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Who isn’t trying to get into China these days? Case in point: Yahoo, which acted to trump its rivals in August, with the largest investment to date in China by a foreign Internet company. General counsel Michael Callahan led the legal team that navigated the complex deal, for which Yahoo put down $1 billion and agreed to merge its Chinese subsidiaries into China-based e-commerce company Alibaba.com in return for a 40 percent stake. The deal’s total value was more than $4 billion, according to Yahoo. Before joining Yahoo in 1999 and becoming its GC in 2003, Callahan was an associate at Skadden, Arps, Slate, Meagher & Flom, where he focused on mergers and acquisitions and corporate finance. Today, he oversees a legal department that spans 16 countries. Law.com recently spoke with Callahan about the Alibaba deal and the challenges of doing business in Asia.
Law.com: On the legal side, what sort of complications and red tape have you encountered in this transaction that are unique to China? Callahan: You might expect besides the distance, language and cultural issues in doing business overseas, the unique features of this deal were really the combination of our China assets, in which you have ownership structures of foreign companies. Operating in China has always been complex and has been somewhat of a moving target over the last few years. So working through the issues around the corporate structure behind how we move our stuff over to the Alibaba organization and similarly on the Alibaba side. They had an organization structure where there were other investors (because they’re a private company). So they need to roll up some of that ownership structure to a holding company, and obviously, we invested in that holding company. On the corporate side, you’re dealing with U.S. law, I believe Cayman’s law, as well as Chinese law, so that presents its own complications. And one of the other unique features of the transaction is that there’s an ongoing IP relationship in terms of patent licensing and technology licensing. Law.com: Why may it be more challenging to work in China versus other foreign countries? Callahan: It’s no secret with the Chinese government that it seems like things are moving to be a little more open to foreign companies operating businesses there in partnership with locally owned companies. Doing business with a commerce company like Alibaba puts us directly into that with these guys. That’s the new feature in terms of how goods get shipped and how goods get paid for in an economy and a marketplace that’s really so new for the e-commerce world. Law.com: I noticed Skadden partner Kenton King in Palo Alto was cited in the deal. How important were Skadden’s offices in Hong Kong and Beijing? Callahan: Very, very important. Skadden has been a partner of ours for a long time on several domestic and international deals. One of the reasons why I wanted to partner with them on this transaction was we had the ability of working with one firm that could help us out on a global basis — between Hong Kong, Beijing and the local Palo Alto [Calif.] offices — and really do a soup-to-nuts look at all the different areas that we needed assistance with. That’s not say that we also don’t engage with local Chinese counsel on certain transactions, but on this one, the Skadden Arps folks were a great help to us. Law.com: When you do engage with local folks [in China], what do they bring? Callahan: The one overarching point for the whole China thing — which is lost in some of the buzz around what’s been happening there recently both with Yahoo and the competitors — is that Yahoo has had in-house legal staff in China and Beijing for probably a half dozen years. We do have very strong relationships with some of the local Chinese law firms. What they really help us with is experience in the local market, certainly contacts with other companies and other legal organizations in the area. Law.com: In general, do you work with firms long-term or do you shop around? Callahan: Our theory here at Yahoo is that we’re more about the lawyer than the firm. That is, we’ve got very strong relationships with some very large firms — Skadden, Morrison & Foerster, Latham and others. No question they could staff all of our stuff. We will work with a group of firms that may not be on everybody’s national radar but we find to be extraordinarily strong partners both in litigation, corporate and in IP [law]. Law.com: Forbes.com reported that Yahoo’s deal with Alibaba.com, where counterfeit U.S. merchandise is reportedly traded, could expose Yahoo to liability under U.S. counterfeit laws. Do you agree? And is your legal department prepared? Callahan: I’m not going to comment on whether Yahoo would be liable or not liable for counterfeit goods. I will say that the challenges of online commerce as it relates to sales of goods (used and new) is not something of a new issue for Yahoo. We have obviously had a shopping and a commerce property for years. We have an in-house department that spends a lot of time working out fraud. We partner with others in the industry in that. The Alibaba folks are also not new to this market and have been doing this now for a long time. They probably have the same kinds of procedures and policies to deal with this kind of issue. It’s an industry issue. Law.com: Yahoo is growing quickly at a multinational level. What legal issues do you face in all those areas beyond China, with regard to labor law and employment issues. How do you adapt to handle this growth? Callahan: The company really began its international presence in 1997 and 1998 time frame — we have had lawyers on the ground. Right now we have lawyers in 16 countries. We’re basically set up to have the general counsel of those particular countries and the regions — Europe, Latin America, Canada and Asia regions. Law.com: You have an enviable job; what advice would you give to young associates or lawyers starting out? Callahan: More than ever, communication among members of your department and your executive team around the world continues to be one of the most important features of the in-house legal job, particularly as companies go global so quickly. And the second part � folks should never underestimate the human element of any business transaction, litigation or really any issue that they face. That is what drives a lot of what’s happening. Editor’s note: This is the first interview in a series of Law.com Q&As with general counsel and other legal leaders in the technology industry.

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