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A roundtable participant said it best. Litigation is a destructive process. A clear winner rarely emerges, but if the battle lasts long enough, there are all sorts of losses. Litigation diverts management’s time from running the company. It exposes dirty laundry, and it’s costly. IP litigation in particular pulls scientists and engineers out of the lab and off the bench to teach lawyers the technology in dispute. In a more rational world, competitors might settle their differences over coffee. But in the real world, they always seem to end up in litigation, where there is a natural tension between the parties but often between lawyer and client, too. How much discovery is enough? When is it time to fold? Why is this lawyer’s bill the size of the national debt of Rwanda? If litigation is inevitable, can it be less painful? Are there ways that in-house counsel and outside trial lawyers can work together to make the best out of a billable situation? In late 2003 Corporate Counsel‘s sibling publication IP Law & Business assembled a panel of in-house counsel and trial lawyers to explore the awkward interface between companies and their hired guns. Gabe Kralik, one of the participants, has stood on both sides of the divide. A former litigator at Morgan & Finnegan and Gray Cary Ware & Freidenrich, Kralik is now general counsel of Finisar Corporation, a Sunnyvale, California, network equipment supplier. Finisar had been one of his litigation clients. When he stepped inside, his perspective changed dramatically. “I had the opportunity to work in the same case both as an outside litigator and the inside lawyer,” Kralik said. “And it was plain as day to me when I got inside that this was not good for the company, and it was not good for the other side. It was a runaway train with lawyers involved, and it quickly settled.” Outside lawyers have their own issues, especially about clients who don’t communicate. Says John Sweeney, a partner at Morgan & Finnegan: “You are in the middle of a deposition, you have no idea that settlement talks are going on, and [the client says], ‘Stop. That’s your last question. We just settled.’ “ Excerpts of the transcript of the roundtable follow.
PARTICIPANTS Steven Hemminger, partner in the Palo Alto office of White & Case Sean Johnston, vice president of intellectual property, Genentech Corporation Gabe Kralik, general counsel, Finisar Corporation James Mitchell, vice president and general counsel, Corbis Corporation Victoria Slind-Flor, West Coast correspondent, IP Law & Business Jack Slobodin, partner in the San Francisco office of Seyfarth Shaw John Sweeney, partner at New York’s Morgan & Finnegan Keith Turner, chief intellectual property counsel, ChevronTexaco Corporation Vicki Veenker, partner in the Menlo Park, California, office of Shearman & Sterling Mark Voorhees, editor, IP Law & Business
Victoria Slind-Flor: Let’s talk about the pain of litigation. How can outside litigators and in-house counsel work together to minimize the pain? Keith Turner: We go to great lengths to avoid litigation and very seldom have any. In the 30 years I have been at ChevronTexaco, I can think of three lawsuits that involve IP that have been filed by us or against us. Our effort primarily is to work with outside counsel on strategies to avoid litigation. It’s trite, but it’s true, that the best way to control and manage litigation is to not have it. I will emphasize that we do use litigation counsel rather extensively in that effort. The best way to avoid litigation is to be prepared for it. We rely very heavily on litigation risk analysis. We do try to quantify and qualify whatever those risks are. In briefing our management, what they are interested in is the value of this to me. We try not to be emotional about our intellectual property. Steven Hemminger: I have to admit that Keith has taken our motto. The best form of litigation is to avoid it. It’s usually a destructive process, on both sides. The thing is to know what your goals are and what you want to achieve. We work closely with our clients to know what their goals are. James Mitchell: The first thing I try to do when we are served with an IP lawsuit is to rely on our in-house team to assess it. If it does require outside counsel, we will move in that direction. I ask for an early, candid assessment from outside counsel of their view of the case, and also their view of the costs of the case, including preparation of litigation budgets and plans. We use those extensively. Slind-Flor: For outside counsel, when you have been retained, what is the first thing you talk about? Vicki Veenker: The first thing I try to do is to understand how this affects the client from a business perspective: How big a risk is this, what are their ultimate goals? Do they really need market exclusivity? Are they a small company, and is this a big-deal product for them; or are they a large company, and it’s something that they cannot ignore, but the risk is less? My rule of thumb is that if there is bad news, I want to be the first to deliver it-not second, not last. Once you get the problem on the table, you can start working on strategy to deal with it. Slind-Flor: I was thinking about the passion that people in the Valley have about their [intellectual property] babies. Do you ever have to work with clients for whom any kind of compromise means throwing “my baby into the fire”? Hemminger: At start-ups you find the people who are the most passionate. They have gotten their patent, and they are now being copied by some large company. That’s where some of the passion comes