Court File and Parties

Court File No.: CV-17-11682-00CL Date: 2017-08-16 Superior Court of Justice – Ontario Commercial List

Re: Schroeder & Schroeder Inc., Plaintiff And: Stewardship Ontario and Canadian Stewardship Services Alliance Inc., Defendants

Before: L. A. Pattillo J.

Counsel: Andrew McCoomb, for the Plaintiff Lisa M. Constantine, for the Defendants

Heard: April 6, 2017

Endorsement

[1] The parties in this action bring cross motions for summary judgment.

[2] The plaintiff, Schroeder & Schroeder Inc. (“SSI”), claims against the defendants, Stewardship Ontario (“SO”) and The Canadian Stewardship Alliance Inc. (“CSSA”), for damages for breach of the Copyright Act, RSC 1985, c. C-42, unjust enrichment and quantum meruit in the amount of $1,650,000. In the alternative, SSI claims damages from SO for breach of contract (the “Action”).

[3] The Action arises out of SO’s implementation of a business enterprise information software system utilizing third party software and its subsequent sub-licensing of that system to CSSA. SSI, who was the consultant to SO on the EIS project, claims that it retained intellectual property rights in the system pursuant to the Copyright Act and the consulting agreement between it and SO. SSI claims that SO’s sub-licensing of the system to CSSA constituted a breach of its copyright and the consulting agreement.

[4] SSI seeks partial summary judgment against both SO and CSSA for damages of $1,650.000 for breach of contract and unjust enrichment.

[5] SO and CSSA’s summary judgment motion in response seeks judgment dismissing the Action in its entirety.

[6] For the reasons that follow, and after lengthy consideration, I dismiss both parties’ motions for summary judgment. In my view, the issues arising in SSI’s contractual claim cannot be separated from the issues in its primary claim for breach of copyright. Partial summary judgment is therefore not appropriate. Nor do I consider that the evidence before me is sufficient to enable me to determine the copyright claim to grant SO and CSSA’s summary judgment motion.

[7] In light of my conclusion on the summary judgment motions, I intend to just give a brief overview of the facts which are not disputed and the issues that arise from them based on the parties’ claims. As the claims must proceed to trial, I do not intend to address a number of the issues raised.

[8] SSI is a management and information technology consulting business. Its principle is Harold Schroeder (“Schroeder”).

[9] SO is an Ontario corporation and is designated as the industry funding organization initially under the Waste Diversion Act for blue box waste under the Ontario Blue Box Program (since 2004) and for municipal household hazardous special waste under Ontario MHSW Program (since 2008) and more recently pursuant to the Waste Diversion Transition Act, 2016. SO is entirely funded by the brand owners and first importers of packaged and printed paper and municipal hazardous waste (known as “stewards”).

[10] CSSA is a Federal not-for-profit corporation and is a shared service organization, providing services to SO and to similar stewardship programs in British Columbia, Manitoba and Saskatchewan.

[11] Prior to November 2008, all of SO’s administrative and corporate functions were out-sourced to a private service provider. In early 2009, SO embarked on a plan to in-source all of its administrative and corporate functions through the acquisition and implementation of a business enterprise information software solution in order to undertake all of the business processes that were necessary for SO to fulfil its statutory obligations under the Waste Diversion Act (the “EIS Project”).

[12] SO initially hired SSI in April 2009 to prepare the SO business case for the EIS Project. SO staff worked closely with SSI to develop the business case, explaining SO’s vision for the company, its current needs and its future expansion plans. In June 2009, SSI delivered the business case to SO entitled Enterprise Information System: Project Charter, Project Governance, Business Case, Change Management Activities, and Observations (the “Project Outline”).

[13] The Project Outline was subsequently approved by SO’s board of directors.

[14] SSI and SO subsequently entered into a written agreement entitled the Master Services Agreement providing, among other things, that SSI would provide project management and implementation services relating to the acquisition and implementation of a business enterprise information software solution (the “EIS System”) for SO (the “MSA”). The MSA incorporated the Project Outline.

