By Eriq Gardner
Corporate Counsel
New York Lawyer
November 3, 2005

It was a cold day for a beauty contest. On a blustery morning last December, a small army of product liability lawyers tried not to slip on the ice as they made their way to the Plaza Hotel in New York. The largest pharmaceutical corporation in the world, Pfizer Inc, had rented a ballroom in the grand old hotel and summoned them.

Allen Waxman, Pfizer's litigation chief, told the hundreds of lawyers that the company was beginning an intense nine-month competition among its product liability outside counsel. Pfizer wanted the 103 firms in attendance which included many that had worked with Pfizer before and some that had not  to compete against each other for some 20 coveted spots as preferred providers. As he spoke, Mr. Waxman brandished a 50-page Request For Information form and outlined the elaborate vetting process.

A midwinter beauty pageant does not sound like such a great idea. But for Pfizer's legal department, the timing could not have been better. Company lawyers were staggering under the heavy litigation burden that Pfizer assumed from acquiring other pharmaceutical businesses. At the same time, Merck & Co., Inc.'s recall of Vioxx last year had Big Pharma's adversaries personal injury lawyers, securities class action attorneys, state attorneys general, and others dragging drug corporations into court to answer for the ways their products are developed and marketed. Pfizer alone has faced more than 10,000 lawsuits in the past few years over its drugs and their alleged side effects. Mr. Waxman said the hundreds of firms representing Pfizer on product liability work were a nightmare to manage. The legal department thought that it would benefit, both operationally and financially, from working more closely with a smaller group of firms, though lawyers there refuse to put a dollar amount on any potential savings.

How would Pfizer pick its preferred providers? As part of "P3," Pfizer-speak for Pfizer Partnering Program, the company demanded to know each firm's history of handling product litigation, its minority hiring statistics, and whether it had ever represented a generic drugmaker, as well as details of any alternative fee arrangements it had with other clients. On paper with documentation.

That was the easy part. After sending in their replies, finalists traveled to Pfizer's New York headquarters, where small panels composed of company lawyers and outside consultants grilled them on their answers. Then came a fee review from a Pfizer procurement executive known for wrangling discounts on copy paper and paper clips. One law firm partner, echoing the sentiments of others, would later call the selection experience "the most painful ever."

Finally, in late September, the drug company announced its choices. Prominent national product litigation players made the cut, including Dechert; Kaye Scholer; Skadden, Arps, Slate, Meagher & Flom; and Reed Smith. That is not surprising. But Pfizer made some other notable choices. Smaller litigation boutiques like New Orleans-based Irwin Fritchie Urquhart & Moore and Los Angeles-based O'Donnell Shaeffer Mortimer were in. And the company rejected well-known heavyweights, even though some had played historically large roles in Pfizer litigation.

The delisted firms include Alston & Bird; Arnold & Porter; Gibson, Dunn & Crutcher; Jones Day; and Mayer, Brown, Rowe & Maw. Frederick Paulmann IV, a Pfizer senior corporate counsel who oversaw the P3 competition, said Pfizer's lawyers looked for geographical diversity, but each firm is not assigned to a specific region. The drug company also insists that its firms are on equal footing with one another; even some of the smaller firms may be asked to play a role in national cases.

'Eliminate Subjectivity'

Mr. Paulmann added that P3's goal was to "totally eliminate subjectivity" from the process. "We can't effectively put four catchers on the field at one time, even if each is an All-Star," he said. And the way to cut three of them? Make them show off and "measure the quality of the individual players . . . by a reasoned assessment of objective markers."

Pfizer is not the first company to initiate an elaborate "partnering" process for its outside counsel. Most notably, E.I. du Pont de Nemours and Company; Motorola, Inc.; and Sears, Roebuck and Co. all have instituted some form of "convergence" working closely with a relatively small, select group of firms and, in return, getting a break on their fees. Two years ago, Shell Oil Company created a stir by inviting dozens of law firms to its Houston headquarters for a beauty contest, and requiring them to answer detailed questions about their (lack of) minority hiring. Last year Tyco International Ltd. rattled the legal community by becoming one of the first large companies to outsource all its product liability work via an RFP and a "reverse auction" (firms bid for the work; the lowest bidder typically wins). Shook, Hardy won by bidding a low 18-month fixed fee for Tyco's entire product liability portfolio.

In all, according to Peter Zeughauser, a legal consultant at Newport Beach, Calif.-based Zeughauser Group, more than 200 companies have attempted to run "partnership" competitions of some kind. Most, he said, conduct them with the idea of realizing savings in legal costs, and "in the better competitions, the number of competing firms is relatively small, usually between four and eight firms."

Commenting on Pfizer's beauty pageant, he said: "Two consultants, nine months, and a 50-page RFI? . . . It sounds to me like it was overlawyered."

Mounting Litigation

If that is true, blame Mr. Waxman, 43, who walked into Pfizer's legal department in January 2003 from Washington, D.C.-based Williams & Connolly. There, he had defended some of America's largest pharmaceutical companies, including Wyeth, Warner-Lambert Company, and Bayer Corporation, in litigation over products like Norplant, Rezulin, and Baycol, respectively.

