2666680 Ontario Inc. dba Arc Compute v. Anton Allen, Michael Buchel, and 3735928559 LLC dba Deadbeef, 2025 ONSC 1745

Court File No.: CV-25-00734956
Date: March 20, 2025
Superior Court of Justice – Ontario
Before: Mark L. Koehnen
Heard: March 6, 2025

Counsel:
Nafisah Chowdhury, Greg Bush for the plaintiff
Anton Allen and Michael Buchel on their own behalf

Endorsement

[1] The plaintiff seeks an interlocutory injunction to restrain the defendants from retaining or disclosing confidential information belonging to the plaintiff, from competing with the plaintiff, and from interfering with its relationships with current and prospective clients and employees.

[2] For the reasons explained below, I grant the injunction as modified with the qualifications set out in paragraphs 70–75 below. In my view the personal defendants were fiduciaries of the plaintiff. As a result, in addition to any particular contractual obligations they had, they also had obligations not to pursue corporate opportunities of the plaintiff. The personal defendants did so both before and after leaving the plaintiff’s employ. They have also retained confidential information of the plaintiff which must be returned immediately.

I. Background Facts

[3] Arc Compute (“Arc”) was created in 2018 to do business in the field of artificial intelligence (“AI”).

[4] ARC’s business has two components. The smaller component is selling hardware for use in artificial intelligence applications. The larger and more important part of Arc’s business for this case is its software business. Arc’s Software Business is focussed on developing new software products that will make the use of artificial intelligence applications more efficient.

[5] One key piece of hardware in artificial intelligence is the Graphic Processing Unit or GPU. GPUs can execute multiple operations (sometimes millions) simultaneously thereby enabling them to process large amounts of data in short periods of time. In their current state of development, GPUs are characterized by significant inefficiencies. This means that complex AI applications often require multiple GPUs which results in higher costs. These costs can be minimized by maximizing each GPU’s data processing capability. Arc is developing software to do just that.

[6] Arc first identified this opportunity in 2022. Since then, it has been developing a software product called “Nexus”, and two other complementary products. It has invested approximately $3 million into its software business with the goal of becoming the “first to market” for its products.

[7] By September 2024, Arc had developed a first iteration of Nexus which it made available to clients for trial usage. Feedback was positive, demonstrating that the product had significant commercial potential.

[8] The defendant Michael Buchel (“Buchel”) joined Arc in 2021. Buchel was hired initially as Arc’s Director of Engineering. He was promoted to Chief Technology Officer and Director in 2022. Buchel was also made a board director at that time. Buchel was responsible for leading all aspects of Arc’s software business, was the single most knowledgeable person about it and was Arc’s face to clients and the public.

[9] The defendant Anton Allen (“Allen”) joined Arc in 2022 as Vice President of Sales. He was promoted to Senior Vice President of Global Sales shortly after. Allen’s focus was on software sales which required him to work closely with Buchel. Allen was responsible for managing Arc’s existing sales leads, maintaining client relationships, and engaging new clients to develop Arc’s early-stage software business.

[10] Both Buchel and Allen had employment agreements in which they agreed:

i. That all intellectual property, ideas, research, inventions made, authored, invented, by them during their employ that relate to the business of Arc remained the property of Arc.

ii. Not to “solicit, interfere with or endeavour to entice away from Arc, either directly or indirectly, any Client of Arc in relation to any business that is the same as, substantially similar to or competitive with the Business or any part of its Business, or otherwise encourage or take any other action which could cause any such Client to reduce, cease or end its engagement with the Company” for 6 months after leaving Arc’s employ.

iii. Solicit customers or hire employees of Arc for a period of 6 months after leaving Arc’s employ for a business that is substantially similar to Arc’s.

iv. That they would acquire confidential information during the course of their employment which information belonged exclusively to Arc including customer lists, supplier information, pricing, marketing and development information and processes. Both agreed that, upon termination of their employment for any reason, they would promptly return all confidential information to Arc.

[11] The most important piece of confidential information to the plaintiff is the source code for Nexus. It was developed largely by Buchel while he was employed by the plaintiff.

