ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: 12-54069
DATE: 2012/09/26

BETWEEN:

PHILIP JOHNSON Plaintiff – and – HELO ENTERPRISES INC. Defendant

Ronald Caza/Marcia Green, for the Plaintiff

Pierre Champagne/Julie Paquette, for the Defendant

AND BETWEEN:

HELO ENTERPRISES INC. Plaintiff by Counterclaim (Responding Party)

Pierre Champagne/Julie Paquette, for the Plaintiff by Counterclaim (Responding Party)

– and – ECHOTEC SONAR CORPORATION, PHILIP JOHNSON, DANIEL WARD, BRADLEY PINCH, DAVID HALLETT and JOSEPH SPAGNUOLO Defendants by Counterclaim (Moving Party)

Ronald Caza/Marcia Green, for the Defendants by Counterclaim (Moving Party)

HEARD: May 7, 2012

REASONS FOR decision on injunction and anton piller order

r. smith j.

[ 1 ] On April 30, 2012, an injunction was granted on an ex parte basis preventing the defendants by counterclaim from possessing, transferring or making use of Helo Enterprises Inc.’s or MAQ Sonar’s confidential and proprietary information for ten days.

[ 2 ] On the same date an Anton Piller order was granted authorizing the entry and search of premises set out therein as well as appointing an independent supervising solicitor (“ISS”).

[ 3 ] The defendants by counterclaim brought an urgent motion which was heard on May 7, 2012, to set aside the interim injunction, and to set aside or alternatively vary the terms of the Anton Piller order. The terms of the Anton Piller order were varied largely on consent with input from the parties and the ISS. The time lines were extended on terms that were to be discussed between counsel with input from their clients. I ordered that the injunction remain in effect and stated that reasons would follow.

[ 4 ] The moving party for injunctive relief was Helo Enterprises Inc. (referred to as “MAQ Sonar”), who is the defendant and plaintiff by counterclaim in the action.

Injunction and Anton Piller Order

[ 5 ] The test for obtaining an Anton Piller order was set out in the cases of Celanese Canada Inc. v. Murray Demolition Corp., 2006 SCC 36, [2006] 2 S.C.R. 189 at para. 35 and Dish Network LCC v. Ramkissoon, 2010 ONSC 773 at para. 27 and may be summarized as follows:

A moving party must establish:

(a) a strong prima facie case;

(b) serious damage, actual or potential, to the plaintiff;

(d) that there is a real possibility that the defendant may destroy such material before any court discovery proceedings can be taken.

[ 6 ] The defendants by counterclaim Philip Johnson, Daniel Ward, Bradley Pinch, David Hallett and Joseph Spagnuolo were all former employees of MAQ Sonar. MAQ Sonar was a business established by Eugene Hill in 1978. The MAQ Sonar company designed and built the first thinned-array sonar device for commercial fishing industries. The MAQ Sonar is a computer-controlled device using analogue and digital hardware to provide advanced signal processing techniques not otherwise available in the commercial market.

[ 7 ] MAQ Sonar is one of only a handful of manufacturers of commercial fishing sonar equipment in the world and its MAQ Sonar product designs are the basis for the company’s success. MAQ Sonar has established dealers and distributors of its products worldwide and has business dealers located in Canada, the United States, and distributes its products to markets in Central and Southern America, Europe, Tunisia, South Africa, South Korea, Russia and Australia.

[ 8 ] In 2009, MAQ Sonar began working on the development of new digital sonar technology for the design and manufacturing of a digital sonar device. MAQ Sonar worked with the National Research Council (“NRC”) which provided research assistance for the development of a digital platform. A Contribution Agreement was entered into between MAQ Sonar and NRC which provided funding in the amount of $465,780, commencing on August 17, 2009 and ending on March 31, 2011.

[ 9 ] MAQ Sonar entered into agreements with each of the employees, including the defendants by counterclaim which included confidentiality provisions and non-disclosure agreements. The defendants by counterclaim were employed by MAQ Sonar and assisted in the developing of its new digital sonar technology.

