Revolaze, L.L.C. v. Dentons US L.L.P.

[Cite as Revolaze, L.L.C. v. Dentons US L.L.P., 2022-Ohio-1392.]
COURT OF APPEALS OF OHIO
EIGHTH APPELLATE DISTRICT
COUNTY OF CUYAHOGA
REVOLAZE LLC, :
Plaintiff-Appellee, :
No. 109742
v. :
DENTONS US LLP, ET AL., :
Defendants-Appellants. :
JOURNAL ENTRY AND OPINION
JUDGMENT: AFFIRMED
RELEASED AND JOURNALIZED: April 28, 2022
Civil Appeal from the Cuyahoga County Court of Common Pleas
Case No. CV-16-861410
Appearances:
Tucker Ellis LLP, Benjamin C. Sassé, and Elisabeth C.
Arko; 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, Benjamin C. Mizer,
Tracy K. Stratford, Thomas Demitrack, and Ryan A.
Doringo, for appellants.
Cavitch Familo & Durkin Co., LPA and Gregory E.
O’Brien; Robin G. Weaver, urging affirmance amicus
curiae Ohio Bar Liability Insurance Company.
EMANUELLA D. GROVES, J.:
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
Background and Procedural History
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.
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.
1In rendering this decision, we reviewed the amicus brief filed in support of
Dentons US by the Ohio Bar Liability Insurance Company.
Laser Abrading Technology
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.
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.
ITC Campaign
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.
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
2 The ITC is an independent, nonpartisan, agency of the United States government
that investigates whether certain imports are unfair trade practices that harm a domestic
industry.
3 A patent holder can sue more than 15 alleged infringers in one ITC proceeding,
which takes 12-18 months, and the ITC can issue an injunction that bars the importation
of all infringing products.
4 In an ITC investigation, a patent owner that proves the elements of its case
against the respondents and satisfies other requirements may qualify for a GEO. A GEO
excludes the world from importing a certain product into the United States.
Longford Capital (“Longford”), a third-party litigation funder, to pay its legal fees
(“Funding Agreement”).
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.
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.
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.
Motion to Disqualify Counsel
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
5 Section 337, Tariff Act of 1930, Investigations of Unfair Practices in Import Trade.
Under Section 337, the USITC determines whether there is unfair competition in the
importation of products into, or their subsequent sale in, the United States.
6Salans LLP and SNR Denton merged with a third firm into the Swiss verein
Dentons.
generally Certain Laser Abraded Denim Garments, Inv. N0. 337-TA-930, Order
No. 43, 2015 ITC LEXIS 359 (May 7, 2015).
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.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.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.”
Gap sought and was granted leave to file a supporting reply. In the
reply, Gap disputed Dentons US’ account of the facts relating to the timing of Gap’s
motion and Gap’s conduct both during discovery and in settlement talks. Gap also
raised additional grounds for disqualification noting that the Funding Agreement
between RevoLaze and Longford demonstrated that Dentons US disclosed to
RevoLaze, as early as February 2014, that it had a current conflict with the Gap.7
Gap also noted Dentons had a partial contingency fee arrangement that gave it a
heightened interest in the outcome of the investigation. In addition, Gap questioned
why Dentons US disclosed the conflict to RevoLaze, but not to Gap. Id.7 On or about September 24, 2014, the respondents in the ITC litigation jointly
served upon RevoLaze a first set of requests for production of documents. On October 20,
2014, Dentons US inadvertently produced a copy of the Funding Agreement to all the
respondents.
Disqualification and Aftermath
In an order issued May 7, 2015, the ITC’s Chief Administrative Law
Judge (“ALJ”) determined that the Dentons verein was a single law firm for
purposes of Model Rule 1.7. US and disqualified Dentons US from representing
RevoLaze in the ITC, while Gap was a respondent in the investigation.8
Following the disqualification, RevoLaze obtained the services of
Global, who had primarily been involved in negotiating licensing agreements with
companies that were not part of the ITC case. After assessing the work that was still
yet to be done in the ITC case, Global determined that it would need additional
assistance, so RevoLaze obtained the services of MoloLamken, as well as Cindy Ahn
(“Ahn”), an attorney with the law firm of Schiff Hardin & Waite (collectively, the
“replacement lawyers”).
Because the replacement lawyers would not agree to limit their
billing as Dentons US had done, RevoLaze sought additional funding from
Longford. Longford refused to provide additional funding but agreed to move $1.5
million from the later phases of the campaign to the ITC phase. In exchange for that
concession, RevoLaze agreed to limit expenditures on certain aspects of the ITC
phase and to provide Longford with a greater share of the proceeds.
8 Dentons sought review of the disqualification order from the ITC. In an order
dated April 12, 2016, the Commission issued a notice finding the issue of disqualification
moot because the investigation had been terminated against all respondents by
settlement, consent order, or withdrawal of the complaint and vacated the
disqualification order. Certain Laser Abraded Denim Garments, Inv. No. 337-TA-930,
Notice of Commission Determination to Review Order No. 43, 2016 WL 10688905 (I.T.C.
Apr. 12, 2016).
With the modification of the Funding Agreement in place, the work
yet to be done by the replacement attorneys included, but was not limited to (1)
preparing for and defending at least 12 depositions, (2) preparing for respondents’
visits to RevoLaze, (3) preparing answers and responses to respondents’ numerous
discovery requests, (4) preparing “claim construction” arguments and briefs, (5)
preparing for and deposing respondents, (6) researching new evidence on the issue
of RevoLaze’s domestic industry, (7) preparing a brief on the domestic-industry
issue, and (8) attempting to negotiate possible settlements with respondents.
Soon, RevoLaze was indebted to the replacement attorneys more
than $1 million. Thereafter, RevoLaze began settling with each respondent that
appeared and participated in the ITC litigation. In October 2015, RevoLaze filed a
motion with the ITC to terminate the investigation and advised that it was no longer
seeking a GEO. In November 2015, the ITC granted RevoLaze’s motion and
terminated the litigation.
Civil Complaint
In April 2016, RevoLaze filed a civil complaint against Dentons US
in the Cuyahoga County Court of Common Pleas. In its second amended complaint,
RevoLaze set forth a claim of legal malpractice, alleging that Dentons US breached
its standard of care by:
a. Engaging in conflicted representation of RevoLaze, in direct violation
of Rule 1.7 of the Ohio Rules of Professional Conduct;
b. Failing to properly prepare to prosecute RevoLaze claims in the ITC
Litigation prior to filing complaint;
c. Failing to engage experts where necessary in the ITC Litigation;
d. Negligently and improperly delegating litigation tasks to RevoLaze
in the ITC litigation that would require access to respondents’
confidential business information in violation of ITC rules of practice;
e. Failing to develop and employ viable strategy for negotiating
settlement of the underlying patent claims;
f. Unilaterally limiting pre-suit investigations in the ITC Litigation as
they pertained to potential respondents' importation of infringing
products, thereby limiting the scope of any Limited Exclusion Order
issued by the ITC;
g. Disclosing the existence and producing copy of the Funding
Agreement and the Engagement Letter to the respondents in the ITC
Litigation;
h. Failing to communicate with RevoLaze regarding, among other
things, conflicts of interest, the disclosure and production of the
Funding Agreement and the Engagement Letter, the subsequent
motion to compel, and the motions for disqualification, all in direct
violation of Rule 1.4 of the Ohio Rules of Professional Conduct;
i. Failing to conduct discovery to any reasonable degree;
j. Failing to abide by the schedule of the joint discovery plan set forth
in the ITC Litigation;
k. Failing to address the respondents’ inadequate responses to the
complaint in the ITC Litigation;
l. Failing to address the respondents’ inadequate responses to or refusal
to respond to the discovery requests in the ITC Litigation;
m. Failing to identify in the ITC Litigation all denim jean
manufacturers that were producing and exporting infringing products
into the U.S.;
n. Stipulating without consultation with RevoLaze, that RevoLaze
would not rely on the prior Levi settlement license, which would have
established the domestic industry argument in the ITC Litigation;
o. Failing to prosecute RevoLaze claims with the intention of ultimately
trying the claims either in the ITC Litigation, where much higher
percentage of cases are tried, or in the Phase District Court Litigation;
and
p. Submitting settlement demand for $150,000 to H&M through its
counsel without the knowledge or approval of RevoLaze.
RevoLaze further alleged that as a direct and proximate result of
Dentons US’ negligence and deviations from the applicable standard of care,
RevoLaze suffered a series of injuries, including, but not limited to, the following:
a. The loss of enforcement rights on RevoLaze patents;
b. Funds and resources expended developing the claim charts and the
Analysis;
c. The loss of leverage in the Litigation resulting from the improper
production of the Funding Agreement and the Engagement Letter;
d. The less favorable terms contained within the Amended Funding
Agreement resulting from RevoLaze[’s] compromised posture as a
result of Defendants’ series of failures listed above; and
e. Ongoing fees and costs associated with protecting its patents
resulting from Defendant’s failure to obtain general exclusion order in
the ITC Litigation.
