Court File and Parties

Court File No.: CV-13-57031 Date: 2018-08-07 Ontario Superior Court of Justice

Between: Shaver-Kudell Manufacturing Inc., Plaintiff – and – Knight Manufacturing Inc., Lucy Shaver, Dusko Ballmer and Alexander Knecht, Defendants

Counsel: Todd J. Burke and Kaisha Thompson, for the Plaintiff Marc A. J. Huneault, for the Defendants

Heard: March 12, to April 5, 2018

This decision has been redacted on consent of the parties in accordance with paragraph 103 to protect the confidentiality of trade secrets. The provisions of paragraph 103 are hereby cancelled.

Reasons for Decision

R. Smith J.

Overview

[1] This case requires me to decide the issue of whether a long term employee can solicit customers on behalf of a competitor within a relatively short time after leaving without breaching her duty of good faith or the confidence of her former employer, where she committed to memory a detailed knowledge of her employer’s customers as a result of her employment responsibilities. In addition I must decide whether the tooling and manufacturing process developed by Shaver-Kudell to manufacture metal sleeves to repair ball bearings used in electric motors were trade secrets.

[2] The Plaintiff, Shaver-Kudell Manufacturing Inc. (“SK”), operates a machine shop which manufactures metal sleeves of different lengths and diameters, which are used to repair the ball bearings in electric motors. SK claims that the tooling and manufacturing process that it developed to make the metal sleeves are trade secrets that are confidential in nature. SK also alleges that the Defendants misappropriated its trade secrets and that Lucy Shaver committed a breach of confidence in relation to SK’s tooling, manufacturing process and customer list.

[3] The Defendants argue that SK’s manufacturing process and the tooling it developed to manufacture sleeves xxxx xxxxx xxxxxxxxxx xxxx xxxx xxxx are not trade secrets because:

(1) The tooling and manufacturing process used by SK were known to others in the industry, including ISCAR, the tooling supplier contacted by Dusko Ballmer;

(2) SK manufactures sleeves using a process known as “xxxxxxxxxx” , which has been known for centuries and is not a trade secret. Xxx xxxxxxx xxx xxxxxx xxxx XX xxxxxx xx xx “xxxxxxxx” xx xxx x xxx xxxxxxx xxx xx xx xxxx xxx xxxx-xxxxx xxxxxxx xxxxx “xxxxxxxxx”;

(3) The tooling and manufacturing process used by Knight Manufacturing Inc. (“KM”) are significantly different from those used by SK and were developed independently from those used by SK;

[4] The Defendants also allege that the Plaintiff has failed to prove that Lucy Shaver (“Lucy”) breached any confidence by revealing SK’s tooling, manufacturing process to the other Defendants, or by soliciting SK’s former customers for a competitor, where she acquired detailed knowledge of those customers through her lengthy employment by SK.

Issues

[5] The issues to be determined are as follows:

(1) Are the tooling and manufacturing process used by SK to manufacture metal sleeves trade secrets?

(2) Did the Defendants commit a breach of confidence and misappropriate SK’s trade secrets in relation to its tooling and manufacturing process?

(3) Did Lucy commit a breach of confidence or breach her duty of good faith by using her knowledge of SK’s customer list shortly after leaving to solicit new customers for KM?

Background Facts

[6] I have adopted some of the facts in the parties’ submissions where the facts were not contested.

[7] Shaver-Kudell is a small family-owned manufacturing company that operates out of Summerstown, Ontario. It was founded in 1988 by Neil and Karen Shaver, and another couple from the same town. Shaver-Kudell manufactures and sells electric motor sleeves known as EZE® sleeves. Neil Shaver (“Neil”) is a trained and licensed machinist. Prior to starting at Shaver-Kudell, he worked for several years at Surgeson Electric while also running his own business which focused on machine repair.

[8] Shaver-Kudell itself is one of three manufacturers that makes and sells electric motor bearing sleeves. Over the past 30 years, Shaver-Kudell has grown to a company of 13 employees which includes five members of the Shaver family.

[9] Lucy Shaver (“Lucy”) is Neil’s sister and was Shaver-Kudell’s first employee. Over the course of 23 years, Ms. Shaver had regular contact with customers and held many roles within the company, including customer service and marketing. Towards the end of her employment, Ms. Shaver was also responsible for shipping and receiving. In that role, she had familiarity with Shaver-Kudell customer orders. As the employee responsible for accounts receivable, she also had familiarity with customers’ credit status.

[10] Lucy testified that she worked in a number of different roles at SK but during the last five years she was employed primarily as a shipper/receiver and also followed-up on accounts receivable. She agreed that she had also worked as a telemarketer for SK for a period of time.

[11] When Lucy applied for EI in May of 2012, she outlined the work she performed at SK in an email to SK dated May 18, 2012. Lucy also described her role at SK to the Ministry of Labour in Exhibit 64 as “customer service, order entering, purchasing, accounts receivable and shipping”. The description of her work responsibilities that she provided to the Ministry is consistent with Neil’s evidence at trial. In her evidence at trial, Lucy attempted to minimize her involvement in marketing and her knowledge of and relationship with SK’s customers.

[12] I find that Lucy’s role with SK was as she described it in her complaint to the Ministry of Labour and in her May 18, 2012 email and as described by Neil in his evidence, all of which indicated that she had a large amount of contact with SK’s customers while she was employed at SK.

[13] Many SK customers across Canada and the United States knew Lucy by her first name. When Ms. Shaver left the family business and within months joined KM as a telemarketer, these customers remembered her. She immediately re-connected with customers she had interacted with for two decades while at Shaver-Kudell. In doing so, she reported to Mr. Knecht and Mr. Ballmer that customers recognized her as “Lucy from SK”. Ms. Shaver relied on her knowledge of Shaver-Kudell’s customers to solicit them to follow her to KM. Many of these customers followed her and transferred their business to KM.

[14] Dusko Ballmer (“Dusko”) is Lucy’s common-law spouse. He emigrated to Canada from Switzerland in about 2006. As a result of his relationship with Ms. Shaver he became a part of the Shaver family. Neil offered him employment at SK in 2008 to assist him to obtain his work-permit status. Dusko subsequently completed some IT work for SK at no charge and was paid by SK for work he performed for a third-party in 2010.

[15] Mr. Ballmer ran his computer servers from the SK facilities and stored personal belongings at SK’s the manufacturing facility until May 23, 2012. He also used SK’s address as the mailing address for his own business, Ballmer Systems Inc.

[16] Dusko obtained a four year certificate in “Automatiker” or automation from a post- secondary institution in Switzerland. This program included one full year of training on the basics of machining. He learned how to run a mill, drill holes, but he did not work with a CNC machine.

[17] Dusko first became interested in log home construction in 2002 or 2003 when he took a course in Germany. He had been in Canada for about 2 years when he came up with the idea for the automation of log home construction.

[18] Alexander Knecht (“Alex”) is a business owner who emigrated from Germany after selling his interests in a number of computer stores that he had operated. He first met Mr. Ballmer in 2006 through an online immigration forum. Alex learned about SK and its success when researching Mr. Ballmer and Ms. Shaver in advance of their first meeting at his home in about August of 2011. It was during that visit that Alex proposed going into the metal sleeve business with Mr. Balmer. Alex testified that the sleeve business was a test of Mr. Ballmer’s abilities prior to them entering a venture together focused on the construction of log homes.

