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2003. 11.03

Made in Japan: The American Lawyer's Profile of MoFo's Tokyo Office and Practice

MoFo did more than hang on through a rough decade.
It built a model for the future.

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By Heather Smith, The American Lawyer


As the barriers to foreign lawyers fall-again-Morrison & Foerster's decade of growth in Tokyo looks like a model for the future.

At the northeast corner of the Imperial Palace gardens in Tokyo's Marunouchi district, the main business district of the world's second-largest economy, stands the AIG Building. For 16 years Morrison & Foerster has made a home for itself in this granite hulk, more reminiscent of the utilitarian architecture of the Soviet bloc than the glittering neon of Tokyo. But the view and the location make it one of the most prestigious in all Japan, and signal that MoFo notices the subtleties of Japanese culture. "It feels like you're in Japan," says Ken Siegel, MoFo's Tokyo managing partner.

MoFo clients-including household names like Fujitsu Limited, Hitachi, Ltd., and Toshiba Corporation-appear to lap it up. They drop by when they're in the neighborhood, sometimes to just say konnichiwa (hi!), sometimes to spend hours reviewing strategy and differences between foreign and Japanese laws. Siegel has a long history with the building. As a new associate, he leased the space in 1987, just after the Diet, Japan's parliament, loosened the ban on foreign law offices. Since then, the Tokyo office has grown steadily, from three to 50. With 40 foreign attorneys, MoFo's is now the largest foreign office in Tokyo. And in a country where only five firms have passed the 100-lawyer mark, MoFo and its Japanese joint venture, Ito & Mitomi, are the ninth-largest of any firm in Japan, foreign or domestic [see "Counting the Competition," page 81].

For foreign firms, the Japanese legal market has been a very expensive roller-coaster ride. U.S. firms rushed in during the economic boom of the 1980s, and then sharply cut back as it came to an ugly end. Now the rules are changing again. In July the Diet reversed a long-standing policy barring foreign firms from directly hiring Japanese lawyers, known as bengoshi, and has ordered the bar association to draft rules to implement the law by summer 2005. MoFo is poised to make its alliance with ten-lawyer Ito & Mitomi permanent. Other U.S. firms are trolling for laterals or looking to ship American-trained Japanese lawyers back home. Predictably, some in the local bar are worried, expressing concerns about their future. But for Siegel, it's just another turn in a career that has managed to blend personal and professional needs into a successful pan-Pacific fusion.

In 1981 Siegel, too poor to travel the world with his buddies, stuck around Amherst College after graduation to earn some extra cash. There, he met Michiyo Tanaka, an exchange student spending the summer studying English literature. He was smitten, and when she went home to Kyoto, he decided to spend the next year there studying Japanese. Three years later, at the end of his first year at the University of Chicago Law School, the two married. Today, Siegel is steeped in his wife's native culture, which has greatly influenced his practice. Clients appreciate that they have someone who understands them, linguistically and otherwise, and they frequently attribute Siegel's Japanese savvy-from presenting business cards correctly (with both hands and a slight bow) to knowing just how aggressively to pursue a given client-to Michiyo.

When they were just starting out, the Siegels hoped to raise a family in both countries, which is why Ken applied for summer associate positions at firms with Asian interests. At the time, MoFo was defending Fujitsu in a landmark patent suit brought by IBM. The firm needed attorneys with Asian language skills, so it hired Siegel for the summer of 1985, then sent him back to Japan after he graduated for more language classes.

When the law changed in 1987 permitting foreign firms to establish offices [see "Timeline," page 84], MoFo assigned Siegel the task of finding office space. He didn't have far to look. His wife was in charge of administration at Prudential Securities Incorporated in Tokyo, which was about to move out of its space in the AIG Building. Prudential leased its space to MoFo, and the firm took on a more serious Japanese tinge. Harold McElhinny was heading up the Fujitsu litigation at the time. Now back in San Francisco, he laughs and shakes his head, saying, "You can't imagine how embarrassing it is to know I brought in the guy who would become one of our most successful partners as a gofer."

