SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: 12-55642
DATE: 12\30\2013

RE: Active Operation Management (AOM) NA Inc. et al v. Reveal Group Operations Management Ltd. also known as Reveal Group

BEFORE: Master Calum MacLeod

COUNSEL:
Peter Mantas, Julia Kennedy for the Plaintiffs

Anthony Prenol, Sarah O’Grady, for the Defendants

HEARD: October 2, 2013

ENDORSEMENT

[1] This is a motion by the defendants to strike certain paragraphs from the statement of claim or alternatively a motion for particulars.

[2] For the reasons that follow I am granting the motion to strike the claim for copyright infringement but with leave to amend. The balance of the motion is dismissed as the defendant has sufficient particulars to plead.

Background

[3] The plaintiff Active Operations Management (AOM) NA Inc. (AOMNA) is an Ontario corporation in the business of selling and implementing a system or “method” designed for the management of processing centres and incoming contact centres. The “method” is supported by a computer software program “the software”. Apparently the method and the software were developed in the United Kingdom and the plaintiff has the right to sell and deliver these products in North America. It also claims to have the authority to protect the intellectual property constituting the method and the software.

[4] The defendant is also an Ontario corporation but it is controlled by Ian Crouch, a resident of Australia. According to the plaintiff, Mr. Crouch became aware of the particulars of the method and the software when he worked in companies in Australia using the method and the software under licence. It is alleged that Mr. Crouch founded the defendant Reveal in 2005 and improperly copied the method and software and that versions of a method and software based on the improperly copied information were then marketed in Ontario by the Defendant. It is alleged that inter alia the defendant improperly marketed its own version of the products to compete with the plaintiff and was able to successfully lure away clients including the Bank of Montreal.

[5] The plaintiff sues for breach of copyright, misappropriation of trade secrets, interference with contractual relations, unjust enrichment and misappropriation of goodwill.

[6] The action was begun on October 2, 2012. On October 18, 2012 there was a demand to particulars. On November 19, 2012 the plaintiff delivered what purported to be a response to demand for particulars but subsequently on March 26, 2013 the statement of claim was amended. There has as yet been no defence filed.

[7] In the amended claim, the plaintiff added two parties, Active Operations Management International LLP and Workware Business Systems Limited (“AOMi” and “WBSL” for purposes of these reasons). AOMi is said to be the owner of the copyright in the “method” and WBSL the owner of the “software”.

Jurisdiction under Rule 25

[8] The plaintiff argues that whatever minor deficiencies may exist in the pleading, it should not be struck under Rule 25.11 as that is a drastic remedy reserved for the most egregious of pleadings. Rule 25.11 of course permits the court to strike out a pleading or other document that is scandalous, frivolous, vexatious, abuse of process or is found to be such as to prejudice or delay the fair trial of the action. Abdijama v. McDonald’s Restaurants of Canada [1] is authority that while striking of pleadings is a remedy that ought to be granted only in the clearest of cases, it is the appropriate remedy if material facts necessary to constitute a cause of action are missing. In that case the claim cannot succeed. Though Nordheimer J. struck the pleading in that case under Rule 21, the same relief is available under Rule 25.11.

[9] In 1985 in one of the first decisions under what were then the new Rules of Civil Procedure, Master Sandler dealt with the distinction between striking a pleading and ordering particulars. That decision, Copland v. Commodore Business Machines Ltd[2] has stood the test of time and remains good law today. Master Sandler held that if the pleading was deficient so that no cause of action was made out, it should be struck. Particulars were not the tool to repair a deficient pleading. Particulars are appropriate where the pleading is proper but there are pieces of information that are not in the pleading yet are necessary for the purpose of pleading in response.

[10] The tests then are different. If the claim cannot succeed because the pleading is defective then the defendant should not have to deliver a defence and the pleading should be struck as frivolous, vexatious or abusive. [3] The test for ordering particulars on the other hand is whether, notwithstanding a valid pleading, the defendant requires the particulars in order to plead. Particulars for pleading are to be distinguished from particulars for trial which will ordinarily be obtained through the discovery process.[4] On the other hand “necessary” should not be interpreted rigidly. It is always possible to simply plead a denial but the defendant is entitled to the particulars necessary to plead appropriately. This may include narrowing or better definition of the issues.[5] Particulars may in fact have enhanced importance now that the rules require the court and the parties to have regard to proportionality.[6]

Copyright

[11] The defendant contends that the pleading of breach of copyright is deficient because the plaintiff has failed to plead material facts permitting it to assert a claim of copyright infringement under the Copyright Act.

