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UBC Theses and Dissertations

Legal rights to information and skilled employees in the computer industry Smeltzer, Gerald Gilbert 1985

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LEGAL RIGHTS TO INFORMATION AND SKILLED EMPLOYEES IN THE COMPUTER INDUSTRY  by  GERALD GILBERT SMELTZER B.Comnw, The U n i v e r s i t y o f A l b e r t a , 1968 LL.B., The U n i v e r s i t y o f B r i t i s h Columbia, 1971  A THESIS SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF LAWS in THE FACULTY OF GRADUATE STUDIES (FACULTY OF LAW)  a c c e p t t h i s t h e s i s as conforming t o t h e r e q u i r e d  P r o f . M. A. H i c k l i n g (Chairman)  Dr.  D. Vaver ( A s s o c i a t e  Prof.)  A p r i l 1985 Copyright  Gerald  G i l b e r t Smeltzer, 1985  standard  In p r e s e n t i n g t h i s t h e s i s i n p a r t i a l f u l f i l l m e n t o f t h e requirements f o r an advanced degree a t t h e U n i v e r s i t y o f B r i t i s h Columbia, I agree t h a t t h e L i b r a r y s h a l l make i t f r e e l y a v a i l a b l e f o r r e f e r e n c e and study. I f u r t h e r agree t h a t p e r m i s s i o n f o r e x t e n s i v e c o p y i n g o f t h i s t h e s i s f o r s c h o l a r l y purposes may be g r a n t e d by the head o f my department o r by h i s o r h e r representatives. I t i s understood t h a t c o p y i n g o r p u b l i c a t i o n of t h i s t h e s i s f o r f i n a n c i a l gain s h a l l not be a l l o w e d without my w r i t t e n p e r m i s s i o n .  FACULTY OF GRADUATE STUDIES The U n i v e r s i t y o f B r i t i s h Columbia 2075 Wesbrook P l a c e Vancouver, Canada V6T 1W5  Date: GERALD GILBERT SMELTZER'  ii  THESIS ABSTRACT Canada i s c u r r e n t l y e x p e r i e n c i n g society  as  the  result  related  technologies.  information  of  technology.  The  meet  the  of  the  This  skilled  the  wide  spread  thesis  of  employees  employers  who  and  introduction  focuses  o b j e c t i v e i s to a s s e s s  needs  t r a n s i t i o n to a p o s t - i n d u s t r i a l  on  work  the  the with  and  to  information  legal  rights  modern  adequacy of  employees  of  computer  existing serve  to  laws  the  to  public  interest. The  initial  secrets  and  chapters  breach  relationship.  Patent  reviewed but not Against  of  concentrate  on  confidence  as  and  copyright  the  legal  applied  protection  principles to  for  the  of  employment  software  is  t h i s background, the major p o r t i o n of the t h e s i s examines the between the l e g a l i n t e r e s t s of the employer, the  and  Any  the p u b l i c .  i n f o r m a t i o n by  attempt by  employees invokes  recognizes  developed  briefly  emphasized.  d e l i c a t e balance  doctrine  trade  during  an  employers t o l i m i t p o s t employment use the d o c t r i n e of r e s t r a i n t of t r a d e .  employee's  employment  for  employee  right the  to  use  benefit  the of  knowledge  other  and  of  This skills  employers.  The  t h e s i s examines the elements of the r e s t r a i n t of t r a d e d o c t r i n e as a p p l i e d t o s k i l l e d employees i n t h e computer i n d u s t r y . The thesis  creation to  developers  and  illustrate are  development legal  extremely  of  software  principles.  vunerable  used  Employers  misappropriation  their  of  covenants i n employment agreements to l i m i t  t o prevent  future  competition.  Such employers r e l y  throughout  such  i n f o r m a t i o n by restrictive  employees.  to  is  as  of  the  software  confidential  h e a v i l y upon the  use  d i s c l o s u r e and  iii  The This  remedies  chapter  for  an  employee's  concludes t h a t  the  breach  legal  of  confidence  are  p r i n c i p l e s governing i n t e r l o c u t o r y  i n j u n c t i o n s are inadequate t o p r o p e r l y p r o t e c t the i n f o r m a t i o n The  thesis  inadequate  concludes  to p r o t e c t  that  the  present  a computer i n d u s t r y  Canadian employer  law  not  yet  recognized  greatly increased If  neither  the  social  and  technological  the v u n e r a b i l i t y of the i n f o r m a t i o n the  courts  nor  the  l e g i s l a t u r e s take  employers w i l l have to f u r t h e r i n c r e a s e  their  employer.  