The Fujitsu-IBM litigation had opened Japan for MoFo long before 1987. In the mid-1970s Fujitsu decided to buy into Sunnyvale, California's Amdahl Corporation (now a Fujitsu subsidiary) for a toehold in the U.S. computer market. But both were clients of the late Brobeck, Phleger & Harrison. So Brobeck sent Fujitsu to MoFo, a staid firm with a reputation for banking and litigation, and thus no threat to Brobeck reclaiming Fujitsu after the deal. But then IBM sued Fujitsu for violating its mainframe operating system patent, and Brobeck's gambit fell apart as Fujitsu stuck with MoFo for litigation that would drag on into the 1990s.

Because of the foreign attorney ban, most work had to be done outside Japan, but some MoFo attorneys went there under the aegis of Fujitsu's in-house legal department. Fujitsu treated its visitors "like royalty," says McElhinny, but bimonthly trans-Pacific commutes wore thin after six months, so he moved his family to Tokyo. Fujitsu didn't want the suit to become public knowledge because of the shame associated with litigation in Japan, and told the visitors to keep quiet. McElhinny says his children promptly blabbed about his work to classmates, while colleague Carl Anduri's children dutifully professed not to know what their father did-prompting a rumor that Anduri was CIA.

But Fujitsu gave MoFo something more valuable than local bragging rights. The firm received an intensive tutorial in serving Japanese clients. One lesson came two days before a deposition, when the in-house lawyers asked for every question that McElhinny would ask. They were shocked that he didn't have them. "Spontaneity was unheard of, so we compromised," he recalls. "I gave them more details ... and they were content with less."

Foreign attorneys, or gaiben (short for gaikokuho jimu bengoshi), have had to overcome more than just legal barriers to practice successfully in Japan. For example, the desire to avoid open confrontation encourages speedy private resolutions rather than drawn-out battles in open court. In a business climate where midlevel executives are expected to answer questions from superiors on any aspect of a relevant legal issue at a moment's notice, gaiben must be willing to spend long hours thoroughly explaining nuances-such as why U.S. companies tend to view lawsuits as business tools rather than as social stigmas. They also must reassure clients that documents handed over during discovery, which did not exist in Japan until a few years ago, won't be shared with competitors.

Partly because MoFo lawyers were willing to take the time to explain these differences and review options with clients, work started pouring in. As a result, MoFo's Tokyo office was profitable from the start, says Anduri, the office's first managing partner. (Anduri, who went on to coordinate MoFo's international practice, is now president of Lex Mundi, a global network of independent firms.) For its part, MoFo says it doesn't calculate revenues on an office-by-office basis. But it estimates that revenues from its Japan-related practice have grown from about $15 million in 1992 to $65 million in 2002, about 13 percent of the firm's 2002 gross revenue of $505 million.

Siegel stayed through the office's inaugural year, then returned to the United States in 1988 to work in the corporate finance department of MoFo's main office in San Francisco. During the next six years, daughters Julie and Hannah were born, and the family returned to Tokyo in 1994, planning another limited stay. Two years later, however, Ken was named managing partner, and, as the family's roots in Tokyo grew, return plans became more vague. "I had planned to be here five years, but professionally it is so interesting here, and personally the kids have been settled in very well," he says.

Siegel isn't the only MoFo attorney whose repatriation has been put on hold. That's due to several factors, from the personal (Siegel says three-quarters of the office's 40 foreign attorneys have long-term ties, such as a Japanese spouse) to the professional. Eleven associates have made partner in Tokyo, proving that the office is hardly a professional exile.

Which is precisely what attracted former Weil, Gotshal & Manges associate Stuart Beraha. After a year off in Osaka working for Matsushita Electric Industrial Co., Ltd.'s in-house legal department, Beraha returned to New York in 1999, eager to find his way back to Japan. But Weil didn't have a Tokyo office. Aware of MoFo's reputation in Japan, he contacted the firm. A month later, he was in Tokyo working with Siegel. Tokyo is "one of the firm's most important offices," Beraha says, which "can translate status to the rest of the firm."

