Knowmadics Inc. v. Kathryn Amero et al., 2021 ONSC 2881

COURT FILE NO.: 17-CV-74995

DATE: 20210419

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Knowmadics Inc., Plaintiff (moving party)

AND

Kathryn Amero, Litigation Administrator for the Estate of Lisa Cinnamon and LDX Inc. Defendants

BEFORE: The Honourable Justice Charles T. Hackland

COUNSEL: Kevin Graham, counsel for the Plaintiff

Danesh Rana, counsel for the Defendants

HEARD: Friday March 26, 2021

ENDORSEMENT (Motion to Vary injunction)

1The plaintiff seeks an order varying the terms of an interlocutory injunction granted by this court on October 28, 2019 (“the injunction order”) see, Knowmadics v. Cinnamon, 2019 ONSC 6549. The plaintiff was also seeking an order finding the defendants in contempt of the injunction order, but that requested relief was withdrawn during the course of argument of this motion.

The Injunction Order

2The injunction order restrained the defendants (including employees, officers and directors of LDX) from “directly or indirectly, selling, offering for sale, or supplying in Canada the defendants “FireCat” software program, or any equivalent software that includes Knowmadics’ SilverEye source code and/or database schema”. The plaintiff alleges in this motion that the defendants are deliberately violating the injunction by selling a ‘new’ product called FireWire which violates the injunction because it includes a database schema substantially copied from the plaintiff’s SilverEye software.

Background

3The plaintiff and the defendant LDX are competitors in the development and marketing of software technologies which allow users to monitor and track multiple hardware devices (such as surveillance video cameras) and data feeds. Their customers are primarily in the police and security industry. The plaintiff calls its software SilverEye and the defendants, until shortly after the injunction, marketed their software under the name FireCat.

4Following the injunction, the defendant LDX withdrew its FireCat product and immediately substituted a new software product with very similar functionalities. It rolled out the new product to its customer base under the name ‘FireWire’. As noted, the plaintiff contends that FireWire, like its predecessor FireCat violates the plaintiff’s copyright in its proprietary (SilverEye) product by copying significant components of its software. The plaintiff contends the defendants’ FireWire product was designed to circumvent the injunction order previously granted by this court.

5I would note that the developer of the LDX products, both FireCat and now FireWire, was Lisa Cinnamon. Ms. Cinnamon passed away suddenly in June 2020. Ms.Cinnamon was the software programmer who created the SilverEye product while employed with the plaintiff and, upon her departure from her position with the plaintiff, established LDX, along with Ms. Amero, and began marketing the FireCat product, which was the subject of the injunction. LDX is now carrying on operations under the direction of Ms.Cinnamon’s business partner, the defendant Kathryn Amero, who looked after administration and marketing of the LDX products, and continues to do so. Ms. Amero’s evidence is that she is not a computer programmer and was not involved in the actual design of the LDX products.

6When the plaintiff first alleged that Ms. Cinnamon and her company LDX had copied into its FireCat product the plaintiff’s software in its SilverEye technology, the parties jointly retained DisputeSoft, an independent consulting firm specializing in software dispute consulting, e-discovery and computer forensics. The parties gave DisputeSoft the mandate to compare the source code of the defendants’ FireCat software to the source code of the plaintiff’s SilverEye software.

7DisputeSoft 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.”

8The DisputeSoft report found that:

(i) certain FireCat source code is identical or substantially similar to the Knowmadics (SilverEye) 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”

9In this court’s reasons for granting the injunction, I observed (at para.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.

10It was the court’s opinion that there existed a substantial issue to be tried as to the defendant’s alleged copying of the plaintiff’s source code and data base schema from its SilverEye product. Furthermore, the court concluded the balance of convenience favoured the granting of an injunction.

The roll out of FireWire

11The plaintiff has accurately summed up the circumstances giving rise to the present motion to vary the injunction, as follows:(para. 2, plaintiff’s factum).