Bradley Pinch

[ 10 ] Bradley Pinch was employed at MAQ Sonar as its International Sales and Marketing Manager (business development) from approximately December 5, 2008 until September 11, 2010. Mr. Pinch’s employment agreement included a term not to make unauthorized disclosure of any software or product. Mr. Pinch is presently employed by Echotec as Vice-President of Business Development.

Philip Johnson

[ 11 ] Philip Johnson commenced employment with MAQ Sonar as Chief Technical Officer on or about January 4, 2010. He was responsible for managing the research and development team. Along with others he developed the digital systems in relation to acoustic and transducer designs for the Digital Sonar technology project.

[ 12 ] Mr. Johnson’s employment was terminated on or about August 31, 2011. Mr. Johnson was a key member of senior management while employed with MAQ Sonar and participated in management decisions concerning product development, customer relationships, marketing initiatives and business opportunities.

[ 13 ] Mr. Johnson had entered into a Confidentiality and Non-Disclosure Agreement with MAQ Sonar, including terms to maintain the confidential information of MAQ Sonar in confidence, not to reproduce the confidential information without the express written consent of MAQ Sonar, not to make known, divulge, or publish confidential information of MAQ Sonar to any party without MAQ Sonar’s written consent to use the confidential information, not to use the confidential information as a basis for the design or creation of any method, system, apparatus or device similar to any method or system of MAQ Sonar and to acknowledge that all information provided by MAQ Sonar would remain the property of MAQ Sonar. Mr. Johnson is currently employed by Echotec as its Chief Executive Officer. He is also one of Echotec’s directors.

Daniel Ward

[ 14 ] Echotec was incorporated by Mr. Ward while he was still employed by MAQ Sonar as its systems engineer. He was employed from approximately February 4, 2010 until September 27, 2011. Mr. Ward was responsible for developing the hardware system configuration for the new digital sonar and for concepts developed by Mr. Johnson and integrating the hardware software and transducer in the digital design.

[ 15 ] Mr. Ward had entered into a Confidentiality and Non-Disclosure Agreement with MAQ Sonar to keep MAQ Sonar’s information confidential similar to the agreement signed by Mr. Johnson. Mr. Ward is currently employed by Echotec as its Chief Technology Officer and is one of Echotec’s directors.

Joseph Spagnuolo

[ 16 ] Joseph Spagnuolo was employed by MAQ Sonar as its hardware technologist working on the Digital Sonar design from June 7, 2010 until August 27, 2011. Mr. Spagnuolo was responsible for the development of the hardware side of the Digital Sonar. He also entered into an employment agreement as of June 1 st and entered into a Non-Competition Agreement which included terms that he would hold in strictest confidence and not use or disclose the confidential information of MAQ Sonar except for the benefit of MAQ Sonar .

David Hallett

[ 17 ] David Hallett was employed by MAQ Sonar as a Software Engineer working on the Digital Sonar design from January 31, 2010 until March 31, 2011. He also entered into a Confidentiality and Non-Disclosure Agreement where he agreed to abide by confidentiality conditions similar to those agreed to by Mr. Johnson.

Possible Sale of MAQ Sonar’s Intellectual Property

[ 18 ] On or about February 7, 2011, Northstar Electronics, Inc. (“Northstar”) provided MAQ Sonar with an intent to purchase for $1,000,000. MAQ Sonar declined the offer on the basis that the price offered was too low.

[ 19 ] On or about August 22, 2011, while employed by MAQ Sonar, Messrs Johnson and Ward presented a proposal for the transfer of MAQ Sonar’s Digital Sonar Intellectual Property to Echotec Sonar Corporation (“Echotec”) for the purchase price of $125,000. This offer was not accepted by MAQ Sonar.

Copying of MAQ Sonar’s Intellectual Property

[ 20 ] While Mr. Ward was still employed by MAQ Sonar he discussed issues with Mr. Johnson related to renting new premises for Echotec. These conversations occurred during office hours at MAQ Sonar’s premises on or about September 1, 2011. Mr. Ward advised Mr. Johnson that the company should have been registered already and that he was looking into the requirements to have it registered.

[ 21 ] On September 7, 2011, Mr. Ward advised Mr. Johnson that Echotec’s business cards had been printed and confirmed to Mr. Johnson that Echotec’s e-mail was up and running. On September 9, 2011, they discussed salaries, tax breaks for new companies and other benefits. On September 9, 2011, Mr. Johnson confirmed that Messrs Spagnuolo, Pinch and himself were employees of Echotec.