Jury Trial
The matter proceeded to a jury trial that lasted ten days, with the
presentation of 21 witnesses, including nine experts, whose relevant testimony we
will set forth in the law and analysis section below.
At the trial, RevoLaze focused on its position that it suffered
significant damages because of Dentons US’ false assurances that it had cleared a
conflict Dentons US had with Gap. Specifically, RevoLaze claimed Dentons US’
disqualification caused (1) increased cost under the renegotiated Funding
Agreement, (2) increased legal fees and expenses in excess of what was covered
under the original, (3) lost licensing revenue under a longer term of the VF
Corporation license and (4) lost licensing revenues as a result of not obtaining the
GEO.
The testimony established that Dentons US did not notify Gap of the
conflict, that Gap did not consent to the concurrent representation, and that
Dentons US did not explain to RevoLaze the risk of disqualification. Experts for
RevoLaze also opined that RevoLaze would have been able to obtain a GEO, if not
for Dentons US’ disqualification, which created financial barriers that severely
compromised RevoLaze’s ability to complete its pursuit of the GEO. RevoLaze’s
damages expert testified that “but for the disqualification,” RevoLaze would have
obtained $23,049,769 to $39,280,337 more in licensing revenues with a GEO.
At the conclusion of trial, the jury found for RevoLaze on its claims
that Dentons US’ disqualification caused (1) increased costs under the renegotiated
Funding Agreement and (2) lost licensing revenues because it did not obtain the
GEO. The jury awarded RevoLaze compensatory damages in the amount of
$32,262,488.50.
Dentons US immediately filed a motion notwithstanding the verdict,
arguing that the evidence adduced at trial failed to establish that it breached a duty,
proximate cause, or certain damages. The trial court denied the motion, stating in
relevant part:
Defendants’ challenges to the jury verdict repeat legal arguments
advanced prior to and during trial. As a consequence, the court was
familiar with those arguments and the bulk of the case decisions cited
by the parties in these filings. Upon review of the arguments again in
this motion practice, the court concludes that the evidence was legally
sufficient to support each element of plaintiff’s causes of action and
therefore the evidence sustains the jury’s verdict. The motion is denied.
Denton US now appeals, assigning the following errors for review:
Assignment of Error No. 1
The trial court erred in denying judgment notwithstanding the verdict
on the element of breach.
Assignment of Error No. 2
The trial court erred in denying judgment notwithstanding the verdict
on lost licensing damages on the element of proximate cause or, at a
minimum, by instructing the jury incompletely on this element,
thereby requiring a new trial.
Assignment of Error No. 3
The trial court erred in denying judgment notwithstanding the verdict
on lost licensing damages on the element of damages.
Law and Analysis
Judgment Notwithstanding the Verdict (JNOV)
Civ.R. 50(B)(1) allows a party to “serve a motion to have the verdict
and any judgment entered thereon set aside and to have judgment entered in
accordance with the party’s motion[.]” “If a verdict was returned, the court may
allow the judgment to stand or may reopen the judgment. If the judgment is
reopened, the court shall either order a new trial or direct the entry of judgment, but
no judgment shall be rendered by the court on the ground that the verdict is against
the weight of the evidence.” Civ.R. 50(B)(3).
A motion for JNOV is used to determine whether the evidence is
totally insufficient to support the verdict. Soberay v. Greyhound Lines Inc., 8th
Dist. Cuyahoga No. 106525, 2019-Ohio-1371, ¶ 45, citing Harper v. Lefkowitz, 10th
Dist. Franklin No. 09AP-1090, 2010-Ohio-6527, ¶ 8. A motion for JNOV raises a
question of law because the motion examines the “materiality of the evidence, as
opposed to the conclusions to be drawn from the evidence.” Id., citing Texler v. D.O.
Summers Cleaners & Shirt Laundry Co., 81 Ohio St.3d 677, 680, 693 N.E.2d 271(1998), quoting Ruta v. Breckenridge-Remy Co., 69 Ohio St.2d 66, 68-69, 430
N.E.2d 935 (1982).
Therefore, neither the weight of the evidence nor the credibility of
the witnesses is proper consideration for the trial court in ruling on a motion for
JNOV. Posin v. A.B.C. Motor Court Hotel, Inc., 45 Ohio St.2d 271, 275, 344 N.E.2d
334 (1976). The evidence “must be construed most strongly in favor of the party
against whom the motion is made, and, where there is substantial evidence to
support [that] side of the case, upon which reasonable minds may reach different
conclusions, the motion must be denied.” Osler v. Lorain, 28 Ohio St.3d 345, 347,
504 N.E.2d 19 (1986), quoting Posin at id. A favorable ruling on such a motion is
not easily obtained. Osler at id. This court applies a de novo standard of review to
a trial court’s order that denies a motion for JNOV. Ohio Bell Tel. Co. v. Kassouf
Co., 8th Dist. Cuyahoga No. 101970, 2015-Ohio-3030, ¶ 12, citing Zappola v. Rock
Capital Sound Corp., 8th Dist. Cuyahoga No. 100055, 2014-Ohio-2261, ¶ 63.
Legal Malpractice — Breach
In the first assignment of error, Dentons US argues the trial court
erred when it denied its motion for JNOV on the element of breach in the cause of
action for legal malpractice.
Preliminarily, to establish a cause of action in Ohio for legal
malpractice based upon negligent representation, a plaintiff must demonstrate: (1)
an attorney-client relationship giving rise to a duty, (2) a breach of that duty and a
failure to conform to the standard required by law, and (3) a causal connection
between the conduct complained of and the resulting damages or loss. Skoda
Minotti Co. v. Novak, Pavlik & Deliberato, L.L.P., 8th Dist. Cuyahoga No. 101964,
2015-Ohio-2043, ¶ 12, citing Vahila v. Hall, 77 Ohio St.3d 421, 427, 674 N.E.2d 1164(1997), syllabus, following Krahn v. Kinney, 43 Ohio St.3d 103, 538 N.E.2d 1058(1989).
Because the elements of a legal malpractice claim are stated in the
conjunctive, the failure to establish any one element of the claim is fatal. Bohan v.
McDonald Hopkins, L.L.C., 8th Dist. Cuyahoga No. 110060, 2021-Ohio-4131, ¶ 20,
citing Estate of Hards v. Walton, 8th Dist. Cuyahoga No. 93185, 2010-Ohio-3596,
¶ 7; Williams-Roseman v. Owen, 10th Dist. Franklin No. 99AP-871, 2000 Ohio App.
LEXIS 4254 (Sept. 21, 2000).
In the instant matter, of the above elements, the duty requirement of
the first is typically established through the existence of some form of attorney-client
relationship. Natl. Union Fire Ins. Co. v. Wuerth, 122 Ohio St.3d 594, 2009-Ohio-
3601, 913 N.E.2d 939, ¶ 10. Dentons US does not dispute this element was
established given its representation of RevoLaze in the underlying action, until it
was disqualified. Because the first element was met, we immediately proceed to
discuss the second element – breach of the duty of care.
An attorney owes to a client the duty to exercise the knowledge, skill,
and ability ordinarily possessed and exercised by members of the legal profession
similarly situated and to discharge that duty in a reasonably diligent, careful, and
prudent manner. Simmons v. Rauser & Assocs. L.P.A., 8th Dist. Cuyahoga No.
96386, 2011-Ohio-4510, ¶ 7, citing Palmer v. Westmeyer, 48 Ohio App.3d 296, 298,
549 N.E.2d 1202 (6th Dist.1988).
Within the first assignment of error, without conceding that there
was a conflict of interest with the Gap, Dentons US contends that the trial court erred
in denying the JNOV because the risk of disqualification was unforeseeable as a
matter of law. In support of this contention, Dentons US notes a conflict of interest,
standing alone, had never served as a basis for disqualification in the ITC.
Dentons US’ contention necessarily implicates Ohio’s Prof.Cond.R.
1.7(a)(1)(2) (“Rule 1.7”), regarding conflicts of interest of current clients. The rule
states:
(a) A lawyer’s acceptance or continuation of representation of a client
creates a conflict of interest if either of the following applies:
(1) the representation of that client will be directly adverse to another
current client;
(2) there is a substantial risk that the lawyer’s ability to consider,
recommend, or carry out an appropriate course of action for that
client will be materially limited by the lawyer’s responsibilities to
another client, a former client, or a third person or by the lawyer’s
own personal interests.
Id.As a backdrop to this segment’s discussion, we note that Dr. Costin
testified that after litigation funding was put in place, Dentons US indicated that
there were potential conflicts of interest with Gap, Ralph Lauren, Target, Diesel,
Gucci, and Guess. Dr. Costin stated that Hogge repeatedly represented that the
conflict with Gap had been cleared. Dr. Costin stated that on or about August 16,
2014, he received an email from Hogge indicating that Calvin Klein, who was on the
original list of respondents, was ultimately not included, because Dentons’ Hong
Kong office had done work for Calvin Klein in the past. Dr. Costin testified that
Hogge then stated, “we don’t want to draw a motion to disqualify.”