In retrospect, MoFo's success in Japan turned on one bold move. After the bubble economy collapsed in 1991, the firm continued to send over lawyers and draw clients. Before then, Anduri had focused solely on building a Japanese client base, getting letters of introduction from the firm's existing Japanese clients, which initially numbered about 60-mostly banks, trading companies, and electronics concerns. Anduri also offered legal seminars for in-house lawyers who were eager to learn more about foreign laws and trends. (He had to send most of the work to U.S. offices.) By 1991, however, Anduri conservatively estimates that MoFo had more than 500 Japanese clients.

When Robert Townsend took over in 1993, he could afford to shift the focus to bringing over more lawyers so that work could be done locally. During the three years Townsend led the office, it grew from four to ten foreign attorneys. "Clients loved it," says Townsend. "We could answer questions on the spot and spend hours working through their questions in person."

By investing more lawyers in Tokyo as others were leaving, MoFo says it could provide better service, and make a statement that the firm was in Japan for the long haul. Though a handful of other firms had a head start-Baker & McKenzie; Coudert Brothers; and Milbank, Tweed, Hadley & McCloy found ways around the ban through personal exemptions or unique relationships with Japanese firms in the 1960s and 1970s-none have been willing to brave the foundering economy and post so many U.S. attorneys, particularly senior partners, in Japan. As a result, MoFo managing partner Keith Wetmore can say plausibly, "We're really not all that worried about competition."

The commitment of experienced partners-nine of the partners currently in Tokyo have been practicing for at least 15 years-has paid off with some clients. "Generally, second-class lawyers go to Tokyo while the brains are in New York," says Masayoshi Nakamura, the former head of M&A for Morgan Stanley's Tokyo operations and a former MoFo client. MoFo attorneys, he says, "never escape in front of a client. They never say, 'Oh, let's have a conference call with the New York guys,' in which case, they don't have the answer."

For all that, MoFo's Tokyo office was not a business paradise. The office Siegel inherited from Townsend had a moribund real estate practice and a litigation group that was living off the fumes of the long finished Fujitsu-IBM case. Real estate was turning around in Tokyo, but instead of Japanese investors trying to buy landmarks around the world, foreign investors had started to buy local properties. Earlier this year Siegel recruited two American lateral partners already in Tokyo, and turned the practice over to Frederick Lodge, a real estate dealmaker who had run MoFo's New York office.

In litigation, Karen Hagberg, an IP specialist from New York, moved to Tokyo to build on MoFo's existing client base, and the practice appears to have revived. Hagberg was replaced by Alan Johnston, another IP specialist who opened MoFo's Palo Alto office and led its litigation group. Now in Tokyo, Johnston is working with McElhinny in San Francisco to coordinate the international defense of a patent infringement case brought by ASM Lithography Holding N.V. against MoFo's client Nikon Corporation. That defense includes suits before the U.S. district court in San Francisco, Tokyo district court, and Suwon district court in Korea. (ASML has won one important victory already in January before the International Trade Commission, allowing its sale of photolithography equipment in the U.S., worth approximately $1.8 billion annually. MoFo was not involved in the initial ITC trial, but is assisting now on the appeal.)

The M&A practice has developed significantly under Siegel, himself an M&A lawyer. In 2001, when Hitachi's Toyoki Furuta, then senior manager of the global business development division's strategic business development unit, needed a U.S. firm to help him acquire IBM's hard drive business, he knew the documentation would be time-consuming and that the time difference to California (nine to ten hours, depending on the time of year) would get old quickly. But none of Hitachi's regular stateside counsel had Tokyo offices, and the deal was too complex to risk on someone facing a learning curve.

