Do any other GCs have this issue?

In the category of “things they don’t teach you in law school”.

This morning, our CEO stops by with an urgent request for legal support. Major litigation? Large strategic acquisition? Not quite. Instead, he asks me to review a blog he wants to post as an April Fool’s Day joke.

Like I’ve said, my job’s really different…

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My mid-life crisis

I’m reaching an age that has created a lucrative livelihood for many psychologists. According to them, it’s when men start to act a bit oddly and is characterized by extravagant purchases of automotive horsepower. Well, I finally succumbed to the stereotype, but I went out and bought one of these. I found it used on craigslist of all places. It’s in great shape and needs only a bit of work. But that’s the beauty of it. It needs some work.

When you live in the center of Silicon Valley and work for an innovative company like Sun, there aren’t too many opportunities to roll up your sleeves – technology pretty much does everything for us. The pace of technology advances in consumer goods has outstripped the ability of most of us non-engineers. Ever try to replace the battery in your iPod? So, it’s a bit refreshing that I can adjust the carburetor and brakes myself. Don’t get me wrong, I do appreciate and embrace innovation, but there is something immensely satisfying about tuning an engine on your own – even if it’s one that sounds like a circa 1930’s Russian tractor.

Oh, and the first nice day this spring, my carpool partner is in for a big surprise.

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Life is different in-house

I recently had a cup of coffee with an attorney who just joined our organization after spending a few years with a local law firm. We had a great conversation and covered a number of topics, but we kept coming back to comparing the differences between what it takes to be a successful lawyer in a law firm versus as part of an in-house legal department. As you might guess, the differences are vast, but it got me thinking about my first blog in which I referenced “The Reebok Rules”. Written by that company’s then GC, Jack Douglass, these rules provided guidance on how to be successful as an in-house attorney. Although they are still instructive fifteen years later, I think the playing field has changed. So here are my thoughts on today’s version of the rules. I’m interested in hearing whether these resonate with other in-house attorneys.

1. You are a business person. Your business is providing legal services to your company. Constantly focus on how to deliver high quality legal services in the most efficient manner possible. Learn from your clients. Electronic automation, outsourcing, wikis and dynamic bidding events are all examples of business tools and practices that are increasingly being used in the legal environment.

2. Learn the style of communication most effective for your client. The smartest attorney is not always the most valuable. You can be a brilliant technical lawyer and fail spectacularly if you don’t have the ability to transfer your knowledge and to influence your clients and colleagues. When you are in a law firm, because they are paying for your time, the client is usually motivated to listen. But when you are in-house counsel, the direct billing relationship is absent. This can make it a challenge for your advice to be heard. If your client is the CTO of a Web 2.0 start-up who uses only a smart phone, rendering your legal opinion in the form of a multi-page legal memorandum is not likely to be effective.

3. To be effective in-house, you need to collaborate and work as part of a team. Individuals don’t scale because we are each limited by the hours in a day – but a team can accomplish amazing things. Among the biggest trends in the world today are the rise of social networking, wikis and other network-enabled communities. Why? Because the power of shared knowledge and work is very compelling.

4. Always be the calmest person in the room. Too often attorneys inflame a stressful business situation, rather than providing calm and dispassionate counsel. In this regard, a quote from former U.S. President, Woodrow Wilson is one of my favorites: “One cool judgment is worth a thousand hasty counsels. The thing to be supplied is light, not heat.”

5. Use humor and humility. Let’s face it, our profession still has a reputation for being dull and arrogant. This creates barriers when you work in-house because many of your clients will start with this frame of reference when they first meet you. The use of humor and humility as tools to remove these obstacles can be very productive in creating a strong attorney-client relationship. So, don’t be afraid to show a sense of humor and don’t act as if you know every answer – instead, ask questions. You will know that you have achieved success when your client says: “You don’t act like an attorney”.

