Facebook’s Problems Spotlight Elevated Role of In-House Lawyers

Anyone ruminating over the elevated role of in-house lawyers might consider the case of Facebook.

Its top two lawyers, Colin Stretch and Paul Grewal, have played both lawyer and spokesperson as the social media giant confronts a dizzying number of legal issues, which are besieging the Wild West of data privacy at tech companies.

As tales of data misuse spilled into the open, Grewal, a former federal magistrate, took to social media to staunchly defend his employer. His blog posts filled the void created by the initial silence from CEO and founder Mark Zuckerberg and other top company brass. No doubt everyone in the company will be working overtime to stem billions in losses in recent days.

Although Congress has been clamoring to grill Zuckerberg, it was Stretch, who earned a $10.5 million stock award last year, who faced lawmakers last October to answer inquiries about how Russian hackers manipulated data in trying to influence the outcome of the 2016 election.

Now, he will no doubt be spending some quality time with the big boss who’s agreed to testify on Capitol Hill after it was revealed that a British political consulting firm, Cambridge Analytica, had improperly harvested data of about 50 million Facebook users.

Meanwhile, the Federal Trade Commission just announced it would take another look at Facebook’s privacy policies. The agency also did so in 2011 and the social network will be under the gun to show that it stuck to a consent decree on data privacy that it signed seven years ago.
States are none too happy with Facebook either.

Earlier in the week, 37 state attorneys general sent a letter to the company demanding more information about Facebook’s privacy practices and protections. Cook County, Ill., is also suing Facebook and Cambridge Analytica for obtaining user data, and not protecting it, from millions of Illinois residents.

It is not only irate users who are challenging Facebook. Fair housing groups have sued the social media network, saying it continues to discriminate against certain groups by letting advertisers target audience segments for their ads. Three Facebook Messenger users also sued, saying the social media company violated their privacy by collecting logs of their phone calls and text messages. Facebook has ruffled feathers as far away as New Zealand, where a privacy commissioner has accused it of breaking the law by refusing to give a man the information it held about him.

The Legal Team

Years ago, Stretch and Grewal might have worked for an outside law firm, which would have marshaled a team of legal experts to combat the varied legal challenges. But like their counterparts, there has been a certain go-it-alone mentality in high tech even as companies battle intellectual property, cybersecurity and other complex issues.

Reaching outside, Facebook will bolster its legal arsenal with a cadre of big law firms. It is stocking up its lobbying and legal operation in Washington, looking to hire nearly a dozen lobbyists. It has been adding to its lobbying team for some months amid disclosures of Russian election meddling. It is now also looking for in-house counsel, at the associate general counsel level, according to Bloomberg Politics.

Facebook did not respond to questions about its current legal department, which in 2011 was reported to have 30 lawyers, with Theodore W. Ullyot, a former Kirkland & Ellis partner, as its general counsel from 2008 to mid-2013.

The Rise of In-House

Across industry sectors in-house law departments have been beefing up — and big tech is no exception.
“As many high tech chief executives have become larger-than-life figures, a protective role may have crept in, but this sector of the economy is still changing rapidly,” said Amar Sarwal, chief legal officer for the Association of Corporate Counsel. “The novelty of high tech is a really big piece of the interest now, but that era is likely ending.”

Internally, lawyers are gaining more heft because they are more active in devising corporate business strategy, according to findings of the ACC Chief Legal Officers 2018 Survey, which queries approximately 1,200 chief legal officers – also known as general counsel – around the world.

The numbers of in-house counsel appear to be rising – although the numbers are varied among various types of corporations – in order to handle more routine legal matters in a more economical way than farming it out to outside counsel.

Two-thirds of chief legal officers who report directly to the CEO said, in the recent ACC survey, that the executive team “almost always” seeks their input on business decisions, and 81 percent regularly attend board meetings. A main reason is dealing with regulations, the survey found. Stretch underscored this concern, noting publicly months ago the Facebook worried about regulation and its unintended consequences in the social media industry.

Facebook’s Concern

Like most tech companies, Facebook’s major legal concern – thus far – has been intellectual property. Tech companies need lawyers specializing in patents, who are able to both fend off patent violators and defend patent infringement lawsuits. In its earlier years, Facebook also bought patents from social media companies that failed, including Friendster in 2010.

That was the same year that Stretch, a former partner at Kellogg Huber Hansen Todd Evans & Figel, came aboard. His first major task, in 2011, was leading Facebook’s team that squared off with the FTC over privacy complaints. If the commission has its way, Stretch and his colleagues will be back at the negotiating table trying to defend what Facebook has – and hasn’t – done with user information since then.

To contact the reporter on this story: Elizabeth Olson at egolson1@gmail.com.

To contact the editor on this story: Casey Sullivan at csullivan@bloomberglaw.com and John Crawley at jcrawley@bloomberglaw.com.