Dr. Costin testified that, subsequently, on February 4, 2015, Hogge
informed him of a communication from Gap’s attorneys indicating that Dentons US
had a conflict of interest and had an ethical obligation to withdraw from
representing RevoLaze in the ITC. Dr. Costin stated that he had a severe reaction
but felt better after Hogge assured him that there was no conflict and that Dentons
US would not be disqualified. Dr. Costin testified that the following month, when
Gap eventually filed the motion to disqualify, he had the same severe reaction, but
Hogge reassured him that it was not an issue and that the ALJ would never grant
the motion.
Dr. Costin stated that on May 8, 2015, Hogge sent him an email
stating that Dentons US had been disqualified. When asked about his response
upon receiving the email, Dr. Costin testified as follows:
A. Well, I was pretty confident he was kidding me. He was joking with
me.
Q. Why did you think that?
A. You can’t tell someone over and over and over again that The Gap
has no conflicts with Dentons, and rest assured there’s no problem
* * * and then get something that says we were wrong, we got
disqualified. * * * That’s why I said, you’ve got to be kidding me. I
thought pretty sure that was it.
Here, whether Dentons US concedes there was a conflict of interest,
Hogge’s statement to Dr. Costin that “we don’t want to draw a motion to disqualify”
because Dentons’ Hong Kong office had previously done work for Calvin Klein,
refutes Dentons’ claim that disqualification was not foreseeable. Also, contrary to
Dentons US’ claim of “separate firms,” Hogge’s statement indicates his awareness
that disqualification was possible even, like in this case, where it was not Dentons
US but another member of the Dentons verein, Dentons Hong Kong, that had done
work for Calvin Klein in the past.
In addition, Hogge’s statement indicates an awareness of what the
dangers of “drawing a motion to disqualify” could entail. Arguably, there was a
50/50 chance that the motion could be granted. Therefore, given the awareness of
the pitfalls of disqualification, Dentons US by proceeding to include Gap in the ITC
litigation, contravened Rule 1.7(a), because its representation of RevoLaze was
directly adverse to that of Gap’s, a current client of the Dentons verein.
However, we proceed further because, generally, expert testimony is
required to sustain a claim of legal malpractice unless the conduct complained of is
“so obvious that it may be determined by the court as a matter of law or is within the
ordinary knowledge of a lay person.” Richard C. Alkire Co., L.P.A. v. Alsfelder, 8th
Dist. Cuyahoga No. 104153, 2017-Ohio-1547, ¶ 11, citing Rauser & Assocs. L.P.A.,
8th Dist. Cuyahoga No. 96386, 2011-Ohio-4510, ¶ 9, citing Bloom v. Dieckmann, 11
Ohio App.3d 202, 464 N.E.2d 187 (1983), syllabus; McInnis v. Hyatt Legal Clinics,
10 Ohio St.3d 112, 461 N.E.2d 1295 (1984).
The testimony of an expert is necessary where the question involves
the lawyer’s professional judgment in prosecuting or defending an action. Downie-
Gombach v. Laurie, 8th Dist. Cuyahoga No. 102167, 2015-Ohio-3584, ¶ 78, citing
Cross-Cireddu v. David J. Rossi Co., L.P.A., 8th Dist. Cuyahoga No. 77268, 2000
Ohio App. LEXIS 5480, 9-10 (Nov. 22, 2000). Experts have the knowledge,
training, and experience to enlighten the jury concerning the facts and their opinion
regarding the facts. Phillips v. Acacia on the Green Condo. Assn., 8th Dist.
Cuyahoga No. 110636, 2021-Ohio-4521, ¶ 26, citing Ramage v. Cent. Ohio
Emergency Servs., 64 Ohio St.3d 97, 102, 592 N.E.2d 828 (1992), citing McKay
Machine Co. v. Rodman, 11 Ohio St.2d 77, 228 N.E.2d 304 (1967).
Revolaze presented expert testimony detailing a host of ways that
Dentons US violated the conflict-of-interest principles embodied in Rule 1.7 and
presented evidence that Dentons US’ inclusion of Gap in the ITC litigation created a
foreseeable risk of disqualification. Among the expert witnesses presented was
Walter J. Rekstis III (“Rekstis”), who opined that Dentons US had a clear conflict of
interest when it included Gap in the ITC litigation.
Rekstis noted that although Dentons US claimed that they were a
separate firm from Dentons Canada, he found no distinction because they were both
members of the Dentons verein. Rekstis testified that all the documents he
reviewed, including materials Dentons US presented to RevoLaze and to other
clients, reflected the opposite — that they were a singular firm. Rekstis added that
the Dentons verein’s website listed all their lawyers collectively, not separate
websites based on different countries or geographic regions and that all their
lawyers’ email addresses ended with dentons.com. Significantly, Rekstis noted that
he reviewed documents that revealed that the Dentons verein had a common conflict
base, that they shared confidential information about their clients throughout the
verein, across the globe, and dealt with each office as though they were part of one
firm.
Here, we find Dentons US’ membership in a verein, with a common
conflicts base, that shares client confidential information throughout the
organization, is irreconcilable with Dentons US’ contention that it was separate from
Dentons Canada. Critically, Dentons US by initially identifying Gap as a conflict,
even though it had done no work for Gap, strongly indicates that Dentons US did
not think it was sufficiently separate from Dentons Canada, to be allowed to
represent RevoLaze against Gap. Dentons US’ protestations to the contrary, the
overwhelming evidence suggests the Dentons verein operated as a single firm. As
such, the model rules regarding conflicts with a current and imputed conflict among
members of the firm applied.
Given this conflict, in accordance with Rule 1.7(b), Dentons was not
permitted to proceed without first obtaining informed written consent from both
Gap and RevoLaze.
Rule 1.7(b) provides:
A lawyer shall not accept or continue the representation of a client if a
conflict of interest would be created pursuant to division (a) of this rule,
unless all of the following apply:
(1) the lawyer will be able to provide competent and diligent
representation to each affected client;
(2) each affected client gives informed consent, confirmed in
writing;
(3) the representation is not precluded by division (c) of this rule.
Id.In this respect, Rekstis testified that Dentons US never obtained
informed written consent, as prescribed by Rule 1.7(b). Rekstis opined that in not
obtaining the requisite consent, Dentons US failed to meet the standard of care in
handling the conflict flowing from what amounted to concurrent representation of
RevoLaze and Gap.
Rekstis added that had Dentons US sought to obtain informed
written consent, it should have provided RevoLaze with a full explanation of the
conflict and of how the litigation could be affected. RevoLaze should also have been
advised of the risks involved and, specifically that disqualification was the normal
result, where a court finds there was a conflict of interest. In noting the impact,
Rekstis added “so [disqualification] puts you behind the eight ball in that you’ve
gone down the road with somebody putting a case together, then all of a sudden
they’re not your lawyer anymore.”
Further, Rekstis noted, had Dentons properly sought to obtain the
informed consent, RevoLaze would have been provided a list of available
alternatives, such as advising RevoLaze to seek independent counsel’s legal opinion
on the conflict at issue. Also, Dentons US should have suggested that RevoLaze
contemplate having conflict counsel on standby to take over the litigation in the
event Dentons US was disqualified. Thus, Rekstis opined, Dentons failed to meet
the standard of care by the above actions and inactions and thereby breached their
duty to RevoLaze.
RevoLaze presented Robert Krupka, (“Krupka”) as an expert witness
and he also opined that Dentons US had a clear conflict of interest in concurrently
representing RevoLaze and Gap. However, for succinctness, the presentation of
Krupka’s testimony will be tailored to address Dentons US’ specific claim that the
disqualification was not foreseeable.
Contrary to Dentons US’ contention, Krupka opined that the risk of
disqualification was foreseeable, and that the risk was unreasonably high by
including Gap in the ITC litigation. Krupka found significant that Gap had 14
different client relationships with various members of the Dentons verein, so it was
foreseeable that Gap would have objected to being sued and thereby provide the
basis for disqualification. Krupka added that although the Dentons verein stated in
its literature that it was a verein, with various parts, Gap never expected that they
would have been sued by any member of the Dentons verein. Krupka noted that as
an illustration of this lack of expectation, Gap, prior to filing the motion to disqualify,
sent a letter to Dentons US underscoring that the firm had no right to have brought
such a suit.
Krupka opined that Dentons US breached the standard of care when
Hogge, without more, simply communicated to Dr. Costin that the conflict had been
cleared and it was okay to sue Gap. Krupka opined that since Dentons US had
decided to proceed against Gap, Hogge should have given Dr. Costin a full
explanation to the effect that “we can include the Gap because my relationship
partner in Canada says it’s okay, but we haven’t told Gap and there is a risk here
because if they complain about it, there could be a problem. We could get
disqualified.”
Further, Krupka testified that the very nature of a verein and the way
the Dentons verein operated within that structure, as opposed to how they
represented themselves to their clients, gave birth to the conflict that led to the
disqualification. Krupka pointed out vereins represented less than one-hundredth
of one percent of law firms that have chosen to go the route of a verein. In this
regard, Krupka stated that he had reviewed several articles that specifically
discussed the problems of law firms organizing as vereins. Among them, was an
article written by one of Denton’s expert witnesses, Douglas Richmond, and his
partner, that “[went] through a very extensive analysis of vereins and conclude[d] in
many different places, [vereins were] very dangerous, very risky, very difficult to do
it right.”
