Hughes Aircraft Is Shifting Some Legal Work
Hughes Aircraft is sharply reducing its reliance on the Los Angeles law partnership of Latham & Watkins, its dominant law firm dating back to the days when Howard Hughes was the owner.
The change comes after a major legal blunder last year--for which responsibility is undetermined--that may cost Hughes $270 million. Officials at Latham & Watkins insist that the loss of Hughes’ business is not related to that case and reflects a broader effort by Hughes to diversify its legal representation.
Hughes has replaced Latham & Watkins with the Chicago law firm Kirkland & Ellis for portions of the aerospace firm’s general law and patent law matters, according to John T. Kuelbs, Hughes’ associate general counsel.
“Kirkland & Ellis is handling outside legal work, in addition to Latham & Watkins,” Kuelbs said.
Kirkland & Ellis does a substantial amount of legal work for General Motors, which bought Hughes in 1985. Elmer W. Johnson, former GM general counsel, is a partner at the firm.
Department in Turmoil
Hughes’ legal department apparently remains in some turmoil, a result of the legal blunder and more broadly of the recent effort by General Motors to assert greater control at Hughes. In the past two years, a difficult power struggle at Hughes has forced the resignation of its chairman and vice chairman.
Earlier this year, The Times reported that a legal blunder in a huge patent-infringement case by Hughes against the U.S. government resulted in a federal judge throwing out $270 million in alleged damages.
The patent-infringement case, known as the Williams patent case, involves a complex device that controls the orbit of a spinning satellite. Hughes alleged that the government stole the patent and used it on 108 government-built satellites.
The mistake occurred when Hughes settled a related patent case against Ford Motor Co. and inadvertently released the government from liability on 13 of its satellites. Hughes valued the claims on those 13 satellites at $270 million.
Latham & Watkins represented Hughes in the Ford settlement, but the law firm’s managing partner, John F. Walker, insists that it did not make any error and that the loss of Hughes business is totally unrelated to that settlement. He said many major corporations are diversifying their legal representation, that the Hughes changes are part of that national trend. He added that Latham & Watkins remains Hughes’ “dominant” law firm.
Different With GM
As part of the fallout from the legal mistake, one of Hughes’ top in-house patent attorneys was recently dismissed, causing some bitter feelings within Hughes. Moreover, when another in-house attorney at Hughes flunked the California Bar examination recently, the issue became a matter of hallway gossip and was leaked to The Times.
“There are a lot of axes to grind,” one attorney said in an interview last week. “You are talking about big bucks when one law firm has it all, and now it is being competed. Times have changed.”
Walker said in a telephone interview that his firm is still winning new Hughes business, but that “it is a different situation today with GM.”
“What has happened is that GM people have come in and (Richard) Alden is gone,” he said.
Alden was for many years general counsel of Hughes at the same time that he was a senior partner at Latham & Watkins. When Hughes was acquired by GM, Alden retired from Latham & Watkins and became vice chairman and general counsel at Hughes.
The arrangement was a boon to Latham & Watkins, but it prompted many insiders at Hughes to raise an eyebrow at the close relationship. Over the years, Latham & Watkins won “half or more” of Hughes’ outside legal work, Walker said.
Hughes’ new general counsel, John Higgins, was installed by General Motors when Alden abruptly retired in 1987. He was not available for comment but reportedly has wanted to diversify Hughes’ legal work away from Latham & Watkins. Now legal work is being awarded after “duty contests,” a form of competition among rival firms. That effort has resulted in more than casual backbiting.
The legal turmoil is important because Hughes is entering the final stages of its massive Williams patent case, in which it has been seeking $3.16 billion from the U.S. government, the largest patent case in history.
Oral arguments are scheduled to end next month and at least part of an opinion to be rendered by December, said U.S. Claims Court Judge James T. Turner, who is hearing the case.
