ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: CV-09-392911

DATE: 20140703

BETWEEN:

IMAX CORPORATION
Plaintiff

– and –

TROTUM SYSTEMS INC., SUNWAY DIGITAL INC., JOHN GREGORY BLAIR, GARY TSUI (aka GARY CUI, aka XIAOYU CUI aka JOHN TROY), YOUNG GHI HONG, JIANGSU SUNWAY DIGITAL INC., JIANGSU SUNWAY DIGITAL TECHNOLOGY CO. LTD., JIANGSU SUNWANG DIGITAL FILM AND TELEVISION CO. LTD., ALLAN QIANG (aka JOHN A NAN aka QIANG ANAN), A CORPORATION OR ENTITY CARRYING ON BUSINESS AS DMAX,

A CORPORATION OR ENTITY CARRYING ON BUSINESS AS SHANGYANG, A CORPORATION OR ENTITY CARRYING ON BUSINESS AS SHANGRUI, A CORPORATION OR ENTITY CARRYING ON BUSINESS AS DAIYI, A CORPORATION OR ENTITY CARRYING ON BUSINESS AS CUBIC PICTURES

Defendants

Sarit E. Batner and Moya J. Graham, for the Plaintiff

All Defendants were noted in default

HEARD: June 18, 2014

Archibald J.

[1] This action proceeded as an undefended trial. The plaintiff IMAX alleges that the individual defendant Gary Tsui (“Tsui”) – a senior and trusted former employee – stole sophisticated proprietary 2D to 3D film conversion software from it and used it to compete against IMAX in China, while causing it considerable damage. The plaintiff alleges that the many corporate defendants are all companies directly controlled by Tsui. Tsui and all of the corporate defendants have been noted in default.

[2] The individual defendants Allan Qiang (“Qiang”), John Gregory Blair (“Blair”) and Young Ghi Hong (“Hong”) did not participate in the trial. IMAX is not seeking relief from them. They had previously provided affidavits in support of IMAX’s case.

[3] At trial, IMAX sought damages for only two specific aspects of the defendants’ wrongdoing: i) disgorgement of the profits gained from the theft of a corporate opportunity to build a large format cinema in China, specifically the Hangzhou Theatre Project; and ii) compensation for the theft and misuse of its 2D to 3D conversion technology.

[4] IMAX is seeking $6 million dollars in damages which it claims is the minimum amount of money required to independently develop the type of software it alleges was stolen by Tsui. It is also seeking $456,000.00 in the disgorgement of profits for the appropriation of the Hangzhou project, $50 000 in punitive damages, and costs on a partial indemnity scale.

[5] IMAX elected to seek a judgment at trial rather than by way of motion for judgment under Rule 19.05. It sought and was granted leave to file evidence at trial by way of affidavits, pursuant to Rule 53.02. IMAX’s expert witness, Charles Poynton, appeared in person to give viva voce evidence.

The Parties

[6] IMAX is a Canadian digital cinema company. For more than 40 years, it has been a pioneer in new motion picture technologies, including large format projection systems and the technology required to convert 2D motion pictures into 3D motion pictures. IMAX debuted its 2D to 3D conversion technology at an Expo in Japan in 1986.[^1] In 2006, after another 20 years of development, IMAX released its first motion picture – Superman Returns: the IMAX Experience – converted with its 2D to 3D conversion technology.[^2]

[7] Tsui was a software engineer, hired by IMAX in 1999. Tsui had a major role in the development of IMAX’s 2D to 3D conversion technology. In his role, Tsui had backup copies of all of IMAX’s 2D to 3D conversion software which he kept at his house.[^3] The Defendant Trotum is a shell Ontario company controlled by Tsui.[^4]

[8] Qiang and Tsui founded their Chinese company Sunway on July 1, 2009. At the time, Tsui was still an employee of IMAX. From its inception, Sunway directly competed with IMAX in the large scale theatre and 2D to 3D conversion business in China.[^5]

[9] Blair and Hong are former IMAX employees. Blair worked with Tsui on the development of IMAX’s 2D to 3D conversion technology.[^6] As a Senior Optical Designer, Hong had exposure to IMAX’s development of technology related to IMAX’s 2D to 3D conversion technology, including 3D projection techniques.[^7] When Tsui started Sunway, he enlisted the help of Blair and Hong to compete with IMAX.[^8]

[10] There are large format theatres operated in China under the name “DMAX” by a company called China Giant Screen. DMAX is a joint venture that Tsui developed out of his business at Sunway.[^9]

[11] Cubic Pictures is a 2D to 3D conversion company operating in Beijing, China. It is controlled by Tsui. The Cubic Pictures website states that it was founded in 2009 and also that it has conversion technology that is the result of nearly 10 years of research and development.

