As it becomes more common for lawyers to hop between firms, corporate counsel are increasingly making decisions about whether to continue working with a firm or an individual lawyer.
For Lee Cheng, chief legal officer at online retailer Newegg, Inc., the choice is simple: The lawyer, not the law firm is important.
Earlier this month, one of his lead patent litigators Yar Chaikovsky switched firms — departing McDermott Will & Emery to join Paul Hastings. Cheng heard about it secondhand, but wasn’t fazed: Chaikovsky displays all the right qualities of an outside counsel and will continue to work for the firm, Cheng said.
Cheng spoke with Big Law Business in an interview that covered a range of topics from how his company selects outside counsel to his stance toward the lateral market. His primary firm is IP-boutique The Webb Law Firm , although he regularly uses big firms such asLatham & WatkinsandWeil Gotshal & Manges.
Interview Excerpts
I think if they hop around every two years, that’s a problem... You start wondering why they are moving around.
There are a lot more legal salesmen now than there are counsel. I like to hire lawyers who are worthy of the name, ‘Counsel,’ who know what their fiduciary duty is, and care about doing good work.
They’ll try to sell you and close the deal. And some of them will even offer special deals. They’ll say, “I’ll do $10,000 of legal work for free,” whatever the hell that means. It’s never free.
I don’t really care how many thousand lawyers you have. I don’t want to work with 2,000 lawyers.
Below is an edited transcript of our interview with Cheng.
Big Law Business: First of all, how is Yar Chaikovsky advising Newegg?
Cheng: We work with him on a couple of patent litigation matters. There is a fairly cutting edge case in the area of fee shifting. Yar is the lead. Right off the top of my head right now, he’s handling the very first remand from the Federal Circuit on a fee shifting case after the Supreme Court’s Octane decision. The case is, (Site Update Solutions, LLC v. Accor North America, Inc.) Site Update is the subsidiary of an infamous patent troll called Acacia Research Corporation, and Newegg is seeking fees from Site Update.
Big Law Business: In a lateral move like this, how do you decide whether to keep using the lawyer?
Cheng: My philosophy and the philosophy of a growing number of in-house counsel, is that we hire lawyers, not law firms. As long as they demonstrate the same level of care, we are platform agnostic. The most important criteria is: Will they be able to continue to do the work that we hire them to do? I ask my relationship lawyers to do as much work on the matters we give them as possible. It makes sense for the law firms to hire a rainmaker, and then have them pawn off most of the work to their staff. I want their work, and I want their advice.
The question becomes: Can they deliver the work services that I need, and my company needs? If the answer is, “Yes,” then we move onto the next criteria, which is: Can they deliver the same kind of pricing arrangements that we had negotiated at the previous law firm?
A greater driver of whether or not companies will have continuing relationships with job-hopping lawyers is the conflict situation. The lawyers themselves, and the law firms, will very carefully determine whether or not a conflict exists, although it’s not always successful. There are sometimes legal conflicts that the ethics code would prohibit them from continuing legal representation. There are also directional conflicts. If a law firm doesn’t think there is anything wrong with taking work from patent trolls, that is something that I would describe more as a directional conflict. I would not knowingly then work with a firm that represents plaintiffs’ side on contingency.
Big Law Business: So you would never work with a law firm that represents trolls?
Cheng: I think that a lot of law firms and lawyers, they bitch and moan about how everyone does it, which is not a compelling reason to me. They’ll complain that they only do a little bit of it, but the reality is that it does matter, because within law firms, they have conversations with colleagues. There is always a possibility of strategic leakages.
Big Law Business: Other factors in lateral transitions?
Cheng: If a lawyer moves too much, it can become very irritating. If someone moves too often, you start to wonder about that person’s stability and capability. You start wondering why they are moving around.
Big Law Business: How much moving is too much?
Cheng: I think if they hop around every two years, that’s a problem. I think that in Yar’s case, he’s pretty stable. He’s been at McDermott for five years. It’s enough time to settle down and develop a pretty healthy practice and do good work. If people are hopping around too much, there is the inefficiency of spending time to figure out the new platform and new system. All that takes away from the time that you are paying them to do work. Every two years is too much, and there are definitely lawyers who do that. Someone comes back to you and says, “This platform will serve you better,” and you start wondering: Well, what is wrong with this lawyer who can’t stick with one firm? Or that the lawyer doesn’t have enough judgment to identify a good professional home for a good reasonable period of time.
Big Law Business: What do you make of Yar’s move to Paul Hastings?
Cheng: Yar and I have not spoken extensively about Paul Hastings. He wasn’t the one to tell me he is going. I’ve been practicing law for long enough now that I am aware of Paul Hastings as a firm. There are many good lawyers at Paul Hastings, and they have an excellent reputation in many different practice areas. I think that by adding Yar, it seems to be sending a message that they are trying to build up their patent litigation team. It think his presence will help them tremendously being in the toehold with so many technology companies.
Big Law Business: What advice would you give outside counsel who want to be a go-to lawyer for Newegg?
Cheng: I get pitched all the time. Yar actually made an investment in getting to know Newegg over a period of time. It wasn’t a random phone call where he called in and said, “I want to work with you.” Over a period of time, he got to know Newegg. We first sent him a small matter and he did a good job and I invited him to make a pitch in a group defense case. He makes an effort to stay in touch, to get to know his clients and demonstrates that he views them as more than a source of transactional revenue for them. That’s what it takes.
There are many lawyers out there right now that very aggressively pitch more work, and the impression that they leave is that they are just salesmen. There are a lot more legal salesmen now than there are counsel. I like to hire lawyers who are worthy of the name, ‘Counsel,’ who know what their fiduciary duty is, and care about doing good work.
Big Law Business: Any pet peeves about how outside counsel approach you?
Cheng: I think someone who comes in and says, “I work at this firm, and here’s my glossy deck and I work at a famous law firm...” That is just completely lame. And there are far too many lawyers who do that. At the price tag we are at these days, we want to see someone who has differentiation.
When a lawyer is very transactional, they’ll send you a pitch and then they’ll stop talking to you. The conversations aren’t very interesting. They’ll try to sell you and close the deal. And some of them will even offer special deals. They’ll say, “I’ll do $10,000 of legal work for free,” whatever the hell that means. It’s never free. The lawyers that differentiate themselves, they spend time to learn about a company and build the relationship. They understand the company’s legal issues and the backgrounds of the people they are pitching, and they demonstrate a real interest.
It isn’t coming in and telling the prospective client, “Gee, my firm has X number, thousands of lawyers.” I don’t’ really care how many thousand lawyers you have. I don’t want to work with 2,000 lawyers. I don’t care how many offices you have. Most lawyers don’t end up using the vast majority of lawyers that a law firm has. When I hear a law firm opens an office here and there, I think overhead. How much overhead it’ll take to subsidize what I need.
Big Law Business: Can you talk about how the relationship with Yar started?
Cheng: Yar reached out to me initially many years ago. I get a lot of calls from a lot of lawyers pitching for work. There is definitely a difference between calls, andcalls. We had a conversation that I found engaging and he demonstrated in that conversation that he understood the in-house mentality. That stood out. This is not clear with a lot of lawyers who have only worked at a big law firm. So I had a very good initial conversation.
I had no good reason to send work to Yar at that time because I had very good patent counsel. But we are always looking for good lawyers to work with. Typically what we do at Newegg, is, we will send a small matter to a lawyer and give them a chance to demonstrate that they can make an investment. Sometimes it’s to local counsel. With Yar, over the next couple years, we continued to build the relationship and he demonstrated that he also had an interest in Newegg beyond making a few extra bucks.
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