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Through its Canadian arm, the law firm has long acted for Gap Inc., including in a recent case involving a customs audit by the Canada Border Services Agency.RICK WILKING/Reuters

Dentons, the world's largest law firm, is challenging a decision that has thrown the firm off a U.S. patent case launched against the Gap Inc. because the firm already acts for the retailer in Canada.

The challenge highlights the problem conflicts pose for the new breed of massive global legal players such as Dentons, which began with an international, three-way merger involving Canada's Fraser Milner Casgrain LLP in 2013.

In June, a judge with the U.S. International Trade Commission found Dentons had committed an "ethical violation." It involved a suit filed last year by Dentons' U.S. arm on behalf of Cleveland-based RevoLaze LLC, which alleged that the Gap, Levi Strauss & Co., Abercrombie & Fitch Co. and others were importing jeans that had been "laser abraded" to have a "worn or patterned appearance," allegedly infringing on a U.S. patent for the laser technology held by RevoLaze.

But Dentons, through its Canadian arm, has long acted for the Gap, including in a recent case involving a customs audit by the Canada Border Services Agency, according to the ruling. Dentons declined to comment for this article.

The legal profession's rules forbid law firms from acting against a current client, particularly without disclosing the conflict and obtaining a client's consent. In this case, the Gap sought to have Dentons disqualified, arguing that the conflict was never disclosed, and that Dentons had access to confidential Gap documents relevant to the case.

After merging with a Chinese firm in January, Dentons has 6,500 lawyers in 120 offices worldwide, making it the largest law firm by head count. In its marketing, Dentons touts its status as a global powerhouse and its ability to offer clients "seamless" service.

In this case, the firm argued that under its "Swiss Verein" structure, which is also used by global firms such as Norton Rose Fulbright LLP, its U.S. and Canadian operations were "financially and operationally" separate. The firm said its different branches do not normally share files or confidential information; nor do they share any profits or losses.

The firm insisted this meant it was not in an ethical breach. It also argued that Gap had signed a release when it retained Dentons waiving any future conflicts.

But Judge Charles Bullock, the chief administrative judge of the ITC, sided with the Gap. He ruled Dentons as a whole owed the retailer a "duty of loyalty," and yet stood to gain if successful in acting for RevoLaze against Gap.

"Additionally, although Dentons apparently realized that there was a conflict, it did not attempt to obtain the Gap's informed consent," the ruling reads. "This inaction shows disregard for the rules of professional conduct."

The thorny issue of client conflicts has come up frequently in Canada in recent years. Cassels Brock & Blackwell LLP is challenging a $45-million judgment levelled against it in July for acting for both the Canadian government and a group of car dealers after General Motors cut its dealership network when it obtained bailouts from Washington and Ottawa during the financial crisis. The Supreme Court of Canada also weighed in on the issue in a landmark decision in 2013.

While the new global firms face potential conflict problems on a larger scale, the issue came up repeatedly in Canada 15 years ago when truly national law firms were allowed to form here.

University of Ottawa law professor Adam Dodek said courts here have consistently rejected similar arguments to the ones Dentons made in conflict cases: "You're branding yourself as one firm, [the courts] are going to treat you as one firm."

Osgoode Hall law professor Trevor Farrow said large firms were serious about addressing the potential conflicts of interest that come with their increased size. "I would call it part of the ongoing challenge of trying to balance professional rules on conflicts of interest with the business realities of globalization," he said.

But he also pointed out that strictly enforced conflict rules can also be used as "tactical" moves in litigation, in order to have opposing counsel knocked off a case inappropriately.

Follow Jeff Gray on Twitter: @jeffreybgrayOpens in a new window

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