Krupka opined that, based on the nature of the verein, Dentons US
did not meet the standard of care because they did not seek an independent opinion,
did not consult with any regulatory body, or confer with the American Bar
Association, before including Gap in the litigation. Krupka opined that in the
absence of any authority or any ruling that Dentons US could have proceeded
against Gap under those circumstances, without being disqualified, constituted a
failure to meet the standard of care. Krupka stated he had found the opposite to be
true, in that, by proceeding in the manner Dentons US had done, it would lead to
disqualification.
Based on the foregoing discussion, we find that RevoLaze presented
legally sufficient evidence for the jury to conclude that Dentons US breached the
standard of care by including Gap in the ITC litigation. The expert opinions
presented demonstrated that there was a clear conflict of interest, and the opinions
presented refute Dentons US’ claim that the disqualification was not foreseeable.
Accordingly, we overrule the first assignment of error.
Legal Malpractice – Proximate Cause
In the second assignment of error, Dentons US argues that the trial
court erred in denying its motion for JNOV on RevoLaze’s claim of lost-licensing
damages. Dentons US specifically contends that RevoLaze did not present
sufficient evidence that lost-licensing revenues were proximately caused by a breach
of the duty of care because, (1) RevoLaze failed to demonstrate that it would have
succeeded in obtaining the GEO and (2) RevoLaze chose to end its pursuit of the
GEO while represented by counsel other than Dentons US. In the alternative,
Dentons argues that the trial court failed to properly instruct the jury regarding the
element of proximate cause.
We begin our analysis with the standard for proving damages in a
legal malpractice action set forth in Vahila, 77 Ohio St.3d 421, 674 N.E.2d 1164(1997), at syllabus, and the clarification of that standard announced in
Environmental Network Corp. v. Goodman Weiss Miller, L.L.P., 119 Ohio St.3d
209, 2008-Ohio-3833, 893 N.E.2d 173.
In Vahila, the Supreme Court of Ohio determined that “depending
on the situation, [a plaintiff seeking to recover in a legal malpractice action may be
required] to provide some evidence of the merits of the underlying claim,” but the
court declined to “endorse a blanket proposition that requires a plaintiff to prove, in
every instance, that he or she would have been successful in the underlying matter.”
Id. at 428.
For context, we note, the plaintiffs in Vahila alleged losses of
$100,000 and lost profits of at least $200,000 as a result of appellee’s negligence.
Id. at 422. Thus, the Supreme Court of Ohio held that “given the facts of [the] case,
[plaintiffs] have arguably sustained damage or loss regardless of the fact that they
may be unable to prove that they would have been successful in the underlying
matter(s).” Id. at 427. The court observed that “the requirement of causation often
dictates that the merits of the malpractice action depend upon the merits of the
underlying case.” Id. at 427-428.
In Environmental Network Corp., the Supreme Court of Ohio, in
clarifying its decision in Vahila, observed that the Vahila Court
rejected a wholesale adoption of a “but for” test for proving causation
and the mandatory application of the “case-within-a-case doctrine.” Id.
at ¶ 16. However, “in holding that not every malpractice case will
require that the plaintiff establish that he would have succeeded in the
underlying matter, the Vahila court necessarily implied that there are
some cases in which the plaintiff must so establish.” (Emphasis sic.) Id.
at ¶ 17. “‘[D]epending on the situation, [a plaintiff may be required] to
provide some evidence of the merits of the underlying claim’’’ * * *. Id.
at ¶ 15, quoting Vahila at 427-428.
The Environmental Network Corp. Court went on to explain:
Here, appellees’ sole theory for recovery is that if the underlying matter
had been tried to conclusion, they would have received a more
favorable outcome than they obtained in the settlement. Therefore,
unlike the plaintiffs in Vahila, who sustained losses regardless of
whether their underlying case was meritorious, appellees here could
recover only if they could prove that they would have succeeded in the
underlying case and that the judgment would have been better than the
terms of the settlement. Thus, the theory of this malpractice case places
the merits of the underlying litigation directly at issue because it stands
to reason that in order to prove causation and damages, appellees must
establish that appellant’s actions resulted in settling the case for less
than appellees would have received had the matter gone to trial.
Id. at ¶ 18.
The Supreme Court of Ohio then concluded that
[t]his type of legal-malpractice action, then, involves the case-within-
a-case doctrine. That is, the plaintiff must establish that he would have
been successful in the underlying matter. In this type of action, it is
insufficient for the plaintiff to present simply “some evidence” of the
merits of the underlying claim. To permit the plaintiff to present
merely some evidence when the sole theory is that the plaintiff would
have done better at trial would allow the jury to speculate on the actual
merits of the underlying claim. Thus, in the case sub judice, appellees
had the burden of proving by a preponderance of the evidence that but
for appellant’s conduct, they would have received a more favorable
outcome in the underlying matter.
Id. at ¶ 19.
In this matter, as previously stated, Dentons US argues RevoLaze
failed to present sufficient evidence that it would have succeeded in obtaining the
GEO, were it not for Dentons US’ disqualification and thus failed to satisfy the case-
within-a-case doctrine as outlined above in Environmental Network Corp. Dentons
US contends that to satisfy the case-within-a-case burden, RevoLaze had to prove
the same elements in the legal malpractice case that it would have had to prove in
the ITC. Specifically, Dentons claims that RevoLaze had to prove all of the following:
1. The respondents’ products were being imported into the United
States, sold for importation into the United States, or sold within the
United States after being imported into the United States;
2. Those products infringed a valid patent of the party seeking the
order;
3. There was a domestic industry in the United States relating to
products protected by the patents that existed or was being established
at the time of the ITC proceeding; and
4. A GEO was necessary to prevent circumvention of a more limited
exclusion order or there was a pattern of violation and it was difficult
to identify all sources of infringing products.
Contrary to Dentons’ present contention, we find that Dentons’
actions or inactions, some of which we have already discussed, are directly linked to
the adverse result of RevoLaze not obtaining the GEO. Through the path outlined
below, we will illustrate how RevoLaze met its burden of proving by a preponderance
of the evidence that it would have obtained the GEO, but for Dentons’
disqualification. RevoLaze satisfied the case-within-a-case doctrine, even though
the matter in the ITC is akin to a police investigation which, unlike the instant
matter, would not have culminated with a jury trial, but would have been tried
before ITC judges, all of whom possessed extensive expertise in patent, copyright,
trademark, and an array of other unfair trade practices matters.
Patent 972
Again, we find it useful to begin this segment’s discussion with a
backdrop. At trial, Dr. Costin testified that RevoLaze’s patent, referred to as “972”
cracked the proverbial code in laser abrading because the invention allowed the
machine to vary or change how fast the laser beam moved while it was being applied
to the denim to create the worn look. Dr. Costin described this as “changing it on
the fly.”
As previously noted, after discovering that other companies were
using its technology without permission, RevoLaze sought legal advice to determine
how to address the situation and determined that the best course of action would be
to seek redress in the ITC. Dr. Costin testified that none of the law firms consulted,
including Dentons, would agree to a contingent-fee arrangement. Dr. Costin
recalled that after a long discussion, when Hogge came to visit RevoLaze, Hogge
stated “the case doesn’t get any better than this, but we can’t take it on a
contingency.” Hogge then indicated that he was going to New York to meet with
some financiers that were in the business of funding litigations that had merit. As a
result, the Funding Agreement was established.
Dr. Costin testified that Hogge indicated that RevoLaze would need
to prove three things in the ITC to obtain a GEO.9 First, importation, that laser
abraded jeans were being imported into the United States. To prove importation,
Dr. Costin testified that
we went to the stores and bought jeans from a brand and sent the jeans
to a laboratory and confirmed that there were pores in the fibers, and
that jean typically has a tag, almost always has a tag on where they were
manufactured, and it didn’t matter if it was Sri Lanka or Bangladesh or
Pakistan or China or Vietnam. So long as they were imported into
America, we bought the jean at Gap, we bought it at Levi store, we
bought it at Wrangler stores, and that’s how we proved importation.
And we had to do that for all the brands.
The second component was infringement, the component in which
Hogge thought RevoLaze fell short and had to work on figuring out that element.
Dr. Costin testified that RevoLaze could prove that component. Dr. Costin stated
that RevoLaze’s major investor, Lear, owned a company called Guilford Mills that
did a significant amount of work with textiles and knew exactly how to assist
RevoLaze in proving infringement. Dr. Costin added that Guilford Mills
recommended using the process of scanning electron microscopy.10 As a result,
9 Dentons U.S. listed a fourth — RevoLaze would also need to prove a GEO was
necessary to prevent circumvention of a more limited exclusion order or there was a
pattern of violation, and it was difficult to identify all sources of infringing products.
10 Scanning Electron Microscopy (“SEM”) provides high-resolution and high-
depth-of-field images of the sample surface and near-surface. The electrons interact with
atoms in the sample, producing various signals that contain information about the surface
topography and composition of the sample and then provide extremely detailed images.