6. Believe or leave. In every company’s history there are low points. During those difficult periods, it is easy to get disillusioned and cynical. This negativity infects everyone you work with and will ultimately damage your reputation. If you aren’t passionate about your company and what you do, you will never be successful. And, note that I am not saying “agree” or leave. Every company has areas that need improvement. It takes passion to identify them and drive positive change.

7. A manager’s job is to provide direction and training and remove obstacles – that’s it. Too many managers (especially new ones) make the mistake of trying to manage every detail of an employee’s work. This is frequently the case with attorneys because, unlike our business partners, we rarely have formal management training. Also, many of us who previously worked in law firms mistakenly equate “management” with the micro-scrutiny our work received from law firm partners. (One of the interesting things we found with OpenWorks was that managing remote employees actually creates stronger more effective managers.)

8. Identify the legal services that provide unique value to your department – outsource everything else. In our legal organization, the majority of employees are transactional attorneys preparing and negotiating thousands of diverse and complex agreements around the world. Most of the dynamic information in this area (processes, technologies and business models) derives from within our company making it more valuable to rely on in-house expertise. That’s why the largest portion of our organization practices this type of work. On the other hand, in other areas, for example, corporate reporting where most of the changing knowledge is external (e.g. new SEC regulations), we have a relatively small team that leverages outside counsel for support.

9. Understand how you are adding value to your department – your department to your company – your company to the world. This requires an in-depth knowledge of your company’s business, competitors and markets. Sometimes this linkage is not as readily visible in the legal department as it may be in other company functions, but being able to articulate it is a great motivator and also useful in helping management understand your value proposition. Each year, I keep a informal list titled “Why you pay us”. It reflects the annual accomplishments of our organization. It’s a good device for helping me explain to others the value of the in-house legal team.

10. Sometimes, you do have to say “no”. Fifteen years ago, most successful in-house attorneys expressed that you never did so without providing an alternative. Today, however, lawyers are increasingly being held to a higher standard and viewed by the government as “corporate gatekeepers”. In this environment, there are occasions when there is only one response – “no”. Although your client may not be happy with the answer, if you have done your job effectively and established credibility, even this negative response will be valued and respected.

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The best offense…is a good defense.

I recently shared dinner with a few other GCs of local technology companies. It was a nice evening in which we were able to relax and share insights (and commiserate) about topics of common interest. During the course of our meal while we were discussing rising legal costs, one of my table mates made a statement that I found somewhat bothersome. He said that when faced with patent “troll” litigation, he knows he is going to pay something to get rid of the lawsuit and so he economizes on the use of defense counsel. After all, the thinking goes, if your intent is to settle a case, why spend money on a strong defense?

His view is completely contrary to how we think about this problem at Sun. It’s also symptomatic of the way many companies view this issue as a quarterly “cost of doing business” without considering the long term consequences of settlement both for individual companies and our industry.

Before going further, let me state that we respect the intellectual rights of third parties. When a third party claim has been clear and the terms reasonable, we have entered into licenses. However, those situations are easily distinguished from the cases that make up almost all of our present docket of patent litigation. These lawsuits have usually been filed with no advance notice, by plaintiffs that don’t commercialize their patents (i.e. create and sell products) and in venues considered favorable to them. It’s also almost always the case that these plaintiffs have done little or no investigation to ascertain whether our products infringe prior to filing their lawsuit.

Let me provide an example. Last year, I described a patent litigation brought against Sun by a company named Exponential Solutions LLC. I use the term “company” in the broadest sense as Exponential Solutions does not appear to make any products or offer any services. It is purely a patent holding company consisting of two individuals: Raymond Ratcliff (inventor) and Frank Benevento (investor and decision maker for Exponential).

Exponential filed its complaint against Sun in the Southern District of Florida. The case alleged that the Sun Grid service infringed two patents: 6,996,548 (“Method and apparatus for providing a reward for the use of a processor in a parallel processing environment”) and 7,127,437 (“Method and apparatus for receiving a reward for use of a processor in a parallel processing environment”). These patents describe the use of distributed computing and payment to people for use of their home computers connected to a network.

