Cisco GC: I’m Trying to Buy Results

Last December, networking equipment giant Cisco Systems filed patent and copyright suits claiming that Arista Networks ,which competes with Cisco for sales of ethernet switches, not only duplicated Cisco technology, but copied Cisco instruction manuals, right down to the typos.

Many at Arista, including CEO Jayshree Ullal , are former Cisco employees. In a blog post about the suit, Mark Chandler, Cisco’s Senior Vice President, General Counsel and Secretary, and Chief Compliance Officer , sounded almost somber.

“In the thirteen years I’ve been General Counsel of Cisco,” Chandler wrote, “I can count on one hand the number of times we’ve initiated suit against a competitor, supplier or customer.”

Asked about his career, Chandler said one of the things he loves about working in the tech world is “the sense that the established order is always vulnerable.” But he has no misgivings about fending off Arista. “Copying is not innovation,” he said.

Chandler spoke to Big Law Business about the Arista litigation, how technology can drive in-house legal department and law firm efficiency, how law firms should be more honest about when a competitor is better equipped to handle a matter, and getting outside the corporate bubble to talk to customers.

Part I Excerpts:

I find myself deeply oriented towards being in a position to drive change. I’d much rather be on the side of the innovator and the change agent than the entrenched success.

The thing I’m trying to buy from law firms is a result. I’m trying to get a business problem solved. And that’s only indirectly related to the number of hours worked.

I mean there are going to be cases where you’re hiring a very specialized person to do a very specialized, discrete job, and for that you simply have to pay. If someone’s hourly rate is high, so be it.

Below is an edited transcript of the first installment of the interview.

[Image “Mark Chandler” (src=https://bol.bna.com/wp-content/uploads/2015/04/Mark-Chandler.png)]

Big Law Business: What first drew you to Silicon Valley and the tech world?

Chandler: I came to Stanford Law School because I had a job in California working for the state public utilities commission even before I was out of college, so I was already here, basically. Staying here after law school was more happenstance. That area was in my network of connections and so on, and I knew I didn’t want to practice with a large law firm.

I was also very much involved in the community from the Palo Alto Planning Commission, which is the hardest job I’ve ever had, sorting out neighborhood disputes over things that really are in people’s backyards.

But I’ve always been attracted to the dynamism of the tech world, to the pace of change and the sense that the established order is always vulnerable.

I was at a meeting last year where Mitt Romney was a speaker. The interview was about his business career, and what he’d learned from his dad, who had taken over as CEO of American Motors when it was a tiny company competing with GM and Ford. His dad said that he thought he could be successful because there’s nothing so vulnerable as entrenched success.

I find myself deeply oriented towards being in a position to drive change. I’d much rather be on the side of the innovator and the change agent than the entrenched success, and Cisco is a company that’s constantly in the process of reinventing and responding to market transitions.

So it’s been a wonderful place to be for me, because of the role that we have in changing, as we say, the way the world lives, works, plays, and learns. Every day I feel that way about my role in helping us bring great products and services to market.

At the same time it’s been a really exciting period for the development of the legal industry, and I’ve been able to drive change in the way my organization is structured and the way we work with outside counsel. It’s been fun and a great fit for me, both in terms of the external role of our company and what I do here.

Big Law Business: What are some specific examples of innovations on the legal side?

Chandler: One of the things that struck me was that the model by which legal services were being purchased didn’t seem to align incentives very well. Law firms were incentivized because of the system they use to track the productivity of their own people, which is to keep track of hours worked, but were then externally incentivized not to be particularly efficient.

So we moved very heavily away from a billable hour model to a fixed fee model. The thing I’m trying to buy from law firms is a result. I’m trying to get a business problem solved. And that’s only indirectly related to the number of hours worked.

There are lots of different ways to solve legal problems. They can involve people, they can involve technology, and they can involve non-legal solutions where you don’t even need lawyers if you think of another way for people to get the work done.

So I’ve been a very strong developer of technology solutions that, when teamed with good lawyers, or non-lawyers in some cases, get you much more efficiently and effectively to the business result that you want.

Big Law Business: What types of technology are you talking about?

Chandler: First of all, we have a very strong philosophy at Cisco of believing in the power of networking to change the way work gets done and to drive efficiency and productivity. So there was a great response inside the company to using those tools.

We started very early in the late 90s doing that, before I was GC. My predecessor as GC, Dan Scheinman , was actually a great innovator in this space and really laid out some of the initial approaches that we’ve then continued to implement and drive forward in the succeeding years.

A really simple example is that we used to have non-disclosure agreements that were in a four-part format and had to be reviewed by legal, and reviewed by other people, and filled in by a lawyer, and so forth.

We built a web tool where with some artificial intelligence behind it where now the vast majority of our non-disclosure agreements are done by people in the field who develop the forms themselves online, and then send them to business partners, customers, vendors, whoever, for electronic signature.