RevoLaze sent jean samples from every denim brand that was being sued, to outside
laboratories specializing in scanning electron microscopy. After scanning, the
laboratories were able to provide images of pores in the denim fibers to prove that
the worn and faded look was achieved through the use of lasers.
The third component involved proving that RevoLaze was a solid
business, not a patent troll, but a technical domestic industry. This required that
RevoLaze present evidence relating to its level of spending in the previous 20 years.
RevoLaze had to present evidence such as the number of employees, the equipment
owned, the amount of warehouse space, and the number of inventions. Dr. Costin
testified that when the respondents visited RevoLaze’s facility, presumably to
determine whether the company had a domestic industry, they found “we had
several million dollars’ worth of lasers; we had people; we had trials running; we had
jeans stacked up, and it was crystal clear we had a business.”
Dr. Costin testified that based on the steps outlined above, neither
Dentons US nor Hogge expressed any concern whether RevoLaze would be able to
prove the three components needed to obtain a GEO. Dr. Costin stated that
RevoLaze also had Dr. Frank Pfefferkorn, an expert in laser technology from the
University of Wisconsin, prepared to present expert testimony on claim
construction in the ITC, as well as Dr. Joe Cunning, a leading expert in fiber
technology.
Dr. Costin testified that
Mark Hogge had me convinced, and I believe it to this day, that we had
an extraordinary case for general exclusion order because of a) the
amount of denim brands that were infringing, b) because of the
amount of denim jeans manufactures throughout the world that were
infringing, and c) because of all the countries in which lasers were
abrading jeans and importing them into the United States. So, Mark
had me — and I believe he was correct. He had me convinced that that
was an exceptional possibility.
Here, we find Dr. Costin’s testimony established that Hogge and
Dentons US believed in the merits of the case which, in Hogge’s view “[didn’t] get
any better than this.” Dentons US believed in the case to such an extent that they
were motivated to secure third-party funding for the campaign, agreed to capping
its fees, and planned to share in the royalties flowing from a successful ITC
campaign. We find Dr. Costin methodically outlined for the jury the very
components or barriers to achieving the GEO and how they were prepared to
address each requirement or hurdle.
However, Dentons US argues that RevoLaze proffered no expert
witness on infringement at the trial and presented no garments for jury
examination. However, we do not find this was fatal to RevoLaze’s ability to prove
the case-within-a-case. Dr. Costin described how using scanning electron
microscopy, RevoLaze was able to prove infringement. Further, Dr. Costin testified
that he submitted an affidavit to the ITC, providing scans of jeans from all the
respondents to document infringement. Notably, despite Dentons US’ present
assertions, Hogge testified that RevoLaze had the respondents “pinned” on
infringement. The record indicates neither Hogge nor Dentons US expressed any
concerns whether RevoLaze would be able to prove what was needed to obtain the
GEO.
Not only did Dr. Costin’s testimony above, along with Hogge’s own
admissions, support the jury’s finding that RevoLaze would have obtained the GEO,
if not for Dentons US’ disqualification but, to be discussed in the next segment,
Longford, the third-party funder, believed RevoLaze would have obtained the GEO.
Longford – ITC Campaign Underwriter
William Farrell Jr. (“Farrell”), the managing director and general
counsel of Longford, testified that Longford made investments in companies that
were pursuing meritorious, strong commercial legal claims. Farrell stated
Longford’s monies were used to pay the attorney fees and expenses that those
companies might not otherwise be able to pay. Farrell stated that Longford’s
investment was focused on three specific areas (1) business-to-business disputes, (2)
antitrust, and (3) intellectual property, all areas in which either he, or his partners,
who were also lawyers, and previously worked when they were in private practice.
Farrell testified that Longford’s funding is not a loan, but an equity
investment, where the only way to recover and make a profit is for the case to be
successful. Farrell stated that Longford’s business model is attractive to companies
that are unable to pay for their lawsuits themselves, because Longford absorbs the
loss if the case is unsuccessful. Farrell stated that Longford followed a detailed
evaluation process to determine which companies would receive funding and that
they were forced to decline 90 percent of the opportunities presented.
Farrell explained that the evaluation process involves two
underwriting stages. First, internally, by the lawyers at Longford, looking at the
facts and circumstances of the case, whether there are strong claims against the
defendants and whether there are weaknesses in the plaintiffs’ claims. Longford
studied the litigation histories of both plaintiff’s’ and defendants’ companies to
determine whether the company had a high likelihood of settling cases or taking the
matters to trial.
Farrell testified that in the first stage, Longford would need to see a
detailed budget and case-management plan by the law firm that would be pursuing
the claim, to gain an understanding of exactly what the firm’s strategy for winning
the case entailed. Farrell stated that Longford insisted that the law firm
representing the client got to share in the proceeds of a successful outcome by
requiring them to put some risk up front. To share in the proceeds, the law firm had
to agree to discount their standard hourly rate.
Farrell testified that only 20 percent of the opportunities made it
through the first stage of underwriting, but those that did, would undergo an
independent legal review, by an outside law firm with expertise in the case under
consideration. Farrell stated the outside firm evaluated or “double-check[ed]” the
case all over, according to their criteria, and without any interference from Longford.
Farrell stated that after the independent legal review, the outside law firm shared
their opinion with Longford, via a verbal and written confidential presentation.
Farrell testified that to move forward, the independent legal review team must think
“that the case is very, very strong and recommend that we invest in it,” otherwise
cases would get declined at that stage. Farrell stated that Longford still declined
about 40 percent of the opportunities that made it through the independent legal
review stage.
Farrell testified that sometime in 2013, Longford was introduced to
RevoLaze through Steve Stein (“Stein”), an attorney from Dentons US. Farrell
testified there were subsequent meetings with RevoLaze, which included detailed
presentations, wherein the company described the potential damages and recovery
using data that Longford found impressive. Farrell stated that RevoLaze provided
detailed information about the volumes of different companies or the number of
jeans that were being sold by respective companies. Farrell stated that the
information presented indicated the potential damages
was in the hundreds of millions of dollars, even approaching a billion,
I believe. But whenever, to be honest, whenever I see a billion dollars,
I kind of discount that likelihood. But even if we discounted it 50
percent or 60 percent, we were still in the hundreds of millions of
dollars, which was very interesting to us.
Farrell testified that Longford proceeded to take the RevoLaze
opportunity through the first stage of the evaluation process and stated that because
it was a patent case, Longford broke the analysis into four categories, (1) the validity
of the patents, (2) evidence of infringement by the defendants, (3) damages — the
most important consideration for Longford as an investment company, and (4) the
strategy — focusing on the strengths and capabilities of the legal team, their
objectives and expected outcomes from the client.
Farrell testified that Longford remained very interested after
RevoLaze went through the first stage of the underwriting process and decided to
move forward with the independent legal review, using a law firm with patent
experience. Farrell stated that during the second phase, Dentons US was required
to submit a detailed budget for the various stages of the enforcement campaign, as
this would determine how much Longford would invest.
Farrell testified that during the vetting process both Dentons US
and Hogge expressed a strong belief in the ITC campaign. Farrell testified in
pertinent part as follows:
Q. Prior to entering into this agreement, what was it that you did to vet
the validity in this case, validity of the patents?
A. We reviewed the patents themselves. We reviewed some of the
history of the patents and looked at prior art of the patents, one of
the issues that could raise concern for us.
Q. And did you subsequently have any concerns after you’d done that
review?
A. No.
Q. And what was it you did as regards to infringement?
A. Same thing. We looked at the material that had been presented to
us * * *. And it turned out that we were able to do an independent
review on an Internet search with the assistance from either Dentons
or RevoLaze showing us, you know, we should go look at this company’s
website or that company’s website, and there were a couple of
companies bragging about the use of laser-abraded technologies on
their jeans, which seems like pretty strong evidence that would support
the claims that were being considered.
***
There were a couple of articles, independent articles that had nothing
to do with RevoLaze about the abrading of jeans that we also found
compelling. * * * So there was this marketing component to laser
abrading that it was faster, it was cheaper, but also it could actually save
lives. And we liked that quite a lot at Longford, so that was one of the
other things we took into consideration.
Q. And did you form a view after you’d reviewed that information about
the strength of the case around infringement?
A. I did. There were other bits of evidence that I found pretty
compelling, as well. There was that type of evidence, but at one point
before funding the case, we saw some more technical and detail
analysis, as well. I think it had to do with microscopic analysis of the
fibers and threads in certain jeans to prove that they were done through
lasers and not through sanding, so that confirms evidence of
infringement. So yes.
Q. Did anyone at Dentons ever raise any concerns about validity of the
patents to you?
A. Validity, we talked about lots of issues, I bet. There were a couple of
prior art, pieces of prior art that had been identified and we asked
questions about to make sure we had a proper response to them and
that we felt comfortable overcoming those examples of prior art. But
that’s our business. We’re always looking for defenses and weaknesses
to figure out what we could expect and try to get answers to those. And
we got, sufficient answers to proceed.
Q. So Dentons didn’t express any concerns about the infringement?
A. Not the fact that companies were using lasers. There was, a question
about how we would be able to identify all the different companies that
would be infringing because a lot, like I said, a lot of the manufacturing
was being done outside the United States, you know, in countries that
are pretty hard to access.