[19] Alex, Dusko and Lucy met for a second time at the end of November or early December, 2011 at Alex’s home in North Bay. The Defendants agree with the SK’s submissions that it is more likely than not that Lucy attended this meeting at Alex’s home. However, she testified that she didn’t participate in the meeting because Alex and Dusko were speaking to each other in German.

[20] Dusko spoke to Alex about his interest in setting up a log home project. Alex was interested in this project but was concerned about the capital required for this venture. Alex suggested that they start on something smaller such as manufacturing sleeves to repair electric motors as a “stepping stone” before they started the log home project.

[21] KM is a corporation registered in Ontario, Canada. It is one of three sleeve manufacturers worldwide and was founded on March 16, 2012 by Mr. Knecht. Mr. Ballmer and Ms. Shaver worked for KM during its first year of operation. Mr. Ballmer worked for KM as a consultant at a salary of $5,000 per month from March 1, 2012 until the fall of 2016. Ms. Shaver worked for KM as a telemarketer and sales representative from December 2012 to January 2017. Mr. Knecht is the founder and President of KM.

[22] SK laid Lucy off on December 5, 2011 due to financial difficulties but she was rehired shortly thereafter on December 12, 2011 to focus on drumming up new business. She was temporarily laid off again in February of 2012. Lucy was upset at Neil about her lay off and Dusko spoke with Neil in a raised voice at this time. Following the phone call in February the relationship between Neil and Lucy was strained and their relationship continued to deteriorate thereafter.

[23] On February 16, 2012, Ms. Shaver went into the SK office to access the computer and pick up some personal items. Her visit was unusual and was reported to Mr. Shaver by his son Troy in an email. During this visit, Ms. Shaver accessed her regular computer.

[24] Two weeks later, on or about March of 2012, Ms. Shaver went to Osgoode with Mr. Ballmer to look at a potential manufacturing facility for KM to compete with SK. Although KM had not yet been incorporated, Mr. Ballmer had commenced working on the project to manufacture sleeves for at least a month. During this period, he and Alex were trading photographs of potential machine shop locations online through their Panorama 360 accounts. Lucy was seen in photographs taken on March 6 and May 3, 2012 at the Osgoode facility. The latter was a visit to the newly rented KM facilities and to await the arrival of the xxxxx xxxx xxxxx. On both occasions Lucy was still an employee of SK.

[25] On May 7, 2012, Ms. Shaver went back to work at SK. At this time she was presented with a notice of permanent lay-off. She was given eight weeks of working notice. The next day she contacted the Ministry of Labour (“ MOL ”) to inquire about the requirements of a Record of Employment and her eligibility for vacation pay. As a result of her inquiry, Ms. Shaver was given May 9 and 10, 2012 off to make up for the vacation pay she was owed. Subsequently, she filed a WSIB complaint alleging she had been injured while working at SK on May 10, 2012, despite not having attended work that day. This complaint, along with her MOL complaint, indicates that Ms. Shaver had negative feelings towards SK and her brother Neil.

[26] On May 22, 2012, Ms. Shaver stopped working for SK. Neil testified that Lucy told him that she “wanted to deal with customers instead of labelling sleeves”. Neil wrote to her the next day expressing his concern that her decision could affect her E.I. claim and offered her the chance to return to Shaver-Kudell for the remaining six weeks. He also wrote to Mr. Ballmer requesting that he remove his personal items from SK’s facilities.

[27] Ms. Shaver did not return to work at SK. In November of 2012, Ms. Shaver began working for KM as a telemarketer. In early December, she began to send solicitation emails to some potential customers and offered them sample sleeves. PMR Moteurs, a long-time SK customer whom Ms. Shaver knew, received an email from her on December 4, 2012 and PMR subsequently sent an email to SK advising that Lucy had solicited their business.

[28] Ms. Shaver never provided a full list of potential customers that she contacted while working at KM, that she knew as a result of working at SK, despite having given an undertaking to do so. A review of the list of repair shops that received sleeve samples from Lucy, included 21 SK customers. This included xxxxxxxx xxxxx xxx. who had been a customer of SK’s since 1988.

[29] SK has not presented any direct evidence that Ms. Shaver took or copied Shaver-Kudell’s customer list. However, Ms. Shaver acquired knowledge of many of SK’s long-time customers as a result of working with them over the 23 years while she was employed at SK. Her emails to Mr. Knecht and Mr. Ballmer described many SK customers with specificity.

The Product

[30] The metal sleeves manufactured by SK are also known as bushings. They are cylindrical metal tubes with very precise outer diameters that are inserted into an electric motor’s bell housing to install a replacement ball bearing. The ball bearing must be tightly held within the motor’s bell housing to facilitate the movement of the motor’s shaft and reduce friction. Over time through wear and the accumulation of dirt, the bearing will begin to fail. This failure causes the bearing to rotate with the shaft which causes damage to the bell housing. This creates a gap. The sleeve serves as a reinforcement of the bell housing and fills the gap.

[31] The sleeves are made from cast iron or steel and have three measurements: inner diameter (“ ID ”), outer diameter (“ OD ”) and overall length (“ OAL ”). The sleeve’s ID must be slightly smaller than the bearing’s OD. Some machining of the sleeve’s ID is necessary to create a “press fit” and this is done by the machinist. The press fit ensures that the bearing will not rotate or move within the end bell housing. The OD of the sleeve must be of a size such that the thickness of the sleeve allows it to be pressed into the bell housing and support the bearing. The length of the sleeve will depend on the motor size.

[32] xx xxxxxxx xxxxxx xxxx xxxxx xx xxxxx xxxxxx xxxx xx xxx xx xxxx xxxxx xxxxx xxx xx xxxx xxx xxxxx xx xxxxx xxxxx xxx xxxxxxx. xx. xxxxxx xxxxxxxx xxxx xx xxxxxxx xxx xxxx xxxxxx x xxxxxxxx xxxxxx xx xxxx xxxxx xxxxxx xxxxx x xxxxx xx xxx xxxxxx xxxxxx xx xxxxxx xxx xxx xxxxx xxxxxxx xx x xxxxx xxxxx xx xxxxx xxxxxxx xxxx xxxxx.

[33] xx xxxxx xxx xxx xxxxx xxxxxx xxxx xxx xxxxxxx xx x xx” xxxxxxx xxxxxxxxxxx xxxxx xxxxx xx xxxx xxxx xxx xxxx xxxxxxxxxxxxx xxxxx xxxxxxx xxxxx xxxxxxx xxxxxxxxxxxx xxxxxxx xxxxxxx xxxxxx. xx xxxxxxxxxxx xxxx xxx xxxxxxxxx xxxxxxxxxx xxx xxxx xx xxxxx xx xxxxxx #xx xx xxx xxx xxxxxxx xx x xxxx xxxx x xxxxxxx xxxxxx .