[ 22 ] MAQ Sonar states that the defendants by counterclaim copied its important intellectual property and removed it from its premises. This allegation by MAQ Sonar against the defendants by counterclaim is very important in their motion for an injunction and for an Anton Piller order. MAQ Sonar states that the defendants by counterclaim illegally acquired, copied and removed important property of MAQ Sonar, including confidential information regarding MAQ Sonar’s Business Intellectual Property and retained a copy of such property following the termination of their employment.

[ 23 ] More specifically, MAQ Sonar states that the defendants by counterclaim copied MAQ Sonar’s two confidential engineering folders which were over 12 gigabytes in size. The evidence supporting this allegation is an MSN chat between Mr. Ward and Mr. Johnson which occurred on September 7, 2011 while Mr. Ward was still an employee at MAQ Sonar. Mr. Ward told Mr. Johnson that he had downloaded MAQ Sonar’s engineering files. During the conversation Mr. Ward confirmed with Mr. Johnson that prior to leaving MAQ Sonar, Mr. Spagnuolo had also copied MAQ Sonar’s hardware design for the digital sonar.

[ 24 ] The exact chat exchange was as follows:

Ward: This copying is taking all day. Just the (2) Engineering folder. Over 12GBs.

Johnson: Yes I know.

Ward: Jim’s hovering around too. Keeps asking questions but then scans my desktop. It’s all in the background so I’m safe. It’s a little uncomfortable tho.

Ward: I just finished the Engineering folder copy. Whew!

Johnson: :)

Johnson: Make sure it is all there.

Ward: Yes I did. The only thing that wouldn’t transfer properly were some link‑listed files of Joe’s. He has the whole design backedup anyways.

(a) Strong Prima Facie Case

[ 25 ] I find that this evidence of copying the two engineering files for the MAQ Sonar’s design of its sonar device constitutes a prima facie case that MAQ Sonar’s property was copied and taken by Messrs Ward, Johnson and Spagnuolo. I am also satisfied that such copying of the two engineering files would amount to a prima facie case of a breach of the terms of the employment and confidentiality agreement signed by all of the defendants by counterclaim.

[ 26 ] The defendants by counterclaim did not contest the first three requirements for obtaining an Anton Piller order and only contested item (d) namely, they denied that there was a real possibility that they would destroy such material before court discovery proceedings could be completed.

(b) Actual or Potential Serious Damage

[ 27 ] Based on the affidavit material filed by MAQ Sonar, I am satisfied that the copying of their engineering design for the digital version of the sonar device developed by MAQ Sonar, in circumstances where the parties copying MAQ Sonar’s engineering files were setting up business in competition with MAQ Sonar, created a very great potential to cause very serious damage to MAQ Sonar’s business. The value of MAQ Sonar’s business is largely contained in the design of its sonar device. If the engineering design for MAQ Sonar’s device was copied and used to compete directly against MAQ Sonar in the sale of these devices, this would cause substantial harm to MAQ Sonar. Both actual and potential serious damage would be caused to the plaintiff if the defendants by counterclaim are not prevented from using MAQ Sonar’s engineering design to compete with MAQ Sonar.

(c) Evidence that the defendants by counterclaim have in their possession incriminating documents or things

[ 28 ] As discussed under the heading Strong Prima Facie Case above, I am satisfied that there is strong prima facie evidence of a conversation between two of the defendants by counterclaim describing in detail that they had copied MAQ Sonar’s two engineering files for its sonar device. These files contained some 12 gigabytes and took almost all day to copy. I find the MSN chat exchange between Messrs Ward and Johnson provides convincing evidence that Messrs Ward, Johnson and Spagnuolo and Echotec had copied MAQ Sonar’s intellectual property, namely a copy of its two engineering files in their possession.

(d) Possibility that the defendants by counterclaim may destroy such material

[ 29 ] This is the only factor of the four requirements that was contested by the defendants by counterclaim in their motion to set aside the injunction and the Anton Piller order. The defendants by counterclaim were all former employees of MAQ Sonar and I have found that there is a strong prima facie case that they copied a large volume of MAQ Sonar’s confidential and proprietary data, namely the engineering and design of the MAQ Sonar digital sonar device. I also find that they did so in order to assist them in a competing business.

