Court File and Parties

Court File No.: CV-18-00605887 Date: 2019-03-04 Superior Court of Justice - Ontario

Re: CTT PHARMACEUTICAL HOLDINGS, INC., Plaintiff – and – RAPID DOSE THERAPEUTICS INC., Defendant

Before: E.M. Morgan J.

Counsel: Gary Daniel, for the Plaintiff Alan Lenczner and Derek Knoke, for the Defendant

Heard: March 1, 2019

Reasons for Judgment

[1] The Defendant moves for summary judgment pursuant to Rule 20.04 of the Rules of Civil Procedure. Its counsel submits that there is no evidence in support of the Plaintiff’s claim and that as a consequence the claim should be dismissed.

[2] To make the story as short as possible, the principals of the Plaintiff had experience with manufacturing pharmaceuticals and the principals of the Defendant had experience in marketing various products. On May 29, 2017, the parties entered an Asset Purchase Agreement pursuant to which the Defendant was to purchase the Plaintiff’s assets. These consisted primarily of two patents owned by the Defendant relating to oral thin, dissolvable strips.

[3] The strips are typically used for teeth whitening, mouthwash, cough medicine and other over-the-counter medications which can be administered orally when released by the strips as they dissolve in the mouth. The parties proposed joining efforts to market oral dissolvable strips impregnated with cannabis, which they planned to introduce as a new product on the Canadian market once the legislation legalizing the possession, sale, and consumption of cannabis came into force.

[4] The Defendant had a period of time to engage in due diligence. At some point during its due diligence exercise the Defendant apparently concluded that the Plaintiff’s technology was ineffective for the desired use. The parties had a mutual falling out, and on October 31, 2017 the Plaintiff issued a formal notice to the Defendant terminating the Asset Purchase Agreement.

[5] The two patents were the Plaintiff’s only assets of value. In a recent security for costs motion, Master Abrams canvassed the financial situation of the Plaintiff and found that it had virtually nothing else: CTT Pharmaceutical Holdings v. Rapid Dose Therapeutics, 2019 ONSC 731. The patents, however, were not commercially viable and the Plaintiff never managed to monetize them. The Plaintiff’s last available annual financial report shows that the Plaintiff has no operations, no cash flow, and is unlikely to generate cash flow in the foreseeable future. It also states that there is substantial doubt about the ability of the company to continue as a going concern.

[6] It is worth noting that although the parties were contractually bound to each other for a period of roughly 5 months, the Plaintiff’s pleading contains no cause of action in breach of contract. Likewise, although the Plaintiff’s primary assets, and presumably the thing that made it attractive to the Defendant, are two registered patents, the Plaintiff’s pleading contains no cause of action in patent infringement.

[7] What the Plaintiff does plead in its Statement of Claim is breach of confidence, or misappropriation of confidential information, and tortious interference with its economic interests.

[8] The action has for the most part centered on the breach of confidence claim. The reason for this is that, as Defendant’s counsel points out, a crucial ingredient for a cause of action in tortious interference with economic relations is missing: a third party with whom the Defendant has interfered. For a claim to proceed on this basis, the Defendant must be shown to interfere with an established relationship between the Plaintiff and an identifiable third party: Grand Financial Management Inc. v Solemio Transportation Inc., 2016 ONCA 175. There is no such pleading or evidence of that nature here; rather, the relationship at issue is the very relationship between the Plaintiff and Defendant. Tortious interference is not an applicable cause of action under these circumstances.

[9] The heart of the case, therefore, is the cause of action in breach of confidence or misappropriation of confidential information.

[10] At para 13 of the Statement of Claim, the Plaintiff lists the allegedly misused confidential information as follows:

a) The identity of the Plaintiff’s proposed contract manufacturer of oral thin films in Quebec, ODF Pharma; b) The identity of the Plaintiff’s proposed contract manufacturer of film casting machines in New Jersey, HED International (and travelled with the representatives of RDT to New Jersey to personally introduce them); c) The identity of the Plaintiff’s senior executive contacts at CanniMed; d) The identity of a professor of pharmacology at the University of Montreal (Dr. Modi travelled to Montreal with representatives of the Defendant to make the introduction in person); e) A copy of an agreement between the Plaintiff and CanniMed; f) Correspondence from August 2017 with Health Canada regarding CannMed’s application seeking regulatory approval for the Plaintiff’s oral thin film wafer; and g) The identity of a consulting firm in Mississauga, Ontario called Quality & Compliance which assisted the Plaintiff with regulatory submissions to Health Canada as well as provided a copy of a submission on its behalf.