i s increasingly  against  u n a u t h o r i z e d a p p r o p r i a t i o n of c o n f i d e n t i a l i n f o r m a t i o n . has  reviewed.  an  employee's  In s h o r t , the changes  that  law have  employer. action,  r e l i a n c e on  the  information limited  u n c e r t a i n p r o t e c t i o n of r e s t r i c t i v e covenants i n employment agreements.  THESIS SUPERVISOR:  PROF. M.A.  HICKLING  and  iv  ACKNOWLEDGEMENT  For dedicated  their  unfailing  to Morrison  patience,  and M u r i e l  support  Smeltzer.  and  love,  I could  this  n o t have  t r u e r f r i e n d s o r b e t t e r p a r e n t s than I r e c e i v e d i n them.  thesis i s asked f o r  V  LEGAL RIGHTS TO INFORMATION AMP SKILLED EMPLOYEES IN THE COMPUTER INDUSTRY THESIS ABSTRACT  i i  ACKNOWLEDGEMENT  iv  I.  II.  III.  INTRODUCTION A.  The P o s t i n d u s t r i a l I n f o r m a t i o n S o c i e t y  1  B.  The S i g n i f i c a n c e o f I n f o r m a t i o n  4  C.  The L e g a l Paradigm and t h e C h a l l e n g e f o r Lawyers.  8  WHO QUALIFIES AS AN EMPLOYEE? A.  General Considerations  17  B.  The J u d i c i a l T e s t s f o r Determining S t a t u s as an Employee  21  C.  The C o n t r o l T e s t  23  D.  The M u l t i p l e T e s t  25  E.  The O r g a n i z a t i o n a l o r I n t e g r a t i o n T e s t  28  F.  Summary  '  29  AN EMPLOYER'S PROPRIETARY RIGHTS TO INFORMATION A.  General Considerations 1.  35  I n c r e a s i n g Commercial R e l i a n c e on Secrecy and C o n f i d e n t i a l i t y  40  2.  C o n f u s i o n over Ownership o f Software  41  3.  P o s s i b l e P o l i c y B i a s e s i n t h e E x i s t i n g Law  42  4.  P o l i c y Objections to Property Rights i n Information  .45  B.  Patent P r o t e c t i o n f o r I n f o r m a t i o n  48  C.  Copyright P r o t e c t i o n  51  D.  Trade S e c r e t P r o t e c t i o n f o r I n f o r m a t i o n  61  vi  IV.  1. The L e g a l P r i n c i p l e s  61  2. Trade S e c r e t s  67  and Software  THE FIDUCIARY AND IMPLIED OBLIGATIONS OF AN EMPLOYEE: A.  Implied Obligations  86  B.  Fiduciary Obligations  93  C.  Fiduciary Obligations  and the B.C. Software  Industry  V.  99  COVENANTS IN RESTRAINT OF TRADE: A.  Should Employers Use Express Covenants of R e s t r a i n t ?  110  B.  S p e c i a l S t a t u s o f R e s t r a i n t s on Employment  118  C.  What i s a R e s t r a i n t o f Trade?  124  D.  The Employer's P r o p r i e t a r y  I n t e r e s t and t h e  Reasonableness T e s t  130  1.  P r o t e c t i o n o f Employer's B u s i n e s s C o n n e c t i o n s  131  2.  P r o t e c t i o n of an Employer's  Interest i n  C o n f i d e n t i a l Information 3.  .133  P r o t e c t i o n o f an Employer's  Rights t o  Trade Secrets  134  4.  Know How v s . Trade S e c r e t s  137  5.  Other R e l a t e d  Proprietary  Interests and Employee  141  E.  Reasonableness Between t h e Employer  144  F.  The P u b l i c I n t e r e s t and Employment R e s t r a i n t s . . . .  149  G.  Other C o n s i d e r a t i o n s .  156  vii  V I I . THE CRITICAL REMEDIES FOR BREACH OF AN EMPLOYEE'S OBLIGATIONS 1.  Damage Awards A g a i n s t An  2.  a T h i r d Party Who B e n e f i t s  From  Employee's Breach o f C o n f i d e n c e  Interlocutory Injunctions  t o R e s t r a i n Breaches o f a  R e s t r i c t i v e Covenant 3.  P u n i t i v e Damage Awards A g a i n s t , o f Employment O b l i g a t i o n s  173  178 an Employee f o r Breach 188  V I I . CONCLUSION  202  VIII.  214  BIBLIOGRAPHY  1  I  INTRODUCTION  A.  