Cisco GC Mark Chandler on Automation and International Surveillance

Episode Notes

Transcript

In-House Legal: Cisco GC Mark Chandler on Automation and International Surveillance – 4/11/2016

Advertiser: Welcome to In-House Legal, where we cover a variety of the issues pertinent to the general counsel and in-house legal departments of small, midsized, and large organizations. Join host Randy Milch each month as he discusses the latest developments, trends and best practices for this very busy and often complicated area of law. You’re listening to Legal Talk Network.

Randy Milch: Hello. My name is Randy Milch and I’m the host of In-House Legal on the Legal Talk Network. I am honored and happy to have as a guest today, Mark Chandler, senior vice president and general counsel of Cisco. Mark is one of our most thoughtful general counsels, who happens to run the legal and compliance functions at Cisco, a major tech firm. Mark is a leader in the patent, security, and legal innovation spaces. Mark, welcome to In-House Legal.

Mark Chandler: Thanks, Randy, great to talk to you.

Randy Milch: So first thing I’d like to do Mark, is go over a little bit of your past so our listeners can get an idea of how you ended up where you ended up. You began your first in-house job at a Mac store, which is a hard disk manufacturer. How did you get from law school to your first in-house job?

Mark Chandler: I remember being at a law school reunion a few years ago and I was asked to talk about my career and I felt the introduction from some of my classmates should have been they wanted to hear it because they were all so surprised. It was a very random route and my lesson from it is that if someone tells you you can do something that you don’t think you should do, you probably ought to listen to them. I started out after law school working part time for a dean at Stanford where there was a special master on a Supreme Court case and part-time building a house because I really didn’t want to practice law. And in the meantime, I met a friend through a political campaign who asked me to practice law with him and one other person so I agreed to do that. After a year and a half, I realized that my instinct not to do that was correct. So I applied for a fellowship in Germany. I actually had been intending to go to economics graduate school but happened upon this Robert Bosch foundation fellowship program and spent 9 months living and working in Germany, the second part of which was an internship of sorts at Ziemann’s, the electronics company. And I found I loved being inside a company. I liked the fact that my work was directly connected to products rather than connected to keeping track of my hours. And after that ended, I took a job with Ziemann’s in the US which lasted about two years until I was to be transferred back to Germany. I found that I didn’t want to do because my future boss in Germany, I had one telephone conversation with him and he asked me in German, “What do I need an American lawyer in Germany for?” And even though I had been working in the marketing department and not doing law, I didn’t think that question boded well. I happened to be at a fundraising event for a presidential candidate in 198, ran into someone I had known from my year and a half of law practice who was looking for general counsel for a company he was in the board of. And I thought that sounded better than going to work in Germany for somebody who didn’t want me there and I interviewed and got the job. I got it because the person I interviewed with told me that although they’d interviewed a lot of people from law firms, they were very legalistic. I didn’t seem to know much about law but I seemed smart enough to do the job and he offered it to me.

Randy Milch: Well, it’s always important to have your general counsel seem not to know very much about the law but I assume that you quickly made up for that apparent shortfall. How long were you at Mac Store?

Mark Chandler: Actually quite the contrary, I was at Mac Store for six years which by my second year, there was a Fortune 500 company I had been absorbed into C gate. But my lack of legal knowledge is actually a great attribute. In our industry we always say if you can’t fix it, feature it. The feature aspect was that I was pretty good commercially at figuring out how to get deals done and finding the sweet spot that would bring parties together to finish a transaction. And in fact, that’s why I had been hired. The CFO was very busy dealing with the investment company and closing the books and didn’t have time really to be reviewing contracts and negotiating them anymore. He wanted a general counsel to essentially take on that role and make sure the quarter got finished and the revenue could be recognized; and that’s what I did. And when there was a need for substantive legal work, I quickly looked to outside counsel and that really started me down the road to focusing the in-house function on what’s important for competitive differentiation of the company and make sure that everything else is done by someone who has a tone of expertise and could be brought in on an as needed basis.

Randy Milch: So after Mac Store, that six years ended and you went to Stratecom. How did that happen?

