Cisco GC Goes on the IP Offensive

Joshua Sisco

The Recorder

2013-02-25 14:39:44.0

With a market value of around $112 billion, Cisco Systems Inc. is ubiquitous. The San Jose-based company's networking and video conferencing wares are sold across the list of Fortune 500 companies and the U.S. government is one of its largest customers.

Long-focused primarily on enterprise services, Cisco in the mid-2000s made a high-profile entrance into the small business and consumer market with its Flip video cameras, Umi videoconferencing and Linksys routers. Then over the past few years it has made an equally high-profile exit from those businesses to refocus on the enterprise market.

The company is a prolific dealmaker. Its 2012 acquisitions include the $5 billion purchase of video software and security company NDS Group and the $1.2 billion takeover of cloud networking company Meraki Inc.

Along the way, the company has positioned itself as an ardent general in the battle against nonpracticing entities, sometimes referred to as "patent trolls." It is both a defendant and a plaintiff in patent disputes. Cisco was recently handed a setback in its novel attempt to turn the tables on NPE Innovatio IP Ventures by suing it under federal racketeering laws, but that fight is far from over.

THE QUICK BIO

Aside from a two-year stint in private practice doing work for startups with two other lawyers after graduating from Stanford Law School in 1981, Cisco's long-time general counsel Mark Chandler has spent his entire career in house.

His first corporate role, in the early 1980s, was actually in the marketing department at German manufacturing company Siemens AG. In 1988, instead of accepting a full-time transfer to Germany, he took the general counsel position with computer disk drive maker Maxtor Inc., after a chance meeting with Gregory Gallo, then a Maxtor director and partner at what would become DLA Piper.

Chandler stayed at Maxtor until shortly after the Korean conglomerate Hyundai Group bought 40 percent of the company in 1994, when he took the top legal spot at networking company StrataCom Inc. That company was acquired by Cisco two years later. He recalls Dan Scheinman, Cisco's general counsel at the time, telling him jokingly, "I'm a GC and you're a GC, but I'm already here, so what are you going to do?"

At the time, Chandler, along with the chief financial officer, were the only ones remaining on their floor of the StrataCom building, which was just down the street from the Cisco campus. Feeling removed and unsure of his next move, he had another chance encounter, this time on an airplane with Jack Brigham, who at the time was the top lawyer at Hewlett-Packard Co. Following a confidence-boosting talk with Brigham, Chandler moved to Paris to head up European legal support for Cisco. He then came back to the Valley a couple of years later to lead worldwide legal support for sales before taking over the top spot in 2001.

INSIDE AND OUTSIDE COUNSEL

Since Chandler joined the company in 1996, Cisco's in-house legal department has grown from 12 to around 250 attorneys. Including the support staff and the investigations and brand protection teams, Chandler oversees about 350 people.

Long a proponent of alternatives to the traditional billable-hour model, Chandler said his main goal is to make sure that both in-house and outside legal work line up squarely with the company's business goals.

In addition to the standard litigation, compliance and human resources issues, "the legal department is there to help with the design, building and selling of products," Chandler said. A majority of his team is involved in deal making, negotiating large sales contracts and other transactional work.

Another central focus is: "How can I deploy IT in order to simplify legal work?" For example, the company developed a tool that will create nondisclosure agreements automatically, without the need for a lawyer. Cisco also relies heavily on e-discovery providers, and Chandler was even approached by a venture capital firm looking for him to vet a particular e-discovery company in which it was considering investing.

When it comes to outside counsel, "we want them to recognize the company's financial constraints. Every year I am trying to lower the amount of money spent on legal activities," Chandler said.

"We want scalable solutions from firms. We don't want them to turn over every stone on things that aren't mission critical." Chandler tries to get most of his legal work done on a fixed-fee basis.

Most of the company's corporate work is headed up by Gordon Davidson at Fenwick & West, a long-time adviser who sits in on board meetings as an observer.

Though not a comprehensive list, for IP litigation Cisco looks to William Lee at Wilmer Cutler Pickering Hale and Dorr and Norwood Jameson at Duane Morris along with Quinn Emanuel Urquhart & Sullivan and Weil, Gotshal & Manges.

For other IP work Cisco turns to Barton Showalter at Baker Botts along with Haynes and Boone. For general commercial litigation the company uses Morgan, Lewis & Bockius.

IN THE TRENCHES

Among its pending patent litigation, Cisco is the plaintiff in a lawsuit against Innovatio and is being sued by another patent-holding company, VirnetX Holding Corp., which is expected to go to trial next month.

Chandler takes these and all litigation very seriously and his demeanor noticeably changes when the subject is broached. On one office wall he hangs a trophy collection of sorts — a group of framed checks from companies who have sued first, only to end up owing Cisco money.

"Access to justice is important," Chandler said. "We have a very abusive system right now and there are no consequences for bringing very abusive lawsuits. These parasitical entities add no value, but use litigation instead of substance."

Cisco sued Innovatio after it sent threatening letters to thousands of Cisco's customers, including hotels, cafes and a children's AIDS clinic, that provide wireless access to their own customers, using Cisco products. The patents originally came from semiconductor maker Broadcom Corp.

In working with lawyers at Kirkland & Ellis, Cisco decided that Innovatio was operating a "racket" and sued under the Racketeer Influenced and Corrupt Organizations Act, commonly used to prosecute organized crime.

It was important to take the offensive, Chandler said. "I am passionate about defending my customers." The RICO charges were dismissed earlier this month, but the breach of contract charges remain, and Cisco will continue to fight Innovatio in court. "The judge didn't say it was not a racket."

Following a $200 million settlement in 2010 from Microsoft Corp. and a $368 million settlement from Apple Inc. last year, VirnetX is now looking directly at Cisco, asserting that the company is infringing on patents it acquired from government contractor SAIC.

With the trial set to begin next month, Chandler said the patents have been preliminarily declared invalid by the U.S. Patent and Trademark Office, but would not comment on the impact of that on the trial. He also isn't worried about any momentum VirnetX may have from the Apple win, saying this case concerns different patents and different products. "We believe there is no infringement and will prove it."

EXTRACURRICULAR

Chandler, who actually lives in Washington, D.C., and spends about 10 days each month in Silicon Valley, loves to cook. At the end of his time in Paris he took a cooking class, "to help restore my work-life balance" as the dot-com bubble was peaking.

He also spends much of his spare time rebuilding homes and is currently working on his fourth and fifth remodels in D.C. and Monterey. He has also built a home in Palo Alto.

This article originally appeared in The Recorder.