from. How do you educate these individuals? I don’t think it’s a matter of education. I think it’s a matter of business. Most of these people-no matter how passionate they appear to be-down deep are businesspeople, and you go down and do the assessment. With this large company coming in, are they really going to harm you economically, or are you still going to beat them because you were there first? Then you decide what to do with the enforcement. Slind-Flor: I have often heard people who litigate biotech cases talk about the immense time it takes to learn the science. Often that time is spent learning the science from scientists at the company. How does that impact Genentech? Sean Johnston: We make our scientists available for tutorials for outside counsel. Obviously it takes them away from other activities, so we try to limit it. Another thing we emphasize is trying to develop long-term relationships with outside counsel who learn the technology either from us or others over time. We try to rely on counsel who know their stuff, and then we can focus on just the particulars of the litigation rather than start from square one. Mitchell: We really try to isolate our businesspeople as much as possible and keep them from being dragged into litigation. We probably go over the top in burdening our legal staff in assisting outside counsel. Turner: At ChevronTexaco, we cannot litigate a case as ChevronTexaco. Every case has to belong to somebody. You need to give a personality to the case, whether you are a defendant or the plaintiff. One of the things we do is to identify somebody on the technical side who is going to be that case. Who is the individual who will be ChevronTexaco if it gets to litigation? And we involve them very early. Hemminger: Having a point person at the company helps to move the case forward. It also helps tremendously to have people on your team who know the technology. A major way of keeping costs down is, as soon as possible, getting your story down, because when you are in litigation, it’s all about a story. I don’t know how many cases [there were] in my early days where nobody knew what they were doing. You’d take a deposition over here, and a deposition over there, and nobody had developed the story until the last week or two. Jack Slobodin: Another great technical source is patent prosecutors. They may not want to be involved in litigation, but they understand the technology. When there are a lot of technicalities, you want a prosecutor at your side. John Sweeney: I think we are assuming that the company is committed to that litigation. Sometimes, at small companies, there is this feeling that the outside lawyers are going to take care of it. That is a very dangerous situation for both the company and the outside lawyer. To move forward without that commitment is something to be avoided. Slind-Flor: Scientists are often in love with their own discipline. They have their own jargon. How do you, as outside counsel, get them down to the level of the jury? Veenker: Once I understand the technology, I start to use simple words when I speak to them about it. They begin to pick up on it and think that is the way to communicate with me. If you oversimplify or use an inappropriate word, they will let you know. Johnston: We look for scientists and are fortunate to have scientists who are good teachers. But I think it is a danger to solely expose your outside lawyers to the most rudimentary aspects of a technology. The litigator needs to understand at a sophisticated level what that technology is about. Mark Voorhees: Let’s accept Keith Turner’s premise that most companies want to avoid litigation. I think most trial lawyers would say that the best way to avoid going to trial is to get the best trial lawyers involved so that you can get the best settlement. But trial lawyers like to try cases. They like to get in front of juries. Corporations like to settle cases. It seems that there is a tension there. Hemminger: I don’t think there is a tension at all. There probably are trial lawyers who live and die to get in front of a jury. We come at it from a different approach, and that is the relationship with our clients. We want to keep that relationship. While it’s nice to go in front of a jury, your chances at most trials are fifty-fifty. I would much rather hand my client a settlement that achieves their goals rather than flip the coin and lose because the jury didn’t like the shoes you were wearing. Voorhees: Let me ask the in-house counsel whether they are as convinced that trial lawyers will never take cases to trial that should be settled. Turner: I have found that if you have a relationship with a litigator, they will do what is in the best interests of the business. I have never had a difficult time finding a litigator who would work with you to avoid litigation. Voorhees: Let me turn this a little bit. Gabe Kralik, you have been on both sides of this divide. Has your view of trials and the drama of trials changed since you have gone in-house? Gabe Kralik: Yes. Absolutely. Everyone in this room is a wonderful person and a good lawyer and has ethics, and they want to do what is best for the client. Litigation, though, is foreign to a business. It’s something that companies don’t readily understand. Nor do they understand its ramifications. A lot of times patent litigation is not good for a company. Often, potentially adverse companies, people who are our competitors, are also our customers and suppliers. The picture is complex. The litigator on the outside is focused. He or she is a hired gun. The outside firm is supposed to win. They don’t have the