[12] Damages for breach of copyright in in Canada are available as a statutory remedy under the provisions of the Copyright Act, RSC 1985, c. C.42 and in particular s. 41.23 of the Act. For copyright that originated in the United Kingdom to be enforceable in Canada under the Act, the plaintiff must bring itself within the ambit of the statute.

[13] For the proposition that the right to enforce copyright and a claim for damages for breach of copyright must be pleaded with particularity, the defendant relies upon certain decisions of the Federal Court as its predecessors, specifically Durand v. Patrie Publishing Co.[7], Unipeixe Exportadora De Peixe Ltda v. J. Gaspar & Fils Inc., [8], NAV Canada v. Adacel Technologies Ltd. et al.[9] 2006 (FCA). The rules of pleading in the Federal Court are essentially similar to our own and given the specialized role of the Federal Court in intellectual property cases, its decisions are entitled to deference.

[14] S. 41.23 of the Act provides that “the owner of any copyright” or a person deriving any right, title or interest by “assignment or grant in writing from the owner” may “protect and enforce any right that he or she holds” and to the extent of that right, title or interest, “is entitled to the remedies provided by the Act.” In the decisions of the Federal court cited by the defendant the court has held that the chain of title and the particulars of the “grant in writing” must be pled because they are a constituent part of the statutory right of action. I agree.

[15] In this case it is pleaded that the authors of the “method” were Neil Bentley and Richard Jeffrey, the founders of AOMi. Copyright normally attaches to the authors and though one might infer from this pleading that Bentley and Jeffrey assigned their copyright to AOMi the pleading does not state this. Similarly WBSI which is said to be a subsidiary of AOMi is said to be the owner of the AOM Software but how copyright arose or was assigned is not pleaded.

[16] The pleading then states that AOMNA is licensed to sell and deliver the AOM method and software in North America. The amended pleading states that AOMi and WBSI have “conferred upon AOMna the authority to pursue the infringement and breaches described herein. I agree that it is not clear from this statement whether AOMna has a “right, title or interest” in specific copyright pursuant to an “assignment or grant in writing from the owner” as required by s. 41.23 and whether any such assignment is valid under s. 13 (4).

[17] Copyright is a very specific right attaching to a “work”. I agree with the defendants that the pleading is vague about what it is that is subject to copyright and what it is alleged has been the breach of copyright giving rise to this cause of action. Copyright cannot attach to an idea such as a method. It can of course attach to the manuals or other material in which the method is described. Similarly with computer software, copyright can attach to source code, to a graphic user interface, to manuals and to other material as defined in the Act. Copyright cannot attach simply to what a computer program does. The plaintiff must specify what it is that is covered by copyright and what it alleges has been done that gives rise to the statutory remedies.

[18] On this point the defendant is successful. The claim for copyright breach will be struck out with leave to amend.

[19] I will note that the defendant also objects to the amended pleading in which AOMi and WBSL are added as plaintiffs but “taking no part in the action”. I do not agree with that objection. S. 41.23 (2) of the Act requires that if proceedings under subsection (1) are taken by a person other than the copyright owner, the copyright owner must be made a party to the proceedings but the Act goes on to state that the copyright owner need not take any part in the action. While it would certainly be possible to add the copyright owner as a defendant, there is nothing in the wording of the Act that requires it be done in that manner. Mr. Mantas of course must warrant that he has the authority of the added parties to be added as plaintiffs. Notwithstanding that the amended pleading asserts that the added plaintiffs will be taking no part in the action, the question of whether the defendant will have any production or discovery rights against those added plaintiffs need not be answered today.

[20] Assuming the pleading is amended to properly plead breach of copyright the added plaintiffs may remain in the action as “non participating” parties.