[34] SK applied for and received research grants of $2,154,754 from the Federal Governments’ Scientific Research and Experimental Design program to xxxxxxx xxxx xxxx xx xxx xxxxxx xx xxxxxxx xxxx x xxxxx xxxxxxxxxx xxxx xx xxxxt xxxx .

[35] xxxx x x xxx xxxxx xxxxxx xx xxxx, xx xxx xxxxxxx x xxxxx xxxx xxxxx xxxx xx xx xxxx xx xxx xxxx xx xxxxxxxxx xx xx x” xxxx xxxx xxxxxx .

[36] Dusko Ballmer stored his household belongings that he had brought from Switzerland at the upstairs offices at SK’s premises, which he also used to run his servers. The servers held information related to Dusko’s log home business. Dusko used the SK manufacturing facility once or twice a month and on two occasions he was given after-hours access to SK’s premises. Neil also testified that he gave Dusko a tour of the manufacturing facility and told Dusko that the xxxxxxxx xxxxxxx they were using to make sleeves was a trade secret.

[37] Mr. Ballmer acknowledged that he is a very curious person and loves to learn about how products are made. He recalled seeing xxxx xxxxxxx xxxxx xx xxxx xxxx xxxx xxxxx xxxx xxx xxxx. He agreed that he saw parts of the process when walking to his servers at SK’s premises.

Issue #1 Are the tooling and manufacturing process used by SK to manufacture metal sleeves trade secrets?

Analysis

Trade Secret and Breach of Confidence

[38] In GasTOPS Ltd v Forsyth, 2009 ONSC 66153, [2009] OJ No 3969 (Ont Sup Ct J) at para 120, aff’d 2012 ONCA 134 [GasTOPS] the court discussed trade secrets as follows at paragraph 120:

The purpose of the law of trade secrets is to provide protection for information-based assets that are not publicly known by prohibiting others from using, disclosing or otherwise misappropriating the information. The terms “confidential information” and “trade secrets” are recognized in the jurisprudence as being synonymous concepts. Numerous decisions have imposed a duty of confidence on former employees, whether or not they are fiduciaries. The main principle articulated in these decisions is that trade secrets or other information obtained in confidence while in the employ of an employer is not to be disclosed or used by former employees. Any disclosure or use of such information is a breach of the duty of confidence.

[39] At para 22 of the GasTOPS decision the court stated that “The confidential information need not be committed to a document that is physically removed from one’s former employer. Committing information to memory is tantamount to the physical taking of confidential information.”

[40] In CPC International Inc. v. Seaforth Creamery Inc., 1996 ONSC 8188 at para 22 Cumming, J. held that to qualify as a trade secret, the information must be specific, must not be generally known to the public but could be ascertainable with the expenditure of time and effort, and must not be of a general nature. In addition, the owner must show his/her intention to maintain the secrecy of the information and treat it as confidential.

[41] In Areva NP GmbH v Atomic Energy of Canada Ltd., [2009] OJ No 4372 at para 23, the court cited the decision of R.I. Crane Limited v. Ashton and Ashton Press Manufacturing Company Limited, 1949 ONSC 111; affirmed 1949 ONCA 81, [1950] O.R. 62 (C.A.), where the Court of Appeal affirmed that a “trade secret” will have one of the following characteristics:

(1) “A trade secret… is a property right, and differs from a patent in that as soon as the secret is discovered, either by an examination of the product or any other honest way, the discoverer has the full right of using it…”

(2) “A trade secret is a plan or process, tool, mechanism, or compound known only to its owner and those of his employees to whom it is necessary to confide it.”

(3) “The term “trade secret” is usually understood, means a secret formula or a process not patented, but known only to certain individuals, used in compounding some article of trade having a commercial value, and does not denote the mere privacy with which an ordinary commercial business is carried on.”

(4) “A trade secret may consist of any formula, pattern, device or compilation of information which is used in one’s business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it. A trade secret is a process or device for continuous use in the operation of the business. The subject matter of a trade secret must be secret.”

[42] The 2nd item referred to above in the R.I. Crane definition of a “trade secret” states that it includes “a plan or process, tool,… known only to its owner and those of his employees to whom it is necessary to confide it”. Therefore a tool or manufacturing process can be a trade secret provided it meets the other requirements.

Breach of Confidence

[43] In Lac Minerals Ltd. V International Corona Resources Ltd., 1989 SCC 34 at para 129, the Supreme Court set out the test to establish a breach of confidence as follows: “consist of three elements: that the information conveyed was confidential, that it was communicated in confidence, and that it was misused by the party to whom it was communicated”.

[44] In GasTOPS at para 124 the court set out seven criteria to determine whether the information has the necessary quality of confidence as follows:

(1) The extent to which the information is known outside the business;

(2) The extent to which it is known by employees and others involved in the business;

(3) Measures taken to guard the secrecy of the information;

(4) The value of the information to the holder of the secret and to its competitors;

(5) The effort or money expended in developing the information;

(6) The ease or difficulty with which the information can be properly acquired or duplicated by others; and

(7) Whether the holder and taker of the secret treat the information as secret.

[45] In GasTOPS at para 125 the court went on to consider the following four additional factors in employment-related cases:

(1) The employer possesses a trade secret;

(2) The employee knew it was a secret;

(3) The employee acquired knowledge of it during his/her employment; and

(4) The employee has, after termination of his/her employment, used this knowledge improperly.

[46] To decide if SK’s manufacturing process and xxx xxxxxxx xxxxx it developed to make metal sleeves are trade secrets SK must prove that:

(1) The xxxxxxxx xxxx and the manufacturing process it used to make metal sleeves xx x xxxxx xxxx xxxxx xxxxxxxxx xx” xxxxxx xxxxx xx xxxx xxxx were specific and not of general public knowledge;

(2) Its manufacturing process and xxxxxxx xxxxx used to make sleeves were only known by SK and the required employees; and

(3) SK demonstrated an intention to treat its manufacturing process and xxxxxxx xxxxx confidential.

[47] In Wodehouse Invigorator Ltd. v Ideal Stock and Poultry Food Co., [1917] OJ No 234, the court held that an employer, who permits an employee to acquire full knowledge of a trade secret without stipulation, is not considered to have waived their right to preserve the secret for his or her benefit.

[48] In RBC Dominion Securities Inc. v Merrill Lynch Canada Inc., 2008 SCC 54 the Supreme Court held that a duty of good faith is an implied term of every employment contract and at paragraph 37 stated as follows:

It is an implied term of every employment contract that employees owe a duty of “good faith” to their employers. This is a duty with imprecise contours, but traditionally the duty has only been used to find a non-fiduciary employee liable for damages (as opposed to being subject to dismissal) if he or she has competed with the employer during the currency of the employment relationship, or has made improper use of confidential information.

Expert Evidence

[49] Mr. Cashion was called as an expert witness by the Plaintiff. He is a certified machinist and tool and die maker and holds a Lathing Red Seal certificate in general machining. He has operated Cashion Scientific Instruments which does custom machining, prototype development and manufacturing. He has produced jigs, fixtures and prototypes for mass production in the dairy and health industries. He had experience working with a turret lathe, CNC milling machine, and a CNC engraving machine. He also taught “shop” in a high school for 10 years, which included programming and running a CNC lathe.

