Court File and Parties

COURT FILE NO.: CV-14-10695-00CL DATE: 20160616 SUPERIOR COURT OF JUSTICE - ONTARIO

IN THE MATTER OF THE COMPANIES’ CREDITORS ARRANGEMENT ACT, R.S.C. 1985, c. C-36, as amended AND IN THE MATTER OF A PROPOSED PLAN OF COMPROMISE OR ARRANGEMENT WITH RESPECT TO U.S. STEEL CANADA INC.

BEFORE: Mr. Justice H.J. Wilton-Siegel

COUNSEL: Paul Steep, Heather Meredith and James Gage, for the Applicant, U.S. Steel Canada Inc. Michael Barrack, Robert Thornton, Kiran Patel and Mike Shakra, for the Respondent, United States Steel Corporation Lily Harmer, for the United Steelworkers International Union, and Local 8782 Sharon White, for the United Steelworkers International Union, Local 1005 Peter Ruby and Logan Willis, for the Province of Ontario Andrew Hatnay, Representative Counsel for the non-unionized active employees and retirees Robert Staley, for the Monitor, Ernst & Young Inc. Patrick Riesterer, for Brookfield Capital Partners

HEARD: June 13, 2016

Endorsement

[1] On this motion, the applicant, U.S. Steel Canada Inc. (“USSC”), seeks approval of a claims process for the identification and determination of intellectual property claims of United States Steel Corporation (“USS”) against USSC. USSC is supported on this motion by the other principal stakeholders, and the Monitor, in these proceedings under the Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36 (the “CCAA”). At the conclusion of the hearing of this motion, I advised the parties that, for written reasons to follow, the proposed process order would be granted subject to certain excisions from the claim form attached as Schedule B to the draft order which, in the view of the Court, went beyond the identification of any USS intellectual property claims and a description of the basis for such claims, and were therefore unnecessarily complicating at this stage of the claims process.

[2] Paragraph 11 of the Transition Arrangements, set out in the Transition Arrangements Approval Order dated October 9, 2015 of the Court, contemplated good faith discussions between USSC and USS respecting intellectual property rights which, if not resolved by December 31, 2015, would be followed by a motion before the Court to have such issue determined prior to the end of the second quarter of 2016. This motion reflects the fact that the parties have been unable to reach a consensual solution.

[3] The proposed order contemplates a thirty-day period for the filing of claims with the Monitor after the date of Court approval of the proposed order, followed by a review by USSC in consultation with the Monitor of all claims filed by USS. The proposed order further provides that the Monitor may take a number of actions after such review including, but not limited to, requesting further information from USS, attempting to resolve a claim with the consent of USSC or order of the Court, accepting any claim with the consent of USSC and revising or disallowing a claim. USSC may dispute any claim by issuing a Notice of Disallowance following which USS shall have fifteen days to deliver a Notice of Dispute. In the event such a Notice of Dispute is delivered, and the claim is not settled within twenty days, the proposed claims process order provides that the Monitor shall seek directions from the Court regarding the process for determination of the claim.

[4] As a practical matter, the USS intellectual property claims are understood to relate principally to technical process data and specifications pertaining to grades of advanced high-strength steel that were available to USSC and to computer applications used by USSC. USS has advised USSC of the grades of advanced high-strength steel which it claims use confidential intellectual property owned or licensed by USS. It has also identified 141 software applications it says it is has provided to USSC. USS says that it has retained the source codes for all the software applications which it claims are proprietary to it. USSC has indicated that it intends to convey its rights over all of such grades of advanced high-strength steel. It is unclear to what extent USSC intends to convey all of such software programmes. Until a buyer is selected under the ongoing sales and investment process (“SISP”), it is not possible, however, to conclude that any buyer would be prepared to receive less than all of USSC’s rights in respect of such grades of steel and computer applications.

[5] USSC says that it requires the proposed claims process, among other things, to provide clarity to potential purchasers in its SISP. It also says that a resolution of these claims will facilitate the negotiation of a transition services agreement between USS and a buyer under the SISP. It says a resolution of these claims by the Court will thereby facilitate a going concern bid for USSC, which will maximize recoveries for all stakeholders.

[6] USS submits that there is no practical possibility of concluding the proposed claims process prior to termination of the timelines for the completion of the SISP. It suggests that the better process would be to provide for direct negotiations between USS and the buyer ultimately identified under the SISP respecting any necessary transition services agreement and a licence agreement for the provision of the intellectual property required by the buyer.