2. The fact that the Defendants were developing an allegedly “new” software product called “FireWire” was raised during the Injunction Motion. At the hearing of the motion, the Defendants made express representations to the Court that it would take “many months” to launch the FireWire software and to transition customers. Contrary to these express representations:

(a) FireWire was launched less than a month after the hearing of the motion and within days of the issuance of the reasons of Mr. Justice Hackland; and

(b) all of the Defendants’ hosted customers were transitioned to FireWire on the same day as it was launched and all enterprise customers within a week or so (without difficulty or training).

12There is no question that the above referenced misleading representations were made to the court as to the plans of Ms. Cinammon and LDX to quickly roll out a replacement product for FireCat. I accept defendants’ counsel’s assurance that he was unaware that such representations to the court were inaccurate when made. However, I do not believe that Ms. Amero could have been unaware of these plans as she was in charge of marketing the LDX products. In any event, the terms of the interlocutory injunction did prohibit the selling the defendant’s FireCat software program “or any equivalent software that includes Knowmadics’ SilverEye source code and/or database schema”. (italics added)

13The defendants acknowledge that since the launch of FireWire, within days of the injunction, the defendant LDX has been selling, offering for sale and/or supplying FireWire directly to its customers and to resellers in Canada.

Should the Injunction be expanded to Specifically Include FireWire?

14The plaintiff submits the unanticipated introduction and marketing of the defendant LDX’s new FireWire product, subsequent to the court granting the injunction, constitute material facts not previously before the court which may justify varying the injunction, thereby satisfying the requirements of Rule 59.06(2) for varying a court order. I agree with this submission.

15The Plaintiff retained an expert to compare the Plaintiff’s SilverEye software and the defendants’ new FireWire software. The expert has issued a preliminary report (the Edge Report) concluding that a significant portion of the database schema of FireWire includes portions of the database schema of SilverEye. An analysis of the FireWire source code has also been undertaken with no results available at this point. In response the defendants have provided a “rebuttal report”, (the Zeidman Report) from a programming expert of their own. This report disputes the methodology, findings, conclusions and the impartiality of the plaintiff’s expert. Both experts have also delivered responding reports to each other’s initial reports. These reports were put before the court and were the subject of extensive submissions. There is a high level of complexity to this information and to the expert analysis that has been undertaken.

16Both parties are in agreement that there is a substantial issue to be tried as to whether the defendants are in breach of the Injunction Order so far as LDX’s alleged copying of the SilverEye database schema into its FireWire product is concerned and accordingly as to whether the injunction should be expanded to specifically include the defendant’s FireWire product. Clearly the same substantial issues remain to be determined with regard to the alleged copying of the SilverEye source code and database schema in the defendant’s previous FireCat product.

17The defendants contend that the court should apply the strong prima facie case test to determine whether the expansion of the interlocutory injunction is appropriate in the circumstances and to that end should embark on a comparative analysis and evaluation of the competing expert’s opinions (as to whether the defendant LDX is selling copied software) to assist in applying that test. I decline to do so. I do not think the experts’ competing analysis can be properly assessed on the paper record available on this motion.

18In any event,the court has already determined to apply the ‘substantial issue to be tried’ test in granting the existing injunction. There is no justification for applying a different test to a proposed variation of the injunction. As this court determined previously, the drastic and potentially irreversible effects of an interlocutory injunction that would normally result in the application of the more onerous ‘strong prima facie case’ test (see, Cytrynbaum v. Look Communications Inc., 2013 ONCA 455), are not in existence here. This is because the injunction that was granted preserves the status quo until trial and that status quo allows the defendant LDX to retain and service its current customer base and, in effect, its current penetration of the Canadian market.

19This court stated, when applying the substantial issue to be tried test to the granting of the present injunction: (para 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.