We track the signature process, we archive them appropriately with version control, and we do thousands of transactions, not just nondisclosure agreements but a bunch of other areas, in an almost fully automated way.

Big Law Business: Law firms don’t have reputations, generally, for being innovative. How open are firms to tech innovations?

Chandler: Law firms are making huge technology investments these days to try to make themselves somewhat more efficient. Allen & Overy is a great example of a firm that’s done a huge amount of work to transform the way they structure and negotiate agreements to make them much more efficient.

Because our model has us doing almost all the transactional work internally, the place of interface with law firms for us is largely on things like merger and acquisition work or litigation. We’ve built a very effective e-discovery laboratory, which we use to really drive down the amount of people time that’s necessary for discovery. We require all our law firms to work with us in using that tool.

In fact there was acover story in Inside Counsellast month that profiled what my team is doing in that space, what our view is of the technology evolution, how we’ve implemented it.

Law firms are doing a lot in the e-discovery area. But for us it was a matter of driving them to use our tools, which we felt were even more efficient than what we’ve seen out there in a lot of the cases, and to drive that to help lower costs, and frankly to improve accuracy of results as well.

Big Law Business: How often does Cisco use fixed fee agreements?

Chandler: I’d say about 80 per cent or more of what we spend outside is on some kind of non-billable hour basis.

Big Law Business: That’s higher than average.

Chandler: So I’ve read. I don’t know from my own knowledge. But it’s not exclusive. I mean there are going to be cases where you’re hiring a very specialized person to do a very specialized, discrete job, and for that you simply have to pay.

If someone’s hourly rate is high, so be it. If you want that person you need to pay them. I have no issue with that whatsoever.

When it’s very unpredictable what the scope of a project is going to be, you maybe need to pay what in the construction world is called “time and materials.” I have no problem with it when it makes sense. My issue is that it doesn’t make sense as much as it’s used.

Big Law Business: You wouldn’t ever balk at an hourly rate?

Chandler: Well you’re posing the question in a way that is sort of binary. Do I balk at an hourly rate? The answer is that for every type of engagement we do I try to think what’s the best way to drive alignment with people that are providing me services, and the best way to get the level of input and certain quality that I need to solve the problem.

That sometimes could be an hourly rate, sometimes it’s a fixed fee, sometimes it’s a per job fee if we’re doing 25 patent applications or something with one firm. So there are all kinds of different ways to solve that problem. For each problem that comes in you need to think through what’s the best way to do it and then do it.

So I don’t ever exclude anything from the table or say I won’t ever do an hourly rate. But certainly I’ve been long convinced that’s usually not the most efficient way to measure the value that my service provider has provided to me.

You don’t pay for a video based on number of hours it took to produce it. You’re trying to look for a certain output. You figure out what the output is worth to you, and then it’s up to the supplier to find the most efficient way to provide it. That’s usually a better way to do it than simply saying, “Well, measure your time.”

Big Law Business: Last year Cisco filed suit against competitor Arista. You wrote a blog post noting that it’s rare for Cisco to initiate a lawsuit. What makes this case different?

Chandler: In this case we’re dealing with a situation where we believe very strongly that success in technology should depend on innovation, not on copying.

This is the case in instance after instance, from the user manuals to the command line interface, but most fundamentally to the product features themselves.

This is a company which decided to use what we had done instead of innovating for themselves. All we’re asking is that they innovate for themselves. They need to change some things if they’re gonna stay in that marketplace.

Big Law Business: You said one of the things that attracts you to the tech world is “the sense that the established order is always vulnerable.” Is Cisco not a part of the established order? Is a company like Arista not a good example of someone challenging that established order?

Chandler: [The spirit of] innovation can come from companies big and small, and we’re very good at driving innovation to change markets. I love that about Cisco. And true disrupters in our markets are always welcome. As to Arista, copying is not innovation, and Arista’s attempts to somehow paint their copying as “innovation” is a red herring.

Big Law Business: What firms are you working with on the Arista litigation?

Chandler: We’re working with Kirkland & Ellis and Quinn Emanuel .

Big Law Business: What are some other firms that Cisco has traditionally worked with?

Chandler: Our board counsel and almost all of our M&A work is done by Fenwick & West . That’s a relationship that goes back more than a decade.

There’s a really smart, nimble team there that has just done a fabulous job of bringing us great success on our merger and acquisition transactions, and is also great counsel to our corporate and securities law issues as well. That’s a very strong relationship.

In patent litigation, which is the biggest piece of litigation we have, we’re close with Kirkland & Ellis, with Quinn Emanuel, with Wilmer Cutler , with Goodwin Procter in Boston, with Duane Morris , and with John Desmarais . In general litigation we’ve done a lot of work with Winston & Strawn .

Part II of the Mark Chandler series will include: how Chandler feels about being asked to dinner and sporting events, his take on when law firms should recommend a competitor, and his favorite Supreme Court Justice.

Illustration by BobMical (Flickr/Creative Commons)