THE  POST INDUSTRIAL INFORMATION SOCIETY "In the midst of the computer age, we are o f t e n s t a r t l e d witnesses t o the r a d i c a l changes taking place around us. Patterns of doing b u s i n e s s , which have e v o l v e d s l o w l y over many generations, are being inextricably altered almost o v e r n i g h t . Although i t may be d i f f i c u l t to imagine, the day w i l l come, and some s p e c u l a t e b e f o r e the end of the c e n t u r y when many of us w i l l work, shop, bank and take c l a s s e s s e a t e d a t a computer t e r m i n a l i n our homes. The scope of these changes and the speed w i t h which they are o c c u r r i n g w i l l have enormous i m p l i c a t i o n s f o r the s t r u c t u r e of s o c i e t y . Often spoken of as a r e v o l u t i o n , the development of m i c r o e l e c t r o n i c s w i l l have a worldwide impact t h a t i s at l e a s t as powerful and f a r - r e a c h i n g as the development of the p r i n t i n g p r e s s . " ^  One  wonders i f t h e r e  information and  in  academic  smokestack Alvin  revolution.  in  c o u n t r i e s of the world wave"  societies.^  labelled hunting  as  "first  book  this  n  to  an  us a  about "high  entitled  simple  but  still  Although industrialized  Canada  i n both  the  popular  information  Third  effective  experiencing  Wave"  media from  a  economy.  ^  refers  metaphor,those the  to  based  economy.  as  the  United  nations  Second  States,  l e a d i n g the w o r l d  the  "third  transformation  changeover from a g r i c u l t u r a l  such  about the  transformation  tech"  agriculturally  Nations  not y e t heard  wave","second wave", or as  t h e U n i t e d Kingdom, which a r e  e l e c t r o n i c technology,  has  the  "The  "first  undergoing the  industrialization.  Germany and  to  as e i t h e r  wave" are  activities  c o u n t r i e s are those to  i  tell  economy  his  Canadian who  Numerous commentators  literature  industrial  Toffler,  i s any  from wave  economies  Japan,  West  i n the use  of  are the t h i r d wave c o u n t r i e s . cannot  economy,  or  be  easily  an  economy  labelled based  as on  either  a  completely  microelectronics,  the  2  current  advances  revolutionizing significant  in  telecommunications  our l i v e s .  changes t h a t  Numerous  and  in  computers  r e p o r t s and a r t i c l e s  are o c c u r r i n g  i n t h e Canadian  are  document t h e  economy.  i n the  4  p a s t t h e goods p r o d u c i n g i n d u s t r i e s were c o n s i d e r e d t o be t h e h e a r t of t h e economy. the  Growth of t h e manufacturing s e c t o r was t h e key t o p r o s p e r i t y and  solution  longer  t o t h e problem  of unemployment.  dominates t h e Canadian  O n t a r i o government shows t h a t close to half part  of  A r e c e n t study  Product.  associated  with  of i n f o r m a t i o n goods  Canadians  can no l o n g e r  and s e r v i c e s  our manufacturers  Computer plant  assisted  floor,  Canada where  i s presently  quantity labour  of goods. intensive  Just to  of labour  point  capital  to create  technology.  be used  on t h e  collar  worker.  i n industrial  a r e needed  as m e c h a n i z a t i o n  being  must  c o n f r o n t s the white  a t t h e change-over  d i m i n i s h i n g amounts  sector  electronic  (CAM) and r o b o t i c s  automation  1  f o r 47% of the  Intense f o r e i g n c o m p e t i t i o n i s  t o use the d e v e l o p i n g  while office  p r o c e s s i n g and  accounted  look t o the manufacturing  manufacturing  account f o r  4a  jobs f o r those e n t e r i n g t h e l a b o u r f o r c e . forcing  f o r the  The i n f o r m a t i o n economy - t h a t  the production,  G.D.P. i n 1981, up from 35% i n 1 9 7 1 . . . "  growth no  conducted  "information related a c t i v i t i e s  the Gross Domestic  t h e G.D.P.  distribution  economy.  But i n d u s t r i a l  t o produce  converted  intensive,  a  farming  t h e new  production constant  from  being  technology i s  c o n v e r t i n g the manufacturing process. The  remarkable  N o r t h American of  economy.  