So Furuta turned to Hitachi's financial adviser, Nobumichi Hattori, then a managing director at The Goldman Sachs Group, Inc. Hattori, now a corporate strategy professor at Hitotsubashi University, called in Siegel. Furuta remembers being impressed with his Japanese language skills, but, more important, by the fact that "he quickly grasped the nature of the deal." Though Siegel used attorneys from other offices for the $2.1 billion deal, he coordinated everything through Tokyo, dramatically reducing the amount of work conducted by conference calls.

Furuta, now senior director of business development and strategy at Hitachi Global Storage Technologies (a 70-percent-Hitachi-owned subsidiary in San Jose housing the IBM division), says this was a blessing. Such calls, he explains, "are especially difficult for us as nonnative speakers. We often need to have an internal consultation before and after to make sure we understand"-which can turn every call into a marathon focused on translation work instead of the deal itself. The Hitachi purchase was the fourth-largest M&A deal involving a Japanese acquiror last year.

Because MoFo has focused on developing its foreign practice, the Diet's 1995 decision to further relax restrictions-allowing Tokyo offices to form joint ventures to offer local law practices-had little impact on its strategy. In fact, Siegel waited until 1999 to start actively recruiting Fuyuo Mitomi, a well-respected bengoshi who had worked briefly at MoFo after earning an LLM from Harvard Law School in 1978. Despite Mitomi's earlier experience with MoFo, Siegel says it took two years to lure him from what is now Tomotsune, Kimura & Mitomi, where he was name partner.

Again MoFo was unusual. Firms such as Paul, Hastings, Janofsky & Walker that had recalled attorneys when the economy collapsed saw joint ventures as a way to rebuild their Japan presence. Joint ventures put bengoshi in the same office-albeit under a different name-as foreign lawyers, allowing foreign firms to offer both foreign and local law capabilities under one roof. Restrictions remain; the two must keep separate books, and bengoshi aren't official partners in the foreign firm, a division reinforced by a ban on gaiben advising on Japanese law or directing bengoshi on how to practice it. These, coupled with the stigma of being foreign, made senior bengoshi initially shun them.

The new law went into effect in 1996, the year John Steed came to Tokyo from Paul, Hastings's Atlanta office. A real estate partner who had lived in Japan as a Mormon missionary in the early 1970s, Steed arrived as managing partner, and the 1998 establishment of the Taiyo Law Office joint venture marked a turning point for the firm's Tokyo office. Putting a real estate attorney in charge was key because of the huge demand for foreign and local legal advice from foreign investors and Japanese sellers and banks on how to unload properties that companies had bought during the bubble years and were now desperate to sell. A firm with dual legal capabilities and a specialty in distressed assets like real estate could find easy pickings. Around 1999, after almost a dozen years in Japan, the Tokyo office finally started to "realize our expectations," according to Paul, Hastings managing partner Greg Nitzkowski, also a real estate partner.

Paul, Hastings is open about its goal for Tokyo: to merge with Taiyo at the first opportunity, and to develop the office into a Japanese practice, competitive with Japanese firms for domestic corporate work and with international firms for Japanese companies' international work. After seven years in Tokyo, Steed says he's "training now the next generation of Japanese lawyers to do what I do ... so I can go home."

Taiyo is led by Keisuke Mochizuki, a bengoshi who came to the U.S. in 1995 for an LLM at the University of Illinois at Urbana-Champaign, and joined Paul, Hastings's Los Angeles office in 1996. After two years in L.A., Mochizuki was fully steeped in firm culture when he returned to Tokyo to open Taiyo. As other bengoshi have seen Taiyo members treated as equals within Paul, Hastings-attending firmwide retreats and taking on leadership positions-recruiting has become easier. Taiyo has now surpassed the foreign practice, growing to 21 attorneys (compared with Paul, Hastings's 16).

