COURT FILE NO.: 17-CV-74995

DATE: 2019/11/18

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Knowmadics Inc. (Defendant by Counterclaim)

Plaintiff

– and –

Lisa Cinnamon and LDX Inc. (Plaintiffs by Counterclaim)

Defendants

Samaneh Hosseini and Daniel Chomski, Counsel for the Plaintiff (Moving Party)

Danesh Rana, Counsel for the Defendants (Responding Parties)

HEARD: October 29, 2019

REASONS FOR DECISION

C.T. HACKLAND, J.

Overview

[1] The plaintiff Knowmadics Inc. (the plaintiff) seeks an interim and interlocutory injunction restraining its former employee, the defendant Lisa Cinnamon and her company LDX Inc. from infringing its copyright in its SilverEye software and from breaching an Employment Agreement and related contractual agreements between the parties.

Factual Background

[2] The plaintiff is a Virginia based software developer, founded in 2013 as a start up company to create and develop software technologies to allow users to monitor track and coordinate multiple hardware devices and data feeds. The plaintiff’s SilverEye software provides a location based solution that allows data from multiple devices of different sorts from different manufacturers, including cameras and GPS devices, to be integrated and analyzed. The plaintiff’s CASES mobile application is used in conjunction with SilverEye and allows users to interface with the data analysis from their mobile devices.

[3] This software is marketed to the military and law enforcement agencies and to clients in the private security industry. The plaintiff is the owner of the copyright in the SilverEye and CASES software.

[4] The defendant Lisa Cinnamon was hired by Knowmadics as Principal Software Engineer in August 2013 and left in May 2017. She was the primary employee involved in the development and programming of SilverEye. The Canadian copyright registration for version 1 of the software shows Ms. Cinnamon as the sole author of SilverEye and the plaintiff as the owner of the copyright.

[5] In conjunction with the commencement of her employment, Ms. Cinnamon entered into an Employment Agreement with the plaintiff, containing obligations pertaining to ownership of intellectual property, confidentiality, conflict of interest and client servicing.

[6] The plaintiff also entered into a Subcontract and Non-Disclosure Agreement with Ms. Cinnamon containing similar restrictions on any competitive conduct or unauthorized disclosure of confidential information. In particular, the plaintiff entered into a Sub-Contract Agreement and a Non-Disclosure Agreement with Ms. Cinnamon’s company, the defendant, LDX, dated May 13, 2017 to provide technical support to the plaintiff, following Ms. Cinnamon’s departure from her employment.

[7] In August 2017, within two months of signing the Non-Disclosure Agreement, the plaintiff learned that Ms. Cinnamon and her company LDX were offering software products called FireCat and GhostCat that contained similar features and competed with the plaintiff’s SilverEye software and its CASES mobile application.

[8] In December of 2017, the plaintiff commenced this action claiming that the selling and offering for sale of the FireCat software infringes the copyright of Knowmadics, and constitutes breaches of the Employment Agreement, the Subcontractor Agreement and the Non-Disclosure Agreement.

[9] In January 2019, the parties jointly retained DisputeSoft, an independent consulting firm specializing in software dispute consulting, e-discovery and computer forensics with the mandate to compare the source code of the defendants’ FireCat and GhostCat software to the source code of the plaintiff’s SilverEye and CASES software.

[10] DisputeSoft issued its report on August 26, 2019, concluding that: “the amount of copied source code, database schema, and database source code in the LDX software is sufficient to lead to the conclusion that it is a derivative work.”