[15] The MSA sets out the Services and Deliverables to be provided by SSI which included:

• identification and documentation of business needs, processes and technical requirements and architectural design for the EIS System;
• management and coordination of the process required to select the third party software for the EIS System for direct procurement by SO;
• configuration and installation of software, management and coordination of tasks to be performed by software vendors and their authorized service providers, and training of SO staff necessary for transition to the EIS System;
• advice and assistance with respect to the transition from SO’s existing service providers to personnel in the use of the EIS System.

[16] Section 5.2 of the MSA, entitled Intellectual Property provides as follows:

5.2 In consideration of the payments to be made by SO to the Vendor [SSI] for the Deliverables to be provided hereunder, Vendor grants to, or shall procure for SO, a non-exclusive, royalty-free, right and licence to use and copy any materials belonging to Vendor or any third person that are incorporated in and form part of any Deliverables to be provided by Vendor hereunder, including any such materials that consist of pre-existing works belonging to Vendor or which Vendor is responsible for procuring from any third party. Subject to the foregoing, Vendor or its suppliers shall retain all intellectual property rights in any materials belonging to Vendor or its suppliers, or developed by Vendor in the course of providing any Services hereunder, and in each case that are incorporated as part of any Deliverables.

[17] In the fall of 2009, with the assistance of SSI, SO selected and purchased software owned by SAP Canada Inc. (“SAP”) and developed by SAP AG for the EIS System. Subsequently, SO entered into a software license with SAP’s authorized retailer, Illumiti Inc. (“Illumiti”), permitting SO to use the SAP software. The SAP license agreement provided, among other things that SO could make modifications to the SAP software and use them but all modifications and all rights associated therewith were the exclusive property of SAP and SAP AG. “Modification” is defined in the SAP license agreement to mean: “a change to the Software that changes the delivered source code or an enhancement to the Software that is made using SAP tools or utilizing or incorporating SAP Proprietary Information.”

[18] SSI had no expertise itself in configuring SAP’s software. As a result, it entered into an agreement with Illumiti to configure the SAP software for SO (the “Illumiti Agreement”). The Illumiti Agreement sets out the Statement of Work which includes using certain SAP business modules in conjunction with the SAP software.

[19] The Illumiti Agreement also provides that Illumiti assigns all intellectual property rights in its work product to SSI save and except for “any item or documentation that is owned by SAP and/or SAP AG including modifications or enhancements to such item or documentation..”. Intellectual Property rights are broadly defined.

[20] SSI and SO entered into other contracts for additional services and deliverables outside the scope of the MSA. SSI completed all its work under the MSA and the other contracts in March 2010. In total, it was paid $3,463,241.54 by SO.

[21] In October 2011, based on a further business case which was prepared by SSI and the staff at SO, SO’s board of directors passed a motion to proceed with the development and creation of a National Steward Services organization (CSSA) to serve as a shared services organization for national and regional stewards across Canada for printed paper and packaging.

[22] By October 2012, the plan was for CSSA to assume all or virtually all of SO’s employees. CSSA was incorporated on November 12, 2012.

[23] By agreement as of May 30, 2013, SO entered into a non-transferable, non-exclusive sub-license with CSSA with respect to the Services and Deliverables under the MSA and the additional SO/SSI contracts (the “Sub-License”).

[24] The grant of sub-license is contained in paragraph 2.1 of the Sub-License and provides as follows:

2.1 Subject to the terms and conditions of this Agreement, Sublicensor [SO] hereby grants to Sublicensee [CSSA] a non-transferable, non-exclusive license, with no right to grant sublicenses without the prior written consent of the Sublicensor (“License”), to the Original Licensee (in order to enable Sublicensee to utilize the Deliverables), solely for use by the Sublicensee in connection with the development of the Sublicensee’s business processes and business systems. When used in this Agreement, “Deliverables” and “Services” shall include not only any and all Licensor Deliverables and Services pursuant to the Master Services Agreement, but shall be deemed to include all additional Deliverables and Services provided by the Licensor from time to time pursuant additional written agreements, as more particularly set forth in subsection 2.1(ii) or the Master Services Agreement.