Farrell testified that when the motion to disqualify was first brought
to Longford’s attention and he spoke with Hogge, he took great comfort in knowing
that “it was [Hogge’s] position that this was just a typical defense tactic and there
was no merit to the idea that they were going to be disqualified and there was
nothing to worry about.” Farrell testified that around the same time, there was also
a motion to compel filed by certain respondents in the ITC case. Farrell explained
that one of Dentons US’ attorneys mistakenly provided a copy of the funding
agreement to all the lawyers that represented the respondents. When the mistake
was discovered, Dentons US’ lawyers sought the return of the document, claiming
privilege and that it had been inadvertently provided. Farrell stated that the
respondents honored the request, but had already read the agreement, thought they
should be entitled to a copy, and filed a motion to compel in the ITC.
Farrell testified that later the team at Dentons US became more
concerned that maybe the motion to disqualify required a response and that it would
be litigated and argued before the ITC. Farrell stated that sometime after, Hogge
indicated that the motion to disqualify was serious and it had been turned over to
Dentons US’ general counsel. Farrell testified that around that time, he met with
Hogge to discuss the case generally and the impact of the motion to disqualify.
During the meeting, Hogge indicated that Gap was utilizing the motion to disqualify
to disrupt RevoLaze’s ITC case.
Farrell stated that it was during that meeting that Hogge indicated
for the first time that “we’re not ever going to make it to an ITC hearing in this case.
* * * It’s going to be, you know, done before we get there.” Farrell testified that he
did not have a reaction to Hogge’s statement, but after the meeting conferred with
Dr. Costin, who indicated that the idea of not taking the case all the way to an ITC
hearing was new information. Farrell testified that from the beginning of Longford’s
decision to fund the case,
achieving an exclusion order was very valuable to us and we felt that
would be important for lots of reasons, including because we were
unable, we were told, by RevoLaze and by Dentons, to be able to
identify all the many foreign companies that might be importing denim
into the United States in violation of RevoLaze patents. So a general
exclusion order acts to expand the injunction beyond the named
respondents like the Gap, to any company attempting to cross our
border. And so that was viewed as very valuable. And so, the only way
to achieve that exclusion order was to go to a hearing.
Finally, Farrell testified that prior to Gap filing the motion to
disqualify, Hogge had not expressed any concern about the strength of the case
before the ITC. Farrell stated that Hogge said, “Things were going well. Everything
was on track. I mean, the best example I recall being very, very pleased when we
found out that the investigation had been instituted, which is a critical part of an ITC
action.”
Here, we find, through Farrell’s testimony, RevoLaze presented
evidence that supported the jury’s determination that RevoLaze would have
obtained a GEO. Longford invested $8 million to finance the campaign, a decision
made after a thorough vetting of the case’s merit, both internally and by independent
legal counsel. Relevantly, during the evaluation, Longford carefully examined the
strengths and weaknesses of the case, as well as the possible defenses by the
respondents. Specifically, Longford scrutinized the validity of the patents and had
no concerns that a GEO was unobtainable. Although Dentons US now contends that
validity would have been a hurdle, Farrell testified that neither Hogge nor Dentons
US expressed any concerns about the validity of the patents and that prior to the
advent of the motion to disqualify, Hogge indicated that “things were going well.
Everything was on track.”
We conclude Farrell’s testimony clearly demonstrated to the jury
that Longford’s decision to fund RevoLaze’s ITC campaign was not cavalier, but
instead, one well thought out, well investigated, and well calculated based on the
merits of the case and the strong indicia of success. We find based on the detailed
analysis undertaken, Longford expected the return 0f, and a return on, its $8 million
investment, by virtue of RevoLaze obtaining the GEO. Again, as borne out through
Farrell’s testimony, Dentons US in agreeing to cap its fees to share in the future
benefits demonstrated its belief that the GEO was obtainable.
Charles Schill – ITC Expert
RevoLaze presented the expert testimony of Charles Schill (“Schill”),
who began work in the general counsel’s office at the ITC in 1975, focusing on
Section 337 cases, wherein GEOs are sought. Between 1979, when Schill left the ITC,
until his retirement in 2018, his universe of work focused on Section 337 cases. Over
this span, Schill handled more than 140 cases including 22 trials, and successfully
obtained more than 12 GEOs.
Schill testified that it is not difficult to get a GEO if you had the right
case, adding: “case with a lot of respondents, with simple technology, and something
easy for somebody else to manufacture.” Schill opined that RevoLaze would have
obtained a GEO, specifically stating:
Well, I think I’ve described a few fact scenarios for you of cases that I’ve
had where we’ve been able to get general exclusion orders. This is a
similar type of fact situation. You have one, lots of respondents, there
were 17, I think in the original [c]omplaint and then more added
thereafter.
We have a technology while not simple in some ways, it’s something
that can be tested for, I think, in a fairly easy way.
Also, something that would not be so expensive that small companies
overseas could manufacture — could set up manufacturing operations
with a couple of lasers to do this kind of operation.
So easy entry, lots of people, hard to know where all the product is
coming from because there’s lots of sources of supply and lots of routes
for it to get into the country because there are lots of retailers who want
to sell distressed denim items.
So those are the kinds of factors you look at when you say is this a
potential candidate for a general exclusion order case, and the answer
to that is yes.
***
[F]rom everything I’ve seen in this case, I think that RevoLaze would
have been able to obtain a general exclusion order if they had gone all
the way through the case as was originally set up by Dentons.
Schill elaborated by listing factors that boded well for RevoLaze. In
relevant part, Schill stated:
[T]he [c]omplaint set out exhibits that showed who the importers were
that they had products.
***
They had set forth information that met all the commissions’ rules on
whether we could enter or whether you could start that kind of case, get
it instituted by the full commission, and they did in fact get it instituted.
And then the — a number of companies had settled out of the case, so
you’re reducing the number of parties who are potentially going to
show up at trial. That was another one of the criteria we talked about
as far as timing, motions, summaries, determination, for example.
Made it easier to do something like that to have the order, have a
general exclusion order issued without going to trial.
So, for those reasons, I think that based on the facts of the case and the
style of the product, and that sort of thing, that there were lots of
reasons why you’d think that this case would be successful.
Here, the jury heard testimony of the above ilk, from an expert
witness of Schill’s background and experience, which was ostensibly pivotal in them
concluding that RevoLaze would have obtained a GEO, if not for Dentons US’
disqualification. Significantly, Schill testified that RevoLaze’s case mirrored the fact
situation of cases that he had conducted, which resulted in the plaintiffs getting a
GEO. Schill testified that like the other cases, RevoLaze had a lot of respondents,
had technology that could be easily tested and had technology that was not overly
expensive. All factors that allowed small companies overseas to quickly set
operations to make infringing products. In addition, RevoLaze’s case presented a
situation where the infringing products enjoyed easy entry into the United States.
Schill testified that RevoLaze had set forth information that met the
rules of the ITC commission to get the case instituted and that RevoLaze had in fact
managed to get the case instituted by the full commission. Schill found it significant
that several companies had settled out of the case, which reduced the number of
respondents that would have appeared for trial. Based on the facts of the case, Schill
concluded that RevoLaze would have been successful in obtaining a GEO.
The path outlined above illustrates that RevoLaze presented
evidence that satisfied the case-within-a-case burden by presenting testimony,
including Hogge’s admissions, going to the very heart of the evidence that would
have been presented in the ITC to secure the GEO. Based on the foregoing
discussion, after construing the evidence most strongly in favor of RevoLaze, we find
the evidence presented was legally sufficient to satisfy the case-within-a-case burden
of proving by a preponderance of the evidence that they would have been successful
in obtaining a GEO, had Dentons US not been disqualified.
Nonetheless, Dentons US argues the trial court failed to properly
instruct the jury regarding the element of proximate cause.
A trial court is obligated to provide jury instructions that correctly
and completely state the law. Simbo Props. v. M8 Realty, L.L.C., 8th Dist. Cuyahoga
No. 107167, 2019-Ohio-4361, ¶ 18, citing Cromer v. Children’s Hosp. Med. Ctr. of
Akron, 142 Ohio St.3d 257, 2015-Ohio-229, 29 N.E.3d 921, ¶ 22, citing Sharp v.
Norfolk & W. Ry., 72 Ohio St.3d 307, 312, 1995- Ohio 224, 649 N.E.2d 1219 (1995).
The question of whether a jury instruction is legally correct and factually warranted
is subject to de novo review. Id., citing Cromer at ¶ 22, citing Estate of Hall v. Akron
Gen. Med. Ctr., 125 Ohio St.3d 300, 2010-Ohio-1041, 927 N.E.2d 1112, ¶ 26.
In this matter, Dentons US contends the case-within-a-case doctrine
requires instructing the jury on the underlying case, and not merely the elements of
a legal malpractice case. To that end, Dentons US proposed standard jury
instructions for patent cases created by the Federal Circuit Bar Association. The trial
court refused and instructed the jury in pertinent part as follows:
If you find Mark Hogge was negligent, you will decide whether his
negligence directly caused harm to RevoLaze.