Procedural History of the Action

[12] This action was commenced by IMAX on December 8, 2009, against Trotum Systems Inc. (“Trotum”), Sunway Digital Inc., John Gregory Blair (“Blair”), Gary Tsui (aka Gary Cui, aka Xiaoyu Cui) (“Tsui”), and Young Ghi Hong (“Hong”).[^10] On December 22, 2009, IMAX obtained an injunction from Justice Belobaba preventing the defendants from wrongfully competing with IMAX and misusing its confidential information, and requiring the defendants to return IMAX’s proprietary materials.[^11] The defendants did not comply with the injunction.

[13] On January 20, 2010 the defendants were noted in default.[^12]

[14] On July 15, 2010, the noting in default of only Tsui and Trotum was set aside.[^13] Following that decision, Tsui and Trotum delivered a Statement of Defence denying all allegations against them.[^14]

[15] In 2012, Blair admitted his involvement to IMAX and swore an affidavit on April 27, 2012. Based on evidence from Blair, IMAX amended its Statement of Claim to add additional defendants and obtained an Order allowing search and seizure (“Anton Piller Order” from Justice Campbell) of several premises.[^15] The new defendants were: Jiangsu Sunway Digital Inc., Jiangsu Sunway Digital Technology Co. Ltd., Jiangsu Sunwang Digital Film and Television Co. Ltd., Allan Qiang (aka John Anan, aka Qiang Anan) (“Qiang”), and corporations carrying on business as: DMAX, Shangyang, Shangrui, Daiyi, and Cubic Pictures. Of these defendants, only Qiang delivered a statement of defence.[^16]

[16] On September 17, 2012, Jiangsu Sunway Digital Inc., Jiangsu Sunway Digital Technology Co. Ltd., Jiangsu Sunwang Digital Film and Television Co. Ltd., and corporations carrying on business as DMAX, Shangyang, Shangrui, Daiyi, and Cubic Pictures were all noted in default.[^17]

[17] During the Anton Piller search, Tsui’s laptop was intentionally destroyed.[^18] Qiang’s laptop was seized and the data and evidence recovered supported IMAX’s claim and confirmed Blair’s evidence.

[18] IMAX attempted to move this action forward against the defendants not noted in default, namely Qiang, Tsui and Trotum. Despite a 2012 court order from Justice Pollak requiring progress, this case did not move forward.[^19] In January 2013, IMAX sought and obtained an order that Tsui and Trotum were in contempt of court. Tsui’s statement of defence was struck.[^20] Tsui and Trotum were noted in default on April 8, 2013.[^21]

[19] IMAX set this matter down for trial on April 9, 2013. Qiang was the only defendant with standing to defend this action at trial. In March 2014, he came forward to IMAX and swore an affidavit dated March 26, 2014. The trial was heard during the week of June 16, 2014. He did not participate in the trial. IMAX does not seek judgment against him. Nor does it seek judgment against the defendants Blair or Hong.

The Evidence at Trial

[20] The key factual evidence for IMAX came from four primary sources:

(a) two affidavits of IMAX’s Vice President of Image Technology, Mr. Samuel Zhou, sworn December 7, 2009 and March 26, 2010;[^22]

(b) the Affidavit of Blair sworn April 27, 2012;

(c) the documents recovered from Qiang’s laptop during IMAX’s July 2012 execution of the Anton Piller Order; and

(d) the Affidavit of Qiang sworn March 26, 2014.