20When the injunction was granted, the defendant’s had already succeeded in taking over most of the plaintiff’s Canadian customer base, and the terms of the injunction allowed the defendants to continue to service this existing customer base with their FireCat product, pending trial. The plaintiff reluctantly acquiesced in this due to representations from some of these customers (police forces) that they had become dependant on the FireCat program and law enforcement and public safety might suffer if the FireCat program was suddenly withdrawn. The status quo preserved by the injunction was arguably in the defendant’s interest so far as it permitted LDX to maintain its significant customer base. The injunction was intended to prevent future sales of the FireCat program to Canadian customers, until trial.

21The evidence on this motion to vary the injunction establishes a very similar scenario. The defendant LDX, by summarily withdrawing FireCat from the marketplace and replacing it with its new product FireWire, has maintained its customer base and on the evidence considerably expanded that customer base by recruiting new clients using its FireWire product. Moreover, once again, the plaintiff has had to reluctantly concede that if the injunction is varied to include the FireWire product, the defendants should still be able to service their new expanded FireWire customer base (including new clients for the FireWire product) because the police forces involved have become dependant on the technology and its withdrawal could be detrimental to public safety. This outcome is not particularly adverse to the defendants interests and would not result in irreparable harm. I reject the defendants’ argument that the status quo preserved by the original or an expanded injunction would be so adverse to their interests that the Plaintiff should be required to establish a strong prima facie case.

Irreparable Harm and Balance of Convenience

22In the court’s previous reasons given when the injunction was issued, I found that the balance of convenience and irreparable harm criteria had been satisfactorily established by the plaintiff. There have been no material change of circumstances that would justify re-visiting those conclusions. This is not an appeal and those issues will not be re-litigated on this motion. As stated in my previous reasons (at para.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.

23In summary, the court finds there is a substantial issue to be tried as to whether the defendants have been and continue to be in breach of the injunction by using software copied from the plaintiff’s SilverEye technology in their FireWire product launched shortly after the injunction was granted.

24Accordingly, the plaintiff’s motion to vary the injunction is allowed. The interlocutory injunction herein will be varied to specifically include the defendants, FireWire product. The injunction order will be varied to apply to, “…the Defendants FireCat or FireWire software programs, or any equivalent software that includes Knowmadics’ SilverEye source code and/or database schema.”

The U.S. Market

25The plaintiff also seeks the expansion of the injunction to the United States. It is currently limited in scope to the Canadian market. At the original hearing the defendant’s evidence was that LDX had no U.S. customers for its FireCat software program and accordingly the court concluded there was no possible irreparable harm justifying an interlocutory injunction reaching outside of Canada. However, in the course of subsequent documentary production, it appears there were and are two such US customers. Ms. Amero explains her furnishing of this erroneous information as an oversight on her part.

26In my view, the defendants have made a very limited incursion into the huge American market. The plaintiff, as a Virginia based company with an established US customer base, are not in an irreparable harm situation from the defendants’ so far quite limited activities in the US market. In any event the plaintiff is free to seek remedies in U.S. Courts should they consider it necessary. In the exercise of the court’s discretion, the interlocutory injunction herein will remain, at this time, limited to the Canadian market.

Re-sellers

27It has been brought to the court’s attention that the defendants sometimes market LDX’s FireWire product through re-sellers in Canada and it is unclear whether such re-sellers are caught by the terms of the injunction. The parties advise that in such transactions there is an actual sale to the re-seller, who then sells the FireWire product to an end user in Canada or in other countries. Consistent with the intent of the injunction, which is directed to the Canadian market, I order that sales by LDX of its FireWire program to a re-seller in Canada for re-sale to a foreign end user or to a foreign re-seller for use exclusively outside Canada, will not be considered a contravention of the injunctive order.

Disposition

28In summary, the terms of the interlocutory injunction will be varied in accordance with these reasons. If the plaintiff wishes to seek costs of this motion, I will require a concise written submission within three weeks of the release of this endorsement and the defendants may respond within three weeks of receiving the Plaintiff’s submission.