California Powerhouses Innovate with Tech-Oriented Clients

Law360, October 1, 2017

By Kat Greene

LOS ANGELES — In California, as the world’s most famous innovators blur the lines between sectors like media and tech and create new industries with new legal problems, nimble firms with the ability to be as creative as their clients at solving problems locally and globally rose above the rest

The Golden State is a global hub for innovators, serving as headquarters for companies on the cutting edge of sectors like technology, life sciences, media and entertainment, and private equity and venture capitalism, but the firms that shined brightest in 2017 were both creative and resilient, handling legal challenges for so-called disruptors as well as for the more staid, established companies, landing them among Law360’s 2017 California Powerhouses

The top firms responded quickly and creatively to the new demands of clients on the West Coast and beyond, including Munger Tolles & Olson LLP’s work for Snap Inc., which it is representing in a suit over whether the app’s facial scanning features violate biometric privacy laws, and Keker Van Nest & Peters LLP’s successful representation of the County of Santa Clara in stopping a presidential executive order aimed at punishing the county for being a “sanctuary” for unauthorized immigrants.

And some of the firms with deep roots in the state proved flexible enough for growing companies and strong enough to go to bat for some of the state’s more established corporate giants.

Gibson Dunn, for example, scored the largest jury award in 2016 when it nabbed $3 billion for Hewlett-Packard Enterprise Corp. in a long-running dispute with Oracle America Corp. And Irell & Manella LLP used a unique legal argument to beat a proposed class action against CBS Corp.’s radio division over its use of pre-1972 recordings.

And three of the six firms on Law360’s Powerhouse list represented Uber Technologies Inc. on various matters this year.

Joachim Blunck, general manager at Swan Legal Search, noted that the developing companies in California are undermining existing industries and sometimes creating new ones, and as they do, they need lawyers.

“As those companies grow explosively, the need for legal help grows with that,” he said. “The firms that have a deep bench in those areas are going to succeed.”

New Businesses, Industries Generate New Problems — and Work

Companies like Uber, which holds itself out as a disruptor of the transportation industry, have run into their fair share of conflicts, particularly as regulators and case law struggle to catch up with the changes they make to the economy, Blunck said.

“Uber has built its entire plan on disruption. Instead of asking permission, they ask forgiveness. There are no laws necessarily governing that,” he said. “So what the law firms here have to do … is to move extremely quickly.”

This year, Coblentz Patch Duffy & Bass LLP has represented Uber as it shops for and acquires new land to support its fast growth, including scoring a new planned headquarters in the Mission Bay area of San Francisco. A year ago, Gibson Dunn helped Uber secure a victory in an appeal over whether its arbitration agreements are valid and enforceable. And Irell led Uber in its $32.5 million settlement in class action litigation over its “Safe Rides” fee.

Even smaller and more disruptive companies appear every day, and to make matters tougher, the state’s biggest industries outside agriculture — technology, life sciences, media and private equity — are starting to blend together, attorneys told Law360.

“With the startups we’re seeing, they’re not just in established industries; they’re creating new industries,” said Ellisen Turner, incoming managing partner at Irell. “The changes are not just in the demand” for legal work, he said, but also for a certain “type of lawyer.”

That lawyer, Turner explained, is not only highly knowledgeable, but also is entrepreneurial and creative.

“The lawyer is not just trying to do the best legal work, but is also trying to help the client achieve a goal in a rapidly changing legal and regulatory environment,” he said.

Hailyn Chen, partner and co-chair of Munger Tolles’ practice development committee, said a successful firm in California needs both breadth and depth. That, she said, manifests as things like expertise in subject matters that arise often in California, like trade secrets disputes, and a generalist’s mindset with experience across different industries.

“Just like tech companies are thinking across traditional boundaries of science and technology in various fields, in order to be good lawyers to meet their needs … you have to be creative and innovative,” Chen said.

She pointed to a media environment in which popular YouTube channels, rather than only major studios, generate eye-popping revenue. And in life sciences, Munger Tolles is working with the University of California on defending its patent rights to a gene-editing invention that has consequences for both pharmaceuticals and technology, she noted.

Ken Doran, managing partner of Gibson Dunn, told Law360 that the state is, in a lot of ways, the innovation capital of the world.

“There’s a merger of entertainment and technology and who’s providing content where,” he said. “Staying current with our clients in the face of the pace of technology advances and tech disruption is both exciting and a challenge.”

The firm has made several recent hires to respond to new and growing legal needs among the firm’s clients, Doran said, including adding former Central Intelligence Agency general counsel Caroline Krass as a partner in May, adding former Environmental Protection Agency general counsel Avi Garbow as a partner in March, and hiring real estate attorneys in California, New York and London.

In addition to fresh concerns about cybersecurity, privacy and access to real estate, California companies that grow fast from a few developers in a garage to an international juggernaut also face potential problems running afoul of anti-corruption laws around the globe, prompting some firms to shore up their international presence.

Turner said that among other things, Irell added Jason Linder, a former U.S. Department of Justice attorney, to bolster the firm’s offerings in global investigations and anti-corruption legal issues, including the Foreign Corrupt Practices Act.

