The Hot New Areas of Law PracticeAuthor(s): Mitchell LynchSource: ABA Journal, Vol. 70, No. 10 (October 1984), pp. 72-75Published by: American Bar AssociationStable URL: http://www.jstor.org/stable/20757400 .

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The Hot New Areas

of Law Practice

72 ABA Journal, The Lawyer's Magazine

By Mitchell Lynch

Robert L. Birnbaum is head of the high technology law section of the Boston law firm of Foley, Hoag & Eliot, and that makes him a hot property in the legal profession. Last year the tech sec tion brought in around $4 million in legal fees or 20 percent of Foley Hoag's gross revenues of about $20 million.

High tech is one of the current hot areas of law practice?areas offering ex

citement, more clients as new com

panies pop up like spring corn and new found fees as companies become more

litigious. That $4 million at Foley Hoag compares with a few hundred thousand dollars a decade ago.

Novel legal issues Other burgeoning areas include com

munications law, venture capital financ

ing and cable television. Besides the obvious growth in legal fees they yield, these industries touch off such novel legal issues as whether software is pat entable (the latest ruling says no), whether companies can get both

copyright and trade secret protection at the same time (the courts say yes) and even whether biotechnology companies can get patents on new forms of life

(yes, the Supreme Court ruled). "The companies in high tech and re

lated areas are getting more litigious be cause they have more at stake as they get bigger," said Herbert Swarz, a New York lawyer and author of several arti

cles on high technology and the law. In most cases, such as the ones on software

patents, copyrights and new life forms, the suits arose when companies per ceived precedent-setting threats to their basic products.

Gaston Snow & Ely Bartlett, for one, has formed a high-tech task force made up of 25 lawyers drawn from the firm's corporate, tax and litigation sections.

Part of the task force operates from the firm's headquarters in Boston, in the middle of the Route 128 high-tech belt way, and the rest are in Palo Alto, in the heart of California's Silicon Valley. Via coast-to-coast conference calls, the task

force members meet at least once a

week. "We've got to keep communicat

ing just to stay on top of the issues and trends," said Donna M. Sherry, a mem

ber of the task force. Four years ago the San Francisco firm

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of Brobeck Phleger & Harrison opened a branch office in Palo Alto and it now is staffed by 28 lawyers. "We've always had high-tech companies among our cli ents," said Edward H. Leonard, manag

ing partner at Palo Alto. "This office is part of our decision to focus even more on Silicon Valley."

In turmoil Communications is just as exciting.

"The field is very much in turmoil," said Richard Wiley, a senior partner at Wiley & Rein in Washington. The action covers an expanse from the breakup of

the American Telephone & Telegraph Co. to the broad impact of videotape on the television business, said Wiley, who was chairman of the Federal Communi cations Commission in the 1970s.

The FCC took a major step toward de regulation of the broadcast industry in August by relaxing a 31-year-old restric

tion on the number of radio and televi sion outlets one company can own. The

old 7-7-7 rule, as it was known, provided that no company could own more than

seven AM radio stations, seven FM sta tions and seven television stations. The commissioners raised the figures to 12-12-12 in July, and said that most re

maining restrictions on station ownership will end in 1990. In a novel twist, the easing of regulations is ex pected to spell new work for lawyers as the TV industry launches into new busi ness orbits.

Even the usually frantic venture cap ital business is going through changes that are more sweeping than in the past. Once confined to small firms run by bril liant and idiosyncratic individuals, ven ture capital is being taken over by the big-money pension funds, insurance

companies and investment banks. Said

an attorney for the Securities and Ex change Commission, "It'll be worth watching to see if they know the rules."

A chance to break out For young new lawyers, the blossom

ing law practice areas offer an oportunity to grow out of performing what they re

gard as menial work at large law firms. "The lawyers coming out today want to avoid being the man in the gray flannel suit," said Michael Magness, managing director of Martindale Services Inc., a New York legal research and consulting firm. In venture capital, for instance,

lawyers often get a chance to help man age a new company, according to Mag ness. It is part of the enduring American dream to get in on the ground floor of a new generation of IBMs, Xeroxes and

a E P >?

I

Edward H. Leonard, a high-tech lawyer at Brobeck Phelger & Harrison, likes "working with growing companies" and being "associated with people

who are successes" rather than being "called in after some damage is done."

Digital Equipments. Joel A. Rose, a senior partner at Can

tor & Co., the Philadelphia legal con

sulting firm, said many law firms find themselves caught behind the develop

ments in new, hot areas. To stay current, Rose said, law firms are acquiring exist ing smaller firms with the built-in exper tise. "This becomes vital when some of your client companies diversify into new areas, and they are counting on their law firms to be able to handle the diversifica tion." Cantor & Co. is completing a

study of mergers and acquisitions by law firms.

Corporate executives and lawyers also

agree that the continuing availability of venture capital money enables new com

panies to operate on far more than a

shoestring. "When you have a lot of money right up front like that," said David Cole, president of Ashton-Tate, a computer software company based in

Culver City, Calif., "you go out and hire the very best law firm you can find."

