Georgetown Law
Technology Review

On January 23, 2020, the Georgetown Law Technology Review’s Gabriel Khoury interviewed James Gatto, a partner in the D.C. office of Sheppard Mullin. Gabriel visited James Gatto at his office to discuss James’s career and current practice areas. James is the leader of the Blockchain Technology and Digital Assets Team at the firm.

This conversation has been lightly edited for clarity and accuracy.

GK = Gabriel Khoury | JG = Jim Gatto

GK: Hello, my name is Gabriel Khoury, a second-year law student at Georgetown Law. I’m here with Jim Gatto at the D.C. office of Sheppard Mullin. Jim has graciously given his time to speak with me. Jim, how are you today?

JG: Doing great, thanks. How are you?

GK: Great, thank you very much. Thank you for coming.

JG: My pleasure.

GK: All right. Without further ado, let’s get into it. Jim, my first question is a typical interview question: what law school did you go to? How was your law school experience? And could you talk a little bit about your path to Sheppard Mullin and your current position?

JG: I went to the best law school in the country: Georgetown. I actually went at night. I studied electrical engineering and physics in college, and right out of college I worked as a patent examiner at the Patent Office and went to Georgetown at night. That really launched me into intellectual property and working with technology companies. And it’s been a continued growth since then. My practice expanded out of that as we’ll probably talk about more.

GK: Yes, could you elaborate on that? What are your current practices at Sheppard Mullin and what focuses do you have, if any?

JG: The core part of my practice has always been intellectual property and technology law. And within intellectual property I really do the full gamut. I advise companies on intellectual property strategies, patents, trademarks, copyrights, and trade secrets. We help them implement those strategies by filing and obtaining patents, trademarks, copyrights, etc. I do a lot of transactional work within the IP space: dealing with all of our corporate partners in mergers and acquisitions, doing the IP diligence and the IP aspects of deals, and selling patents and everything else that goes along with IP. The monetization side of it—that’s one piece.

The second piece is just generally tech transactions: all types of software agreements, development, cloud agreements, open source issues and licensing deals, and other technology transactions.

And then the third piece is the regulatory side that goes along with particularly cutting-edge technology. I do a lot of work in the blockchain space, and there are a lot of regulatory issues around that. I’ve done work over the years in the video game space and with the virtual economies and other stuff there. There are a lot of regulatory issues, and there are many different aspects of that.

One issue of note—that has been particularly prominent in the game industry lately—is online gambling. There have been a lot of game mechanics, loot boxes, fantasy sports, and other types of game-based models that have touched on or at least allegedly have touched on issues that look like gambling. I have been advising companies on how to stay on the right side of the law with respect to not being involved in illegal gambling or something that‘s legal but requires licensing. So those are examples of the regulatory issues that we deal with.

GK: And you have told me before that your blockchain interest and experience stemmed from your social media and game interest. Can you speak a little about that? Perhaps, specifically to your blockchain work as well.

JG: Sure. One thing in my career has kind of always led to another, and it’s been interesting as you follow new innovations in business models and technology. If you’re in the forefront of that, you’re going to build on what you know and take it in different direction. So—to answer your question—I’ve done a lot of work with game companies dealing with their in-game economies, virtual goods, virtual currencies, and the issues that go along with that. When the Bitcoin white paper came out, it was another form of digital currency. It created different legal issues. I got involved with blockchain in digital currency as a result of that, flowing from the work I had done in the game space and had been doing in the blockchain and cryptocurrency space since about 2012. It’s been accelerating rapidly because things are really starting to get commercialized. But I was really one of the early people involved in that whole area.

GK: So, for me as a law student, I think blockchain is very interesting. In simple terms for our readers, can you please explain what blockchain technology in a way that a law student might understand what it is?

JG: At a very high level, it’s a transactional database: it records transactions. What makes it different is that instead of relying on a single entity like a bank or a financial institution or someone else, there’s a network protocol that validates the transactions itself. So, you’re putting your trust in the network. It’s all open source. Everyone can see what the code is and how it works. You’re removing the ability for any single entity to hoard the data, be the sole repository of data or the sole validator of transactions. At a very high level, that’s what makes it different than other transactional databases.