[21] I do not agree with the defendant that the claims for misappropriation of trade secrets, interference with contractual relations or unjust enrichment should be struck. In our system of fact based pleading, parties are to plead the material facts on which they rely but not the evidence to prove those facts. True this distinction is not always a bright line and certain causes of action (such as copyright discussed above but also including fraud, defamation and even negligence) must be pleaded with greater precision and particularity than others. Conclusions of law, which include the specific causes of action, may but need not be pleaded. Moreover in our current system the plaintiff is under no obligation to plead only facts for which it has evidence. It is perfectly legitimate to plead a fact that the plaintiff hopes to be able to prove following discovery.

[22] In this case it is alleged that Mr. Crouch knows precisely what the method and software consist of and what they do. It is specifically pleaded that when Mr. Crouch worked at the National Australia Bank and at another company in Australia he had access to the method and the software, that material provided in conjunction with both was clearly marked proprietary and confidential and subject to copyright. It is pleaded that he was and knew that he was subject to an obligation imposed by the licencing agreement between the owners of the method and software and his employers. As the Chief Information Officer at NAB, it is pleaded that Crouch was well aware of the method and the software and the proprietary nature of both. Finally it is pleaded that after Crouch founded the defendant he was in communication with AOMi and AOM Australia concerning the method and the software. In paragraph 20 of the claim the plaintiffs plead that Reveal together with staff it had recruited from NAB and from AOM Australia “copied all or part of the AOM method and software and started selling it through Reveal”.

[23] These allegations are of course unproven but if true then the defendant would be well aware what was copied and appropriated. There is no mystery as to the nature of the wrongdoing that is pleaded. If there is no substance to the claim or if the allegations are untrue then the defendant can simply deny them. If material was copied but the defendant alleges it did so with colour of right then it can plead that.

[24] There is always concern in dealing with issues of trade secrets as to how much detail must be included in a pleading or in particulars. It would be ludicrous for example to compel a plaintiff to set out a trade secret with precision in the pleading. To do so would destroy the secret itself. A trade secret is valuable precisely because it is secret. It may be that information will have to be provided at the production and discovery stage but at that point the proprietor of the secret may seek confidentiality orders and to the extent that those details must be put into evidence may seek a sealing order.

[25] I decline to strike the balance of the pleading.

[26] For similar reasons, I decline to order particulars. There was an original response to the demand for particulars. Subsequently the pleading was amended to address some of the concerns voiced by the defendant.

[27] In my view many of the particulars requested are really in the nature of written interrogatories. They are in effect demanding to know what evidence the plaintiff has of the allegations made in the pleading. These requests for evidence and further information will be appropriately addressed in the affidavits of documents and through the discovery process but they need not form part of the pleadings and they should not be necessary for pleading purposes.

[28] The motion for further particulars is dismissed.

Summary and Conclusion

[29] In conclusion, the claim for copyright infringement is struck as it is lacking in material facts necessary to bring the claim within the statute. Specifically the chain of title to the copyright is not pleaded and the protected work is not defined. The plaintiffs have leave to amend the pleading and shall deliver an amended pleading no later than February 1st, 2014.

[30] The balance of the defendant’s motion is dismissed.

[31] In my view success on this motion has been divided. While the defendant is correct in its complaints about lack of technical compliance with the Copyright Act, the demand for particulars and the motion to strike the balance of the claim is overreaching.

[32] I do not view this as an appropriate case for costs and subject to any offers to settle which counsel may wish to draw to my attention, there will be no costs of the motion.

Master MacLeod

DATE: December 30th, 2014

[1] [2001] O.J. No. 1086 (S.C.J.)

[2] (1985) 1985 2190 (ON SC), 52 O.R. (2d) 586 (Master)

[3] See McCarthy Corp. PLC v. KPMG LLP [2006] O.J. No. 1492 (S.C.J.)

[4] Physicians’ Services Inc. v. Cass 1971 359 (ON CA), [1971] 2 O.R. 626 (C.A.)

[5] Antonacci v. Great Atlantic & Pacific Co. of Canada 2000 5496 (ON CA), [2000] O.J. No. 40 (C.A.)

[6] Ottawa v. Cole and Associates Architects Inc. 2012 ONSC 2607; (2012) 25 C.L.R. (4th) 120 (Master)

[7] (1952) 1951 836 (CA EXC), 15 C.P.R. 86; 1951 737 (CA EXC), [1952] Ex. C.R. 32 (E.C.C.)

[8] 1980 4297 (FC), [1981] 1 F.C. 648 (F.C.T.D.)

[9] 2006 FCA 227