[11] The DisputeSoft report found that:

i) certain FireCat source code is identical or substantially similar to the Knowmadics source code;

ii) “a significant proportion of the LDX database structure and source code has been copied from the Knowmadics BlueBird database”;

iii) “approximately 10 percent of the Knowmadics BlueBird database schema matches 40 percent of the database tables and 30 percent of the table-column pairs in the LDX database schema. Several of these similarities include clear indicia of copying from the Knowmadics database schema”;

iv) similarities in the tables contained in the Knowmadics database and the LDX database “include a number of identical matches indicative of copying”;

v) “some of the LDX stores procedures still contain isolated references that are indicia of copying from the Knowmadics code”;

vi) certain columns that appear in both the Knowmadics and LDX databases “contain identical misspellings” and that it “is highly unlikely that these identical mistakes in each database are coincidental, as there is no legitimate reason for a developer to intentionally incorporate such errors into a database schema”; and

vii) “comparison of the Knowmadics and LDX database schemas identified significant structural and functional overlap indicative of copying by LDX. Furthermore, both databases also contain a significant amount of source code that is either identical or substantially similar, providing further evidence of copying”

[12] Following the release of the DisputeSoft Report, the defendants obtained an expert’s report of their own, (“the Zeidman Report”). The mandate of this report was to provide an opinion on “how much of the software code written by Lisa Cinnamon for LDX (ie. FireCat) was derived from third party code and how much was derived from code that she had written prior to working for “Knowmadics”.

[13] The Zeidman Report concluded that the alleged copying in the FireCat software identified in the DisputeSoft report, was likely not copied from the plaintiff’s SilverEye source code because it was code available elsewhere, in particular from code Ms. Cinnamon had previously written for several of her former clients or employers such as Technocality or what she claimed was her own code. This forms the basis for the defendant’s submission that “there was no originality to what was alleged to have been stolen, and thus there can be no protection under the Copyright Act.”

[14] On this motion, Ms. Cinnamon’s takes the position that she gave herself permission to use Technocality code and database schema in FireCat, notwithstanding the fact that she had already used Technocality source code and database schema to create and deliver SilverEye to Knowmadics. She stated on cross-examination: “It’s my code. I own it…So, the permission is granted by me.”

[15] It is admitted by Ms. Cinnamon that she used what she claimed was her own prior code in developing SilverEye for the plaintiff during the tenure of her employment with the plaintiff. She did so without identifying this to the plaintiff. The position of the defendant Ms. Cinnamon is that she incorporated the Technocality database (which she wrote for her earlier client Technocality) into SilverEye software she developed for the plaintiff and subsequently incorporated it into the FireCat software she wrote for her company, the defendant LDX.

[16] In these factual circumstances, I would respectfully agree with and adopt the plaintiff’s statement (from paragraph 76, plaintiff’s factum).

The relevant issue as far as the database goes is a legal one for the Court to determine at trial: once Ms. Cinnamon delivered SilverEye to Knowmadics incorporating that prior database without identifying that she was doing so, and Knowmadics copyrighted SilverEye with that database code and schema, was Ms. Cinnamon then permitted under copyright law or her agreements with Knowmadics to take a shortcut and use the same code and schema to create a competing software with the same functionalities? This is a serious issue to be determined at trial…

[17] The defendants have filed a number of affidavits from current clients who are using their FireCat software. These clients are police agencies and the affidavits depose that the agencies are highly dependent on this software and any interruption in service would create a genuine risk to the safety and security of the public. The plaintiffs have responded to this concern by advising the court that they are no longer seeking to stop current clients of the defendants from continuing to use FireCat (subject to terms discussed below).

[18] The evidence before the court also establishes that as of his time, the defendants have not acquired any clients in the United States for their FireCat software and have therefore not deprived the plaintiff of any of its U.S. clients.

[19] With respect to the Canadian market, the plaintiffs have, as of the date of argument, only two clients left in Canada. Originally the plaintiffs had 12 clients in Canada but have recently lost them all to the defendants, save two. The affidavit evidence suggests that the defendants are significantly undercutting the plaintiff’s in price, but the defendants respond that there are a variety of other factors involved in their acquisition of the plaintiff’s former clients including their (LDX’s) better customer service and communications.

Issue

[20] The issue on this motion is whether an interim and interlocutory injunction should be granted enjoining the defendants from selling or offering to sell, to other than their existing clients, their FireCat software and to require the defendants to account for revenues from existing clients and to pay all or alternatively a portion of such revenues into court pending trial.