The first we were aware of this suit was after it had been filed. Several months later, we had our first real communication with Exponential when they proposed that Sun pay them an amount with many, many zeros or a large ongoing royalty on our products and services. We declined. While it would have been easy to make the safe decision and pay a license fee to avoid the cost of litigation, we chose to invest in defending ourselves. Invest not just in showing that we did not infringe – we were confident that we did not – but also in identifying prior art to demonstrate that these patents should be invalidated. Our investment yielded results.

Specifically, we found a great deal of prior art that appeared to anticipate Exponential’s patents including, a book co-edited by Exponential’s own technical expert. More interestingly, we found evidence that suggested another piece of prior art relating to the SETI@home project had been known by Exponential’s attorneys, but not produced to the U.S. Patent and Trademark Office when the application was made. In November 2007, the court allowed us to amend our complaint to include an inequitable conduct claim based on these facts.

We had further success when, in December 2007, the court entered a Markman ruling supporting Sun’s view that key claims in the patents should be construed narrowly. We were also successful in getting the Court to order Exponential’s expert to testify and produce documents that we believed would support our view that the patents were invalid. The court went even further and ordered that all communications between the expert and plaintiff’s attorneys be produced. Perhaps, it was the combination of these events that made Exponential begin to rethink the merits of its case.

As we headed for a February trial date, Exponential’s demands got smaller and smaller until, ultimately, they agreed to a dismissal with prejudice – meaning they can’t bring the case against Sun again,or against our customers, partners and vendors. And, Sun didn’t pay a dime in settlement. In fact, the biggest impediment to a final settlement was not our unwillingness to pay, but rather our demand that terms of the settlement NOT be confidential. Why? Because as much as companies would like to have our legislators solve this problem, we also need to consider what we can do. This includes not only investing in a defense when facing these types of plaintiffs, but also by openly sharing information about these cases.

I encourage other in-house legal departments to do the same.

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Accelerating the Redshift

Last year, Greg Papadopoulos used the word “Redshift” to describe a new model for how Sun looks at the world of computing. Since that time, this word has helped to crystallize how we view view our products, customers and market opportunities.

When Greg refers to the Redshift (a term that refers to the frequency of light waves in an expanding universe), he is describing a way of segregating customer applications into two broad categories. The first is the group of applications for which desired efficiency gains and decreases in cost are satisfied by standard increases in CPU processing power. The second are those applications that require compute resources that are expanding at a rate greater than Moore’s Law. This latter set of applications is what we refer to as the Redshift. Many newly formed and rapidly growing companies have business models based entirely on a single application of this type (think of YouTube or Facebook). For these customers power and scale are the primary areas of focus – not CPU speed. As result, the IT industry is increasing its focus on multi-threading, utility computing, virtualization and distributed storage.

Not surprisingly, given the velocity of their growth and the fact that many of them are true “start-ups”, a large percentage of Redshift customers rely heavily (if not exclusively) on open source applications. One of most broadly deployed is the MySQL database. Founded in 2001, MySQL has become an icon in the open source world – it’s the “M” in “ LAMP“. It’s also the database of choice for some of the world’s best known Redshift customers – and traditional companies as well.

And, this morning, we announced that we are acquiring MySQL.

Jonathan provides more insight into why we are so excited about this acquisition here. Reflective of this excitement is the speed and ease with which we arrived at today’s announcement. For those of you who do the M&A thing for a living, this one has gone amazingly well. It seemed as if every due diligence meeting ended with an excited discussion of the potential resulting from this combination as well as opportunities we hadn’t previously known existed. This positive theme also came through in the negotiations. It also helped that each company was represented by experienced counsel who understand our respective businesses and not just the technical ins and outs of reps and warranties. So to Marty and Richard – thanks.