[50] Mr. Cashion was qualified as an expert in general machining to give opinion evidence on:

(1) Machining techniques;

(2) Developmental tooling and machining processes;

(3) To compare the machining processes employed by SK and KM; and

(4) To provide an opinion on the timing of development.

[51] I give no weight to and dismiss the Defendants’ submissions that Mr. Cashion was biased as a result of living in a village near SK’s premises and having visited SK’s premises 15 years ago. These issues were never raised with Mr. Cashion during his testimony at trial and I find no factual basis or merit to this allegation.

[52] I also find that there is no merit to the Defendants’ allegations that the videos, taken by Mr. Cashion when he visited both parties’ premises, were staged. The Defendants also relied on these videos at trial. This proposition that the videos were staged was never put to Mr. Cashion at trial and I find no merit in this allegation. If the videos were staged, Troy would not have referred to xxx xxxxxx xxxxx xxxxxxxx xxxx x x “xxxxxxxxx”, which was an inaccurate term used at SK’s shop to describe the xxxxxx xxxxx xxxxxxx xxxx.

[53] I agree with the Plaintiffs’ submission that Troy Shaver was not a necessary witness and an adverse inference should not be drawn from not calling him, because his evidence would have been cumulative to the evidence of others.

[54] I accept Mr. Cashion’s expert evidence that the manufacturing process developed by SK was different from the well-known process called xxxxxxxxxx and prefer it over that of Mr. Coles for the following reasons:

SK’s Manufacturing Process

(a) Mr. Cashion’s evidence was presented in a careful thoughtful manner and his opinion was not negatively affected by cross-examination. In contrast, Mr. Coles’ evidence in chief supporting the Defendants’ position was largely destroyed on cross-examination. Mr. Coles agreed that the manufacturing process that KM used to make metal sleeves was identical to the process used by SK . Notwithstanding the fact that both experts testified that the manufacturing processes used by SK and KM were identical, the Defendants have continued to argue in their submissions that they were different;

(b) Mr. Cashion reviewed all relevant materials before testifying, including the pleadings, affidavits of documents and the transcripts of discovery of each witness. Mr. Coles did not review any of this material before testifying, which negatively affected his evidence;

(c) Mr. Cashion also researched publications with respect to bearings and sleeves and reviewed the leading tool manufacturers’ websites to familiarize himself with the specifications and capabilities of commercial tooling. Mr. Coles did not conduct any research before giving his opinion;

(d) Mr. Cashion also reviewed the definitions of various operations on a xxxxx in the Machinery’s Handbook (the “Handbook”) including the definitions of xxxxxxx, xxxxxx, xxxxxxxx, xxxxxx xxx xxxxxxxxxx. The experts agreed with all of the descriptions of operations on a xxxxx contained in the Handbook except for “xxxxxxxxxx”.

(e) Mr. Coles was qualified to testify in the same areas as Mr. Cashion but he was not qualified to give evidence on the timing of tool development, as he had no experience in this area;

(f) The only evidence Mr. Coles reviewed before testifying were the videos taken by Mr. Cashion of the manufacturing processes used at each machine shop. He had not read Mr. Cashion’s report carefully and did not preserve his notes of his observations when he visited the SK and KM operations. Mr. Coles agreed that his notes would have recorded “significant observations”.

(g) Mr. Coles was unable to give any evidence on the rapid timeline of KM’s tool development, the xxxxxxx xxxxx xx xxxxxxxxx xxx xxxx xxxxxx xxxxx , or the dimensions of the tooling used by both companies.

(h) Mr. Coles only spoke to Mr. Knecht when he visited the KM facilities and he did not speak to Mr. Ballmer, who was the person who developed the tooling at KM. Mr. Knecht’s background was in “I.T.” and not in manufacturing. Mr. Coles was not aware that Mr. Ballmer was the person involved in the development of the tool and manufacturing process at KM. His failure to speak with the person who allegedly developed the same process as that used by SK negatively affects his opinion;

(i) Mr. Coles was unaware that KM had purchased a xxxx xxx xxxx, similar to the tool developed by SK, and tested it before purchasing their first xxxxx. He agreed that KM must have had some post purchase purpose for this xxxx xxx xxxx.

(j) Mr. Coles testified that he had never seen a xxxx xxx used in a commercial operation except for at SK, notwithstanding his 6 years of work experience at Sandvik, a major supplier of machine tools;

(k) Mr. Coles agreed that the KM xxxx xxxx he observed had been modified xx xxxxxx xxx xxxxx xxxx xxx xx xxxxxx xxx xxxxx, which allowed the modified tool to xxx xxxxxx xx x xxxxx xxxxxxx similar to that used by SK;

(l) Mr. Coles agreed that the process of cutting sleeves xxxx x xxxxx xxxxx xxxxxxxxxxx xxxxx xx xxxx xxxx xxx was “clever”. He also testified that the manufacturing process used at SK and KM to make sleeves were “the exact same process”, in fact, “identical”. The only difference in the process was the order of operations. xx xxxxxx xxxx xx xxxxx xx “xxxxxx” xxxxx xxx xxxx “xxxx” xxx xxxxx xxxxxx xx xxxxxxx xx xxxxxx xxx xxxxx xxxxx xxx xxxx xxxxxxxx xx xxx xxxxxx. The trade secret or confidential information is the process and tooling developed by SK to xxx xxx xxxxx xxx xxx xxxxxx xx xxx xxxx xxxxxxxx xxxx xxxx xxx. Both experts agree that the processes used by KM and SK to produce sleeves are identical in any event.

(m) The Defendants submit that the xxxxx xxxx xxxxxxx xxxx and the process for using this tool to make sleeves is properly described as xxxxxxxx . Both experts agreed that the xxxxxxxx xxxxxxx as described in the Handbook is known to others and is not a trade secret. The relevant part of the definition of xxxxxxxxxx from the Handbook is as follows:

xxxxxxxx – xxxxxx x xxxxxx xx xxx xxxx xx x xxxxxx xx xxxxx xx xxxxxxx x xxx xx xxxxxx xxx xxxxx xx xxxx xx xxx xxxxx xx xxxxx xxxxxxx ; xxxxx xxxxxxx, xxxx xxxxxx xxxx xxxxxx xxx xx xxxxxxxx xx x xxxx xxxxx x xxxxx xxxxx xxxx xxxx xx xxxxxx xx x xxxxxxxx xxx xxx xxx x xxxxxx xxxx. xxxxxxxx, xxx xxxxxxx xxxxxx xxxxxxxx xxx xxx xx xxx xx xxx xxxxx xx xxxx x xxxxx xxx xxx xxxxxxx xxxxxx xxxx xx xxxxx x xxxxx.

(n) Mr. Coles relied on the Handbook definition of xxxxxxxxx, as did Mr. Cashion, but he agreed on cross-examination that SK’s xxxxxxxx xxxx xxx xxxx xx xxx xx x xxxxx xxxx xxx xxx% xxxxxx xxxx xxx xxxxx set out in the Handbook and that this was not just pushing the limits but “expanding them”.