Analysis

[21] The well established test for granting an interlocutory injunction is laid down in RJR-MacDonald Inc., 1994 117 (SCC), [1994] 1 S.C.R. 311. The factors are:

(a) Whether there is a serious issue to be tried;

(b) Whether the moving party will suffer irreparable harm if the injunction is not granted; and

(c) Whether the balance of convenience favours of the parties.

[22] The defendants’ counsel quite properly acknowledged in argument that there is a substantial issue to be tried in this case. I took that acknowledgement to refer to the breach of copyright issue as well as the alleged breaches of the Employment Agreement so far as they pertain to protection of the plaintiff’s confidential information.

[23] However, the defendants submit there exists the higher onus of the plaintiff having to show a strong prima facie case. Reliance is placed on the Court of Appeal’s ruling in Cytrynbaum v. Look Communications Inc., 2013 ONCA 455 as follows:

If a preliminary or interlocutory order will have drastic consequences (including, for example, an interlocutory mandatory injunction or a Mareva or Anton Piller order), the bar is raised to the level of “strong prima facie case” (para 54).

[24] I am not persuaded that the strong prima facie case test is engaged in this case because the drastic consequences referred in Cytrynbaum are not present in circumstances where the injunctive relief essentially preserves the status quo until trial. As I will explain, that is the situation here.

Irreparable Harm and Balance of Convenience

[25] In this case irreparable harm and balance of convenience are appropriately dealt with together. The defendants’ arguably unlawful competition in the Canadian market has decimated the plaintiff’s customer base, leaving it with only two of their original clients. The defendants have been able to substantially undercut the plaintiff’s pricing for the SilverCat software and in Nova Scotia have distributed their FireCat software free of charge. I am persuaded that the plaintiff has established that it is a potentially irreversible loss of goodwill and market share. Moreover, Ms. Cinnamon and her company LDX, which is a two person operation, would appear to have minimal assets to answer a judgment.

[26] On the other hand, Ms. Cinnamon has spent her career writing software for security platforms similar to SilverCat and FireFox and has extensive experience and contacts in the military, police and the security industry. An appropriate interlocutory order should balance Ms. Cinnamon’s interests in legitimate competition and in utilizing her skills and experience as a software engineer.

[27] In the court’s opinion an interim interlocutory injunction which permits the defendants to continue to service only their existing Canadian based clients with their FireCat software until the trial of this action achieves an adequate balancing of the interests of both parties and avoids irreparable harm to either one. The object of such an order would be to maintain the status quo pending trial.

[28] As the evidence establishes that the defendants have not obtained any customers for LDX’s FireCat software in the United States, I would exercise the court’s discretion to limit the application of the interlocutory injunction to the Canadian market.

[29] The plaintiff has submitted that the defendant LDX should be subject to an order that pending further order of this Honourable Court, the defendant LDX Inc. shall provide a monthly accounting of all its gross revenues to counsel for the plaintiff and pay all such revenue into Court to the credit of this action on a monthly basis.

[30] I will order that the monthly accounting of gross revenues be provided to plaintiff’s counsel until the trial of the action. I decline at this time to order any such revenues to be paid into court but will consider a further application in this regard if a proper case can be put forward to justify doing so.

[31] If counsel can not agree on the form of the order, I may be contacted through trial coordination.

[32] As this order primarily maintains the status quo and makes no findings on the ultimate merits of the parties’ positions, I order that the costs of the interim and interlocutory injunction proceedings will be costs in the cause.

Mr. Justice Charles T. Hackland

Released: November 18, 2019

COURT FILE NO.: 17-CV-74995

DATE: 2019/11/18

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Knowmadics, Inc. (Defendant by Counterclaim)

Plaintiff

AND

Lisa Cinnamon and LDX Inc. (Plaintiffs by Counterclaim)

Defendants

REASONS FOR decision

Mr. Justice Charles T. Hackland

Released: November 18, 2019