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It was a cold day for a beauty contest. On a blustery morning last December, a small army of product liability lawyers tried not to slip on the ice as they made their way to the Plaza Hotel in New York. The largest pharmaceutical corporation in the world, Pfizer Inc., had rented a ballroom in the grand old hotel and summoned them. Allen Waxman, Pfizer’s litigation chief, told the hundreds of lawyers that the company was beginning an intense nine-month competition among its product liability outside counsel. Pfizer wanted the 103 firms in attendance — which included many that had worked with Pfizer before and some that had not — to compete against each other for some 20 coveted spots as preferred providers. As he spoke, Waxman brandished a 50-page Request For Information form and outlined the elaborate vetting process. The attorneys shuffled nervously in their seats, wondering if they would make the final cut. One partner worried whether his midsize southern firm could survive without its largest client. Another partner, at an Am Law 100 firm in New York, was concerned about what kind of rate discounts Pfizer would demand. Harvey Kaplan, a partner at Kansas City, Mo.-based Shook, Hardy & Bacon, remembers the food: bagels and rolls. “But no one was eating,” he says. “Everyone was too anxious.” A midwinter beauty pageant doesn’t sound like such a great idea. But for Pfizer’s legal department, the timing couldn’t have been better. Company lawyers were staggering under the heavy litigation burden that Pfizer assumed from acquiring other pharmaceutical businesses. At the same time, Merck & Co. Inc.’s recall of Vioxx last year had Big Pharma’s adversaries — personal injury lawyers, securities class action attorneys, state attorneys general and others — dragging drug corporations into court to answer for the ways their products are developed and marketed. Pfizer alone has faced more than 10,000 lawsuits in the past few years over its drugs and their alleged side effects. Waxman says the hundreds of firms representing Pfizer on product liability work were a nightmare to manage. The legal department thought that it would benefit, both operationally and financially, from working more closely with a smaller group of firms, though lawyers there refuse to put a dollar amount on any potential savings. How would Pfizer pick its preferred providers? As part of “P3,” Pfizer-speak for Pfizer Partnering Program, the company demanded, for starters, to know each firm’s history handling product litigation, its minority hiring statistics and whether it had ever represented a generic drugmaker, as well as details of any alternative fee arrangements it had with other clients. On paper — with documentation. That was the easy part. After sending in their replies, finalists traveled to Pfizer’s New York headquarters, where small panels composed of company lawyers and outside consultants grilled them on their answers. Then came a fee review from a Pfizer procurement executive known for wrangling discounts on copy paper and paper clips. One law firm partner, echoing the sentiments of others, would later call the selection experience “the most painful ever.” Finally, in late September, the drug company announced its choices. Prominent national product litigation players made the cut, including Dechert; Kaye Scholer; Skadden, Arps, Slate, Meagher & Flom; and Reed Smith. That isn’t surprising. But Pfizer made some other notable choices. Smaller litigation boutiques like New Orleans-based Irwin Fritchie Urquhart & Moore and Los Angeles-based O’Donnell Shaeffer Mortimer were in. And the company rejected well-known heavyweights, even though some had played historically large roles in Pfizer litigation. The delisted firms include Alston & Bird; Arnold & Porter; Gibson, Dunn & Crutcher; Jones Day; and Mayer, Brown, Rowe & Maw. Frederick Paulmann IV, a Pfizer senior corporate counsel who oversaw the P3 competition, says Pfizer’s lawyers looked for geographical diversity, but each firm isn’t assigned to a specific region. The drug company also insists that its firms are on equal footing with one another; even some of the smaller firms may be asked to play a role in national cases. Paulmann adds that P3′s goal was to “totally eliminate subjectivity” from the process. “We can’t effectively put four catchers on the field at one time, even if each is an All-Star,” he says. And the way to cut three of them? Make them show off for you, and “measure the quality of the individual players … by a reasoned assessment of objective markers.” Pfizer isn’t the first company to initiate an elaborate “partnering” process for its outside counsel. Most notably, E. I. du Pont de Nemours and Co.; Motorola Inc.; and Sears, Roebuck and Co. all have instituted some form of “convergence” — working closely with a relatively small, select group of firms and, in return, getting a break on their fees. Two years ago, Shell Oil Co. created a stir by inviting dozens of law firms to its Houston headquarters for a beauty contest, and requiring them to answer detailed questions about their (lack of) minority hiring. Last year Tyco International Ltd. rattled the legal community by becoming one of the first large companies to outsource all its product liability work via an RFP and a “reverse auction” (firms bid for the work; the lowest bidder typically wins). Shook Hardy won by bidding a low 18-month fixed fee for Tyco’s entire product liability portfolio. In all, according to Peter Zeughauser, a legal consultant at Newport Beach, Calif.-based Zeughauser Group, more than 200 companies have attempted to run “partnership” competitions of some kind. Most, he says, conduct them with the idea of realizing savings in legal costs, and “in the better competitions, the number of competing firms is relatively small, usually between four and eight firms.” What does he think of Pfizer’s beauty pageant? “Two consultants, nine months, and a 50-page RFI?” questions Zeughauser. “It sounds to me like it was overlawyered.” If that’s true, blame Waxman, P3′s brash, colorful architect. Waxman, 43, walked into Pfizer’s legal department in January 2003 from Washington, D.C.