Mark Chandler: Well, after about five years at Mac Store, we did a deal to sell 40% of the company to Hyundai which eventually was to take the company over completely and we tried to privatize it and bring it public again. But when that Hyundai deal was completed, the executive staff all agreed to remain for nine months with an incentive to stay and help with the transition to the Hyundai leadership. So I knew I should be looking for a job, I wanted to look for a job, I wanted to work for a US public company, and I started interviewing with a company called Stratecom. I happened to run into a recruiter  at their legal event who was searching for someone for Stratecom which is in the wider area of networking business. I interviewed and was offered a job. explained that I was building a house and had this retention incentive at Mac Store that I needed to finish the construction. Stratecom said they couldn’t support taking over that loan, essentially, so I turned the job down. In the meantime, they offered it to someone else who turned it down when he was told by someone at Cisco that Stratecom wasn’t a great place to work. And they offered it to a third person who found the commute too long from his house after actually starting. So about nine months later, the CFO at Stratecom called me and asked if I was still available and could i start. I said you’ve got to work two weeks for my incentive to be forgiven. He said fine, so two weeks later I started working there. I had another alternative which was with a company which was really big in the PC sound business at the time. Management was divided between two locations and seemed to have a lot of internal politics. I remember saying that Stratecom was growing very slowly. It was a 17 million dollar quarter, 18 million dollar quarter, 19 million dollar quarter. But I really liked the people and didn’t really like the politics at the other place, so my stock might never be worth anything but it would be a lot of fun and it would be with a great group of human beings. So I went to Stratecom and two years later we were a 500 million dollar company and Cisco purchased Stratecom for over 4 billion dollars. That’s how I ended up at Cisco despite the sense that someone at Cisco said that Stratecom wasn’t a great company, it actually was a wonderful company with wonderful people and it was a great experience for the two years there and led to my being at Cisco and the career that I had at Cisco.

Randy Milch: So you went to Cisco but your first job at Cisco wasn’t going back to Europe?

Mark Chandler: Well, it was, and Stratecom had been in the business of selling equipment primarily to service providers and very large enterprises for wider networks. Cisco’s traditional business was in local area networking. And there was a real need to extend the Cisco legal department as the business was growing globally. So I volunteered and the general counsel thought it would be a good idea for me to take on that project. And a few months after the acquisition, I moved to Paris and stayed there for two and a half years helping to build that European business which is now well north of 10 billion dollars – 15 billion dollars, actually – building it into that first billion dollars of that time.

Randy Milch: I’m interested, you were in Europe in Paris in the late 90’s. What did you take away from that experience of spending two and a half years outside the country? How did that affect both your worldview and how you approach things today and also how did it affect being outside headquarters? Was that a good or a bad thing from that perspective? Because people worry about these jobs that take them away from the core and often wonder whether they should do them or not.

Mark Chandler: I had the very big advantage that coming in from the acquisition, my goal principally was to keep working for a while as my Stratecom incentives continued to be in place at that point for a period of time as part of the transition. So I really wanted to stay and I was highly motivated. And I wasn’t sure what the future would bring inside Cisco since at that time, we really hadn’t learned the art of integrating other companies as effectively as we do today. I think we’re really world class at that and do a great job at retaining people and building on the technology we acquire. So the first thing, it really gave me opportunity to really learn Cisco’s business away from the headquarters. And the heart and soul of any company is the folks who are out there knocking on doors, dealing with rejection and moving on to the next opportunity. Still today, I feel that my paycheck may say Cisco is at the top of every penny that comes from the customer; it’s only there because we have such a great sales force out there talking to customers all the time. So I love being part of the sales force. That’s what I had done at Mac Store, that’s what I had done at Stratecom. I was really focused on making sure that our sales efforts were successful and we got our contracts completed in time so we could have revenue. So that business was growing incredibly quickly at the end of the 90’s if you recall. It was a very exciting time to be in the business of providing internet infrastructure working with a really smart, dedicated group of people. So for me it was a great chance to get to know the company and to really build a reputation away from the headquarters as someone who got things done. And as a result, after two and a half years I was asked to come back to San Jose and leave the worldwide sales effort from the legal standpoint.

Randy Milch: Did your time there give you any gloss on the issues that we now face between the US and Europe? Particularly in the line of business that you’re in, questions of security and surveillance and privacy are so different between the US and Europe. Do you take with you any learnings from that early period that are useful to you now?