Tsui’s Misappropriation of the Hangzhou Theatre Project from IMAX

[21] China is a key market for digital cinema and the second largest market in the world for IMAX theatres.[^23] In August 2008, a delegation from Hangzhou, China visited IMAX’s office in Mississauga. Qiang was a member of the delegation. The purpose of the visit was for the delegation to conduct due diligence on IMAX technology prior to IMAX’s bid on a request for proposals to build a large scale IMAX-style 3D theatre at a science and technology museum in Hangzhou (the “Hangzhou Theatre Project”). Tsui acted as a translator for the delegation. That was how Tsui met Qiang.[^24]

[22] In late 2008 and early 2009, Tsui and Qiang developed plans to set up a business in China to compete with IMAX in the large scale 3D theatre and 2D to 3D film conversion businesses. After months of planning, they incorporated Sunway in July 2009. A series of emails recovered from Qiang’s laptop during the Anton Piller search revealed the ongoing discussion between Qiang and Tsui to set up the company to compete with IMAX, first for the Hangzhou Theatre Project and then more broadly.[^25] Tsui was still an employee of IMAX during this period. The evidence demonstrated that he used his access as an employee to provide confidential IMAX information to Qiang and Sunway.[^26]

[23] On November 2, 2009, Tsui gave notice to IMAX of his resignation, effective the end of November. He travelled to China in mid-November to work with Qiang, Blair, and Hong to complete Sunway’s bid for the Hangzhou Theatre Project.[^27] Sunway, a new company previously unheard of by IMAX, won the bid.[^28] Sunway underbid IMAX by 13% to win. Sunway purported to have developed or acquired from Trotum the necessary technology for the Hangzhou Theatre Project in just 4 months. That technology had taken IMAX many years to develop.[^29]

Tsui’s Conversion of IMAX’s 2D to 3D Conversion Technology

[24] Blair’s evidence described how throughout the summer and fall of 2009, Tsui worked remotely with him, Qiang, and others at Sunway while Tsui was still an IMAX employee. For months, Mr. Tsui went to work at IMAX each day while working at night on Sunway’s 2D to 3D conversion technology and projects.[^30]

[25] Both Blair and Qiang gave evidence that Tsui was solely responsible for Sunway’s 2D to 3D conversion technology and that he was very secretive about it.[^31] Tsui told Blair and Qiang that he could develop 2D to 3D conversion technology like IMAX’s without any significant software investments or complex software development projects by using cheap labour in the place of technology. Sunway had just $1 million in initial capital and apart from Tsui, Hong, and Blair, Sunway had no other high level technical experts.[^32] The evidence establishes that Tsui/Sunway did not develop new 2D to 3D conversion software.[^33]

[26] Tsui admitted to Qiang that the 2D to 3D technology which he used for Sunway was identical to IMAX’s. “The two methods are identical”, he wrote.[^34] Qiang’s evidence was that he and Tsui, together with their associates, did their best to conceal any signs that they had used stolen IMAX information and to minimize the appearance of similarities between Sunway’s technology and IMAX’s technology.[^35]

[27] Blair and Qiang both swore that Tsui used IMAX’s trade secrets to derive the 2D to 3D conversion process for Sunway.[^36]

Tsui Had Access to IMAX Trade Secrets

[28] On November 26, 2009, Mr. Tsui returned 11 CDs to IMAX which contained backup copies of IMAX proprietary software. There is no way of verifying what information he copied and what he kept. He was asked directly whether he had any involvement with Sunway or Trotum. Tsui flatly denied any knowledge of, or involvement with, those companies or with Qiang.[^37]

[29] A few days later, IMAX uncovered emails to Tsui from his wife containing logos for “Sunway Digital” on Tsui’s work computer. When confronted, Tsui had no explanation but maintained that he knew nothing about Sunway and had no affiliation with Qiang.[^38] Forensic computer searches revealed nearly 2,000 hits on the word “Trotum” on Tsui’s work computer.[^39]

[30] Tsui’s employment at IMAX was immediately terminated. Shortly thereafter, Tsui left for China.[^40] He arranged for Qiang to fly from China to Canada to retrieve the hidden computer hard drives and bring them back to China.[^41]

[31] The evidence from Blair and Qiang establishes that those hard drives contained 2D to 3D conversion technology that Tsui purloined from IMAX for Sunway.[^42] The hard drives were not produced in this action, despite the court order requiring production. Tsui’s computer was intentionally destroyed at the Anton Piller search. Its contents are not known.