[11] The Plaintiff has not pursued all of these supposed breaches of confidence in defending this motion. Presumably, since drafting the Statement of Claim it has concluded that some of the claims of confidentiality are not viable.

[12] For example, the identity of senior executives of CanniMed, a publicly traded, federally licensed supplier of cannabis, is not confidential information. Likewise, the identity of a professor at the University of Montreal who is well-known and published in his field would not qualify as the Plaintiff’s confidential information. To sue someone for knowing the name of a well-known academic at a public university in Canada, or for knowing the names of senior officers of a publicly traded company, is to sue for nothing.

[13] Counsel for the Plaintiff stated in his oral submissions that there are three areas of confidential information on which the claim is particularly focused: a) the identity of ODF Pharma, b) the identity of HED International, and c) patent applications prepared by the Plaintiff which had not yet been laid open to the public.

[14] Turning to the last one first, Plaintiff’s counsel stresses that only someone who had been taken into the Plaintiff’s confidence would know about several patent applications that the Plaintiff had prepared and drafted but not yet submitted. He emphasized that while approved patents are public information that anyone can access, and so there is no allegation here alleging that the Defendant had learned in confidence of the Plaintiff’s two approved patents, the Plaintiff’s as-yet unsubmitted patent applications are in a different category altogether. They are truly proprietary and confidential.

[15] In theory, of course, Plaintiff’s counsel is right. Accordingly, I asked him at the hearing what it was that was being applied for in the as-yet unsubmitted patent applications. He indicated that the record does not contain that information, and so there is no way of knowing what kind of device or product the Plaintiff was seeking to patent. There is simply affidavit evidence indicating that there were several otherwise unidentified patent applications disclosed to the Defendant during the course of their contractual relationship.

[16] It is self-evident that if the record contains no evidence of the nature of the patent applications, then it equally contains no evidence of the Defendant’s supposed misuse of the information contained therein. If the Plaintiff had prepared applications to patent a new device, product, chemical formula, etc., and the Defendant had appropriated that knowledge and was now using the new device, product, chemical formula, etc. for its own ends, then that device, product, chemical formula, etc. would be identified in the record. Otherwise, the claim could not possibly succeed. No one sues for appropriating confidential information without bringing evidence as to the allegedly improper use of that information, and that cannot possibly be done without in some way revealing what that information is.

[17] It is well-known but bears repeating here that parties to a summary judgment motion are required to “put their best foot forward”: Transamerica Life Insurance Co. of Canada v Canada Life Assurance Co. (1996), 28 OR (3d) 423 (Gen Div). I am entitled to assume that the record contains everything that the parties have at their disposal, and that there is nothing further that they are holding back for trial.

[18] The failure of the Plaintiff to put evidence in the record that describes the nature of the information supposedly misused by the Defendant – information that is obviously within the knowledge and possession of the Plaintiff right now – is fatal to this claim. The Court of Appeal has made this abundantly clear:

At the summary judgment stage, the court wants to see what evidence the parties have to put before the trial judge, or jury, if a trial is held. Although the onus is on the moving party to establish the absence of a genuine issue for trial, as rule 20.04(1) requires, there is an evidentiary burden on the responding party who may not rest on the allegations or denials in the party’s pleadings, but must present by way of affidavit, or other evidence, specific facts showing that there is a genuine issue for trial. The motions judge is entitled to assume that the record contains all the evidence which the parties will present if there is a trial.

Dawson v Rexcraft Storage and Warehouse Inc. (1998), 164 DLR (4th) 257, at para 17 (Ont CA).

[19] Turning to the Plaintiff’s allegation that the Defendant has misused its knowledge of the identity of ODF Pharma as a potential supplier of dissolvable oral thin strips, this falls into the category of using public rather than confidential knowledge. ODF Pharma is a well-known supplier of similar pharmaceutical products. It advertises, among other things, oral thin, dissolvable strips for a variety of uses. The Defendant ordered some online from ODF Pharma and its counsel brought the products to the hearing.