Mark Chandler: The fundamental learning from living offshore is to appreciate different cultures and how they approach problems differently. And that applies not just in those substantive  areas but more generally, and I really find that the time spent outside of the United States has been some of the most valuable development time that I’ve had. From a personal standpoint, I wish I could do that again although it’s impossible in my current position. One of my private list of activities would be to live in a small town in Japan for a year and teach English. And the reason for that is it forces you to confront assumptions that you take every day. I was really glad I lived in France rather in other places because French culture is so distinct and it was a lot easier to adapt to living in Germany than it was to be in France in the late 90’s. I joke that i chose France because if I had moved to England, my kids would have just gotten a funny accent whereas in France they learned another language. But I learned another language too. At first, it was very hard to get things done in France. I didn’t understand what the cultural cues were. And I felt after a few months that I wished I could move to England, that I understood why people would casually say things like – in the US – that the French were rude and so on. But after about 8 months I realized it wasn’t the French who were rude, it was I who was rude, because I didn’t understand how their system functioned. And once I got the hang of the fact that it was not an interrupting culture, you wait your turn, you then treat people with a huge amount of difference in interaction. You get a great different response from people. I would give examples of that but I don’t think we have time for it. The upshot, though, is really appreciating when people come with issues from a different perspective how important it is to examine what your own feelings were in advance, why you feel that way and start to appreciate where they come from. The privacy and security issues that we’re dealing with today are just one example of many with that kind of international experience which is tremendously valuable.

Randy Milch: So now you’re the general counsel of Cisco. Give us a short precis of what Cisco does and where it sells around the world. Because I think it’s important for our listeners and it’ll set up our discussion in the second half of our podcast.

Mark Chandler: We’re in 160 different countries and we sell internet infrastructure that make up the core of the network and we sell those to service providers around the world and large enterprises. But we also provide Cloud services across a variety of platforms from collaboration to network services themselves to security services. We also provide a wide variety of products that use the basic technologies as a network such as voice telephony and video services.

Randy Milch: So that puts you stem to stern on the internet and certainly, importantly, people’s interaction with it. How many attorneys do you have in your department?

Mark Chandler: Probably about 250 lawyers and I have another 100 folks doing quasa legal work as contract negotiations or doing administrative or IT functions related to the IT department. And then in a separate group I have about 100 folks who work on compliance matters doing the ground protection work to make sure that people aren’t selling knockoffs of our products, the investigations of matters that need to be investigated for internal or external reasons, and our ethics and compliance function.

Randy Milch: So it’s interesting, when I was the general counsel of Verizon business and we were in 159 countries selling our services, we always had an internal debate about the allocation and the whereabouts that is to whom they reported of the contract administrators contract negotiator group. In my tenure I saw them float back and forth between sales and the legal department. You have them in the legal department. Do you think that’s a much better place for them? Do you feel like you can ensure quality better when they’re part of the legal department as opposed to part of the sales department?

Mark Chandler: Depends on what they’re doing. From a standpoint of contract negotiation, our contract negotiators and the lawyers working on contracts do very, very similar work, which is to make sure that an agreement reflects the commercial understanding between the parties and its terms will be enforceable and the company can understand what it’s signed up to and what it’s signed up to is capable of delivering. And where that sits isn’t so important as how well aligned it it with the other function.  It’s for our folks that are negotiating those contracts. It’s really, really important that they work closely with the salespeople and sales engineers who are on those particular accounts. Alternatively, if some of them were sitting in similar types of positions in the sales force, it would be really important to be more closely aligned with legal. What makes it work is building the relationships between the functions so that they work as one collaborative team to achieve the desired business result. That to me is more important than what the organizational structure is and I’ve never had a big argument when stuff gets moved around. Occasionally, there have been functions that were moved into my organization, sometimes we’ve moved functions out of our organization. As long as we have a common understanding about how it’s going to work, it’s never been a problem.

Randy Milch: I agree with you 100%, Mark.

Mark Chandler: I also don’t measure my relevance of success by the number of people who report to me.

Randy Milch: Exactly. It makes more sense to ensure the working relationships than it does to make sure your domain doesn’t swell or become diminished. Those kinds of things never seem to work out as far as I can tell. Mark, you’ve made the point several times about how important it is for the in-house legal staff to ensure that the contracts are completed in a timely fashion, that the revenue can be recognized in a timely fashion, that the quarter can be closed and you’re confident that it’s been done the right way for all the reasons that the legal department would be concerned about. You have made a special effort to use technology to help you reach those goals. Could you tell us a little bit about the technology that you’ve tried to implement and you have implemented and what kind of changes that technology has affected on your efforts to get the money in the door?