complete picture. Both business folks and outside lawyers need someone to explain when prosecuting a case to completion is not going to help the company. I don’t think the outside litigator, by definition, knows the inside story. I had the opportunity to work in the same case both as an outside litigator and the inside lawyer. And it was plain as day to me when I went on the inside that the case was not good for the company, and, by the way, it wasn’t good for our opponents either. It was a runaway train with lawyers involved, and it quickly settled. So, yes, my perspective dramatically changed. Mitchell: I am not sure there is a tension between pursuing a hard-core litigation strategy and also achieving what is best for the company in resolving cases short of litigation-so long as I am doing my job managing aggressively how the litigation is going. I want to negotiate from a position of strength. Having a posture that you are prepared to take to the max helps you get the settlement that you want. Sweeney: For the smaller company, I think the trial lawyer has a responsibility [similar to that of an in-house counsel]. If the trial lawyer asks, “Should we defend this case vigorously?” the company executive may have no idea that it’s going to cost $3�4 million and take all his time, and he has the risk of going out of business. The trial lawyer has to explain how this works and the risks. The trial lawyer has to hold back these smaller companies, because they could get in over their head. There are times you have to fight. But I think there is a temptation to litigate, and we have to guard ourselves against encouraging that. Hemminger: In the smaller companies, I have found that I have much better communication because the CEO will take the time to sit and talk with you about where they are going. You know their settlement posture. You, as the litigator, are able to help them achieve their business goals. It’s dealing with the larger companies where that sometimes breaks down. Many times the inside legal staff works on their own; they have their own ideas about where they are going, and the outside lawyer is not included in terms of how they are trying to settle. I’m not sure that is intentional. Those types of situations are prone to disaster. You have the litigator going out and doing their thing, and the in-house staff doing their thing, and never the twain shall meet. Sweeney: I have experience where a large company had a whole strategy worked out. They hired you and said, “Here’s what we want you to do. Here is the game plan, you are the mouthpiece, and go do it.” You are in the middle of a deposition, you have no idea that settlement talks are going on, and they say, “Stop. That’s your last question. We just settled.” Hemminger: One of the problems people have is that they are afraid to identify the key issue in a case. Many times the cost in litigation comes because a lawyer is inexperienced or is a litigator and not a trial lawyer, and they will explore every issue in the case even though we all know it will all boil down to the definition of what “connected” is. One way to help reduce the cost is to be brave enough to go to your client and say, “Here is the issue. Let’s take it to an arbitrator.” Voorhees: Does that come with confidence or is it brashness? You are all trained at risk avoidance and covering all your bases and going down all paths. What you are suggesting is a little bit at odds with that. Hemminger: You have to be at a point where you understand the facts. In a week, that is not realistic. But in a couple of months, there should be an understanding of where you are going. The confidence comes in by saying, “Here is the issue. I know it’s a good issue. Yes, I could go out and perhaps develop facts that this other theory would be successful, but it’s a long shot.” Of course, many times you realize there is one issue, and the other side realizes it’s a losing issue, so you end up litigating the case to death. Slobodin: You are always taking a risk. You need to pick your two best issues and forget the other five. Turner: A risk analysis is a dynamic document. The important issues shift, and you need to keep doing analysis. In a number of instances when we were faced with potential litigation, once we started attaching probabilities, the issues that we thought were important weren’t, and the issues that we were less focused on became more important. It’s amazing how often I have been wrong about what the important issues are. Voorhees: As in-house counsel, how do you feel about an outside lawyer sending a third-year associate to do a key deposition or argue a motion? Kralik: You want people to learn the case. Some of these cases are so big, by the time the cases are over, the young associates are practically partners. I have no problem with young people working on cases. Turner: At some point you need to trust your outside counsel about who the right person is. Kralik: I would rather have a second- or third-year associate doing the deposition than sitting next to somebody and just handling documents. They are so focused and want to do a good job. Veenker: When I was a fourth-year associate, I was about to handle my first witness at trial. I was hoping the in-house counsel didn’t know that, because I was a little embarrassed about it. Just before the witness went on, the chief patent counsel came up to me and said, “I know you have not put on a witness before. I am so glad you are doing this. We need lawyers like you to have this experience for later work on our cases.” That just took the pressure off.

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