[20] Knowledge of the fact that oral thin strips are available from this supplier is not confidential. It is ODF Pharma’s widely advertised, primary business. Plaintiff’s counsel submits that while this may be the case, finding out about ODF Pharma from the Plaintiff saved the Defendant the time and effort it otherwise would have taken to find the supplier itself.

[21] This claim is put forward on the basis of the Supreme Court of Canada’s observations about “lost opportunity” in FBI Foods Inc. v Cadbury Schweppes Inc., [1999] 1 SCR 142. The Court noted, at para 64 that a claimant’s lost opportunity could be based on circumstances which allowed the competing party to enter the market with a head start. Thus, according to the Plaintiff, but for the confidential information it acquired from discussions with the Plaintiff, the Defendant would not have been in a position to bring its competing product to market until it had searched and found ODF Pharma for itself.

[22] Every circumstance like this must be addressed on the basis of its own facts. The knowledge and information at issue in FBI Foods was the formula for producing a unique beverage; it was kept confidential by the manufacturer and was not available elsewhere. At issue in the present case is information that was not similarly private – i.e. the identity of a supplier that advertises this product and does business online. It is available literally everywhere.

[23] I can take judicial notice of the fact that the parties to this action, like the rest of us, live in the age of Google. “Researching” a product or supplier just isn’t what it used to be. Knowing in advance of the existence of an online business saves a person something like 30 seconds in doing a search. With two clicks of a mouse, anyone can “discover” that ODF Pharma is the country’s leading supplier of oral thin strips.

[24] In addition to all of that, there is no evidence in the record that the Defendant ever did business with OFD Pharma. Thus, while the Defendant may have learned the name of this company from the Plaintiff, it did not use this information once acquired.

[25] Accordingly, even if one were to consider the identity of OFD Pharm as confidential information – and I do not consider it to be so – the record contains no evidence of any breach of confidence in respect of this information. Acquiring confidential information legitimately and then subsequently not using it does not make for a viable cause of action.

[26] Finally, the Plaintiff claims that the Defendant misused confidential information by entering into a distribution agreement with HED International Inc. for tape casting machines. These devices supposedly allow for oral thin film to be imbued with chemical products such as cannabis extract, and the agreement permitted the Defendant to make them available to licensed Canadian producers of cannabis products.

[27] The Defendant’s position is that HED International is well-known for this technology and that there is nothing proprietary about the Plaintiff’s knowledge of this fact and thus nothing confidential about the passing on of this knowledge. Whether or not that is the case, the Defendant’s affiant deposed that the HED International machines turned out not to be effective for cannabis-imbued oral strips and so the distributorship agreement never got off the ground. The Defendant thus incurred no gain and the Plaintiff suffered no loss. There is no evidence in the record to suggest anything to the contrary.

[28] The courts have observed that for a breach of confidence claim to succeed there must be actual evidence of financial loss. The goal of the remedy in this type of action is to restore the Plaintiff to the position it was in prior to the breach. Failure to prove an actual loss is failure to prove the grounds for a remedy: No Limits Sportswear Inc v 0912139 BC Ltd., 2015 BCSC 1698, at paras 30-31. As the British Columbia Supreme Court stated in No Limits Sportswear, at para 142:

The mere fact that the [Defendants] have sought to develop a rival product and enter the same market does not prove there was a breach of confidence. The three elements of breach of confidence must be proved: quality of confidence, circumstances giving rise to an obligation of confidence, and misuse of the confidential information.

[29] The state of the record before me is such that the Plaintiff cannot possibly succeed on any of its claims. The one cause of action which is conceivably viable under the circumstances, breach of confidence, has no evidentiary foundation.

[30] Moreover, there is no evidence that might be forthcoming that could not have been in the record in this motion. I have everything that the parties have to offer, and therefore find that I am in a position “to fairly and justly adjudicate the dispute”: Hryniak v Mauldin, 2014 SCC 7, [2014] 1 SCR 87, at para 66.

[31] There is no genuine issue requiring a trial. The action is dismissed.

[32] Counsel advise that they have agreed on $40,000 in costs for the successful party. The Plaintiff shall pay the Defendant costs in the all-inclusive amount of $40,000.

Date: March 4, 2019 Morgan J.