Frequently the law practice areas in high tech overlap. For instance, venture

capital finance becomes an element of high tech when the financing is used to start up new technologic companies. Communications law also fits snugly with antitrust law on certain questions of merger and acquisition. And, in most cases, cable television sits in the shadow of communications.

High technology Earlier this year the Gaston Snow

high-tech staff gave talks at the main au ditorium of the Boston College School of Law. The place was packed. Law firms

say lawyers in droves are moving to get in on the high-tech action. "A lot of ex citement over high tech is from working with growing companies, smaller con

cerns with great futures," said Leonard

of Brobeck Phleger. Added Birnbaum, "High-tech com

panies tend to be small and flexible. They can turn on a dime. They're some

thing you can get your arms around.

You find yourself involved with things different and creative."

One of the key issues in high tech is copyright of intellectual property?the ideas contained in, say, computer soft

ware, which gives computers their in structions. "There has been some

definition by Congress and court suits," Leonard said, "but problems remain.

What is software? You can't feel it. The trouble with the copyright laws is that software is so easy to copy that it's so hard to police."

A multibillion-dollar industry, high tech covers a vast area, starting with the computer and its software and moving on through biomedicine and robotics. Geographically it is no longer confined to Boston's Route 128 and the West Coast's Silicon Valley. Austin, Texas,

October 1984 Volume 70 73

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E P

"The lawyers coming out today want to avoid being the man in the gray flannel suit," says Michael Magness, managing director of Martindale Services Inc.

and the northeast corner of Maryland are among the nation's fastest growing high tech areas. The computer industry seg

ment covering software alone is ex

pected to grow an estimated 40 percent a year and reach $7 billion by 1988.

Five areas In trying to cover the expanse, Gaston

Snow, as one example, divides its high tech practice into the following catego ries:

Computer contracts. Structuring and

negotiating computer contracts, includ

ing facilities management contracts, sys tems procurement agreements, purchase

agreements, license agreements, soft

ware development contracts, software

author agreements, distributorship agreements and third-party leases.

Computer fraud. Advising com

panies regarding the prevention and de tection of computer fraud, investigating and litigating computer-based fraud, drafting legislation, and working with law enforcement officials, insurance car

riers, stockholders and the press. Electronic fund transfers. Counsel

ing in corporate, consumer and technical

aspects of EFT (domestic and interna tional), advising on governmental regula tion, operations, fraud and defalcation and transborder data flow.

Proprietary protection. Structuring

plans for protection of confidential data, non-disclosure agreements, employment

agreements, license agreements, litiga tion, and support of copyright, patent, trademark and trade secret protection in

the United States and abroad.

Corporate and securities. Foreign and domestic acquisitions and joint ven tures, public offerings of computer-re lated issues, private placement financ ing, research and development part nerships and general representation of hardware and software companies.

"There are some things I really like about a high-tech practice," Leonard said. "You become associated with peo

ple who are successes; their companies are growing and doing well. Most of the other time in law you can be called in after some damage is done and you might have to work on bankruptcy pro ceedings and the like."

Broadcast and TV Communications is perhaps the most

vibrant and complex of all the hot new areas of law. On the broadcast side reg ulators suddenly have to contend with a series of technological breakthroughs that are rearranging the makeup of the industry. On the telephone side com puters and communications are mixing to produce a hybrid industry, one bring ing the likes of IBM and AT&T into closer competition and advancing the computer from primarily a tool for anal ysis to one for communicating.

"People are waking up to the fact that communications is becoming an impor tant and exciting business," said Wiley. "Lawyers are going to have to know a lot more than they did in the past," he added, envisioning the day when some

lawyers may need degrees in engineering to cope with the growing complexity of the business.

Ironically, much of the technological advance has occurred as the federal gov ernment has moved to deregulate the communications business. Thus, televi

sion stations under FCC control because of their dominance of particular viewing markets suddenly find themselves being hurt badly in audience ratings by re

cently installed cable television systems. Viewers have dozens of stations to choose from, many of them brought by satellites and multipoint distribution ser vices.

The bane for television programs? and movies?is the emergence of the videodisc and cassette. As video

cassette recorders become more com

mon, lawyers say, the courts will have to decide on such contentious problems as

royalty payments. "Much of this will cause turmoil for quite some time,"

Wiley said. The growth in venture capital has

been phenomenal. Attracted by annual returns as high as 50 to 60 percent, the

74 ABA Journal, The Lawyer's Magazine

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new, bigger venture capital business poured more than $4.1 billion last year into new capitalizations, compared with a thin $37 million in 1977, according to Venture Capital Journal, which keeps track of such things. Many venture cap ital firms have capitalizations of up to $300 million, compared with an average of around $40 million two years ago.