Bengoshi have long opposed ceding ANY ground to foreign attorneys since ousting them in 1955, three years after the end of the post-World War II occupation by the U.S. Though older bengoshi grant that foreign attorneys played an important role in developing the legal profession under the postwar constitution, they resented the presumption of some foreigners. Many still harbor memories of slights and see only trouble from foreign lawyers returning to Japan. Paul, Hastings's Kaoruhiko Suzuki founded the firm's Tokyo office and now splits his time between Tokyo and L.A. He recalls that in 1987, the Osaka bar association issued a statement that foreign lawyers would damage public morals and social order in Japan. Even when Steed arrived nine years later, he says, "foreign lawyers were viewed by the bar as enemies of the state."

The Japanese bar remains concerned that further loosening of restrictions will jeopardize bengoshi. Kimitoshi Yabuki, the director of the Office of International Affairs of the Japan Federation of Bar Associations, or Nichibenren, will be spending the next two years drafting rules to implement reforms passed this July allowing foreign firms to directly hire bengoshi and merge with their joint ventures. But he worries the bar won't be able to enforce the existing laws preventing foreign employers from telling bengoshi how to practice Japanese law.

Hideshige Haruki, a name partner at the ten-lawyer firm of Haruki, Sawai & Inoue, worked at Graham & James, one of the U.S. firms in Japan following World War II. Haruki says, "Those foreign attorneys introduced business law to us.... Without that early influence, we couldn't develop [but] they were very nasty; they treated us as animals, pigs, and thugs." Today, foreign firms are again encroaching on his practice. He just lost two young associates to American firms that "don't hesitate to just call and hire them," he says in disgust.

Defector bengoshi view things differently. They cite reasons for leaving such as a desire to specialize (few Japanese firms are large enough to support specialty practice areas) and work internationally (overseas offices and non-Japanese attorneys are rarities). Yoji Maeda left Anderson Mori, one of Japan's oldest and largest firms, to join Taiyo, the Paul, Hastings joint venture, in 2000. At Anderson Mori, Maeda says, "I was climbing the steps and ... that's good, but not very exciting. I am looking for someone with ambition to create something new." Though the joint venture image has changed from "a destination only for dropouts who couldn't handle the pressures of a Japanese firm," Maeda acknowledges that some stigma remains.

But as joint ventures flourish, foreign firms find it easier to recruit senior bengoshi. In 2001 Mitomi finally consented to lead MoFo's joint venture, Ito & Mitomi. He says the move freed him to work as a business counselor as well as an attorney to his clients, a relationship he felt was impossible to develop at Japanese firms, even his own. "[It was] frustrating because I wanted to get more involved," he says. "[At a joint venture] people think of me as part of Morrison & Foerster and are more prepared to rely on my judgments." Naosuke Fujita joined Taiyo recently from Goldman Sachs's Japanese distressed assets business because, he says, "I felt that one day if I was successful, I could have a shot at being managing partner of an 850-lawyer global firm."

Japanese firms have another reason to worry: Japanese clients like the treatment they get from foreign attorneys who actively campaign for their work. Haruki has lost several clients to American firms that send "young attorneys to meet with them free of charge. I can't afford that," he says. Japanese clients have little sympathy. "So what? I have the right to choose the best legal services," says Masanobu Katoh, group president of Fujitsu Limited's Intellectual Property Group & Security Export Control Headquarters. On the basis of his experience with outside counsel elsewhere, Katoh says Japanese firms should be concerned. "Foreign firms do pose a threat to Japanese firms," he says. "They have to change."

Where does all this leave MoFo going forward? Managing partner Wetmore says he "could easily see a 100-lawyer office in Tokyo," and plans to merge with Ito & Mitomi as soon as possible. Siegel has more specific goals for growth; he'd like to significantly expand the real estate and litigation practice groups, while keeping the M&A group level. As for Ito & Mitomi, Siegel hopes to soon increase the number of bengoshi to a ratio of 1:3 foreign attorneys (it's currently 1:4).

For someone with no designs on Japan until one summer 22 years ago, Siegel has developed quite a few since then. Fortunately for MoFo, none of those plans include booking a return flight.

Reprinted from The American Lawyer, November, 2003. This article first appeared on the web on law.com.

 

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