t h e U.S. gross  Americans.  fact  While  i s that  the s e r v i c e  sector  now  dominates the  E s t i m a t e s a r e t h a t i n 1982 s e r v i c e s g e n e r a t e d 67%  national  product,  employment  and employed  seven  i n t h e manufacturing  out of every t e n  sector  has  remained  3  c o n s t a n t f o r the l a s t decade, s e r v i c e r e l a t e d jobs i n the U.S.A. have gone from an e s t i m a t e d 47 m i l l i o n t o 65 It  i s the  s e r v i c e sector that best  information  economy  sector  two  into  services.^  million.^  in  Canada  major a r e a s :  A  closer  or  the  demonstrates the changeover to an U.S.A.  intermediary  look  at  the  Economists  s e r v i c e s and  industries  divide  this  consumer/community  represented  in  these  c a t e g o r i e s p o i n t s out the enormous i n f o r m a t i o n component. The such  intermediary  as  services  category  transportation, u t i l i t i e s ,  general business  s e r v i c e s such  as  includes  wholesale  and  a l l activity  fields  of  activities,  legal,  and  and  a l l the  Consumer and community s e r v i c e s  entertainment,  of  common these  link  are  among a l l of  either  these  information  hotels, real  responding Computers  enthusiastically enable  amounts  the  of  to  estate  or  is  else  information.  deal  solely  A c c o r d i n g l y , these b u s i n e s s e s  the  service sector  data.  sub-categories  dependent  i n f o r m a t i o n as a b a s i c s t o c k i n t r a d e .  vast  retail  services  a l s o i n c l u d e s a l l government programs. One  All  i n the  and  finance, insurance,  other supporting p r o f e s s i o n a l businesses. covers  distribution  new  to  information  process,  Telecommunications  the  are  technologies.  evaluate  link  in  and  distribute  data  bases  and  the  impact  of  computers t o g e t h e r i n an ever expanding networks. Canadian  policy  microelectronics. enormous s o c i a l  The  and  comparison c a p t u r e s movement to  Boeing  legal  new  cannot  as  767  would  to  are  changes appear t o be  the r e l a t i v e  the  afford  technologies  computerization.  spectacularly the  makers  " I f the  computer cost  speed and  dollars  advancing  so  inevitable.  rapidly  that  The f o l l o w i n g  power of the f o r c e s b e h i n d  aircraft  i n d u s t r y over  $500  ignore  the  today,  i n d u s t r y had past and  evolved  twenty-five i t would  the as  years,  circle  the  4  globe  i n twenty minutes on  five  g a l l o n s of  r e p r e s e n t a rough analogue of a r e d u c t i o n of o p e r a t i o n , and  B.  THE  SIGNIFICANCE OF  What depending decade? mind.  the decrease  i n c o s t , the  i n c r e a s e i n speed  INFORMATION  information?  Does  on  the  Has  context?  word i s w i d e l y  Information  Such performance would  i n energy consumption of computers.  is  The  fuel.  the the  one  have  definition  used, but  seems t o be  term  a  changed  a multiplicity  of those  different over  meaning the  past  of meanings come t o  enigmatic  terras t h a t a c q u i r e s  meaning from i t s s u r r o u n d i n g s . Information Canadian case not  For  example,  in either  specific  the  been  strictly the  considered  general  Canadian Law  concept  t o the  given  to  the  document which  or  of  defined  in  information  is  the Words  and  D i c t i o n a r y ^ or  Canadian Abridgement.  definition  in referring  a g a i n s t an A  yet  s e c t i o n of the  very  process  not  law.  r e f e r r e d to  Phrases the  has  (The  word  obvious  i n the  s e t s out  the  exception  criminal  is  justice  c r i m i n a l charges  accused.)^  non-legal  e x p l a i n s the  definition  concept  as  for  information  from  a  general  dictionary  "knowledge a c q u i r e d or d e r i v e d ; f a c t s "  or e l s e as  11 "timely  knowledge;  p r e c i s i o n and  news".  