[12] In late 2024, Arc was experiencing serious financial difficulties. Those difficulties led it to terminate most of its workforce. Allen was terminated without cause on December 26, 2024. Buchel reacted intensely to the terminations of employees. As a result, he was placed on a 30-day paid leave effective December 26, 2024. Buchel’s employment was terminated for cause on January 14, 2025, after Arc became aware of the breaches set out below.

II. The Breaches by Buchel and Allen

[13] The record on the motion shows that Allen and Buchel breached both their contractual and common-law duties to Arc, both before and after leaving Arc’s employ.

[14] Perhaps the most straightforward example is the fact that Buchel retained a copy of the Nexus software code after he left Arc, contrary to his employment agreement.

[15] In addition, text and email messages, primarily from Allen, show that Allen and Buchel had developed a plan to move Arc customers to an entity controlled by Allen and Buchel both before and after they left Arc’s employ.

[16] In a text message dated December 27, 2024, Allen told an acquaintance that:

i. He has already started to move accounts to a new company.

ii. Buchel will not be staying at Arc and can create a new version of Nexus in 24 hours that is better than the current version.

iii. Allen and Buchel “saw this coming 3 months out,” had “preplanned this not to miss a beat,” had a new company already set up, and that “key accounts were notified in anticipation.”

[17] It also appears that Allen and Buchel began setting up a new company in November 2024. The new company is the defendant 3735928559 LLC doing business as Deadbeef (“373 Co.” or “Deadbeef” as the context requires).

[18] Allen and Buchel defend their activity with Deadbeef on the basis that the corporation was set up with the blessing of Arc, as a corporation through which the software engineers at Arc could enjoy profit participation on sales of product. While that may well have been the original intention, that was in a scenario in which Deadbeef was a wholly-owned subsidiary or an affiliate of Arc, not a competitor. Allen and Buchel began appropriating Deadbeef for themselves immediately after Allen’s termination by directing clients of Arc to Deadbeef.

[19] While Allen was still at Arc, he appears to have been contacting customers in an effort to prepare them to move to Deadbeef. On November 22, 2024, Allen emailed Imec, a client in Belgium, suggesting that a nondisclosure agreement be drafted “to the RnD entity.” Shortly thereafter, Allen added Buchel’s personal email address to the email chain. By December 12th, Buchel was advising Imec to change the contracting party from Arc to the defendant, 373 Co., as being the “R & D firm associated with Arc”. When Imec could not find sufficient publicly registered information about 373 Co., Imec responded on December 18th saying that if this company is still in the process of being established, they should wait until it is finalized, or alternatively, contract with Arc, at least at first instance. Allen replied on December 18th telling Imec to wait until Buchel finishes establishing the company and advised:

At the current time automated scheduling optimizations and research is going to be held outside Arc Compute until restructuring is complete at that entity.

[20] On December 26th Allen wrote to Ted Zheng (“Zheng”) of SHSNC, another Arc client. After telling Zheng that Arc was restructuring and had terminated the majority of its engineers, he advised that “all the engineers … will be moving to … Deadbeef the RnD arm of the IP. Sorry for the disruption. We should have a slack [1] up and running tomorrow.”

[21] By way of further example, Arista was a client with whom Buchel had been communicating since at least April 2024 on behalf of Arc. On December 27, 2024, Allen wrote a series of emails to Arista saying:

i. Buchel has started his own research and development professional services entity “to tackle maximizing pipeline throughput through various realms of the text stack.” He expected Buchel to leave Arc sometime in the balance of 2024.

ii. He encouraged Arista to contact him and Buchel through the new entity known as Deadbeef for future “projects regarding maximizing hardware and systems to minimize latency and maximize compute opportunities throughout entire stacks”.

iii. The research and development topics that he had previously discussed with Arista are now all being moved to Deadbeef and Arc is now more of just a hardware sales entity.

[22] The description in this email of what Deadbeef would be doing is precisely what Nexus was designed to do. In writing this email the day after the termination of his employment, Allen was directly soliciting an Arc client for services that competed with Arc.

[23] On January 7, 2025, Allen wrote to another Arc customer, Cambridge Computer stating:

This project is now being moved to the RnD entity owned by the CTO named “DEADBEEF”. Arc Compute has restructured firing the majority of the engineering and RnD team.

