The unauthorized misuse and conversion of confidential and proprietary information is an unfortunate reality for many corporations. Companies spend significant resources in not only developing confidential and proprietary information but also in attempting to protect its confidentiality. Although injunctive relief has become the principal remedy for breach of confidence, it has primarily been confined to preventing the continued misuse of confidential information and has not extended to returning any goods alleged to have been copied using confidential and proprietary information pending trial.
In the recent decision of Catalyst Canada Services v. Catalyst Changers Inc., the Alberta Court of Queen's Bench ordered the seizure of equipment alleged to be derived from confidential information. The decision is the first reported Alberta decision and is only the third reported decision in Canada in a pretrial setting where courts have traced alleged confidential information into physical items and ordered the delivery-up of such alleged copies pending trial. Such an interim remedy is critical in many instances to restrain defendants from converting, making use of and profiting from such information to the detriment of the confider.
The plaintiffs in that case were involved in the catalyst removal industry and spent significant time and resources in developing a product known as a rotary trailer that was and is used to load and unload catalyst from oil and gas refineries. Certain employees of the plaintiffs abruptly resigned and began working for a new competing catalyst company. Prior to doing so, it was alleged that the employees converted a substantial amount of confidential and proprietary information belonging to the plaintiffs, including the designs and specifications of the plaintiffs' rotary trailers. Evidence was tendered that supported an allegation that confidential and proprietary information was used to build two rotary trailers that were materially identical to those built and owned by the plaintiffs.
The plaintiffs were successful in obtaining an interim injunction and Anton Piller order (civil search warrant) against the defendants. As part of the injunction, the court ordered (among other things) the delivery up of the defendants' two rotary trailers. The defendants subsequently applied to vary the injunction order to obtain the two rotary trailers back.
In dismissing the application to vary, Yamauchi J. confirmed that the injunction order was properly issued in the first instance, including the provision requiring the delivery-up of the alleged copied equipment. The court found that there was a serious issue to be tried regarding whether the plaintiffs' rotary trailers were confidential and unique. In doing so, the court confirmed the low threshold for what kinds of information are capable of constituting confidential information. In particular, the court confirmed that what makes something confidential is the fact that "the maker has used his brain and thus produced a result which can only be produced by somebody who goes through the same process." Thus, the court rejected the argument that the rotary trailers were somehow not confidential because their design was not recorded by a blueprint or drawing but were instead developed largely through trial and error.
The court also found that the combination of otherwise non-confidential parts and elements of a product, and the method of creating such an amalgam, could constitute confidential and proprietary information. The court noted that it must look at the whole of the circumstances to determine whether, in the plaintiffs' mind, the rotary trailers and their design remained confidential. Finally, in finding that the plaintiffs would suffer irreparable harm if the injunction were varied, the court held that a loss of customers including the potential loss of market share are sufficient to constitute irreparable harm.
The decision in Catalyst Services marks a useful turning point in the degree to which courts will go to protect confidential and proprietary information and provides one more important and necessary remedy in order to achieve what is often the only practical way of protecting such information.