(o) Mr. Coles agreed with Mr. Cashion’s evidence that xxxxxxxx xxx x xxxxx xxxxx xxxxx “xxxxxxxx xxx xxxxxx xx xxx xxxxx xxxx xx xxx xxxxx”. xx. xxxxx xxxxx xxxx xx xxx xxxxxxx xxxxxx xxxx xx xxxx xx xxx xx “xxx xxxx xxxx xx xxx xxxxx xxxx xxx xxxxx”. As a result the process developed by SK xx xxx “xxxxxx” xx xxxxxx xx xxx xxxxxxx, xxx is a different and unknown process;

(p) I accept Mr. Cashion’s opinion evidence that the xxxxxxxx process developed by SK was different from the well-known process xxxxxx xxxxxxx xxxx xxx xxxxx xxxx xx xxx xxxxx xx xxxx xx xxx xxxx xx xxxx . I accept Mr. Cashion’s evidence that the employees of SK incorrectly referred to the “xxxxx” xxxx as a xxxxxx xxxx , because they didn’t know what to call the newly developed tool;

SK’s xxxxxxx Tool

[55] Mr. Cashion stated that in his experience, xxxx xxx xxxx xxxx xx xxx xxx xx xxx, xxxxx xxx xxxxxx xxxxx. He observed “xxxxx xxxx xxx xxx” xxx xxxx xxxx xx xx xx xx x xxxx xx xxx xxxx xxxx xxxx xxxx xxxx xxxxx x xxxx xxxx xx xxx xxx at both SK and KM’s premises.

[56] The Defendants submit that the xxxxxx xxxx xxxxxxx xxxx was known to others including Andy Lux, the salesman for ISCAR, the tool manufacturer, and therefore they submit that the xxxxxx xxxxx xxxxxxx xxxx is not a trade secret.

[57] The Defendants failed to call Andy Lux, the ISCAR tool representative, that Mr. Ballmer testified had advised him about xxxxxxxx xxxxx. The failure of the Defendants to call Mr. Lux supports an adverse inference against the Defendants’ allegation that Andy Lux told Ballmer about the xxxxxx xxxxx xxxxxxx xxxx and the xxxxxxxxxx process to make sleeves. Ballmer ultimately returned all of the xxxx xxxxxxxx xxxxx that he had brought from ISCAR in the spring of 2013 because they did not work, from which i conclude that they did not work to make sleeves.

[58] Mr. Cashion also testified that the custom made xxxxxx xxxxx xxxxxxxx xxxxx used at SK and at KM to make sleeves were similar, and were designed xx xxx xxxxxx xxxx x xxxxx xxxxxxxx xxxxx xxxx xxx xx xxxxxx xxxxxx xxxx xxx xxxxxxx xx xxxxxxxx xxxxxx xxxxxxx. When Mr. Coles was cross-examined in preparation for the summary judgment motion, he agreed that the xxxxxxxx xxxxxxx used by SK and KM to make sleeves was “essentially the same”. However, in cross-examination at trial Mr. Coles refused to agree with his previous evidence given under oath, where he had stated that the difference between the xxxxxxxx xxxxx used by SK and KM to make sleeves was “a millimeter here and a millimetre difference there”. I agree with the Plaintiff’s submission that the contradiction in Mr. Coles’ evidence on this point, having given the opposite opinion under oath previously, severely undermined his credibility at trial.

[59] SK developed their manufacturing process, xxx xxxxxxxx xxxx xxxx xxx xxx xxxxxx xxxxx xxxxxx xxxxx, over 20 years and received research grants over that period of over 2 million dollars to develop the new tools and manufacturing process. KM did not provide any technical drawings showing an independent path of development and in less than 9 months developed the same tools and used the same manufacturing process as SK had developed. I find that these facts support an inference that KM copied SK’s tooling and manufacturing process to make sleeves.

[60] KM used the identical sleeve size and parts list that was used by SK. The outside diameter (“OD”) of industrial sleeves produced by KM were identical to those of SK which is also “beyond coincidence”.

[61] For the above reasons I accept Mr. Cashion’s opinion that the manufacturing process of making sleeves from a “xx” xxxxxxxxxx xxxx xxxx xxx xx x xxxxx xxx xxx xxxxxxx xxxx xxxx xxxx xxx xxxxxx xxxxx xxxxxxx xxxxx developed by SK were unique and was a new method which was unknown to the public. I also accept Mr. Cashion’s opinion that the similarity of KM’s process to that used by SK was “beyond coincidence”.

Necessary Quality of Confidence

[62] In Saltman Engineering Co. v Campbell Engineering Co. (1948), 65 R.P.C. 203 (Eng. C.A.) at para 29 the court held that the necessary quality of confidence has been interpreted to mean that the information is not public property or public knowledge and that the author of the trade secret used his brain to produce a result. Here Neil Shaver used his brain to develop a new manufacturing process and new tooling to produce sleeves which were unknown to the public or to any competitors, before KM used the same process. Mr. Cashion testified that the xxxxxxxx process was not described in the Handbook and was a process and tooling that was unknown to the public. I accept his evidence in this regard.

[63] The decision of RL Crain v. Ashton, relied on by the Defendants, is distinguished on the following basis:

(a) In RL Crain there were “many other” processes like the one at issue on the market, which is not the case for the xxxxxxxx xxxxxx or the tooling SK used to make sleeves;

(b) In RL Crain the Plaintiff sought to prevent the Defendants from operating a business that did not operate against their own. Here, KM is in direct competition with SK selling exactly the same product; and

(c) The product in RL Crain was an upgraded version of a product that was commercially available.

[64] I agree with the Plaintiff’s submission that there is a fundamental difference between the finished product, namely the sleeve on the market, and the tooling and manufacturing process used to make the product being on the market. The sleeve product is public but the tooling and manufacturing process used to manufacture the sleeves was confidential.

[65] In Stonetile (Canada) Ltd. V Castcon Ltd., 2010 ABQB 392 at para 20 the court set out seven factors to consider to determine if the information has the necessary quality of confidence as follows:

(1) Extent to which information is known outside the business

(a) The Defendants have not identified any other manufacturer who uses the xxxxxxx manufacturing process developed by SK;

(b) Neil’s evidence that no other company in the world makes sleeves in this manner was uncontradicted; and;

(c) SK’s manufacturing process was not described in the Handbook and Mr. Cashion’s evidence, which I accepted, was that this process was not known outside of SK’s business;

(2) Extent to which it is known by employees and others in the business

(a) Neil testified that only SK’s employees knew about his xxxxxxx manufacturing process xxxxx xxxx xxxx xxx xxxxxx xxxxx xxxxxxx xxxxx and his evidence was not contradicted;

(b) Lucy acknowledged that SK’s manufacturing process and the xxxxxxx xxxxxxx was confidential to SK and she followed the warning on the bottom of SK’s custom order computer screens that said “xxxxx xxxxxx xxxx xxxx xx xxxxxxxxx”; and

(c) I accept Mr. Cashion’s evidence that SK’s manufacturing process and xxxxxxxx xxxxxxx were unknown to others in the business.