accuracy  But  this  type  of  t h a t i s r e q u i r e d f o r any  explanation  lacks  d i s c u s s i o n of l e g a l  the  rights  to information. This industry, that  an  thesis w i l l and  focus  particularly  employer  can  i n f o r m a t i o n must be However, even with  on  the  rights  i n the  upon the o b l i g a t i o n s of s e c r e c y and  legally  enforce  defined at least these  to i n f o r m a t i o n  limits,  against  in this  an  confidence  employee.  limited  a precise definition  Therefore  commercial still  computer  context.  eludes  legal  5  commentators.  In a r e c e n t  article,  instead  identified  through  information,data  covered  by the s t a t u t o r y m o n o p o l i e s . " ^  monopolies federal  and  an attempt and  as a continuum "which runs from pure  and know-how,  the r i g h t s  such  of p a t e n t  and i n t o the areas In t h i s  context,  and c o p y r i g h t  ideas  conventionally the s t a t u t o r y  holders  under the  legislation.  The it  mean  information  Hammond avoided  concept  i s used Law  of i n f o r m a t i o n  only  i n t h e t e c h n i c a l sense.  Institute  provides  acquires  a degree of p r e c i s i o n when  The g l o s s a r y  f o r the 1983 Computers  the f o l l o w i n g e x p l a n a t i o n s  of i n f o r m a t i o n and  its. related terms:^ data processing system a network of machine components capable of accepting information, p r o c e s s i n g i t a c c o r d i n g t o a p l a n , and p r o d u c i n g the desired results. i n f o r m a t i o n - t h e meaning d e r i v e d from data which has been arranged and d i s p l a y e d i n such a way t h a t i t can be r e l a t e d t o t h a t which i s p r e v i o u s l y known, ( c f . data). i n f o r m a t i o n system - a l o g i c a l group of subsystems and data r e q u i r e d t o support t h e i n f o r m a t i o n needs of one or more b u s i n e s s p r o c e s s e s . i n f o r m a t i o n system network - a network of m u l t i p l e operational-level information systems and one management-orientated information system (centred around p l a n n i n g , c o n t r o l and measurement processes.) The network retrieves data from databases and s y n t h e s i z e s t h a t data i n t o meaningful i n f o r m a t i o n t o support the o r g a n i z a t i o n . 1 4  To  i l l u s t r a t e the o b l i g a t i o n s of s e c r e c y and c o n f i d e n c e  pages,  this  information, means  the  function  thesis  will  namely s e t of  refer  software.  electronic  i t i s to p e r f o r m .  1 4 3  to  one  specific  I n the computer instructions Brooks  that  type  i n the ensuing of e l e c t r o n i c  terminology, tell  identifies  a  software  computer  different  types  what of  6  software  such  as systems  software,  a p p l i c a t i o n software,  updates and program m o d i f i c a t i o n s . ^ are  unimportant  coined  f o r the purpose  to contrast  computer  computer  thesis.  with  rights.  role  software  is  provides  labour-intensive  and  illustrations  will  technologies. than  of a  of i n f o r m a t i o n  f o r the c o n f l i c t s the  computer  be used t o e x p l o r e  accurate, effect,  defined and  imprecise.  between  in  still  significance  non-technical comprehensible  of e l e c t r o n i c  as a v a l u a b l e s o c i a l  d e a l i n g the new  appropriate software  to  so  the r i g h t s o f Thus,  software  and i n f o r m a t i o n o f f e r e d above only  language to  a  take  is  that  on any degree of  The concepts i s both  non-technical  have n o t completely  outsider.  In  system have not y e t come t o g r i p s w i t h  information  as a mass produced product  or  resource.  An example from a r e l a t e d p r o f e s s i o n w i l l  principles  and  of  t h e a p p l i c a t i o n of the law t o t h e  The terms  our s o c i e t y and our l e g a l  America  production  intensive,  industry.  the d e f i n i t i o n s of software  and l e g a l l y  been  The  capital  c e r t a i n t y when used i n a narrower t e c h n i c a l sense.  