GK: Right—and for you, your specific work with blockchain, what does your advising entail? What does that process look like? How would a summer associate help you with that and what do your associates help with?

JG: Yeah, that’s a great question. I’m fortunate to lead the blockchain team here. In addition to the core areas where I have expertise—I am a voracious reader and just try to stay abreast of new industries and technologies. Blockchain is a fascinating one because there is applicability of blockchain across almost every industry. And so, I’m not an expert in all the industries. Part of the advantage of having an industry team focused on blockchain is that I have a pretty broad understanding of the basic legal issues, and I’m really trying to understand the unique legal issues as blockchains supply the different industries.

Part of what I do as a team leader is an initial assessment of what the company does and what is it doing. What is the scope of the legal issues that they need addressed? Some of them I can address myself. For others, for example, blockchain in healthcare, energy, and other regulated industries, we have members of the blockchain team who are experts in general legal issues in those industries. And so, we work together—with my understanding and others who are deep in blockchain we’ll deal with some of the basic issues—and work with people who have the industry specific issues. And from that perspective, provide comprehensive advice to the client. Associates are very involved in really all aspects of that.

And for summer associates, a lot of the work involves research—some of it is legal research, but there’s really not a whole lot of blockchain specific law. A lot of the work is applying general legal principles. Like on the security side, for example, the SEC is using a multi-decade old test to decide whether cryptocurrency is a security.

GK: The Howey test.

JG: The Howey test. It’s been around for decades. There is new guidance. We’ll have associates and summer associates at times stay abreast of guidance that agencies are giving and any enforcement actions they’ve done and things like that. In an area like this where the law is evolving, a lot of the work is not just relying on precedent—specific precedent like many lawyers do. You have to foresee the issues that may arise.

And really one of the things that we were fortunate to do was to really map this out. We didn’t have clients who got in trouble on ICO’s and stuff even before some of the SEC guidance came out because we had concerns that certain activity could be deemed to be subject to securities laws. We advised clients, and for some that’s not what they wanted to hear. But it’s our job to keep them out of trouble if they want to take risk. Some of the people that went elsewhere are paying the price for that now. That’s part of what’s different about this: you can‘t just find the answer in case law. You have to many times really be forward thinking and look at where—skate where the puck is going, as they say in hockey.

GK: So, Jim, you mentioned securities law and blockchain. That seems to be where most people’s minds go whenever blockchain is mentioned. However, I know that it’s much more widely used, specifically in the cannabis industry. I know that you might have some experience with that. If you don’t mind, please elaborate a little bit on blockchain for the cannabis industry.

JG: Sure. So, we—in addition to our blockchain team—we have a cannabis team, which I‘m a member of, but it’s led by others. Cannabis is an interesting issue because of the federal laws that impact the legality of cannabis. It’s hard for some companies to get banking. There are a number of companies that have tried to create like an ecosystem-based currency for cannabis companies, both as a reward token, as a payment token, and to create other value, as an example. And that’s one of the ways in which it’s been used in that in that area. But one of the other general uses for blockchain and for tokenized technology is what’s referred to as track and trace. And so, whether it’s supply chain in general or cannabis specifically, you have an issue.

There‘s a real health issue out there where there’s so many people growing cannabis. It’s not really regulated. No one’s really inspecting it. And the ability to know where stuff is coming from: blockchain is a phenomenal solution for that. If you tokenized stuff and you really track it all the way through the supply chain from where it’s grown to the consumer—if there’s issues you can identify that much more readily than in the existing system where there is not a lot of transparency. So it‘s not just the payment side, but other functionality like that.

GK: Fantastic. Now, Jim, is there any litigation in blockchain? Some students might be interested in blockchain, but perhaps, you know, they see transactional work as boring. Is there any litigation regarding blockchain from Sheppard Mullin or other firms?