-based Williams & Connolly. There, he had defended some of America’s largest pharmaceutical companies, including Wyeth, Warner-Lambert Co. and Bayer Corp., in litigation over products like Norplant, Rezulin and Baycol, respectively. Waxman had a knack for getting underneath his opponent’s skin. He was, for example, fond of invoking obscure procedural arcana during key moments of plaintiff witness testimony just to get a rise out of his opponent. His tactics were usually successful. Waxman almost always walked away from a courthouse, say former colleagues, with a smirk on his face and a victory in his pocket. He became a superstar in corporate defense circles as he tried cases in southern jurisdictions not known for their love of sharply dressed, smooth-talking Yankee lawyers. The Harvard Law School-educated lawyer, with his trial fame and outsider’s perspective, didn’t exactly fit in with his new colleagues at Pfizer. But that didn’t matter to GC Jeffrey Kindler, who believed that only an outsider could get on top of the company’s mounting litigation problem. (Kindler is a member of Corporate Counsel‘s Advisory Board.) “There was no doubt that he was the guy to make some moves that needed to be made here,” says Kindler, who was also a partner at Williams & Connolly before going in-house. Kindler has his own reasons for wanting to make a splash. In February he was promoted to vice-chairman of Pfizer, and joined two other senior executives on a newly formed Pfizer executive committee. Company watchers say that Kindler and his fellow vice-chairmen, Karen Katen and David Shedlarz, are in a runoff to succeed outgoing CEO Henry McKinnell Jr. Trimming legal costs significantly can only help burnish Kindler’s star. A Pfizer spokesperson denies that the P3 process is a vehicle to advance Kindler’s CEO chances, saying, “It’s just so not so.” She added that Pfizer is trying to cut $4 billion in costs, and that the legal department is doing its part. It’s not an easy time to be the litigation honcho at a huge pharmaceutical company like Pfizer; increased scrutiny of the industry post-Vioxx has its enemies clamoring for blood. Waxman calls the amount of pending and potential court matters “unbelievable, more than ever before.” He adds, “We’re stretched very thin in-house here,” referring to his 18-lawyer litigation group, twice the number the group had three years ago. Pfizer grew to its current size by acquiring Warner-Lambert in 2000 and Pharmacia Corporation in April 2003. At the same time, it acquired costly product liability lawsuits. By snapping up Warner-Lambert, for example, Pfizer took on the defense of more than 10,000 lawsuits against Warner-Lambert’s diabetes drug Rezulin. Some are still pending. More recently, Merck’s recall of the “cox-2″ painkiller Vioxx for alleged fatal side effects has not only rattled the entire pharmaceutical industry, but Pfizer in particular. The drugmaker has two cox-2 painkillers, Bextra and Celebrex. Due to public reports about cox-2 drugs causing heart attacks, Pfizer has taken Bextra off the market. But so far, the company is still selling Celebrex, calling it safe. Pfizer has been sued by users of Bextra and Celebrex, though the company declined to divulge the exact number of lawsuits. Waxman began to reorganize the department shortly after he took over. Two management consulting firms, Chicago-based Huron Consulting Group and Boston-based Axia Ltd., recommended untangling the responsibilities of the department’s lawyers. Now the in-house litigation team has separate groups that specialize in managing commercial litigation and defending government claims. The consultants also urged Pfizer to draft more rigorous litigation budgets early in the case process. In late 2003 Waxman began formal discussions with his litigation group about what they wanted from their outside product liability counsel. Over the next several months the lawyers decided to winnow their product liability defense counsel down to about 20 firms. The RFI was the first stage. It ran to 50 pages, divided into 12 sections. The first part asked for a list of all prior litigation handled, familiarity using various case assessment techniques, prior use of alternative fee structures and a detailed list of attorney training. Pfizer wanted references from other clients, too. The middle section demanded more creative thinking. Pfizer asked for the firm’s thoughts on the pharmaceutical business, and how the firm demonstrated the company’s core values. A sample question: “It is often said that the industry is not doing a good job of representing itself in the public domain. Do you agree? If so, what do you think the industry and Pfizer should be doing differently?” The last section focused on money. Here, Pfizer pushed the envelope of what clients ask of service providers. Pfizer wanted law firms to include monthly budget forecasts for representing Pfizer (a tough chore for firms used to yearly accounting cycles), annual revenue breakdowns for the firm and the percentage of revenue derived from a firm’s top client. Pfizer also asked for what it calls “most favored nations” status, meaning it wanted rates no higher than those charged to a firm’s largest and most influential non-pro bono client. And Pfizer asked the firms whether they’d be willing to freeze their rates from the inception of a matter until its conclusion. Providing those answers wasn’t easy. Some firms brought in outside consultants and accountants. Steven Glickstein, a partner at New York-based Kaye Scholer, says his firm had 25 partners devoting “hundreds of manhours” to the project. “Jesus, it took a lot of our time,” he says. (Kaye