(3) Measures taken to guard secrecy

(a) Only SK employees had access to the production floor. There is signage on the doors leading to the shop to that effect;

(b) Visitors did not have access to the production floor and were restricted to the office area of the facilities;

(c) The Plaintiff’s facility is equipped with a security system;

(d) Each employee had their own security code to access the facilities after hours;

(e) SK’s technical and financial information was stored on the Plaintiff’s secured computer network, which was not connected to the internet;

(f) SK had reminders on the computer screens saying never to mention xxxx xxxx to customers. Below this warning is a note that indicates “xxx xxxxxxxx” xxx xxxx xxxx xxxxxx”. This was a deliberate attempt by Shaver-Kudell to protect the use of xxxx xxxx to make sleeves xxxx xxxxx xxxxx xxxxxxxxxx xxxx xxxx xxxxxx;

(g) Neil Shaver personally cautioned employees not to mention Shaver-Kudell’s operations to anyone. He indicated that confidentiality was discussed regularly with employees, every six months or so. This was further confirmed by formal declarations signed by employees of SK in 2013 that they were not to disclose any of SK’s trade secrets or proprietary processes;

(h) Mr. Shaver personally escorted any visiting delegation throughout the facility. Prior to any such visit, employees hid the tooling, and the xxx xxxxxxxx. They also covered the xxxxxxx xx xxx xxxxxx to ensure that their operations remained confidential.

(4) Value of the information of the holder

(a) The manufacturing of sleeves to repair electric motors is a niche market;

(b) There are only 3 sleeve manufacturers worldwide and only SK and KM use the same manufacturing process and tooling;

(c) There is increased efficiency and cost savings in using the manufacturing process developed by SK xx xxxx xxxxxxx xxxxxxx xxxx xxx xxxx xxxxxxxxxx xxx xx x xxxxx;

(d) In this process the xxxxxxxxxx xxxx xxxx xxx xxxxxxx xxxxxxx xx xxx xxxxx xxx xxxx xxx xxxx xx xx xx-xxxxxxx, which reduces labour costs and allows SK to carry less inventory and have faster production.

(5) Effect on money expended

− SK has spent over $2 million developing the xxxxxxx manufacturing process and xxx xxxx xxx xxx xxxxxx xxxxx xxxxxxx xxxxx that were required.

(6) Ease with which information can be acquired or duplicated

(a) Only two companies in the world, SK and KM, use the xxxxxxx manufacturing process developed by SK;

(b) SK has used the manufacturing process since 1988;

(c) Mr. Coles, the Defendants’ expert, agreed that the similarities of the outside diameters of KM sleeves with those of SK were “past coincidence”’;

(d) It would not be easy to develop the same manufacturing process and xxxxxxx xxxxxxx without copying the ideas from SK.

(7) Whether the holder and taker of the secret treat it as secret

(a) Both parties including KM take the view that their manufacturing process and tooling are proprietary, confidential and secret.

Disposition of Issue #1

For the above reasons I find that the manufacturing process and the xxxxxxx tooling developed by SK are trade secrets and have the necessary quality of confidence.

Issue #2 Did the Defendants commit a breach of confidence and misappropriate SK’s trade secrets in relation to its tooling and manufacturing process?

[66] In Coco v A.N. Clark (Engineers) Ltd., [1969] R.P.C. 41 (Ch.). at 48, the Court held that an objective test should be applied to determine if the confidential information was communicated in confidence.

[67] I find that a reasonable person in the shoes of Lucy and Dusko would have realized that the information they acquired about SK’s xxxxxxxx manufacturing process and the xxxxxxxx xxxxxxx they used was acquired in confidence. Lucy was a long term trusteed employee of SK and Dusko was her common-law partner. Both Lucy and Dusko knew or ought to have known that SK’s manufacturing process and xxxxxxxx xxxxxxx was confidential information.

[68] I find that as a result of Lucy being one of SK’s key employees over 23 years, which included the period when the manufacturing process and tooling were developed, that Lucy was aware of SK’s xxxxxxxx manufacturing process and its use of xxxx xxx xxxxx xxx xxxxx xxxx xxxxxxxx xxxxx. While Lucy worked primarily in the office area she had full access to the manufacturing facility and while not a machinist, she was aware of the manufacturing processes used in the shop.

[69] I also find that Mr. Ballmer became aware of SK’s xxxxxxx manufacturing process and the use of xxxx xxxx xxx x xxxxxx xxxxx xxxxx xxxx used by SK because: he had access to SK’s manufacturing facilities; he attended the SK premises on a regular basis to access his servers that were located in SK’s manufacturing facility; he was a skilled Swiss trained machinist and quickly understood the idea of the manufacturing process and the tooling that was being used by SK; and he used the same design of xxxx xxxx and the same manufacturing process as SK when he first set up a competing machine shop. Mr. Ballmer was essentially Neil’s brother-in-law and was given access to the manufacturing facility to store his belongings and computer servers. A reasonable person in those circumstances would have realized that any information that he acquired about SK’s manufacturing process and tooling was acquired in confidence. Neil also testified that when he toured the premises with Mr. Ballmer he advised him that the manufacturing process was confidential and I accept Neil’s evidence.

[70] I do not accept Mr. Ballmer’s evidence that he developed the same manufacturing process and tooling to make sleeves as SK independently for the following reasons:

(a) he had made xxxx xxxx xx xxxxxxx xxxxxxxx xxxxx, shortly after he set up KM’s machine shop, that were dentical to those that SK was using as shown in the video taken by Neil’s son Troy;

(b) he did not produce any plans or drawings to show his development process;

(c) he had plenty of opportunity to observe SK’s tooling and manufacturing process, both because he had regular acces to SK’s facility and because Lucy knew about them;

(d) he was also very curious and a Swiss trained machinist who understood what he saw at SK’s premises;

(e) he told Alex that he was confident that he could manufacture sleeves in a short period of time because I infer that he knew how SK manufactured them; and

(f) the similarity of the manufacturing process and the tooling that he used with that of SK is beyond coincidence.

[71] Lucy admitted that she was aware that SK’s manufacturing process was confidential and as an employee knew that she would not mention xxxx xxxx to customers.

[72] Mr. Ballmer denied that he was aware of the manufacturing process used by SK but he agreed that SK and KM used the same sort of tools for the same purpose.

[73] SK never waived its right to preserve the use of the confidential information related to its manufacturing process and tooling for its own benefit when it allowed Lucy, as a trusted employee, to become aware of it or when it allowed Dusko to become aware of it by allowing him regular access to the manufacturing facility as a result of being Lucy’s common-law partner.

[74] Lucy was observed in two photographs taken on March 6, 2012 and May 3, 2012 at KM’s new facilities while she was an employee of SK on a layoff. Her presence shows that while she was still an SK employee she was aware that Dusko and Alex were setting up a manufacturing facility to compete with SK. She testified that she knew that Dusko was setting up a facility to compete with SK a month before the photograph was taken.