[7] In the alternative, USS argues that the proposed process should be limited to products or software applications that USSC currently uses, or intends to use, and intends to convey under the SISP and such products and applications which are of interest to the remaining bidders under the SISP. To this end, USS proposes a two-stage process under which: (1) it will deliver a brief description of the intellectual property claims it asserts in respect of the grades of advanced high-strength steel it has developed or licensed from a third party and all software applications it has developed, or modified or customized, and provided to USSC; followed by (2) USSC would identify any claim it is asserting in any of the grades of advanced high-strength steel or in any software applications identified by USS. USS proposes that the parties should seek directions from the Court by way of a case conference after such exchange has been completed.

[8] I am satisfied that the Court has the authority under section 11 of the CCAA to grant the relief sought. USS does not raise any issue regarding such authority.

[9] USSC, and the other stakeholders who have supported it on this motion, acknowledge that there is a reasonable possibility that the process for determination of the USS intellectual property claims may not be completed before the point at which the SISP process will require resolution of such claims and that it may be necessary to reach an agreement among USS, USSC and the buyer under the SISP on a different basis. That possibility is not, however, a reason to forego proceeding to identify the USS intellectual property claims, and the basis for such claims, as described above.

[10] It is clear that identification of the specific claims of USS with respect to each of the grades of advanced high-strength steel and the computer applications, as well as the basis for such claims, will be of assistance in two respects. First, it will put USSC in a position where it can assess its position relative to the USS position regarding the alleged provision of confidential information whose use is necessary for the production of such grades of steel. Similarly, it will allow USSC to assess the extent to which any or all of the software applications are proprietary to USS. As the Monitor has submitted, this information is important both for USSC’s assessment of the bids USSC has received under the SISP and for prospective purchasers under the SISP in addressing the conditions in their offers. Second, in proceeding to allow, revise or disallow the USS claims pursuant to the proposed process order, USSC will establish the framework for negotiations between it and any buyer under the SISP respecting the assets to be purchased, and between such buyer and USS to the extent a transition agreement and/or a licensing agreement is necessary to complete any transaction under the SISP.

[11] USS asserts that the task of collecting the information required to identify the confidential intellectual property generated at each stage of the development process of the grades of advanced high-strength steel at issue in this proceeding represents a substantial burden on it without any compensating benefit for the restructuring of USSC. The benefits to the restructuring process have been addressed above. While I appreciate that the proposed claims process would involve substantial work on the part of USS, I do not think that the Court should accept the premise of this USS submission - that it has not undertaken any of this work to date. This issue has been the subject of intense and continuing discussions since October 2015. I am not persuaded that USS is unable to provide its claims within the thirty-day time frame contemplated by the proposed order, particularly after the amendments to the required information referred to above.

[12] I have some sympathy for the argument that it would be desirable to limit the claims to be addressed to claims in respect of products and applications which USSC intends to convey or which a buyer under the SISP will require. However, for the reasons set out above, I have concluded that this is not possible at this time.

[13] USS also argues that the proposed process order is unfair insofar as it contemplates disclosure by USS without any corresponding disclosure by USSC. I do not agree. The burden is on USS, as the objecting party, to assert any claims it might have in respect of the assets that USSC proposes to sell under the SISP. Moreover, USSC will need to disclose the basis of its claims to the extent that it issues any Notice of Disallowance regarding the USS claims.

[14] The status of the proposed intellectual claims process relative to the timelines under the SISP is, however, a reason for keeping the process as straightforward as possible to avoid the potential for litigation over compliance with the proposed process. This is reflected in the Court’s amendments to Schedule B to the proposed draft order. I would also note that, depending upon the number of USS intellectual property claims which USSC rejects or revises, it may well be necessary to prioritize or triage the determination of such claims on the basis of materiality or otherwise if the process is to have any utility beyond the identification of such claims and their basis.

[15] Based on the foregoing, an order will issue in the form of the proposed draft order, subject to the excisions required by the Court and an amendment to be agreed upon between counsel for USS and USSC respecting the effect of the claims bar provision in respect of confidential information in the possession of USSC without the knowledge of USS.

Wilton-Siegel J. Date: June 16, 2016