RevoLaze LLC v. Dentons US LLP
| Decision Date | 28 April 2022 |
| Docket Number | 109742 |
| Citation | 191 N.E.3d 475 |
| Parties | REVOLAZE LLC, Plaintiff-Appellee, v. DENTONS US LLP, et al., Defendants-Appellants. |
| Court | Ohio Court of Appeals |
Tucker Ellis LLP, Benjamin C. Sassé, and Elisabeth C. Arko, Cleveland; Patterson Law Firm and Kristi L. Browne, pro hac vice; and Warren Terzian, LLP and Thomas D. Warren, for appellee.
Jones Day, Yvette McGee Brown, Cleveland, Benjamin C. Mizer, Tracy K. Stratford, Thomas Demitrack, and Ryan A. Doringo, Cleveland, for appellants.
Cavitch Familo & Durkin Co., LPA and Gregory E. O'Brien, Cleveland; Robin G. Weaver, urging affirmance amicus curiae Ohio Bar Liability Insurance Company.
JOURNAL ENTRY AND OPINION
{¶ 1} Defendants-appellants, Dentons US LLP ("Dentons US") and Mark Hogge ("Hogge"), appeal the trial court's judgment denying their motion for judgment notwithstanding the verdict and entering judgment in favor of plaintiff-appellee, RevoLaze, LLC ("RevoLaze"), in the underlying legal malpractice action. For the reasons that follow, we affirm the trial court's decision.1
{¶ 2} Dentons US is a member of Dentons, a global full-service law firm. Dentons is a Swiss verein (hereinafter the "Dentons verein"), a structure governed by Swiss law that loosely translates to an association. The Dentons verein has offices across the United States, approximately 125 offices in more than 74 countries, and over 6,600 attorneys. Hogge, a partner with Dentons US, chairs the firm's patent-litigation department and has over 35 years of patent-litigation experience.
{¶ 3} RevoLaze is a family-owned business, located in Westlake, Ohio, formed by Dr. Darryl Costin Sr. ("Dr. Costin"), an engineer by training, who has patented ideas for over 20 years. Dr. Costin serves as RevoLaze's chief executive officer, his son Darryl Costin Jr. ("Costin Jr."), as its president, and his daughter, Kimberly, his son-in-law, Ryan Ripley, and Heath Colwell are locally based RevoLaze employees.
{¶ 4} RevoLaze holds patents relating to methods of "laser abrading," which utilizes lasers to create the "worn" and "faded" look on new jeans and other denim garments. The process offered a faster, cheaper, and safer method of creating faded jeans, as well as allowing for more intricate designs on jeans and other denim products. Prior to Dr. Costin's invention, companies used sandblasting or hand sanding to create the worn or faded look on new jeans. Numerous denim companies banned the use of sandblasting because it had been found to be associated with silicosis, which may result in death. Creating the worn or faded look on new jeans took an average of three minutes to achieve by hand sanding, versus 55 seconds using RevoLaze's laser abrading process.
{¶ 5} Initially, RevoLaze monetized its technology by granting licenses to companies in exchange for a lump-sum royalty payment, but was unable to obtain other licensing agreements because most denim manufacturers moved their operations overseas. In addition, because the licensing agreements with these companies involved lump-sum payments, there were no revenue streams for RevoLaze's technology.
{¶ 6} Around 2011, after Levi's Jeans Company ("Levi's") announced that it would no longer purchase jeans from a plant that used the process of sandblasting, RevoLaze began to suspect that denim companies were illegally using its patented technology. As a result, RevoLaze decided to file a complaint in the United States International Trade Commission ("ITC")2 against multiple alleged infringers.3 RevoLaze's ultimate goal was to obtain a general exclusion order ("GEO")4 to block importation by companies identified as importing infringing products, regardless of whether the infringing party was named as a respondent in the ITC litigation. Because the ITC does not award monetary damages, RevoLaze also decided it would file companion cases in federal district court against the infringers with the objective to negotiate licensing agreements from willing infringers and recover damages from infringers unwilling to enter into a licensing agreement.
{¶ 7} In February 2014, RevoLaze hired Dentons US to litigate the case in the ITC, as well as in other venues. RevoLaze also hired lawyers from Global IP Law Group ("Global"), and MoloLamken LLP ("MoloLamken") to serve as co-counsel, primarily to negotiate licensing agreements with infringing parties that were not going to be included in the case before the ITC. Due to the high cost of litigating a patent infringement case in the ITC, costs ranging between $6-7 million, RevoLaze, following an introduction by Dentons US entered into a separate agreement with Longford Capital ("Longford"), a third-party litigation funder, to pay its legal fees ("Funding Agreement").