Mark Chandler: Sure. Fundamentally, the legal function is an overhead function. We don’t design products, we don’t build them, we don’t sell them. We’re the analyst report in a technology industry that says you should really buy company X’s stock because they have such a good legal department. That’s not how we differentiate ourselves in the marketplace. But we do have an obligation to get the job done right and as efficiently as possible with the lowest burden on the company. So I’m always looking for ways to simplify what we do to to speed up the ability of the rest of the companies that operate to not put legal in the middle of things that we don’t have to be in the middle of. And technology’s been incredibly critical to accomplishing that. So we’ve taken a whole series of repetitive, relatively simple types of agreements, such as nondisclosure agreements, distributer renewal agreements, leases of various sorts, and turned them into web tools that anybody in the company really – and especially the salesforce – can access, customize, send to a customer electronically, have approved electronically, and then have them archived. Or to build simple online click accept tools for other types of agreements. Software license is being the obvious one that we all see a lot of where possible. And we have tens of thousands of transactions per year that are implemented completely electronically without any human touch at all and completely under control in terms of timing and content of the folks who need to implement those agreements. And when I say content I mean within the range that we allow them through the questionnaires that they answer in order to customize the agreements. And by doing that, we’ve really sped up the process, increased the number of transactions we can undertake with a given sized team. Second, we’ve done a lot to simplify the process of entering into more complex agreements. We’ve automated our templates and made it easy for contract negotiators and lawyers to customize the templates. Third, we’ve built a very, very comprehensive discovery lab for litigation and I think it’s really among the best in the country. We have built it around the Recogine technology which is a great vendor to us, as well as some other tools, and put it together in a way that has brought the cost per gigabyte of what we produce down to levels that are lower than we think almost everybody around. So the application of technology has been for those two reasons. To increase the speed of the company and to lower the costs, and we felt really good about that investment. It’s been really critical to the success that we’ve had in the organization.

Randy Milch: I think it’s a testament to your stick to it in this. I think we both know general counsels who have started on these efforts and they falter either because it’s a little bit too hard of a technology leap for their business or some other issue gets in the way. I think it only takes a few times for your clients to be expecting some improvement and not see it to sour their relationship. So I applaud you for sticking to it and having such great results.

Mark Chandler: The most important thing is to take things in bite sizes. The boil the ocean efforts that are going to transform everything often end up costing too much and delivering too little. So we would roll out nondisclosure agreements as a tool and make sure that works right and extend it to other kinds of agreements. Bring in electronic signature one step at a time so the people got used to using the tools rather than trying to do giant projects. And by using smaller projects as a way to get people used to transforming the way they do their business, it made it a lot easier to get implemented. I’m very familiar with the types of efforts you’re describing, we’ve certainly had some inside Cisco. I’ve been blessed by never having been given a big enough budget to try to take a project like that.

Randy Milch: It’s good that you find your small budget a blessing in some respects. Let’s turn the conversation to something else that you and I both were involved in for quite some time and that is the set of patent issues. It sort of rises naturally out of your use of technology here. Where Cisco sits in the internet firmament, it makes wonderful boxes for a lot of uses and sells those boxes to other companies to have products. It raises some of the thorniest patent issues that there are when it comes to non practicing entities, as I think they were supposed to call trolls these days. Give me an idea about the size of this issue for Cisco. The patent troll issue and what steps you think are necessary to take to bring that under control.

Mark Chandler: I would say their business has evolved to being much more of a Cloud based business in the last few years and much more based on recurring revenue. Our attractiveness for the non practicing entities has grown. And you’re right, I prefer to say non practicing entities. I don’t like the world troll because I don’t think it’s helpful to demonize one’s adversaries in a debate. It’s a little bit like rats running through a maze. I don’t think you can blame them if there’s food at the end. And that’s really the problem is that our patent system has evolved over the last 25 years to put a lot of food at the end for people to have a business model that is simply around monetizing patent threat as then using them to produce products. Justice Kennedy remarked specifically on that phenomenon and his opinion in the eBay case about 10 years ago. It’s really been the consequence of changes in the law that have allowed reform shopping. Changes in the law that made damages very, very murky. That’s being streamed out to some extent now. Changes that made it very hard to impose costs on people who brought vicacious litigation and so forth. And a lot of that is being streamed out in the courts these days. Although there are some fundamental flaws, it still needs fixing. For us, what it’s meant is we’ve gone from having three patent suits 15 years ago, always competitors, to having about 60 today. And each in the law few years, almost every single one of them was a non practicing entity. It’s really quite a remarkable shift. If the single biggest piece of my budget,m over 20 million dollars a year – excuse me, over 50 million dollars a year – spent on patent litigation alone for the legal fees. So it’s a very lucrative business for a lot of people but I don’t think there’s any massive increase and infringement in the last 15 years. I think what there is is there’s a chance in the economics because of legal changes that had unanticipated consequences.

Randy Milch: So you think that the types of corrections that are happening via the justice system via the court system are going to take most of this fun out of the game or do you think that we’re still going to need structural changes via legislation? Which has its own set of problems associated with success.