Tsui took IMAX’s technology to China Giant Screen (DMAX) and Cubic Pictures

[32] The evidence establishes that Tsui competed vigorously with IMAX for market share in China.[^43] On November 3, 2009, Qiang wrote the following to Tsui:

“the hangzhou project only represents the beginning of your revenge on ixxx [sic] and the first step of your further life success. let’s work together and squeeze ixxx out of chinese market or at least refrain and confine it to where it is now. i am confident that we can make it happened before we retire. DGP will be the best large movie system not only in china but also around the world.”[^44]

[33] Despite their plan to continue working together, Qiang’s evidence is that shortly after Sunway won the Hangzhou Theatre Bid, Tsui took his purloined IMAX trade secrets and went into business with another IMAX competitor, China Giant Screen[^45] and Cubic Pictures.[^46] Those entities are complicit in Tsui’s unfair competition with IMAX and have benefitted from IMAX’s stolen trade secrets.

The Expert Opinion of Charles Poynton

[34] Charles Poynton is an expert in physics, image processing algorithms, software development, digital cinema, and in particular, the development of software systems for digital cinema, including 2D to 3D conversion. Mr. Poynton was qualified at trial to provide expert opinion evidence regarding the development of 2D to 3D conversion software, the costs associated with that development, and the value of that technology in the field of digital cinema.

[35] Mr. Poynton testified as follows:

(a) Sunway’s 2D to 3D conversion software was pre-existing. It was not developed by Sunway and it was not purchased from a commercial provider.

(b) Sunway could not have developed 2D to 3D conversion software between the time it was established and when it began 2D to 3D conversion of movies. It did not have enough time, people, expertise, software, or money to do so.

(c) The only plausible conclusion is that Tsui purloined IMAX’s confidential, proprietary and trade secret 2D to 3D conversion software and used it for the benefit of Sunway, DMAX and Cubic Pictures.

(d) The value of what was misappropriated as measured by the cost of its development is $6,000,000 at a minimum, being 30 person years at $100,000 annual salary per person, plus 100% “loading” to account for industry standard overhead including hardware and costs.

The Law and Analysis

A. Breach of Implied Duty of Good Faith and Fidelity and Misuse of Confidential Information

[36] An employee owes his employer a duty of good faith and fidelity. He must act honestly and faithfully during the term of employment. He must put the employer’s best interests before his own. CRC Evans Canada Ltd v Pettifer, [1997] AJ No 20 (QB) at para 45, aff’d: 1998 ABCA 191, [1998] AJ No 629 (CA). Competing with one’s employer during the term of employment is a clear example of conduct that violates the duty of good faith and fidelity: Restauronics Services Ltd v Forster, 2004 BCCA 130.

[37] An employee’s duty of good faith and fidelity also precludes the unauthorized use of the employer’s trade secrets and confidential information: CHS Air Conditioning Ltd v Environmental Air Systems Inc. (1996), 1996 8137 (ON SC), 20 CCEL (2d) 123 (Ont Gen Div).

[38] Tsui established Sunway to compete with IMAX in China using IMAX’s confidential information and trade secrets. That is a clear breach of the duty of good faith and fidelity by an employee.

B. Misappropriation of Corporate Opportunity

[39] Employees are prohibited from usurping from their employers: (1) maturing business opportunities; (2) that the employer is actively pursuing; and (3) that came to the employee in his capacity as an employee of the corporation rather than as a result of his own fresh initiative: Canadian Aero Service Ltd v O’Malley, [1974] SCR 592.

[40] Tsui’s pursuit of the Hangzhou Theatre Project, an opportunity he learned about in his capacity as an IMAX employee, for himself and Sunway, is an obvious usurping of a ripe business opportunity. Revenue for the project was US$1,520,000.[^47]

C. The Tort of Conversion

[41] The tort of conversion is “a wrongful interference with the goods of another, such as taking, using or destroying these goods in a manner inconsistent with the owner’s right of possession.” Boma Manufacturing Limited v. Canadian Imperial Bank of Commerce, [1996] 3 SCR 727.