[75] Alex testified that Mr. Ballmer told him that he could develop a sleeve manufacturing process within 3 to 6 months and that Mr. Ballmer was confident he could do this. I infer that this was because of the confidential information he had acquired about SK’s manufacturing process and xxxxxxxx xxxxx it used to produce sleeves. The fact that Mr. Ballmer bought a xxxxxx xxxx xxx to test on the first xxxxx that KM purchased is very relevant. It shows that Mr. Ballmer was using the exact idea that he observed at SK’s facilities and he wanted to try it before buying xxx xxxxx . This is beyond a possible coincidence.

[76] Alex became aware that SK was in the business of manufacturing sleeves as a result of meeting Mr. Ballmer and Lucy and researching SK’s business. In the circumstances I infer that Alex was also aware that Lucy and Mr. Ballmer would use confidential information obtained from SK to manufacture sleeves. I find that Alex agreed to set up a business with Ballmer and employ Lucy to compete with SK because their knowledge of SK’s manufacturing process and tooling would allow KM to operate successfully.

[77] In Cadbury Schweppes Inc. v. FBI Foods Ltd., 1999 SCC 680, at paragraph 19 the Supreme Court stated as follows:

“equity, as a court of conscience, directs itself to the behaviour of the person who has come into possession of information that is in fact confidential, and was accepted on that basis, either expressly or by implication. Equity will pursue the information into the hands of a third party who receives it with the knowledge that it was communicated in breach of confidence (or afterwards acquires notice of that fact even if innocent at the time of acquisition) and impose its remedies […] The appellants did not receive the confidence from the respondents, but from the now defunct Caesar Canning. The receipt, however, was burdened with the knowledge that its use was to be confined to the purpose for which the information was provided , namely the manufacture of Clamato under licence.”

[78] I find that Mr. Knecht, KM and Ballmer knew that they were receiving confidential information from Lucy about SK’s customers. In fact this is why KM and Alex hired Lucy to do marketing for the sale of sleeves when she remained in the Summerstown area, even though KM’s operation was located in North Bay. Both Mr. Knecht and Ballmer received many emails from Lucy advising them of the success she was having soliciting SK’s customers.

[79] In his examination for discovery Alex testified that he had created the product list independent from SK’s part list, which was identical to SK’s apart from a decimal point. During discovery he denied relying on SK’s product list but at trial he changed his evidence and agreed that he had copied SK’s product list. Mr. Knecht admitted that he had lied at his discoveries under oath which adversely affects his credibility.

[80] Alex was the controlling mind of KM and he wanted to see if Ballmer could find a solution to manufacture sleeves in a modern way. Mr. Knecht was aware of the connection between Lucy and Ballmer and SK and knew that Lucy had worked at SK for many years and was familiar with SK’s operation and with SK’s customers. Ballmer told him that he had an idea of how to make sleeves, and would require a xxxxxx, and that he could achieve results in a short time. I infer that in these circumstances Knecht and KM knew or was wilfully blind to the fact that Ballmer and Lucy intended to wrongfully use SK’s confidential information about the manufacturing process and xxxxxxx xxxxx that SK used to make sleeves and that Lucy intended to wrongfully use SK’s customer information that she had committed to memory and knew, as a result of her lengthy 23 year employment at SK dealing with its customers.

Equity

[81] The Defendants argue that even if they misappropriated SK’s trade secrets and confidential information SK should be denied any equitable remedy because of Neil’s conduct. They allege that SK did not have clean hands because Neil Shaver and his son Troy entered KM’s premises twice on March 8, 2013 and took photographs showing that Ballmer had made a number of xxxx xxxx xx xxxxxxxx xxxxx that appeared identical to the tooling developed and used by SK to cut sleeves.

[82] The Defendants submit that Neil Shaver was not a credible witness for two reasons: firstly because he testified that he knocked before entering KM premises in 2013 but the video taken by his son shows that he did not knock before entering; and secondly because he did not disclose the video of KM’s premises until seven days before trial.

[83] Mr. Shaver testified that he knocked at SK’s premise and when no one answered he walked into the shop and his son took photographs/videos. The video of the return visit did not show that Neil knocked before entering. The fact that Neil and Troy entered SK’s commercial premises to take photos of the tooling used by Ballmer, and left immediately when asked to do so without touching anything, had a minor effect on his credibility and only confirms that his memory was not perfect. This is not conduct that is sufficient to deprive SK of equitable remedies.

[84] The Defendants also allege that the Plaintiff’s failure to disclose the photographs from this visit until 7 days before the trial commenced should deprive it of any equitable remedy. The Defendants did not object to the photographs being included as evidence in the joint Book of Documents, and the Defendants were aware of Neil and Troy’s visit because Mr. Ballmer saw them during the visit and asked them to leave, which they did. The Defendants did not ask Neil Shaver any questions about this visit on discoveries or ask for an undertaking to provide copies of the photographs/videos during discovery. While the photographs/videos should have been provided to the Defendants much earlier, they were not taken by surprise because Mr. Ballmer knew exactly what the photographs of his workshop would show on that day, including the presence of a number of xxxxxxxx xxxx xxxx similar to those used by SK. Mr. Shaver was questioned about the visit during cross-examination and agreed that they had taken photographs during the visit and that he thought they had produced a copy of the photos as part of the litigation. I conclude that the photographs were not provided to the Defendants at an earlier time through inadvertence and, was not based on intentional inequitable conduct and this had no negative effect on Neil’s credibility. No harm was caused to the Defendants in any event.

[85] In Toronto (City) v. Polai [1970] O.R. 483 (CA) at para 46, the court stated that the “unclean hands” doctrine must relate directly to the matter about which the complaint is made and not the general conduct of the person seeking equitable relief. Equity would prevent SK from obtaining relief for misappropriation of trade secrets if it was also guilty of the same wrongdoing. This is not the case.

Disposition of Issues #2

[86] For the above reasons, I find that the Defendants committed a breach of confidence and misappropriated SK’s trade secrets concerning its manufacturing process and xxxxxxx xxxxx, because the information the Defendants acquired had the necessary quality of confidence, the information was communicated to or acquired by Lucy and Ballmer in circumstances giving rise to an obligation of confidence, that Ballmer communicated SK’s trade secrets to Alex and KM who knew or ought to have known that Ballmer and Lucy were breaching an obligation of confidence to SK and the Defendants have made unauthorized use of SK’s trade secrets to its detriment.

Issue #3 Did Lucy commit a breach of confidence or breach her duty of good faith by using her knowledge of SK’s customer list shortly after leaving to solicit new customers for KM?

[87] Lucy’s evidence at trial was not credible and I accept Neil’s evidence over her evidence when their evidence is in conflict. I do not accept Lucy’s evidence that she was not involved in customer contact in the last few years of her employment at SK because it conflicts with the description she gave of her responsibilities at SK to the Minister of Labour and in her email of May 12, 2012 when she sought to obtain E.I. benefits. Her evidence at trial was inconsistent with proven evidence given at trial and several customers recognized her as their primary contact at SK. In addition, she answered that “she did not know” to several questions she should have been able to answer which made her evidence unreliable.

Did Shaver-Kudell’s customer list have the necessary quality of confidence?