[24] While the majority of these emails are written by Allen, he presents himself as working closely with Buchel throughout. Buchel is copied on many of them. Buchel did nothing to disavow the emails. Allen and Buchel presented a common front on the motion both representing themselves and acting in their oral submissions very much like lawyers of the same firm would act in dividing the argument and adopting each other’s submissions.

[25] Allen and Buchel also appear to be involved in the solicitation of employees. The emails quoted above clearly indicate that Arc’s employees are moving to Deadbeef. In addition, they appear to have been encouraging Arc employees not to cooperate with Arc. Philip Trypis (“Trypis”) is one example. Earlier on, Buchel had advised Arc that Trypis was the person who handled passwords and security within Arc. When Arc needed help with passwords, it approached Trypis who responded helpfully on January 9th. On January 10th, Arc confronted Buchel with evidence of diverting clients to Deadbeef. By January 13th, Trypis was refusing to advise Arc about usernames and passwords, even though he continued to be employed by Arc, because doing so ostensibly fell outside of his role as a software developer. After Arc applied considerable pressure, Trypis surrendered one username and one password but refused to attend any meetings with Arc.

[26] When Arc confronted Buchel with the existence of Deadbeef and allegations of diverting clients, he professed complete ignorance of what Arc was referring to. By January 15, 2025, Buchel was asserting that he could release the source code publicly to avoid liabilities on his end if Arc is unwilling to release it.

III. The Test for an Injunction

[27] The test for an interlocutory injunction is well known and not in dispute. The moving party must demonstrate that:

a. There is a serious question to be tried.
b. It will suffer irreparable harm if the relief is not granted.
c. The balance of convenience favours granting the injunction. [RJR-MacDonald Inc. v. Canada (Attorney General)]

A. Serious Issue to be Tried

i. Retaining Confidential Information

[28] The “serious issue” test involves a low threshold, requiring only that the plaintiff show that its claim is not frivolous or vexatious and stands a reasonable chance of success at trial.

[29] In my view, the plaintiff has demonstrated not only a serious issue to be tried but has established a strong prima facie case.

[30] Buchel admits he retained a copy of the Nexus source code. This violates the provision of his employment contract that requires him to surrender all confidential information on leaving Arc’s employ.

[31] Buchel disputes this with two principal arguments. First, Buchel says he requires the source code as evidence but has undertaken not to use, access, or disclose the code to third parties. That, in my view, does not give adequate weight to Arc’s concerns. The contract does not entitle Buchel to keep confidential information provided he gives an undertaking not to use it. The contract requires him to surrender confidential information. If there was a concern about needing the source code as evidence, that could have been addressed by having Buchel surrender his copies of the source code to counsel for the plaintiff or an independent escrow agent at the defendant’s cost.

[32] Second, the defendants disagree that the source code is confidential to begin with. They base this submission on the argument that Nexus is a modification of a software known as GNU. GNU is open-source code which Arc used pursuant to a license agreement. The license agreement contained, among other things, the following provisions:

2 (b) You must cause any work that you distribute or publish, that in whole or in part contains or is derived from the Program or any part thereof, to be licensed as a whole at no charge to all third parties under the terms of this License.

You are not required to accept this License, since you have not signed it. However, nothing else grants you permission to modify or distribute the Program or its derivative works. These actions are prohibited by law if you do not accept this License. Therefore, by modifying or distributing the Program (or any work based on the Program), you indicate your acceptance of this License to do so, and all its terms and conditions for copying, distributing or modifying the Program or works based on it.

Each time you redistribute the Program (or any work based on the Program), the recipient automatically receives a license from the original licensor to copy, distribute or modify the Program subject to these terms and conditions. You may not impose any further restrictions on the recipients' exercise of the rights granted herein. You are not responsible for enforcing compliance by third parties to this License.

If, as a consequence of a court judgment or allegation of patent infringement or for any other reason (not limited to patent issues), conditions are imposed on you (whether by court order, agreement or otherwise) that contradict the conditions of this License, they do not excuse you from the conditions of this License. If you cannot distribute so as to satisfy simultaneously your obligations under this License and any other pertinent obligations, then as a consequence you may not distribute the Program at all. For example, if a patent license would not permit royalty-free redistribution of the Program by all those who receive copies directly or indirectly through you, then the only way you could satisfy both it and this License would be to refrain entirely from distribution of the Program.

