Energy and Efficiency in the Nest Labs Legal Department

Joshua Sisco

The Recorder

02-20-2013

Founded by the iPod design team from Apple Inc., Nest Labs Inc. is an upstart in a market long dominated by large industrial concerns including Honeywell International Inc. and General Electric Co.

The company's thermostat, now in its second generation, can be operated remotely from a person's smartphone, and learn the user's habits, turning on and shutting off a heater and adjusting the temperature automatically, based on previous usage patterns.

The company says that if used properly, the Nest thermostat can reduce utility bills by up to 20 percent.

The Palo Alto-based company lists a who's who of Silicon Valley investors, including stalwarts such as Kleiner Perkins Caufield & Byers, Google Ventures, Lightspeed Venture Partners, Venrock and Shasta Ventures. It also counts Generation Investment Management, the venture firm co-founded by former Vice President Al Gore, as a backer. The company would not comment on its financing activities, but TechCrunch reported that it raised $80 million at an $800 million valuation in January.

THE QUICK BIO

Nest announced the arrival of Richard "Chip" Lutton Jr. as general counsel the same day it filed an answer in a patent infringement suit filed by Honeywell in April 2012. Lutton had spent the previous 10 years with Apple, leaving the company as the chief patent counsel. "I decided to take some time off after Apple, and then did some consulting work for Nest," Lutton said. "I asked them to take me on full-time, and was lucky enough that they said yes."

Prior to Apple, Lutton spent a year on intellectual property litigation and patent licensing at Sun Microsystems Inc. and seven years at the intellectual property firm then known as Arnold, White & Durkee. He also spent a year clerking for Randall Rader, now the chief judge of the U.S. Court of Appeals for the Federal Circuit.

Lutton graduated from Columbia Law School in 1993 and earned a Bachelor of Science degree in electrical engineering from Rice University in 1989.

Nest was founded by CEO Tony Fadell and Vice President of Engineering Matt Rogers, who had previously led the design teams on the iPod and iPhone at Apple. Joining his former colleagues was a natural choice, but he was also drawn in by "the incredibly exciting, innovative nature of the company," he said.

Lutton said "intellectual property is in the company's DNA" and believes it will be vindicated in its dispute with Honeywell. "We don't think that the patents should have been issued in the first place," he said, adding that "Honeywell has a practice of litigating in order to defend itself from the competition, as we noted in some of our pleadings."

The case stems from seven patents that the industrial conglomerate — which makes everything from jet engines to skin exfoliating products — said Nest is violating with its thermostat.

The suit, filed in U.S. District Court in Minnesota last February, concerns patents related to the user interface, power supply and the ability to control it remotely, among others.

Lutton's strategy for Nest was to ask the patent office to re-examine the patents, and that process is ongoing, he said. He declined to comment on possible outcomes for the litigation.

INSIDE and OUTSIDE COUNSEl

The legal team at Nest currently consists of just Lutton and one other intellectual property attorney. "We keep in house as much as two people can do," he said, and the company waits to bring in outside firms until it can give them specific tasks.

When Nest seeks outside assistance, it typically relies on Orrick, Herrington & Sutcliffe for its corporate work, Fish & Richardson for its litigation needs and Kilpatrick Townsend & Stockton for IP work. There are a number of other "smaller firms" that the company uses for various specific projects that Lutton declined to name.

Tech companies in the Valley tend to appreciate "good, practical in-house lawyers," Lutton said.

"I've been fortunate early on to see a variety of styles of practices and lawyers and there is a connection to the practice at an in-house role that is not present at an outside firm," Lutton said. "There is such energy around scrappy, fast-moving startups," which is a welcome shift from Apple, he said.

During his tenure at the technology behemoth, Lutton said the in-house team grew from approximately 50 to 500 attorneys, more than many law firms.

He said the work at large companies tends to be much more compartmentalized and procedural and at Nest there are numerous opportunities to work on a bit of everything.

The privately held Nest does not disclose revenue and other financials but it is positioning itself for a foothold in the greater home appliance market, Lutton said. The Honeywell litigation may have consumed a major part of his time, especially at the outset, but "in the long run, we are focused on great, innovative products and a new approach to old appliances."

At the start of January, the company brought on chief financial officer Tom vonReichbauer, who was previously director of finance at the electric car maker Tesla Motors Inc. and was with that company for its 2010 initial public offering.

Formalizing executive roles such as general counsel and CFO are often seen as precursors to an IPO, but Lutton would not comment on Nest's future financing plans.

The company is working to build out its infrastructure and support for marketing and expanding into Europe. Currently, the thermostat is only available within the U.S. and Canada. The company will rely on outside counsel for its international expansion for the foreseeable future. "We are a ways away from expanding the legal department for that."

EXTRACURRICULAR

Lutton, who grew up in Mississippi, loves all things outdoors, including paddle boarding and skiing.

This article originally appeared in The Recorder.