Gibson Dunn, meanwhile, added the Justice Department's FCPA unit chief Patrick Stokes, ex-U.S. Attorney Ben Wagner from California’s Eastern District, and former Acting Associate Attorney General Stuart Delery to shore up its FCPA abilities.

And intellectual property is practically currency in California, noted Turner, who said it’s really the main asset for many companies in the so-called innovation economy. Irell is expecting an influx of IP cases now that the U.S. Supreme Court has issued a ruling changing the way venue is determined in patent cases, he said.

Meanwhile, Lieff Cabraser Heimann & Bernstein LLP had a busy year that included carving out new case law for pharmaceutical pay-for-delay cases, scoring a victory in May when the California Supreme Court revived drug buyers' claims that Bayer Corp. illegally paid generic manufacturers $400 million to delay launching their own version of blockbuster antibiotic Cipro.

The state's highest court in that decision concluded that the U.S. Supreme Court's landmark decision allowing Hatch-Waxman Act payments to be challenged under federal antitrust law also supported permitting similar lawsuits under California's competition laws.

Native Law Firms See Rising Competition From Outsiders

For law firms outside California and outside the U.S., the Golden State is still the “pretty girl at the dance,” said Kent Zimmerman, principal at Zeughauser Group. Because more law firms are looking for access to the state, native law firms have to work hard to continue to stand out, he said.

“Sophisticated clients are responding to specialization, and I think you’re seeing a lot of firms sharpen their strategies to prioritize their time and money around gaining preeminence in a limited number of chosen strengths,” he said.

Doran said the market for lawyers in general has become global, and most of Gibson Dunn’s teams now include lawyers from around the world working on each matter.

“It’s hypercompetitive, and maybe it should be,” he said of California’s legal market. “California is a very target-rich environment with great companies.”

He cites competition from other major law firms with a local presence and New York law firms looking to hone in on California’s new golden-child companies.

David Cruickshank, principal at Edge International, pointed out that many small California firms simply can’t keep up with the pace of some of the local clients. He noted that smaller, more local firms would do well to join in on law firm networks in which local firms across the globe enter reciprocal agreements or similar arrangements to guarantee clients worldwide access without giving them up to a larger competitor.

“You have to look at the footprint of these organizations — Airbnb and Uber, for example, have a much larger legal footprint because they have so many different jurisdictions to deal with,” he said. “So their tentacles are much greater.”

One of the few firms equipped to deal with that global reach, Cruickshank said, is Gibson Dunn.

But Munger Tolles counts Airbnb, with its unique international business matters and attendant privacy issues, as a client this year. And Turner, whose firm dominates in life sciences and patent work, said Irell’s 75-year history in the Golden State adds to its allure for in-town clients, but its attorneys’ excellence are what really keep clients coming back for more.

“It’s a fairly unique type of legal service we provide,” he said. “We’re going to be focusing on some key areas that we think clients will need and really providing quality services in that area.”

And Keker took on one California giant while representing another when it backed Arista Networks Inc. in a copyright suit brought by Cisco Systems Inc., which alleged Arista infringed its copyrights and a patent by using its command-line interface to develop its Ethernet switches.

Arista and Keker successfully persuaded the jury that Cisco had promoted its own work as an industry standard and that Arista’s products were protected by, among other things, the scènes à faire doctrine, which denies infringement protection for a copyrighted work if its expression necessarily flows from a commonplace idea.

Firms Innovate in Ways That Aren't Always Tabulated

California businesses have also expressed an interest in law firm innovation that doesn’t necessarily show up on bills: diversity.

Turner, who’s about to become one of the first African-American managing partners of a major U.S. law firm, said Irell has diversity and inclusion as part of its DNA, having been founded by Jewish lawyers who weren’t allowed, in their time, to work atop New York law firms.

California companies are rooted in an environment that’s more socially innovative as well as technologically innovative, and they respond well to law firms that are focusing on social goals including boosting diversity, he said.

“We’ve always known that having a diversity of viewpoints and voices leads to the best of everything,” he said. “A lot of people are playing catch-up on that.”

Keker represented Santa Clara in its fight against President Donald Trump’s early executive order that aimed to punish “sanctuary jurisdictions” for failing to report immigration violations to the federal government, successfully winning an injunction against the order and kicking off a wave of litigation over the administration’s attempts to get local jurisdictions to fall in line with the federal government’s quickly changing immigration policies.

And Chen said Munger Tolles is tied up in several social issues, including representing the University of California in several matters that have arisen in the Trump era, such as when controversial speakers were invited — and then uninvited — to campus amid protests, and the university’s challenge to a set of laws on in-state tuition for undocumented students.

“There’s really this sense that what’s at the top of people’s minds around the nation is something that’s happening right here with our client, and we’re really proud of our relationship with the university,” she said.

The firm also represented Priscilla Chan and Facebook founder Mark Zuckerberg in setting up their philanthropic limited liability corporation, the first such organization of its kind, which aims to promote biomedical research and diversity and equal opportunity matters.

As for the future of California’s legal market, that — like its business realm — can be hard to foresee, Blunck said.

“Transformative technology is extremely difficult to predict, and if you look at the futurists of days gone by, the crystal ball on what the next thing is going to be has never been right,” he said.

But whatever the California innovators come up with, if it’s new, it will spawn fresh calamities, he said.

Blunck quipped, “And where there are calamities, there are lawyers.”