JG: Yeah. The vast majority of litigation right now is cleaning up the ICO mess, and what we’re seeing is a wave of litigation. There are a number of big SEC enforcements against Tezos and others that are working their way through the system. But there are also a lot of cases where people were defrauded by people who were offering cryptocurrencies. There’s a lot of cases like that, and those are pending right now. We did see some earlier criminal actions where people were truly doing some criminal things. A lot of that’s been cleaned up, and we’re seeing less of that now. So, it’s kind of a mix, but that’s really kind of where most of the litigation action is. But I think that‘s going to continue for a while.

I think that looking forward, one of the big uses of blockchain that we’re seeing right now is in the supply chain context. It’s just very good for so many of the functions that need to be performed in a supply chain, from track and tracing where a product comes from to ensuring shipping at the right temperatures, passing title, payment, international issues, etc. There are so many different aspects of blockchain that really solve, simplify, and make cost effective a lot of those issues. However, a lot of that is people really trying to map it out from the legal perspective. I know we’re seeing limited uses right now. I think that’s going to increase, but I also think that as things go wrong and people don’t execute right, there’s going to be a lot of litigation in that space. So, there’ll be international trade issues as well as contract issues that arise. I think that’ll be one of the next big areas of litigation.

GK: A legal news topic that has been in the news recently has been Facebook’s Libra—Facebook’s cryptocurrency. I’m wondering: what are your general thoughts about Libra? And would advise a client to invest?

JG: Well, I hate to give you the lawyerly answer on this. But Facebook is a client of ours. So, I really don’t want to comment specifically on theirs, and I don’t give investment advice.

But having said that, what I will say to try to be helpful is that I think what’s important about that, whether it ultimately succeeds or doesn’t succeed, passing no judgment one way or the other, is that it is amazing that you have companies that big in the Libra Association. And there were, what, twenty-eight or so companies that originally joined the consortium that were interested in bringing a digital currency to market. I think to me—whether Libra is the one that makes it or not—that one really got the attention of federal banks and regulators. Because when you have that much reach, between Facebook and everyone else, we have billions of consumers starting to use cryptocurrencies. You now have potentially, if it is successful, have a very significant portion of an economy that can be delivered via a digital currency. I think it really was a wake-up call for regulators. So, to me, it’s important from the standpoint of what it represents, not whether it ultimately succeeds. I think there’s an appetite for this. I think big companies see the advantages: to have a borderless currency, to have something that’s not subject to any one government and inflation in one country. So, I think it’s just predicting what is the future going to look like. There will be—in my opinion—there will definitely be one or more borderless, digital currencies in our lifetime.

GK: Absolutely. So, Jim, your areas are ever expanding. I mean, I’m just a law student, but I can even see the development that has already happened since I started law school. Now, along those lines, what general advice would you give a law student who is interested in your fields? What classes should they take? Should they do a law review? What internships should they do?

JG: Yeah. So, you know, I would say all of that’s important—right? The thing that’s fascinating is—and I’ll come back and answer the question more directly in a second—I graduated from college in eighty-four. I studied engineering and physics. Having the technical background definitely helped me, but the vast majority of the technology I deal with today wasn’t even in existence back then. So, whatever you study in school, get things that give you a good foundation, but remember that education and learning doesn’t stop. To stay relevant and be involved with cutting edge technology and business models, you have to just stay on top of what’s new and you have to read. You have to go to conferences. You have to be involved in industry groups where people are really shaping the future. And that’s where the vast majority of what you need to know to be a lawyer in these areas is going to come from. Having said that, I think that any IP and technology related course you can take in this space is good if there’s a particular industry you’re interested in. Again, whether it’s fintech or energy or medical, obviously courses that give you some regulatory understanding in those areas is great. But it’s really hard to say, “Here’s the set of courses that makes you a blockchain lawyer.” Because it’s just so diverse.

GK: All right. Well, that’s our time. Thank you very much Jim, I appreciate it. One final question. Can you please tell the audience how they can reach you? In case they have questions?

JG: Sure, the easiest way—you can get me on LinkedIn. Just James Gatto, at Sheppard Mullin. Or you can email me at jgatto@sheppardmullin.com. And I’d be happy to chat with anybody.

GK: Awesome, thanks for reading. I am Gabriel Khoury with Jim Gatto at Sheppard Mullin. Thanks again!