Now, here RevoLaze claims Mark Hogge caused four types of injury to
it. If you find Mark Hogge was negligent, you must consider each type
of alleged loss separately and determine whether RevoLaze proved the
alleged loss by the greater weight of the evidence.
***
Now, for the harm described in items 1 through 3 above, the
instructions given to you already are sufficient.
However, for the harm caused in number 4, the lost licensing revenue
that RevoLaze would have received if it had received a general
exclusion order in the ITC action, well, Ohio law places an additional
requirement on causation. It is this:
Before you can find that this alleged harm was caused by Mr. Hogge’s
negligence, you must also find that RevoLaze proved by the greater
weight of the evidence that it would have succeeded in obtaining a
general exclusion order in the ITC action, absent Mark Hogge’s
negligence. And that RevoLaze would have received additional revenue
from new license agreements.
It is worth revisiting that in a legal malpractice action, involving the
case-within-a-case doctrine, the Supreme Court of Ohio stated that appellees had
the burden of proving by a preponderance of the evidence that but for appellant’s
conduct, they would have received a more favorable outcome in the underlying
matter. Environmental Network Corp., 119 Ohio St.3d 209, 2008-Ohio-3833, 893
N.E.2d 173, ¶ 19.
Here, the trial court advised the jury of the additional requirement
of finding that “RevoLaze proved by the greater weight of the evidence that it would
have succeeded in obtaining a general exclusion order in the ITC action, absent Mark
Hogge’s negligence. And that RevoLaze would have received additional revenue
from new license agreements.” The instructions, herein, comport with the relevant
advisement necessary to satisfy the case-within-a-case doctrine outlined in
Environmental Network Corp. As such, we find Dentons US’ contention not well-
taken.
Finally, Dentons US argues that RevoLaze failed to present legally
sufficient evidence of proximate cause of lost licensing damages, because RevoLaze
abandoned pursuit of the GEO months after Dentons US was no longer its attorneys.
Relying on E.B.P., Inc. v. Cozza & Steuer, 119 Ohio App.3d 177, 694
N.E.2d 1376 (8th Dist.1997), in suggestion of a waiver defense, Dentons US argues
that a malpractice plaintiff that settles the underlying case fails as a matter of law to
prove proximate cause, unless it can show that the attorney “ma[d]e an error that
compromised [the plaintiff’s] claim.” Id.However, the facts and circumstances of this case renders Dentons
US reliance misplaced. In E.B.P., we also stated:
We do not suggest a settlement of the underlying action always
operates as a waiver of a client’s malpractice claim against his attorney.
A settlement entered into as a result of an attorney’s exercise of
reasonable judgment in handling a case bars malpractice claim against
the attorney. DePugh v. Sladoje, 111 Ohio App.3d 675, 676 N.E.2d 1231(2d Dist.1996). However, a legal malpractice claim is not barred when
the attorney has acted unreasonably or has committed malpractice per
se. Id. “When an attorney has made an obvious error which seriously
compromises his client’s claim, and a settlement is on the table * * *,
the client should not be forced to forego the settlement offer as a
condition of pursuing the attorney for malpractice.” Id. See, also,
Monastra v. D’Amore, 111 Ohio App.3d 296, 676 N.E.2d 132 (8th
Dist.1996) (where attorney’s defective representation diminishes
client's ability to reach a successful settlement or to succeed at trial, the
settlement of the action should not imply a waiver of client’s right to
file legal malpractice action against attorney).
Id. at 182.
Here, unlike E.B.P., RevoLaze’s decisions to terminate the ITC
campaign and settle with various respondents was driven by the devastating impact
of Dentons US disqualification. We note, the record reveals that at the time the
disqualification order was issued, Dentons US had been involved in the ITC
campaign for approximately 433 days, had billed $2.7 million in legal fees, and
$800,000 in expenses out of the budget for the first phase of the Funding
Agreement. Yet, as previously mentioned, a significant amount of work was still
unfinished to prepare for the hearing to secure the GEO. Dr. Costin testified that
with mounting fees, he was facing a “black hole” of debt and could not go any further.
Although Dentons US argues that RevoLaze could still have pursued
the GEO, Hogge testified as follows:
Q. Do you recognize the bottom email from you?
A. Yes.
***
Q. So this is after you told Dr. Costin about the disqualification order,
correct?
A. Yes.
Q. And in the third paragraph, last sentence, you say, Darryl is fighting
for working capital now to keep his company going, correct?
A. Yes.
Q. So, at this time, you knew that RevoLaze was fighting for working
capital?
A. After the disqualification order?
Q. Yes.
A. He told me that.
Q. You were aware of it?
A. After the disqualification, I thought the question was when it came
down, did I know. I didn’t know until after.
Despite Dentons US present contentions, they were aware that
RevoLaze was not able to continue pursuing the GEO. By Hogge’s own admission,
Dr. Costin was fighting to keep RevoLaze alive. As such, RevoLaze’s decision to
terminate the ITC litigation or settle with various representatives is unlike E.B.P.
and does not constitute a waiver.
Following our review of the record, we find that RevoLaze simply
could not pursue the ultimate objective of obtaining the GEO, after Dentons US was
disqualified. As such, we find Dentons US contention not well-taken.
Accordingly, we overruled the second assignment of error.
Legal Malpractice – Lost Licensing Damages
In the third assignment of error, Dentons argues the trial court erred
by denying the JNOV on the claim for lost licensing damage.
A plaintiff seeking damages in a legal malpractice case must show
that the alleged malpractice caused the damages. Fabec v. Frederick & Berler,
L.L.C., 8th Dist. Cuyahoga No. 110562, 2022-Ohio-376, ¶ 22, citing Montali, 8th
Dist. Cuyahoga No. 80327, 2002-Ohio-2715, at ¶ 37. In addition, the evidence must
establish a calculable financial loss because one of the essential elements of a legal
malpractice claim is a causal connection between the conduct complained of and
resulting in damage or loss. DeMeo v. Provident Bank, 8th Dist. Cuyahoga No.
89442, 2008-Ohio-2936, ¶ 61, citing Nu-Trend Homes v. Law Offices of DeLibera,
Lyons & Bibbo, 10th Dist. Franklin No. 01AP-1137, 2003-Ohio-1633, ¶ 42.
Within this assignment of error, Dentons US argues that RevoLaze
failed to satisfy the claim for lost-licensing damages. Redeploying a previous
argument, Dentons US contends RevoLaze remains able to pursue licensing
revenues through further litigation.
As we have previously discussed, RevoLaze presented evidence that
the disqualification seriously compromised the company’s quest for a GEO. In the
previous segment, we concluded, from the evidence presented, that RevoLaze was
not financially able to pursue the GEO following Dentons US’ disqualification.
Dentons US’ contention also ignores the significant cost and time involved in
pursuing a GEO, plus the futility due to the limited life span of patents.
In addition, although RevoLaze was able to settle with various
respondents, the record reveals that Dentons US’ disqualification negatively
impacted RevoLaze’s negotiating posture, and the resulting settlements did not
create the risks of double recovery. Expert witness, Krupka, opined that Dentons’
disqualification totally disrupted RevoLaze’s ability to negotiate licensing
agreements with the respondents. Specifically, stating:
And if you can put yourself in the shoes of one of the respondents who
is going to start negotiating a license with RevoLaze, and RevoLaze is
suddenly in disarray. They now have new attorneys that don’t really
know the history of the case. They’re scrambling to try to catch up and
work on this stuff and if I’m one of the respondents, I’m thinking, hmm,
maybe I can get the cheaper deal now or maybe the case will all fall
apart and we won’t be able to do a trial, so I’m going to hold out. And,
based on what I’ve read of the people who were involved in the licensing
negotiations after that, that’s pretty much exactly what happened.
Here, RevoLaze presented sufficient evidence for the jury to find that
disqualification of Dentons US compromised both the ability to pursue the GEO and
to negotiate settlement with any semblance of leverage. As such, we find Dentons
US’ contention not well-taken.
Within this assignment of error, Dentons US argues that RevoLaze
failed to satisfy the claim for lost-licensing damages because its proof of damages
rested solely on the testimony of its expert witness Justin Lewis (“Lewis”), which
Dentons US claim was erroneous, contained unwarranted assumptions, and was
unduly speculative.
In Ohio, the plaintiff carries the burden of proving the lost-profit
damages, the difference between the price plaintiff would have received under the
contract less the expense of performance that was saved because of the breach.
Gerber v. Riordan, 2012 U.S. Dist. LEXIS 135379 (N.D. Ohio, Sept. 21, 2012), ¶ 11,
citing Kosier v. DeRosa, 169 Ohio App.3d 150, 158, 2006-Ohio-5114, 862 N.E.2d 159(2006). Damages are not recoverable beyond an amount that can be established
with reasonable certainty. Id., citing Knott v. Revolution Software Inc., 181 Ohio
App.3d 519, 529, 2009-Ohio-1191, 909 N.E.2d 702 (2009) (citing Acoustic
Marketing Research, Inc. v. Technics, L.L.C., 198 P.3d 96 (Colo.2008)).