{¶ 8} The Funding Agreement was nonrecourse, meaning if RevoLaze was unsuccessful in the ITC, Longford absorbed the loss. If RevoLaze was successful, Longford would recover its investment plus interest and a share of the proceeds flowing from the licensing agreements. As part of the Funding Agreement, Dentons US would discount its rates for all timekeepers by 25 percent and cap their fees and expenses at the amount Longford invested. In exchange, Dentons US would receive a five percent share in some of the proceeds RevoLaze would obtain through enforcing its patents. Dentons US would also be entitled to a portion of the proceeds obtained through litigation of RevoLaze's claims on a contingent fee basis.
{¶ 9} Longford agreed to provide $8 million, less a $285,000 commission to a litigation financing broker. Longford would provide the funding in three phases. Phase I, $3,175,000 to cover all proceedings in any venue against 24 denim brands, ten denim manufactures, and five laser companies, and the respondents in the ITC case. Phase II, $2,134,000 to cover all proceedings in any venue against 13 additional denim brands and two denim manufactures. Phase III, $1,746,000 to cover all proceedings against a list of brands, denim manufactures, and laser companies located in Mexico, China, and Turkey. The Funding Agreement also included a confidentiality clause, which prohibited disclosure of the Funding Agreement to any other party.
{¶ 10} On August 15, 2014, Dentons US on behalf of RevoLaze, filed 17 separate lawsuits in the United States District Court for the Northern District of Ohio, Eastern Division, against denim jean companies, alleging infringements of six patents owned by RevoLaze. On August 18, 2014, Dentons US filed a verified complaint under Section 337 of the Tariff Act of 1930 ("Section 337"),5 in the ITC, against 17 respondents. The complaint sought the previously mentioned injunctive relief, including a statutorily permitted GEO, under 19 U.S.C. 1337(d)(2)(B), to prevent any entity from importing any infringing product into the United States.
{¶ 11} On March 11, 2015, The Gap, Inc. ("Gap"), one of the named alleged infringers, filed a motion in the ITC seeking to disqualify Dentons US as counsel for RevoLaze. Gap contended that Dentons US should not be allowed to continue pursuing a complaint against them because Dentons US "[was] a ‘portal’ of the Swiss verein which represent[ed] Gap on fourteen open matters elsewhere." Gap also alleged that "for more than two decades, Dentons and its predecessor firm6 have represented Gap in multiple matters around the world, including a recent engagement involving a Canadian Border Service Agency custom audit." See generally Certain Laser Abraded Denim Garments , Inv. No. 337-TA-930, Order No. 43, 2015 ITC LEXIS 359 (May 7, 2015).
{¶ 12} In addition, Gap alleged that "not only [did] Dentons have an ethical conflict, but Dentons’ relationship with Gap meant that Dentons had had an ongoing and unfettered access to Gap's confidential and privileged information relevant to claims and defenses in this [i]nvestigation, including Gap's ‘US importation, exportation, financial, and taxation structure, records and information’ and accused products." Further, Gap alleged that Dentons did not inform them of the conflict prior to filing suit on behalf of RevoLaze in the Northern District of Ohio or at the ITC, noting it was they who discovered the conflict at the end of January 2015. Finally, Gap alleged that Dentons never sought to obtain a conflict waiver from Gap. Id.
{¶ 13} Dentons US opposed the motion on the basis that although Dentons Canada LLP ("Dentons Canada") were members of the Dentons verein, the two members were separate law firms that did not impute conflicts of interest upon each other. As evidence of this separation, Dentons US noted that they and Dentons Canada (1) did not have access to each other's client files; (2) did not share client confidential information unless acting "as co-counsel"; (3) did not share profit and losses; and (4) were financially and operationally separate. Dentons US maintained that all their attorneys and paralegals confirmed that they had not "accessed any files, or received any documents or information from any lawyer, at Dentons Canada LLP or Dentons Europe LLP relating to the Gap." Dentons US continued that there was effectively an ethical screen in place between it and Dentons Canada; thus, Gap could not be prejudiced. Id.
{¶ 14} In addition, Dentons US argued that the retainer agreement Gap signed with Dentons Canada contained a provision waiving potential future conflicts, reasoning that if the instant matter was in fact a conflict, Gap consented in advance. Further, Dentons US offered that Gap only identified the conflict after it was "unsuccessful in obtaining a settlement," "unable to meaningfully contradict [RevoLaze's] allegations of infringement," and had "acknowledged that it had failed to properly identify suppliers of the infringing accused products."
{¶ 15} Gap sought and was granted leave to file a supporting...
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