[88] In Quantam Management Services Ltd. v. Hann, 1989 ONSC 4370, [1989] OJ No 542 at paras 44 and 45 the court held that in addition to trade secrets of an employer, confidential information can include special knowledge about the employer’s customers and knowledge of the employer’s policies and procedures that would make it possible to undercut the former employer and induce the customers to change to the new supplier as well as customer lists. The courts have found a misuse of confidential information not only when an employee departed with a copy of the customer list, but also where an employee memorized the list.

[89] Lucy was extensively involved in marketing, taking orders from customers and shipping and collecting accounts receivable and acquired detailed knowledge of SK’s customers as a result of her employment at SK for a lengthy period of time. The Plaintiff has not alleged that Lucy took a copy of SK’s customer list, but she acquired detailed knowledge of SK’s customers, which is the same as if she had memorized the customer list by working regularly with SK’s customers over 23 years.

[90] In 2158124 Ontario Inc. v Pitton, 2017 ONSC 411, Goodman J. held that, in respect of confidential information, it does not make a difference if a departing employee has information that allows him to correspond with and solicit former clients, to the extent that he is doing so from memory. Committing to memory the names of clients, their contacts, the clients’ needs or preferences, and the rates that the clients were willing to pay, is confidential information and exploiting such information to solicit former clients “is tantamount to the physical asportation of a client list” and its use is prohibited. I find that as a result of her 23 years of regular contact with SK’s customers Lucy committed many of those customers’ names to her memory.

[91] Likewise, in Sheehan & Rosie Ltd. V. Northwood, 2000 ONSC 22460, Quinn J. did not place great weight on the distinction of “memorization” versus “remembering” with respect to an employee of 13 years. This can be seen in his remarks at para 52:

Northwood insists that he did not take with him a client list. How is it, therefore, that he was able to do a mailing to a number of clients? I see nothing to be gained in going through the possible explanations. The simple answer is that he has information which allowed him to correspond with, and solicit, some of the clients of S&R Ltd. To the extent he is implying that his knowledge of the addresses of the clients is in his head, rather than from a list, I say that it does not make a difference. In this regard, I agree with, and rely upon the following statement of Ewaschuk J. in Quantum Management Services Ltd. V. Hann (1989), 1989 ONSC 4370, 69 O.R. (2d) 26 (Ont. H.C.), at [44].

[92] A further look at Quantum Management Services is helpful to determining what was meant by “committed to memory”. At para 44, Ewaschuk J. writes:

It is conceded that neither Hann or Taafe took customer lists. However, I am satisfied that both Hann and Taaffe had committed to memory, which was not difficult, the names of their exclusive clients, the contacts at these clients’ businesses, the clients’ needs, the clients’ preferences, and the rates that the clients were willing to pay. After all, the placement director had to be in almost constant communication with her contact in order to obtain a job order within 31 days of the last order. The clients were not so numerous as to invite confusion of the confidential information pertaining to each individual client. Ms. Hann conceded that she has an exceptional memory and this was confirmed for both Hann and Taaffee by the high percentage of Quantum’s former clients that the Defendants readily recruited. This success is in marked contrast to the low percentage of new client Pinstripe recruited despite heavy advertising in the media.

[93] In Quantum Management Services, Ewaschuk J. held that the Defendants’ ability to remember customers’ names, needs, and preferences was considered to be the same as “committing to memory” and was held to be tantamount to physical asportation. This is the situation before me, as Lucy committed to memory or knew many of SK’s customers as a result of working with them over 23 years.

[94] In the Stonelite decision at para 55 the court stated:

“It is widely recognized that an employee can leave his employment and take the knowledge gained in that employment, and he is free to compete with his former employer. However, he may not take or use against his previous employer any of his employer’s trade secrets, confidential information or customer lists.”

[95] In GasTOPS at para 136 the court stated that customer information was confidential information in need of protection by the court given that it is valuable, that it forms part of the goodwill of the employer, and that it was developed over time at the employer’s expense. These factors are all present in this case as SK developed goodwill with its customers over a lengthy period of time.

[96] In RBC Dominion Securities the Supreme Court held that a duty of “good faith” is an implied term of every employment contract and making improper use of confidential information renders the former employee liable for damages. Even though Lucy Shaver was not in a fiduciary role, she owed SK a duty of good faith as a long time employee with extensive knowledge and a good relationship with many of SK’s customers for a competitor.

[97] In Mediamix Marketing Group Inc. v. Whalen, 2004 CarswellOnt 4241 at para 12 the court held that a duty to refrain from disclosing or improperly using confidential information “was not restricted only to fiduciary employees”. As a result, I find that Lucy had a duty not to improperly use SK’s confidential information, which included her knowledge of SK’s customers acquired during the course of her 23 years of employment with SK, to solicit SK’s customers within a relatively short period of time after leaving her employment.

[98] In an email dated April 17, 2013 Lucy informed Alex and Ballmer that xxxxxx xxxxxx had been a client of SK’s for 20 years and that she had offered it a free sample and then they made their first order.

[99] Lucy knew many of SK’s customers by name and they also recognized her as Lucy from SK based on her lengthy role working with customers while employed by SK. Lucy sent many emails to Ballmer and Alex which indicate that she was willing to divulge her knowledge of SK’s customers for the use and benefit of KM. She sent them nine emails in April, May and June 2013. Lucy knew that divulging this information to KM would harm SK and she did so in any event.

[100] Lucy targeted at least 21 SK customers with free samples when she started marketing for KM. I find that she selected these customers because she had committed these customers’ names to memory over the course of her employment at SK. Lucy’s memory was assisted by reviewing the EASA list, where she would have recognized many of SK’s customers. She would also have known the ordering quantities and payment history of the clients as a result of her responsibility for accounts receivable.

[101] Lucy also contacted at least six of SK’s customers who were not on the EASA list and this was put to her in cross-examination. Lucy responded that these customers were referrals and were on her referral list. However, Lucy did not go through her notes to provide the alleged referral list. She testified that referral notes would have been recorded in KM’s computer system that was kept by KM. The Defendants failed to produce their computer records which would have shown who if anyone had referred Lucy to a SK client. At discoveries, Lucy testified that she kept written notes of everyone she called and that cold calls were kept in a notebook and then inputted into KM’s computer. She answered the undertaking to produce her notes by saying that there were no written logs. This answer is inconsistent with her answer given on discovery. I draw an adverse inference from the Defendant’s failure to produce Lucy’s written notes, call logs, and produce a list of customers who received free samples or a referral list. I make the adverse inference that Lucy selected the clients to approach as a result of her knowledge that they were good clients of SK.

Disposition of Issue #3

[102] I am satisfied that Lucy breached her duty of confidence and good faith to SK by using SK’s confidential information, which included her knowledge of SK’s customers and their purchasing patterns and payment history for the improper purpose of soliciting SK’s customers within a relatively short period after leaving for the benefit of the defendants, KM, Mr. Ballmer and Mr. Knecht.

Confidentiality

[103] This decision shall remain confidential until the parties have agreed or made submissions on the parts of the decision to be redacted to maintain the confidentiality of SK’s trade secrets.

Costs

[104] The plaintiff shall have 20 days to make submissions on costs, the defendants shall have 20 days to respond, and the plaintiff shall have 15 days to reply.

Justice Robert Smith Released: August 7, 2018