North  was  employer and employee.  Admittedly, vague  in  high  rather  background  employees  h i g h technology  of  o r hardware  and e f f e c t i v e i l l u s t r a t i o n  i n t h e emerging  a relevant  employers  the  software  I t i s a type of e l e c t r o n i c i n f o r m a t i o n t h a t p l a y s an i n c r e a s i n g l y  important  yet  distinctions  The term  the " i r o n "  and  system.  Software p r o v i d e s a dramatic  are  However, t h e p r e c i s e  of t h i s  programs  listings,  information currently  software.  One  classification development  of  economics. debating  The a c c o u n t i n g  the  particular software  corporations.  i l l u s t r a t e the d i f f i c u l t i e s  application disagreement  i n the f i n a n c i a l The  profession i n of  accounting  relates  t o the  statements  classification,  issue  of is  7  significant  because  of the  large  amounts of money t h a t i s spent by  c o r p o r a t i o n s on the r e s e a r c h and development of new The  currently  accepted  Canadian  software programs.  practice  is  to  development c o s t s as an expense i n the year i n c u r r e d . and  loss  initial treat  statements  of  y e a r s of the l i f e the  approach  disbursement  Comserv,Inc. manufacturing to  launched orders  huge  of a s u c e s s f u l program. as  the  acquisition  The  of  a  software  Thus, the  1 6  expenses  profit  during  the  c o n t r a r y view i s t o  capital  asset.  This  is  an  American  companies.  develop  a  based  I t invested  program  the p r o d u c t  dollars.  systems  By  for a  the  maker sum  f o r purchasing  i n 1982,  the end  total  by  of the software program.  the  of  software  systems  for  of $735,000.00 i n 1981  and  procedures.  c o r p o r a t i o n had  of  for a total  of October,1982 s a l e s had $2.8  million  in  When  1 7  Comserv  already received  f o r 35 s e t s of the program a t $40,000.00 each  million 70  c o r p o r a t i o n s show  treat  means t h a t the c o s t of the a s s e t can be d e p r e c i a t e d on a year  y e a r b a s i s over the l i f e  1982  the  these  sales  firm  of  $1.4  reached a t o t a l of  revenue.  The  chief  e x e c u t i v e o f f i c e r of the c o r p o r a t i o n e s t i m a t e d t h a t the p u r c h a s i n g program would  generate  product  was  at  least  outdated.  $6  million  Given  Peat, M a r w i c k , M i t c h e l l & Co.,  these  statements  software houses are expected instead  of  treating  case,  reporting  would  have  converted a  the year 1982  for  i t s 1981 1981  the  i n revenue  before  the  corporation's auditors,  statements.  such  companies  change  drastically  t o expense software c o s t s on an annual  the programs  a l l of  facts,  more  c o n s i d e r e d the program t o be an a s s e t of t h e  c o r p o r a t i o n f o r the annual f i n a n c i a l Financial  dollars  as  depreciating  development  reported p r o f i t  assets.  c o s t s as t o a $1.0  an  if  basis  In Comserv's annual  million  expense  loss.  In  when even more development work on a number of programs  was  8  undertaken,  t r e a t i n g research  would have changed a p r o f i t almost $4.0 The with  million.  Comserv  conservative illogical.  development  of n e a r l y  $2.5  costs  million  as  in  shows the  the  accounting  had  accounting  modern  economy.  dollars  been  followed,  the  the  million  Perhaps these  be  c o n t r a d i c t i o n s can  accounting  is  different  than any  familiar,  comfortable  result  treat  electronic must  must  But  of  another  i n d u s t r i a l product.  change i n the  now  begin  to  the  By  have  of been by  as  an  inappropriate is  that  the  s o c i e t y . The  normal  distribution  as  into  impetus to change i s r e s i s t e d .  The  existing deal  existing  fitting  no  information  In c o n j u n c t i o n  determine whether  and  deal  rules  would  explanation  production  c a t e g o r i e s , the  information.  