Scholer made the final list.) At Baltimore’s Goodell, Devries, Leech & Dann, a group of partners tried to figure out the best way to answer Pfizer’s queries. Charles Goodell explains that partners there were horrified to learn that they lacked an easy way to document their answers: “We couldn’t just go to the Web site.” And they decided they’d rather negotiate rates in person, not on paper. (But they made the list of preferred providers anyway.) Other firms saw the long-form questions as the greatest challenge. At DLA Piper Rudnick Gray Cary (which made the final cut), partner Amy Schulman says she assigned three junior associates to collect information from partners and write a 45-page response. She spent much of her time editing the answers and thinking about law firm service. “Everyone asks questions about efficiency and numbers,” she says, “but Pfizer wanted to know how to make the relationship work.” Schulman did not make any specific promises in her responses, but she says she spent a lot of time honing an honest and direct reply to Pfizer’s questions. Some firms went beyond the normal marketing-department drafting. Hunton & Williams, which Pfizer says did “not have a great deal of pharmaceutical experience,” hired a jury consultant to conduct a focus group on how jurors view pharmaceutical issues. There were testaments, too. Piper Rudnick’s response included a 1997 letter from New York state judge W. Denis Donovan to the firm complimenting one of its product liability attorneys as “undoubtedly the finest, most proficient, best prepared, and most gentlemanly trial lawyer, I, in my 27 years as a judge and justice, ever witnessed.” (The extra efforts paid off. Both firms were chosen.) The first cut came in March. From the original 103 firms, Pfizer pared the list to 43. Then, through May and July, lawyers from those firms traveled to New York for a cross-examination by a phalanx of Pfizer lawyers and its consultants. The sessions caused more than a little internal friction. For instance, Pfizer suggested that firms bring six or fewer lawyers to the table, including one person whom the firm considered a rising superstar. Lawyers at one giant firm argued over whom to take. “You can’t imagine the amount of politicking this raised,” says an insider there who requested anonymity. Some firms struggled on other scores. Pfizer stated that diversity was a core value, and included questions on the issue in the RFI. So firms tried to show their diversity. “It just so happens that one of our rising superstars is a female Oriental,” says Malcolm Wheeler, a partner at Denver-based Wheeler Trigg Kennedy. “She just is.” The sessions got pretty lively. Many of the slick PowerPoint presentations were ignored as Pfizer’s inquisitors pressed lawyers on their RFI responses. Chuck Socha, a partner at Denver’s Socha, Perczak, Setter & Anderson, says his questioners wanted to know how his small firm, which had never handled Pfizer business before, could possibly handle litigation from Utah all the way up to Washington State. “They said, ‘You have a 14-member team. What makes you think you’re capable of running the region?’ “We have skins on the wall,” Socha says he responded, pointing to its vigorous defenses in asbestos and silica litigation. (Wheeler Trigg and Socha Perczak made the final list.) Waxman, who sat in on several of the interviews, says he was pleased: “I haven’t been in a bad interview.” But good interviews or not, the Pfizer lawyers knew they had to decide quickly. Paulmann remembers thinking, “We had a hard choice to make. This is going to be painful.” This fall Pfizer contacted the 24 firms that made the final list. Later this year lawyers from the winning firms will travel to Pfizer’s research & development labs in Groton, Conn., to take a tour of the labs and meet with its litigation team, including Waxman, Paulmann and Sandra Phillips, a Pfizer assistant general counsel and section chief for product litigation. “I want these folks to see the lifeblood of this company and to understand — in a much more intimate fashion — what’s going on here, what’s driving us, what are we doing as a company,” says Waxman. In attendance will be lawyers like Pierce O’Donnell, founding partner at L.A.’s O’Donnell Shaeffer. Last December, O’Donnell was beside himself at the prospect of his 13-lawyer boutique losing a top client. “When you learn your devoted spouse may take a new bride to the altar, it makes you wonder whether life is fair,” he says. But life seemed much better when he got the call. “Frankly, I was shocked,” he says. “We competed against the best firms in the nation, and I didn’t think we could compete on the basis of size.” Some lawyers will be staying home. “Not coming out on top is disappointing for anyone, particularly a litigator, as we like to win,” says Kimberly Penner, a partner at McCarter & English, which serves as national counsel for Pfizer in litigation arising from the use of Depo-Provera Contraceptive Injection. “We still have a close relationship with Pfizer at the moment. I think that being their first go-to firm is a position that everyone covets, but given the amount of litigation that Pfizer has and is likely to have, being further down in the pack is not a bad place to be either.” A partner at Gibson Dunn says he is disappointed but doesn’t want to publicly comment for fear of reprisals from Pfizer. “We’re still courting them on other RFPs,” says the partner. (Pfizer is currently using the P3 program to select its labor and employment counsel.) But even the winning firms can’t rest easy. “The feedback I’ve gotten from the firms was ‘This was painful. This was long. It was arduous,’” Waxman says. But he stressed the outcome: “Better relationships, better value — there’s a lot expected at this point.” Related chart: The Chosen: Pfizer’s 24 Go-To Firms for Product Liability Litigation

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