[42] It is clear on the evidence that Tsui stole various pieces of information from IMAX for his use in China. The most glaring instance of theft by Tsui was his misappropriation of IMAX 2D to 3D conversion software. That Tsui took this technology is well supported by the evidence of Blair and Qiang. It is also supported by Mr. Poynton’s opinion evidence. From a technical perspective, the only plausible explanation how Sunway was able to compete against IMAX in the 2D to 3D conversion business so quickly and without any significant investment in research and development is that Tsui stole the 2D to 3D technology from IMAX.

D. Damages

[43] IMAX seeks $6,000,000 to compensate it for the conversion of its 2D to 3D conversion software. It submits that this is a conservative estimate that underestimates the potential profit obtained by Sunway, DMAX and Cubic Pictures. Mr. Poynton’s evidence clearly supports this minimum figure. In my opinion, this is an appropriate amount to award for the conversion of the software.

[44] IMAX also seeks disgorgement of the profits Tsui and Sunway realized by misappropriating the Hangzhou Theatre Project from IMAX. IMAX is required to establish the revenues attributed to the wrong-doing. It cannot do in this case because of the paucity of Sunway’s documentation. If they could have done so, the defendants would then have been required to establish that not all of the revenues constitute profit attributable to the wrongdoing: Jostens Canada Ltd v Gibsons Studio Ltd., [1999] BCJ No 972, (CA), at para 26.

[45] For want of productions from the defendants, I am unable to know what portion of the revenues are profit. It is a matter of common sense that the defendants expended some resources to complete the Hangzhou Theatre Project. Without the ability to be more precise, a very conservative estimate of profit would be 30%. Their profits are likely considerably more, but not less. That would require the disgorgement of US$456,000 from their revenues of US$1,520,000. IMAX agrees with this figure. I find that this is a reasonable amount to award in the circumstances.

[46] IMAX also seeks $50,000 punitive damages. Punitive damages may be awarded in cases where the defendant’s conduct is so reprehensible as to offend the Court’s sense of decency. They are intended to punish the defendant and deter others and are only awarded where the damages would otherwise be insufficient to punish and deter: Hill v. Church of Scientology of Toronto, [1995] 2 SCR 1130, at para. 196. Tsui’s complete refusal to recognize and participate in these legal proceedings is an affront to the justice system and is deserving of sanction. This is an appropriate case for an award of punitive damages and the amount of $50,000 is reasonable. In my view, it is neither excessive nor lenient.

E. Costs

[47] Following the trial, IMAX produced a bill of costs (Exhibit 11). Together with disbursements and taxes, IMAX has spent in excess of $650,000 pursuing this action. Of that amount, it seeks only $300,000 all-inclusive in costs. I consider that amount to be fair and reasonable in the circumstances.

F. Conclusion

[48] This Court Orders:

(a) $6,000,000 in damages for conversion and misuse of confidential information and trade secrets as against Gary Tsui, Sunway Digital Inc., Jiangsu Sunway Digital Inc., Jiangsu Sunway Digital Technology Co. Ltd., and Jiangsu Sunwang Digital Film and Television Co. Ltd., and the corporate defendants carrying on business as: DMAX, Shangyang, Shangrui, Daiyi, and Cubic Pictures, jointly and severally;

(b) Disgorgement of profits from the Hangzhou Theatre Project of US$456,000 for misappropriation of a corporate opportunity as against Gary Tsui, Sunway Digital Inc., Jiangsu Sunway Digital Inc., Jiangsu Sunway Digital Technology Co. Ltd., and Jiangsu Sunwang Digital Film and Television Co. Ltd., as well the corporate defendants carrying on business as: Shangyang, Shangrui, and Daiyi, jointly and severally;

(c) Punitive damages of $50,000 from Gary Tsui.

(d) Prejudgment interest; and

(e) $300,000 in costs from Gary Tsui, Sunway Digital Inc., Jiangsu Sunway Digital Inc., Jiangsu Sunway Digital Technology Co. Ltd., and Jiangsu Sunwang Digital Film and Television Co. Ltd., and the corporate defendants carrying on business as: DMAX, Shangyang, Shangrui, Daiyi, and Cubic Pictures, jointly and severally.

Archibald J.

Released: July 3, 2014

Footnotes

[^1]: Affidavit of Samuel Zhou, sworn December 7, 2009, Trial Exhibit 3 (the “Zhou Affidavit”) at paras. 9-10. Zhou “IMAX’s Vice President of Image Technology”.

