for comment Friday, but a firm spokesman confirmed the changes.
After raising associate salaries for years, law firms have been forced to cut and rethink associate compensation during the recession. Other big firms like DLA Piper have cut associate salaries to the levels that Townsend cut them to on Friday. Still others, like Orrick, Herrington & Sutcliffe, are moving away from the the lockstep model.
Townsend is exclusively an intellectual property firm. The latest move shows that the once-abundant supply of patent litigation is drying up in the recession.
In July, Gilliland told The Recorder that his firm was rethinking its recruiting and training. New patent file openings and cases were down by about 20 percent this year over the same period last year, Gilliland said at the time.
"That's for both our prosecution disciplines and our litigation work," he said at the time. "We're getting the message from clients that if they're going to pay these prices they want highly trained lawyers for that." The firm's first- and second-year associates bill between $260 and $290.
With the cuts, Townsend associates will be paid from first year up: $145,000, $160,000, $170,000, $185,000, $210,000, $225,000 and $240,000.
The firm had started the year better than other large firms, turning in revenue gains of 13 percent to $164.5 million in 2008, while seeing profits per partner contract 4 percent to $705,000. But as the year wore on, business slowed, and the firm laid off 45 staff and 16 lawyers in April.
"The wave of economic repercussions that washed over general practice firms before is now reaching the patent field," said Kate Patterson, IP legal recruiter with Patterson Davis in San Francisco. "That's in large part because of the slowdown in patent filings."