Our appreciation (and empathy) as well to MySQL’s GC, Clint Smith, and his team. Earlier in my career, I had the experience of having my company acquired by a much larger public company. Trying to respond to the diligence requests, negotiate the definitive agreement, and support normal business operations with limited resources and in an environment of great uncertainty… well, it was a challenge. So again to you and the rest of the MySQL team – “thanks”. We are really looking forward to having you join us.

And, finally, a big thank you to all of the Sun team who worked the late nights, weekends and holidays to get us to this point. I am constantly in awe of what you are able to accomplish.

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A Different “P2P”

An obvious test of whether something is a good idea is to look at who is supporting it. When the answer is a diverse set of competitors, you know it’s an idea who’s time has come. The Peer to Patent Project (“P2P”) is a good example. Created by the NY School of Law in conjunction with the USPTO, this pilot initiative seeks to improve the quality of patents by opening up the patent review process to the public.

Currently, the USPTO is facing a backlog of nearly 800,000 pending patent applications. Given this number, patent examiners have limited time to undertake a thorough search of prior art to determine whether a claimed invention is truly “novel” . The result is an increase in the issuance of poor quality patents, which leads to an increase in litigation challenges and requests for re-examination.

Launched in June 2007, P2P attempts to tackle this problem through a community based review system. Participating inventors register and make applications publicly available on an open discussion forum. The public may then review each application and provide examples of prior art for consideration. These are then rated by relevance allowing the patent examiner to more efficiently focus on potential prior art that is most significant to an application.

Sun is an active supporter of P2P. The program’s focus on patent quality (versus quantity) is consistent with how we make intellectual property investments. To this end, as part of P2P we have submitted applications in key areas such as “transactional memory” (an important component of Sun’s chip multi-threading architecture), security and cryptography. In addition, we are encouraging our distinguished engineers and chief technologists to participate as peer reviewers for P2P. We also hope to provide funding support for P2P in the future.

Why have so many competing companies agreed to participate and test their innovation publicly? One reason is that the USPTO provides the benefit of an expedited review process to P2P participants. However, the more important explanation is that many companies believe that the current patent system has devolved from the intent of it’s founders. And, it is to the benefit of all of us to see it improved.

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Building Leaders

A constant focus of our executive team is on building leaders. I would venture to say that we discuss this topic more frequently than any other and it’s something all of us embrace. For me, Ralph Nader said it best: “I start from the premise that the function of leadership is to produce more leaders than followers.” This has been a frequent mental refrain for me since my Achilles tendon ruptured a few weeks ago. I’d like to have a more dramatic story about how it happened, but the true reason is a combination of genetics and a life-long aversion to any form of stretching. These things always happen at the most inopportune times and this was no different. In the week ahead, we had our Annual Stockholder meeting, a full day executive planning session and I was to host a multi-day department “All Hands” training meeting.

I should have been incredibly stressed as I limped over to my administrator’s office to reschedule meetings before departing to the hospital. Instead, I was fairly relaxed. I knew that we have built a solid team of leaders who would very ably handle things in my absence. And, that’s what happened. One of our corporate attorneys quickly made the changes necessary so that our CFO could run the stockholder meeting (thanks again, Mike). And others prepared for the department meeting and made decisions on other items on which I was focused at the time.

A few days after surgery, I was able to get back into the office on crutches and attend part of our department meeting. I hobbled (I would kill for a Segway right now) between buildings and attended many of the training sessions held by each legal team. (As an aside, I realized that we packed a bit too much into the schedule when I noticed that one of the groups had replaced water and soft drinks with Red Bull in its session.)

In one of the meetings, the members of our Employment Law group shared fascinating insights on a recent litigation; in another, I watched lawyers from our patent team as they engaged with outside counsel about ways in which to increase the quality (already high) of our patent filings. I also attended trainings on antitrust law and open source licensing and met with many people in the department from around the world. I was in constant awe of the level of talent surrounding me in every room. To be candid, at times I was intimidated by the passion, creativity and technical knowledge of our legal team. I just had to keep reminding myself that as Mr. Nader said – my job is to build leaders.

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