[25] SSI commenced the Action by issuance of a statement of claim dated December 16, 2015. It has since been amended. As noted, SSI’s primary claims are for breach of copyright and unjust enrichment. It claims that it holds copyright in the EIS System. In the alternative, it claims a breach of the license granted by it in s. 5.2 of the MSA. It claims that the license includes the right to use the EIS System.

[26] SSI’s position on its summary judgment motion is that it retains all intellectual property rights in the Deliverables under the MSA, including the EIS System. SSI submits its claim for breach of contract is founded on three simple propositions: (1) SSI licensed certain property to SO; (2) SO conveyed that same licensed property to CSSA by the Sublicense; and (3) the Sublicense allowed CSSA to use the EIS System.

[27] Both in defence to SSI’s summary judgment motion and in support of their summary judgment motion to dismiss the Action in its entirety, SO and CSSA submit that SSI’s breach of copyright claim (and its breach of contract claim) is predicated on its “untenable position” that SSI holds some form of intellectual property in the EIS System. They submit that SSI has no “intellectual property” in the EIS System, either pursuant to the MSA or in respect of copyright. Rather, the intellectual property rights in the EIS System belong to SAP with whom both SO and CSSA have a license.

[28] In response to the defendants’ summary judgment motion, SSI submits that they have adduced no expert evidence to demonstrate to the court that the work performed by SSI contains no intellectual property.

[29] Fundamental to SSI’s claims in the Action, not only in copyright but also in contract and unjust enrichment, is whether SSI has any copyright in the EIS System. In order to address that issue, evidence as to exactly what SSI (and more specifically Illumiti on its behalf) did in configuring the SAP software needs to be before the court.

[30] The evidence on the motions was provided by Schroeder on behalf of SSI and Ms. Zecchini, who was CEO of SO during the relevant period. Neither of them have the technical background nor the expertise to address the technical issues regarding the configuration of the SAP software having regard to SAP’s interests.

[31] Nor, in my view, is it a case where failure to lead trump should apply. Both parties have failed to present evidence concerning what SSI terms the “technical aspects” in play.

[32] I am also of the view that SO and CSSA’s submission on its summary judgment motion that SSI’s claims for breach of contract and unjust enrichment are statute barred pursuant to the Limitations Act cannot succeed on this record. The issue is discoverability and the defendants rely on s. 5(1)(b) of the Act and submit that SSI ought to have discovered the facts supporting its claims no later than October 2013 through the exercise of reasonable diligence. SSI’s position is that it did not learn of the sublicense until in or around January 21, 2014. Whether that position is valid raises a credibility issue which cannot be resolved on the record before the court.

[33] SO and CSSA have raised other defences to SSI’s motion which, in light of my conclusion that a trial is required, I do not intend to address.

[34] Accordingly, for the above reasons, both SSI’s partial summary judgment motion and SO and CSSA’s summary judgment motion are dismissed. As directed by Hryniak v. Mauldin, 2014 SCC 7, I remain seized of the Action. In my view, the trial can be expedited to deal with the issue I have identified.

[35] Counsel are directed to contact the Commercial List Office as soon as possible and, in any event, no later than 30 days from the date of this endorsement to arrange for an appointment before me to discuss how the trial shall proceed and to set a timetable in respect thereof.

[36] The parties agreed that the successful party on the motions should be awarded $75,000 in costs and if success was divided, they asked for the right to make brief cost submissions. In light of my decision, costs of both motions are reserved to be dealt with at the conclusion of the trial.

L. A. Pattillo J. Released: August 16, 2017