[33] As a result of these provisions, the defendants submit that: (i) the plaintiff could never charge for Nexus because it amounts to work derived from GNU and must be licensed at no charge; (ii) Arc cannot modify the GNU unless it accepts the terms of the license; (iii) anyone to whom Arc distributes Nexus automatically receives a license to modify and distribute the product without any further restriction; and (iv) the license prevails over any court order to the contrary.

[34] In addition, the defendants submit that Nexus requires a software product known as SLURM to function and that SLURM is also an open-source product.

[35] I do not accept those submissions on the record before me. There is no evidence before me about the relationship of the Nexus code to the GNU or the SLURM products let alone that Nexus is nothing but a modification of the GNU code apart from general allegations to that effect. The plaintiff says that Nexus is what is known as a plug-in that works on top of the GNU code but remains separate from it.

[36] The submission that there is nothing confidential in the Nexus code also contradicts Buchel’s practice at Arc of keeping the code in password protected depositories accessible only to a limited number of users. It is also contrary to Buchel’s explanation while at Arc that the code is protected by the concept of a trade secret. It would also appear to contradict an analysis that Allen prepared while at Arc that set out the estimated license fees Arc could charge various potential customers for Nexus. There was also evidence in the record to the effect that there are many software products that interact with SLURM but still retain their closed source nature. Even in their own submissions, Buchel and Allen indicated that Arc could make money off of Nexus through distribution fees and software support fees. The defendants did not explain the difference between a distribution fee and a license fee in this context.

[37] Next, the defendants argue that they are entitled to use the Nexus software because they purchased their Arc computers from Arc when they left and are therefore entitled to everything that was on the computer, including the Nexus code. There is nothing in the record about those purchases or their terms. Moreover, the simple purchase of a computer does not mean that the plaintiffs are also purchasing the software code unless the agreement specifically says that. The idea that the simple purchase of a computer entitles them to code would also contradict the term of their employment agreement that requires them to surrender all confidential information on their departure from Arc.

[38] The defendants have also taken with them names of Arc customers. While perhaps not in the form of a customer list as such (although that is unknown at this point), they clearly have and are using the names and contact information of Arc’s customers. That too violates the contractual obligation to surrender confidential information, including customer lists.

[39] The defendants argue that confidentiality applies only to technology that was solely developed by Arc and does not apply to things like customer lists. They base this argument on the statement in Allen’s employment agreement that “Articles 18, 19, 20, 21 herein apply only to technology being solely developed by Arc Compute.” That statement, however, is found under the heading “Intellectual Property.” Article 18 itself, which is the confidentiality provision, states expressly that confidential information “shall include, without limitation, customer lists, supplier information, pricing, marketing and development information and processes”. One cardinal rule of contractual interpretation is that the court should strive to give all parts of a contract meaning and prefer interpretations that allow different parts of the contract to be read as a harmonious whole rather than interpreting a contract in a way which renders certain provisions superfluous or which renders provisions contradictory. It is easy to read these provisions as a harmonious whole. Confidential information includes exactly what article 18 says it includes. On the other hand, when dealing with intellectual property, confidential information is limited to technology being solely developed by Arc.

ii. Solicitation of Arc Customers

[40] It is clear from the emails and texts quoted above that the defendants were soliciting Arc customers both before and after they left Arc. That, too, is a clear violation of their employment agreement which prohibits them from contacting customers for a period of six months after they leave Arc.

[41] The defendants argue that their non-solicitation clause applies only to paying clients and not to non-paying clients. They note that some of the people they have approached to work with Deadbeef are not paying clients of Arc. The defendants took me to no evidence to support this assertion. However, even if I accept that the non-solicitation clause applies only to paying clients, soliciting potential clients with whom Arc had already been in contact amounts to a violation of the common-law principle of corporate opportunity. The defendants are simply trying to seize for themselves Arc’s business contacts as well as the ease and advantage of using Deadbeef as an operating vehicle.