Mark Chandler: Well, the America Invents Act in 2011 brought some fairly robust techniques to challenge the validity of patents. In court, there’s a very high burden of proof to overturn the validity of a patent. That’s probably a wise thing given the expertise in the patent office. But even the tools created in 2011 sharply limit the scope of the patent office’s review. Essentially, I think patent holders feel that once they get that patent issued, however they got it, they don’t want anyone to ever touch it. And that means 20 years of collecting monopoly rents that may be unjustified. I think there are some changes that could be made to make these review procedures even more robust, although there would be a lot of resistance to that. The Supreme Court decision that opened the door to a more balanced view of the grant of attorney’s fees under the patent statute has opened that door only a little bit and I think there’s a lot more to be done to make sure that those who bring litigation that they know is unfounded be made to pay the costs that they impose on everybody else. That would take up a lot of the gas under the tank that’s used for settlements that are based on litigation value alone as opposed to underlying merit of the technology. So there’s a lot of work to be done. There’s also venue issues to be dealt with because right now we’ve set off a little bit of a venue war with different jurisdictions competing to have plaintiffs want to file there it seems. Over half of the defendants sued in patent suits last year were sued in one judicial district that had only 1.3 million people in it. It was simply as a result of the fact that for better or worse, or correctly or incorrectly, the plaintiffs believed it would give some kind of advantage by being there. And that perception, justified or not, undermines the rule of law. So we have some things we have to go fix and need to be fixed for that system to become a lot better. Innovation is critically important, my company has over 20,000 patents. We believe in the patent system and we believe in the incentives that the patent system provides for innovation. But turning it into a game of corporate ambulance chasing isn’t the way to promote innovation.

Randy Milch: Well, I couldn’t agree with you more. Let’s take the final minutes here to turn yet again into something else. You’re experience in Europe – and we discussed it a little bit – raises today’s issues certainly around the internet. There have been all sorts of issues about national champions in Europe over the internet and in Cloud and many of those national champion issues have been brought to head most recently by the Snowden revelations a few years ago. How do you look at this from the standpoint of ensuring that your salespeople still have a good chance of selling in Europe where there’s a little bit of issue with American companies in this regard?

Mark Chandler: I’d say that our credibility as a brand in Europe is very strong and European sales continue to grow. The Snowden revelations have certainly been leveraged by our competitors and not necessarily those in Europe to try to make an argument of equivalence in saying don’t worry about the security of our products, you have to worry about their products as well. That does slow sales cycles, but we’ve been very compelling in demonstrating that we have no backdoors. We do believe in rule of law and in complying with lawfully granted search warrants. However, we’ve been strongly supportive of Microsoft in litigation they have with the US government in having to turn over emails of European citizens that are stored on European servers. We think our government needs to go through the European governments in order to get those documents through legal process. We filed a brief in support of Apple, the use of the All Writs Act to try to force the opening of the San Bernardino phone. But over time, what we’re seeing is European governments also demanding similar abilities to do surveillance that the US government has as legislation in both France and the UK right now to that effect. And our hope is that over time as these civil society issues are joined in those countries as well, we can come to some international rules of the road about how product vulnerabilities will be disclosed to vendors so they can be fixed. What kind of legal process is needed to get access to information that’s transmitted through the internet and what steps that make sense to do from a data sovereignty standpoint to make sure that information stays within the countries where people who are citizens there want it to be. And all of those things ought to be solvable through international understanding. We have a belief that’s the way to go and if not, in the next six months during this presidential administration that in the next one, coming up with an international solution making sure that American companies are playing at a leveled playing field will be an important priority.

Randy Milch: Well, Mark, on that hopeful note, I want to thank you for spending time with me today on In-House Legal. It’s been a hugely informative half hour and I really appreciate your spending the time with us.

Mark Chandler: Randy, it’s really great to talk to you. I just miss having you as a general counsel peer to bounce ideas off of and disagree with and agree with. So I look forward to talking to you again soon.

Randy Milch: Thanks, Mark. And I want to thank all of you who’ve listened today to our podcast. For all of you listeners who would like more information on what you’ve heard today, please visit www.LegalTalkNetwork.com, or you can also follow us on iTunes, RSS, Twitter, and Facebook. That brings us to the end of our show. I’m Randy Milch and thank you for listening. Join us again for another great episode of In-House Legal.

Advertiser: The views expressed by the participants of the program are their own, and do not represent the views of, nor are they endorsed by, Legal Talk Network, its officers, directors, employees, agents, representatives, shareholders, and subsidiaries. None of the content should be considered legal advice. As always, consult a lawyer.
[End of Transcript]