The Harvard Law School-educated lawyer, with his trial fame and outsider's perspective, did not exactly fit in with his new colleagues at Pfizer. But that did not matter to general counsel Jeffrey Kindler, who believed that only an outsider could get on top of the company's mounting litigation problem. "There was no doubt that he was the guy to make some moves that needed to be made here," said Mr. Kindler, who was also a partner at Williams & Connolly before going in-house.

Mr. Kindler has his own reasons for wanting to make a splash. In February he was promoted to vice-

chairman of Pfizer, and joined two other senior executives on a newly formed Pfizer executive committee. Company watchers say that Mr. Kindler and his fellow vice-chairmen, Karen Katen and David Shedlarz, are in a runoff to succeed outgoing CEO Henry McKinnell, Jr. Trimming legal costs significantly can only help burnish Mr. Kindler's star. A Pfizer spokesperson denied that the P3 process is a vehicle to advance Mr. Kindler's CEO chances, saying, "It's just so not so." She added that Pfizer is trying to cut $4 billion in costs, and that the legal department is doing its part.

Mr. Waxman began to reorganize the department shortly after he took over. Two management consulting firms, Chicago-based Huron Consulting Group and Boston-based Axia Consulting, recommended untangling the responsibilities of the department's lawyers. Now the in-house litigation team has separate groups that specialize in managing commercial litigation and defending government claims. The consultants also urged Pfizer to draft more rigorous litigation budgets early in the case process.

In late 2003 Mr. Waxman began formal discussions with his litigation group about what they wanted from their outside product liability counsel. Over the next several months the lawyers decided to winnow their product liability defense counsel down to about 20 firms.

An Intensive Review

The RFI was the first stage. It ran to 50 pages, divided into 12 sections. The first part asked for a list of all prior litigation handled, familiarity using various case assessment techniques, prior use of alternative fee structures, and a detailed list of attorney training. Pfizer wanted references from other clients, too.

The middle section demanded more creative thinking. Pfizer asked for the firm's thoughts on the pharmaceutical business, and how the firm demonstrated the company's core values. A sample question: "It is often said that the industry is not doing a good job of representing itself in the public domain. Do you agree? If so, what do you think the industry and Pfizer should be doing differently?"

The last section focused on money. Here, Pfizer pushed the envelope of what clients ask of service providers. Pfizer wanted law firms to include monthly budget forecasts for representing Pfizer, annual revenue breakdowns for the firm, and the percentage of revenue derived from a firm's top client. Pfizer also asked for what it calls "most favored nations" status, meaning it wanted rates no higher than those charged to a firm's largest and most influential non-pro bono client. And Pfizer asked the firms whether they would be willing to freeze their rates from the inception of a matter until its conclusion.

Providing those answers was not easy. Some firms brought in outside consultants and accountants. Steven Glickstein, a partner at New York-based Kaye Scholer, said his firm had 25 partners devoting "hundreds of manhours" to the project. (Kaye Scholer made the final list.)

Some firms went beyond the normal marketing department drafting. Hunton & Williams, which Pfizer said did "not have a great deal of pharmaceutical experience," hired a jury consultant to conduct a focus group on how jurors view pharmaceutical issues. There were testaments, too. DLA Piper Rudnick Gray Cary's response included a 1997 letter from New York state judge W. Denis Donovan to the firm complimenting one of its product liability attorneys as "undoubtedly the finest, most proficient, best prepared, and most gentlemanly trial lawyer, I, in my 27 years as a judge and justice, ever witnessed." (The extra efforts paid off. Both firms were chosen.)

New York Interviews

The first cut came in March. From the original 103 firms, Pfizer pared the list to 43. Then, through May and July, lawyers from those firms traveled to New York for a cross-examination by a phalanx of Pfizer lawyers and its consultants. The sessions caused more than a little internal friction. For instance, Pfizer suggested that firms bring six or fewer lawyers to the table, including one person whom the firm considered a rising superstar. Lawyers at one giant firm argued over whom to take. "You can't imagine the amount of politicking this raised," said an insider there who requested anonymity.

The sessions got pretty lively. Many of the slick PowerPoint presentations were ignored as Pfizer's inquisitors pressed lawyers on their RFI responses. Chuck Socha, a partner at Denver's Socha, Perczak, Setter & Anderson, said his questioners wanted to know how his small firm, which had never handled Pfizer business before, could possibly handle litigation from Utah all the way up to Washington State. "They said, 'You have a 14-member team. What makes you think you're capable of running the region?' "We have skins on the wall," Mr. Socha said he responded, pointing to its vigorous defenses in asbestos and silica litigation. (Socha, Perczak made the final list.)

'A Lot Expected'

This fall Pfizer contacted the 24 firms that made the final list. Later this year lawyers from the winning firms will travel to Pfizer's research & development labs in Groton, Conn., to take a tour of the labs and meet with its litigation team, including Mr. Waxman, Mr. Paulmann, and Sandra Phillips, a Pfizer assistant general counsel and section chief for product litigation. "I want these folks to see the lifeblood of this company and to understand in a much more intimate fashion  what's going on here, what's driving us, what are we doing as a company," said Mr. Waxman.

But the winning firms cannot rest easy. "The feedback I've gotten from the firms was 'This was painful. This was long. It was arduous,'" Mr. Waxman said. But he stressed the outcome: "Better relationships, better value there's a lot expected at this point."

 Eriq Gardner is a writer for Corporate Counsel magazine, an affiliate of the New York Law Journal. A version of this article will appear in the December issue of the magazine.