Getting into fast growth New companies with bright futures

also represent for lawyers a chance to get in a fast-growth business. As is often the case, lawyers are elected to the boards of directors of some of the new companies. At Lotus Development

Corp., whose sales in 1983, its first full year, totaled $53 million, the corporate secretary and a director is Katherine M. Todd, an associate at the Boston law firm of Testa, Hurwitz & Thibeault. "It's a functionary position," Todd said, "but it is a wonderful opportunity." Lotus

makes data base computer software.

Lotus has called on its lawyers in its campaign against software piracy. Ear

lier this year, acting on a complaint that Rixon Inc. had made unauthorized cop ies of its financial spreadsheet computer program, Lotus filed a $10 million copyright complaint, and Rixon promptly settled for an undisclosed amount of money. Lotus later filed a similar suit against Health Group Inc. of

Nashville.

Except in Louisiana, software man

ufacturers currently must rely on copyright law?specifically, Franklin v. Apple, 714 F.2d 1240 (3rd Cir. 1983). In that case, involving the Franklin Com

puter Corp. and Apple Computer Inc., the court ruled that all computer pro

grams can be copyrighted, even if they are an integral part of a computer's cir

cuitry.

Copyright law, however, does not cover all the problems that arise from software copying. The law allows the computer industry to prevent a buyer from copying its product, for example, but it does not prevent the buyer from renting the product to a third party. As a practical matter, once the software is cir

culating on a rental basis, preventing un

authorized copies is virtually impossible. The computer industry is facing prob lems similar to those the motion picture industry has had in trying to stop the copying of rented videotape cassettes of motion pictures.

These surroundings can be heady. In October 1983 Lotus made its initial pub lic stock offering, selling 2.6 million shares at $18 each for a gross of 46.8 mil

lion. The offering also created a handful of instant millionaires at Lotus, includ ing its founder, Mitchell A. Kapor, who sold 300,000 of his own shares that fetched $5.4 million.

Venture capital legalities The legal points touched on in the

venture capital business include tax treatment of long-term capital gains; public stock offerings and other forms of financing; patent and copyright protec tion (one East Coast computer company spent more than a month looking for a name for its new product before its law yers found one that wasn't being used elsewhere in the country); and formulat

ing U.S. and worldwide sales and dis tributing agreements.

Pension and other funds have become more aggressive in entering the venture capital action under a liberalized reading by the funds of the prudent person rule.

High-tech companies tend to be small and flexible. They can turn on a dime. They're something you can get your arms around. You're involved with things different and creative.

Another topic is the formation of ven ture capital funds for limited part nerships.

In most venture capital transactions, investment is tied to equity. It also may take the form of debt convertible into common stock or debt with detachable warrants. In effect, this gives the ven

ture capitalist the option to buy common stock at a particular price or to buy other equity combinations such as convertible preferred and common stock.

Cable TV Cable television is still spreading

rapidly across the country, now wired

into 35.7 million homes, up from 14.1 million five years ago. The National Ca ble Television Association estimates ca ble will reach 50 percent of homes by next year, versus 43 percent now.

On one issue alone, in many parts of the country, a key proposal is being

raised: that municipalities take over their cable TV systems, rather than con

tinuing to have them run by outside fran chises. The issue has been fashioned into referendums in some cities?for in

stance, Minneapolis and Palo Alto. But the proposals were defeated by narrow margins. Cleveland is among the cities still considering ways of controlling the city's cable TV system.

On the other hand, some individuals and groups have filed court challenges to the right of municipalities to grant fran chises that wind up being monopolies. These plaintiffs argue that municipalities have no right to end competition for ca ble TV hookups and shouldn't be al lowed to be the entities running the local

monopolies. If either viewpoint takes hold, the in

dustry's legal basis could be thrown into chaos, lawyers agree. Ripped to shreds, some lawyers say, would be the stacks of codes, regulations and laws adopted by local, state and federal government in the helter-skelter effort to put some legal harness on the cable TV business.

According to Charles J. Beard, a part ner at Foley, Hoag, much of the demand for reform of cable TV rules and regula tions stems from viewer complaints in many places about poor selections of programs and poor repair service.

Adding to that dismay, Beard said, is the the mishmash of law and authority. As the author of one of the major studies on cable TV law, Beard blamed "the com plexity of the law, which is compounded by ambiguities still unclarified by court decisions and advisory opinions."

To cover the full high-tech front, a firm like Foley, Hoag has 20 of its 100 at torneys assigned to work with 150 com panies in that area. About 15 years ago the firm had three or four of its 35 attor neys covering 20 high-tech clients.

Clients today include Cullinet Soft ware; Nixdorf, the German computer

company with operations based in Mas

sachusetts; Applicon, the maker of com

puter-aided design and manufacturing

equipment; and Orion Research, maker

of electrochemical devices. The economy is on the upswing and

opportunities abound for lawyers to get aboard the boom. Entrepreneurs are ex

ploring new areas of business, and the

hobbles are being taken off long-stand ing industries. Lawyers will be needed to help businesses make the transitions. Today's novelty business may become tomorrow's bedrock client. Intirnal

(Mitchell Lynch is a Boston-based writer on financial and business topics.)

October 1984 Volume 70 75

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