In this matter, RevoLaze hired damage expert Lewis to determine
and calculate the economic damages. Although Lewis testified about the process he
utilized to calculate the four categories of claimed damages RevoLaze alleged,
Dentons US primarily focuses its arguments on the calculations relative to the lost
licensing damages stemming from not acquiring the GEO.
In this respect, Lewis opined that if RevoLaze had obtained the GEO,
it would have been able to license a total of 80 percent of the U.S. laser abraded
denim market and based on royalty rates of between 10 cents and 15 cents per unit,
RevoLaze would have generated between $26 million and $39 million in royalties.
Dentons US characterizes the opinion as mere assumptions and too speculative to
satisfy RevoLaze’s burden of proof.
However, Lewis detailed the methodology he utilized to determine
the damages. First, Lewis had to determine the U.S. market share of denim units
coming into the U.S. that would be subject to the GEO. Lewis conferred with
industry experts, one of whom, Ken Kiser (“Kiser”), testified at trial. Lewis also
reviewed research reports, WiseGuys Consulting (“WiseGuys”), as well as data from
QYR Consumer Goods Research Global Denim Fabric Professional Survey Report.
The research revealed that 1.3 billion units came into the U.S. in
2016, 1.4 billion in 2017 and industry experts projected a growth rate of 8.9 percent
through 2021, the end of the patent. Lewis testified that further research indicated
that a growth rate of 8.9 percent was a reasonable projection to determine how many
units would be imported into the U.S. and subject to the GEO.
Second, Lewis had to determine what percentage of the denim units
coming into the U.S. were laser abraded. Lewis again consulted with industry
experts and reviewed reports. WiseGuys estimated that 27.5 percent of the
worldwide denim market consisted of laser abraded products in 2017 and another
article indicated that by 2020, that number would be as high as 50 percent. Lewis
testified he utilized both figures as baselines to calculate the compound annual
growth-rate to determine that four billion units would be laser abraded items
through 2021.
Third, Lewis determined how much of the U.S. denim market
RevoLaze would have been expected to license if the GEO had been obtained. Lewis
testified that it would be atypical to get 100 percent of a market like denim, “because
there are large [companies] and there are smaller [companies] and the smaller
[companies] are too small to try to go after.” Lewis looked at the larger companies
and after detailed discussions with industry experts determined that it would be
reasonable to expect that RevoLaze would have been able to license 80-85 percent
of the market if they had obtained the GEO.
Lewis decided to apply the lower end of the range, 80 percent, which
he considered to be very conservative. Lewis stated he settled on an 80 percent
expectancy through what he termed a “bottom-up approach,” focusing on the larger
company’s market share and found that expectation reasonable. Again, Lewis
testified he took comfort in the 80 percent expectation after considering that
RevoLaze had managed to license about 50 percent of the market without a GEO.
Fourth, Lewis subtracted the units already licensed by RevoLaze
from the 80 percent potential units that could be licensed with the GEO. Lewis
stated that when he was privy to the per-unit rate for manufacturers that already
had a license agreement with RevoLaze, he made the deduction based on the actual
units under license. While in cases where it involved a lump sum royalty or where
the per unit figure was unavailable, Lewis deducted the market share. Lewis stated,
“[s]o, for example, for Levi’s, the industry reports indicated that Levi’s had 11.4
percent market share, so instead of deducting based on their royalty reports, I wiped
out 11.4 percent of the U.S. market for laser-abraded garments.”
Fifth, Lewis determined the appropriate royalty rate per unit. To do
that, Lewis evaluated the license agreements RevoLaze had already negotiated,
dividing them in three categories namely: (1) pre-disqualification, which revealed
that the largest companies, Levi’s and VF, were getting the best rates of 15 cents to
40 cents per unit; (2) post-disqualification, wherein new firms were trying to settle,
and rates would drop to between 10 cents and 25 cents per unit, but cluster around
10 cents per unit; (3) post-ITC, wherein the rates were consistently around 10 cents
per unit, sometimes 15 cents or 20 cents, depending on the party.
Sixth, Lewis then applied royalty rates of between 10 cents and 15
cents per unit to the unlicensed denim units to arrive at the lost royalty results of
$53.7 million to $80.5 million. Lewis testified that even though he used very
conservative assumptions, there would still be some uncertainty when doing
projections. To account for a measure of uncertainty, Lewis calculated the discount
rate back to the date of the disqualification. Lewis employed what is called “risk
adjusted hurdle rates,” which are rates based on the kinds of risks involved in
deploying technology into markets that venture capitalists would expect to receive.
Lewis determined that because RevoLaze’s technology was being introduced into a
well-known, well-understood industry, such as denim, he concluded that RevoLaze
fell in the low-risk category of 20-30 percent. Lewis then applied a 20 percent
discount rate.
Seventh, utilizing a 20 percent discount rate, Lewis arrived at
$26,186,891 in present value of lost royalty at ten cents per unit and $39,280,337 in
present values of lost royalty at 15 cents per unit. Lewis stated “by applying this 20
percent discount rate, we went from $80 million in lost royalties down to 40. We
went from $53 million down to 26. So, this discount rate cut those lost royalties in
half to account for any remaining risks in achieving them.”
Despite the detailed explanation Lewis presented, which we have
summarized above, Dentons US claims the expectation that RevoLaze could license
80 percent of the U.S. denim market underscores the speculative nature of Lewis’
opinion. However, we note, Lewis was confident in the projection of the 80 percent
expectation after considering that RevoLaze had managed to license about 50
percent of the market without a GEO. Arguably, RevoLaze having captured 50
percent of the market, albeit under less than favorable terms, without a GEO,
capturing another 30 percent of the market would not be unrealistic with a GEO.
Denim industry expert, Kiser, who worked for several major brands
and mills, including American Eagle Outfitters, JC Penney, and Jones Apparel, over
a period spanning 27 years, testified that if Revolaze had a GEO, they could expect
to license most of the industry within a few months of obtaining the order. Kiser
testified that denim importers, particularly the major companies, would not risk the
significant penalties, litigation costs, damages, and reputational harm by importing
infringing products, if Revolaze had a GEO.
Significantly, Lewis testified that when Dentons US’ damage expert,
Robert Brlas (“Brlas”) questioned the WiseGuy’s data, and suggested Euromonitor
as a better source for estimating the market, Lewis did calculations based on the
Euromonitor’s data. Lewis noted that although Euromonitor focused only on the
U.S. jeans industry and although Brlas did not make any calculations, he ran the
report through his module. Lewis adjusted the Euromonitor data to account for
nonjeans denim garment, which was covered in WiseGuys and used the same
assumptions as Brlas.
Lewis testified about the results as follows:
So using the Euromonitor data, at 10 cents a unit, you get $23,049,769
and if you use the 15 cents royalty rate you get $34,574,645.
So what you’ll see is even using the Euromonitor report, what [Brlas]
thinks is better data, and even making only a five percent adjustment
for non-jeans, you would basically get damages that are very similar
and within the same range as you get from data I had originally relied.
Here, where the assumptions of Dentons US’ damage expert
substantially correlates to that of RevoLaze’s, we cannot consider Lewis’ calculations
speculative.
Finally, Dentons US argues the 80 percent market share projection
was speculative and should have been excluded because it relied on the withdrawn
opinion of another expert.
In Ohio, the information upon which an expert may rely includes a
review of applicable treatises, formal classes, discussions with colleagues, books of
science, and information gained from other experts in the field. Werts v. Goodyear
Tire & Rubber Co., 8th Dist. Cuyahoga No. 91403, 2009-Ohio-2581, ¶ 31, citing
Limle v. Laboratory Corp. of Am., 137 Ohio App.3d 434, 738 N.E.2d 890 (10th
Dist.2000). An expert may also draw upon knowledge gained from other experts in
the field, whether this knowledge was communicated orally or in writing. Id., citing
State v. Echols, 128 Ohio App.3d 677, 716 N.E.2d 728 (1st Dist.1998).
We stated previously that Lewis conferred with industry experts, one
of whom was Kiser, also reviewed industry research reports, such as WiseGuys, as
well as data from QYR, to formulate his calculations and projections. Our review of
the record indicates that Lewis laid the proper foundation before testifying about
how he arrived at the 80 percent market share figure. In addition, Lewis was cross-
examined on the matter. Further, we have found herein that the 80 percent figure
was not speculative and found significant that when employing Dentons US’ own
damage expert’s assumptions, Lewis arrived at substantially the same result. As
such, we find the present assertion not well-taken.
Accordingly, we overrule the third assignment of error.
Judgment affirmed.
It is ordered that appellees recover from appellants the costs herein taxed.
The court finds there were reasonable grounds for this appeal.
It is ordered that a special mandate issue out of this court directing the
Cuyahoga Common Pleas Court to carry this judgment into execution.
A certified copy of this entry shall constitute the mandate pursuant to Rule 27
of the Rules of Appellate Procedure.
_
EMANUELLA GROVES, JUDGE
EILEEN A. GALLAGHER, P.J., and
EILEEN T. GALLAGHER, J., CONCUR