[42] There is no doubt that the parties whom Buchel and Allen approached such as Imec, Cambridge, SHSNC and Arista, were all opportunities of Arc that the defendants became aware of through their employment at Arc.

[43] The corporate opportunity doctrine precludes fiduciaries from obtaining for themselves, without the approval of the company, any property or business advantage belonging to the company or for which it has been negotiating, especially if the fiduciary is involved in the negotiations on behalf of the company. Put another way, a fiduciary cannot usurp for themselves or divert to another person or company with whom they are associated a maturing business opportunity that the company is pursuing.

[44] The duties that a departing fiduciary owes to their employer continue after employment has ceased.

[45] The defendants submit that their work through Deadbeef is consistent with Arc’s practice of working with competitors. I disagree. Whatever Arc’s practice of working for competitors may have been, that cooperation was pursued for Arc’s benefit. Here Buchel and Allen’s work with Deadbeef was not for Arc’s benefit but for their own benefit.

[46] The defendants further argue that their solicitation of Arc customers can cause no damage because Arc does not have the financial means to further develop and market Nexus. That is no defence in law. Liability for breach of the corporate opportunity does not depend on the ability of the corporation to take advantage of the opportunity. Even where a plaintiff employer has no hope of taking advantage of a business opportunity, its fiduciaries are still prohibited from obtaining the opportunity for themselves.

[47] Nor, in my view, does the allegation that Arc cannot pursue the opportunity constitute a defence in fact. Although Arc may face financial challenges, the existence of the corporate opportunities could form a basis of further financing that allows Arc to pursue them. The pursuit of those opportunities by the defendants can only hamper Arc’s ability to use them to obtain further financing.

[48] In my view, both Allen and Buchel are fiduciaries.

[49] Allen has admitted in his statement of defence that he was a fiduciary.

[50] While Buchel submits he is not a fiduciary, I do not accept his submissions in that regard. As noted, Buchel was a director. Directors are fiduciaries. Buchel resists this by arguing that he was not validly appointed as a director. In this regard he points to provisions of the shareholders agreement and alleges that it was not complied with in relation to his appointment as a director which in turn is oppressive to Arc’s other shareholders. Whether Buchel’s appointment as a director is oppressive of others is not the subject of this litigation. There is no doubt that Buchel accepted his appointment as a director, was listed as a director, and acted as a director for several years.

[51] Buchel and Allen also deny that they meet the common-law test for being fiduciaries.

[52] The common law test was articulated by the Supreme Court of Canada in Frame v. Smith which held that relationships in which fiduciary obligations have been imposed generally have three characteristics: (1) The fiduciary has scope for the exercise of some discretion or power; (2) The fiduciary can unilaterally exercise that power or discretion so as to affect the beneficiary’s legal or practical interests; and (3) The beneficiary is peculiarly vulnerable to or at the mercy of the fiduciary holding the discretion or power.

[53] Courts have also been prepared to extend fiduciary obligations to lower level employees if they are key employees. Key employees are those whose positions and responsibilities are so essential to the employer’s business that it renders the employer particularly vulnerable to competition upon that employee’s departure.

[54] Indicia to be considered when determining whether someone is a key employee have included:

(i) The nature of the employee’s job duties.
(ii) The extent or frequency of the contact between the employee and the former employer’s customers and/or suppliers.
(iii) Whether the employee was the primary contact with the customers or suppliers.
(iv) The extent to which the employee was responsible for sales or revenue.
(v) The extent to which the employee had access to, made use of, or otherwise had knowledge of, the former employer’s customers, their accounts, the former employer’s pricing practices, and the pricing of products and services.
(vi) The extent to which the former employee’s information was confidential.

[55] The defendants argue that they had no discretion or power because all decisions were approved of by the CEO. To the extent that is true, I find that Buchel and Allen were key employees of Arc. Buchel was the Chief Technology Officer in a technology corporation. He was critical to the development of Nexus. He had copies of the Nexus product. He could unilaterally exercise his power to the detriment of Arc by copying, modifying, and distributing the Nexus product for his own benefit. Both Allen and Buchel in their affidavits denigrate the knowledge of the CEO and emphasize their own superior knowledge of the business. Both Buchel and Allen were the critical front face of Arc towards its customers. Both played critical roles with respect to Arc’s ability to generate revenue; Buchel through his role in the development of Nexus; Allen in his role as the person with daily customer contact and the person who was developing Arc’s licensing and pricing model.