[^2]: Zhou Affidavit at para. 17.

[^3]: Affidavit of J. Gregory Blair, sworn April 27, 2012 (the “Blair Affidavit”), at para 4, Trial Exhibit 6; Blair was a former employee of IMAX who worked with Tsui. Zhou Affidavit at paras. 34 & 36.

[^4]: Affidavit of Allan Qiang, sworn March 26, 2014, Trial Exhibit 9 (the “Qiang Affidavit”).at para. 12; Blair Affidavit at paras. 65-66.

[^5]: Articles of Incorporation in Chinese (with English translation) Affidavit of Samuel Zhou, sworn March 26, 2010 Trial Exhibit 5.

[^6]: Zhou Affidavit at paras. 38 & 40.

[^7]: Zhou Affidavit at paras. 41-42.

[^8]: Articles of Incorporation in Chinese (with English translation) Affidavit of Samuel Zhou, sworn March 26, 2010 Trial Exhibit 5.

[^9]: Blair Affidavit at para. 84.

[^10]: Amended Statement of Claim, Trial Record, Tab 1, Trial Exhibit 1.

[^11]: Order of Justice Belobaba, dated December 22, 2009, Exhibit C to the Affidavit of Brian Bonnick, sworn May 1, 2012, Trial Exhibit 7.

[^12]: Requisition dated January 20, 2010, Trial Exhibit 2A.

[^13]: The motion to set aside the noting in default was contested by IMAX. The Court did set aside the noting in default, but terms were imposed on Mr. Tsui and Trotum Systems Inc.

[^14]: Statement of Defence of Gary Tsui and Trotum Systems Inc., Trial Record, Tab 2, Trial Exhibit 1.

[^15]: Amended Statement of Claim; Endorsement of Justice K. Campbell dated May 2, 2012, IMAX Corporation v Trotum Systems, 2012 ONSC 2789.

[^16]: Statement of Defence of Allan Qiang, Trial Record, Tab 3, Trial Exhibit 1.

[^17]: Requisition dated September 17, 2012, Trial Exhibit 2B.

[^18]: Report of the Independent Supervising Solicitors, Stockwoods LLP, dated July 17, 2012.

[^19]: Order of Justice Pollak, dated July 11, 2012.

[^20]: Reasons of Justice T.J. McEwen, dated January 29, 2013, IMAX Corp v Trotum Systems, 2013 ONSC 743.

[^21]: Requisition dated April 8, 2013, Trial Exhibit 2C.

[^22]: Mr. Zhou supervised Tsui and Blair when they worked at IMAX.

[^23]: Zhou Affidavit.

[^24]: Blair Affidavit, para. 21; Zhou Affidavit, para. 59.

[^25]: Various emails between Allan Qiang and Gary Tsui (May–November 2009).

[^26]: Email evidence produced during the Anton Piller search.

[^27]: Blair Affidavit at paras. 47‑52.

[^28]: Zhou Affidavit at paras. 66‑67.

[^29]: Zhou Affidavit at paras. 70‑73.

[^30]: Blair Affidavit at paras. 37‑43.

[^31]: Blair Affidavit paras. 38 & 42; Qiang Affidavit paras. 22‑23.

[^32]: Qiang Affidavit para. 18.

[^33]: Qiang Affidavit paras. 63‑64.

[^34]: Qiang Affidavit para. 66.

[^35]: Qiang Affidavit para. 39.

[^36]: Blair Affidavit para. 61; Qiang Affidavit para. 65.

[^37]: Zhou Affidavit paras. 79‑84.

[^38]: Zhou Affidavit paras. 86‑88.

[^39]: Zhou Affidavit paras. 91‑94.

[^40]: Blair Affidavit para. 59.

[^41]: Blair Affidavit para. 60; Qiang Affidavit paras. 45‑46.

[^42]: Qiang Affidavit paras. 45‑46; Blair Affidavit paras. 60‑61.

[^43]: Qiang Affidavit para. 47.

[^44]: Email from Allan Qiang to Gary Tsui dated November 3, 2009.

[^45]: China Giant Screen operates the DMAX theatres in China.

[^46]: Qiang Affidavit paras. 52‑55.

[^47]: Zhou Affidavit para. 69.