[ 30 ] MAQ Sonar’s documents and design files were copied from MAQ Sonar’s computer server and are proprietary and contain highly confidential information. Copying these files would have constituted a prima facie breach of their confidentiality and non‑disclosure agreements with MAQ Sonar. The defendants by counterclaim knew that their conduct would have breached the confidentiality terms of their agreements as Mr. Ward took steps to conceal that he was copying the files and stated “Whew” when the copying was completed. He also hid the fact that he was copying the engineering files from Jim who was hovering about.

[ 31 ] In Brunswick News Inc. v. Langdon, 2007 NBQB 423, at paras. 62‑69, the Court held that it was nearly impossible to prove ahead of time that a defendant intends to destroy evidence. At para. 63, the Court stated “… courts have generally inferred a risk of destruction when it is shown that a defendant has been acting dishonestly, for example, where a matter has been acquired in suspicious circumstances, or where the defendant has knowingly violated the applicant’s rights.”

[ 32 ] I infer from the evidence that the defendants by counterclaim had copied the 12 gigabytes of MAQ Sonar’s engineering design in secret and in breach of the non‑disclosure and confidentiality agreements while employed at MAQ Sonar and as a result that there is a risk of destruction. The engineering files were intended to be used in a competing business and in these circumstances, I find there was a real risk of destruction of the electronic evidence given the ease with which electronic evidence may be moved, copied or destroyed. These factors were also considered in Bell ExpressVu Limited Partnership v. Rodgers, [2007] O.J. No. 4569 at para. 17 and Celanese Canada Inc. v. Murray Demolition Corp., supra, at para. 32. Digital copies of engineering files could very easily be moved and deleted or hidden and I find that there is a real risk that the evidence would be lost if the Anton Piller order was not granted.

Full Frank Disclosure

[ 33 ] The Anton Piller order and injunction were granted on an ex parte basis and I find that MAQ Sonar made full and frank disclosure in their motion seeking the interlocutory injunction and the Anton Piller order.

Irreparable Harm

[ 34 ] I find that there is potential for serious irreparable harm to MAQ Sonar if the Anton Piller order and the injunction were set aside as the copied engineering files, which are MAQ Sonar’s property, could be used by the defendants by counterclaim in their competing business.

[ 35 ] I also find that irreparable harm would not be caused to the defendants by counterclaim as the Anton Piller order only addresses the property of MAQ Sonar and sets time limits for copying the hard drives, which will be completed within a reasonable time. In addition, all of the information copied will remain under the supervision of the ISS. The ISS will ensure proper preservation of the information which will be shielded from MAQ Sonar until the appropriate time or on further order of the Court.

[ 36 ] In order for the information seized to be returned to the defendants by counterclaim, guidelines on removal of any information of the defendants by counterclaim will occur after it has been copied by the ISS, who will prepare a list of all documents seized. All documents will be held solely by the ISS until the Court orders otherwise, on the consent of the parties.

[ 37 ] The evidence seized is to be used only for purposes of this action. I am satisfied that there is no risk of MAQ Sonar acquiring any proprietary or secret information belonging to the defendants by counterclaim because all of the information is being held by the ISS. In addition, MAQ Sonar has signed an undertaking for damages.

Balance of Convenience

[ 38 ] I find that the balance of convenience favours the continuance of the injunction that the defendants by counterclaim and Echotec be prohibited from using any property of MAQ Sonar. The defendants by counterclaim have not argued that they have authority or should be permitted to use any proprietary technology or intellectual property developed by MAQ Sonar.

Extension of Time Period

[ 39 ] The request for an extension of time to copy the electronic hard drives is granted and was done largely on consent of the parties.

Costs

[ 40 ] If the parties are unable to agree on costs, MAQ Sonar shall have ten (10) days to make submissions, the defendants by counterclaim shall have ten (10) days to respond, and MAQ Sonar shall have seven (7) days to reply.

R. Smith J.

Released: September 26, 2012