[56] The defendants also suggested that their terminations were a form of retribution against them as whistleblowers. It appears that they raised allegations that Arc’s CEO at the time, Justin Ritchie (“Ritchie”), had misappropriated funds. Ritchie accepted responsibility for the misappropriation and returned the funds to Arc. Ritchie remained with Arc. I do not accept that the termination of Allen or Buchel was motivated by retribution. There is no doubt Arc had a cash flow crisis in late 2024 that required aggressive measures to manage. Large numbers of staff were let go. Even then, Arc kept Buchel on. Buchel was let go only after it became clear that he was appropriating corporate opportunities. Moreover, even if the defendants were let go as retribution for their whistleblowing, it does not give them the right to retain confidential computer code or appropriate corporate opportunities.

[57] The final element of the plaintiff’s strong prima facie case is the concept of springboarding which has been described as follows:

As I understand it, the essence of this branch of the law, whatever the origin of it may be, is that a person who has obtained information in confidence is not allowed to use it as a spring-board for activities detrimental to the person who made the confidential communication, and spring-board it remains even when all the features have been published or can be ascertained by actual inspection by any member of the public.

[58] This is precisely what the defendants are doing. They are springboarding their way into competing with Arc by using their knowledge of Arc’s customers to obtain customers for themselves; by using Deadbeef which was created as an Arc affiliate as a vehicle through which to do business, and by retaining a copy of the Nexus software. Recall that Allen boasted Buchel could create a new version of Nexus in 24 hours that is better than the current version. It took Buchel years of work at Arc and millions of dollars of funding to bring Nexus to its current state. I find it highly doubtful that Buchel could reproduce that from scratch in short order. If, however, he used the Nexus code as a base which he could then modify, a “new” product could be created in short order. Neither Allen nor Buchel explained how they could service the Arc customers they were soliciting without using the Nexus code as a base for their services.

B. Irreparable Harm

[59] Irreparable harm is harm which either cannot be quantified in monetary terms or which cannot be cured. It includes permanent market loss and irrevocable damage to business reputation.

[60] Irreparable harm is presumed in cases involving the misuse of confidential information. In such cases, the true owner of the confidential information has no way of knowing the extent to which the breaching party is using confidential information to compete and therefore cannot easily quantify its damages.

[61] It has also been held that it would be incongruous to permit a party in breach of a restrictive covenant to be granted a holiday until trial.

C. Balance of Convenience

[62] The balance of convenience requires the court to balance the harm the plaintiff would suffer if the injunction were not granted against the harm the defendants would suffer if the harm were granted.

[63] If the injunction is granted, the defendants will be forced to abide by their employment contracts and by their common-law duties. While that may be inconvenient, it is not inconvenience from which they are entitled to be protected. If the injunction is granted, the plaintiffs will be getting what they bargained for when they hired the defendants and will be getting what the common-law entitles them to: the protection of confidential information and corporate opportunity.

[64] The defendants submit that the balance of convenience favours them because they have a new business up and running and have just entered into a first contract which they produced during oral argument. They submit that the balance of convenience ought to favour the new start up business. The balance of convenience has, however, been held to favour the party with a long-established business and customer base. The longer running business is likely the product of greater financial and human resources than the start up.

IV. Remedy

[65] The plaintiff seeks an injunction to restrain the defendants from competing “for a temporal period as long as and the geographic area as wide as permitted by law.” At a minimum, they seek an injunction to restrain the defendants from competing with Arc until trial.

[66] The plaintiff points to TSI International Group Inc. v. Formosa and GasTOPS v. Forsyth in support of its requests. In TSI, the court ordered an injunction restraining the defendants from competing until trial. In that case, however, the defendants had agreed to two-year non-competition covenants in their employment contracts. Allen and Buchel do not have non-competition covenants in their employment agreements. They have only covenants not to solicit Arc customers for a period of six months. In GasTOPS, the trial judge awarded damages equal to the profit the defendants had earned over a ten-year period. GasTOPS, however, was a final judgment and was based on the defendants’ consistent misuse of confidential information for a 10-year period.

[67] The law recognizes that all employees, whether they are fiduciaries or not, are prohibited from competing with their employer while they are employed. It appears that Allen and Buchel breached this covenant by soliciting Arc customers while they were still employed with Arc.

[68] In the case of fiduciaries, courts have held that their duties continue to impose limits on the scope of their activities for a “reasonable” time after they leave their employment. Various benchmarks have been suggested to determine what constitute a reasonable time, including the amount of notice an employee is required to give their employer before departing and the notice an employer owes the employee for a termination without cause. While those might be useful benchmarks in some cases, they ought not to be taken as hard rules or even guidelines. It is preferable, in my view, to determine what amounts to a “reasonable” period in the circumstances of each case.

[69] As noted, the employment contracts before me do not contain non-competition covenants. Rather, they restrain the defendants from soliciting Arc customers for six months. At the same time, however, both defendants are fiduciaries and are restrained from pursuing corporate opportunities. It also appears that the defendants have already used confidential information to their benefit.

[70] In my view, the appropriate form of injunction in this case is one that requires the defendants to surrender immediately to the plaintiff’s counsel, all information in their possession, power, or control that they acquired as a result of their employment with Arc, whether in hard copy or electronic form, including any and all copies of such information and that the defendants do so without retaining any copies for themselves. This would include all copies of any part of the Nexus code and any Arc passwords and other information required to access Arc’s information, wherever stored.

[71] This provision of the injunction goes beyond confidential information. I do that because the defendants appear to take a highly restrictive view of what constitutes confidential information to the point where they say nothing they acquired at Arc is confidential, not even the source code.

[72] In addition, I order the defendants to shut down the defendant, 3735928559 LLC doing business as Deadbeef, on the basis that it is a corporate opportunity that belongs to Arc, which the defendants seized and are using to springboard their activities.

[73] I further order that the defendants be restrained from competing with Arc for a period of six months. This strikes me as a reasonable amount of time to extend the defendants’ fiduciary duties that they owe Arc not to pursue corporate opportunities that belong to Arc. A restraint on competition is the only way to enforce the restriction on the defendants from using the corporate opportunity that lies within Nexus. Nexus is a brand-new product that is still in its experimental phase. Permitting the defendants to pursue that opportunity in a different form would fail to protect Arc’s corporate opportunity. The six-month period shall commence today. In my view, having the six-month period commence as of the day the defendants left Arc would unfairly shorten the period of their obligations because they have already had the benefit of almost 3 months of springboarding to which they were not entitled. The geographic scope of the non-competition restraint is worldwide. In my view, that is appropriate because the business in which Arc operates is worldwide. The record discloses that the defendants had been soliciting Arc customers in North America, Europe, and Asia. A worldwide restriction is therefore appropriate.

[74] In addition, I include the following additional provisions from the employment contracts to enjoin the defendants from:

i. Soliciting, interfering or endeavouring to entice away from the Arc, either directly or indirectly, any Client of the Business in relation to any business that is the same as, substantially similar to or competitive with the Business or any part of the Business, or otherwise encourage or take any other action which could cause any such Client to reduce, cease or end its engagement with the Company for a period of 6 months from today.

ii. Soliciting or hiring employees of Arc for a period of 6 months after leaving Arc’s employ for a business that is substantially similar to Arc’s.

iii. Interfering, for a period of 6 months, with any of Arc’s relationships with its current clients, prospective clients, and employees, which includes any attempt to solicit current clients, prospective clients, or employees of Arc to leave their employment or to stop dealing with Arc and/or to join the Defendant.

iv. Making false statements to third parties regarding Arc, its employees, directors, or shareholders.

[75] Finally, pursuant to Rule 30.04(5) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, I order the defendants to produce immediately all production of documents relating to the allegations in issue in this action, including any Arc documents taken or retained by the Defendants.

Date: March 20, 2025
Mark L. Koehnen

Footnotes

[1] A slack in the AI context is a suite of generative tools that allow people in different places to work together.

Cited Authorities

Legislation

Rules of Civil Procedure, R.R.O. 1990, Reg. 194

2666680 Ontario Inc. v. Allen, 2025 ONSC 1745

Case Summary