explained  to  asset.  than most groups i n our  information  other  i s t o a v o i d any Lawyers  we  to  rules.  different  response  loss  i n e x t r a revenue  not l i s t e d as a c o r p o r a t e  a c c o u n t a n t s are no  to a  normal  result  s e l l i n g i n f o r m a t i o n t h a t was  of  expenses  profession trying If  Comserv would have generated $6.0  application  current  1 7 1 3  situation  information  and  rules.  seriously  with  the  rules  rest of  with  the  impact  of  of Canadian s o c i e t y ,  law  can  accommodate  the  emerging i n f o r m a t i o n economy, or whether the r u l e s of law must change.  C.  THE  LEGAL PARADIGM AND  A paradigm can way  CHALLENGE FOR  d e s c r i b e d as an  LAWYERS  i n d i v i d u a l ' s s e t of a t t i t u d e s or a  of t h i n k i n g t h a t determines t h a t i n d i v i d u a l ' s response to a p a r t i c u l a r  event.  1 8  attitudes with  be  THE  Since and  the  legal  beliefs,  particular  and  the  profession  holds  profession  can  distinctive  paradigms.  strongly  be In  said this  to  to  certain  approach  way  the  shared  problems  emphasis  on  9  stare decisis  i n the E n g l i s h common law i s a w e l l a r t i c u l a t e d paradigm t o  s o l v e new c a s e s . The that  risk  involved  i n this  rear-view  mirror  approach  lawyers may not c a t c h t h e scope of a s o c i a l  legal  and p o l i c y  observes type  that  of  issues  the l e g a l  property,  that  and  change nor see t h e r e a l  are involved.  profession takes  In p a r t i c u l a r ,  customarily  issue  with  t o problems i s  treats  this  Hammond  information  easy  as a  classification.  t h e _ h i s t o r y of l e g a l responses t o new i n f o r m a t i o n and knowledge suggests two c r i t i c a l c h a l l e n g e s . The f i r s t r e l a t e s t o t h e a b i l i t y of t h e p r o f e s s i o n and t h e commercial community t o d e v i s e new s o c i a l arrangements t h a t w i l l ensure both t h e c r e a t i o n and t h e e f f e c t i v e and p r o f i t a b l e u t i l i z a t i o n of new i n f o r m a t i o n and technology. The second c h a l l e n g e s a l i b e r a l s o c i e t y t o p r o t e c t i t s b a s i c p o l i t i c a l and human v a l u e s from unwise a p p l i c a t i o n s o r withdrawals of t h a t new knowledge. The r e a l question i s whether t h e i n s t i t u t i o n o f 'property' i s an a p p r o p r i a t e f o r a d d r e s s i n g those c h a l l e n g e s . ^  vehicle  1  Canadian s o c i e t y now c o n f r o n t s t h e two c r i t i c a l by  Hammond.  creatively recent  One  while  2  that  tests  simultaneously  freedom  government. ^  area  of  our a b i l i t y  t o use new  protecting basic  information  legislation  As Hammond p r e d i c t e d , t h e i s s u e of access  N o r t h American e x p e r i e n c e  indicates  that  legislators  Hammond's c h a l l e n g e s . Act^  was enacted  "ensure society,  needed  with  In the United  have  States,  The b a s i c purpose  citizenry,  t o check  access  and lawyers  i n 1966.  an informed  accountable  political  enacted  becoming an obvious change i n t h e l e v e l s of formal The  challenges  vital  against  t o the governed".  22  legal  information  values  by  the  is  the  federal  to information i s ordering.  to information not as  identified  2 0 a  legislation  yet entirely  t h e Freedom  of  met  Information  of t h e l e g i s l a t i o n  was t o  t o t h e f u n c t i o n i n g of a democratic  corruption This  and t o h o l d  objective  may have  t h e governors met Hammond's  10  first  challenge  States. its  of  preserving  But c o n s t a n t  criticism  f a i l u r e t o ensure the f a i r  in the United States. the  fact  political  values  has been d i r e c t e d  i n the  United  a t the l e g i s l a t i o n f o r  and e f f e c t i v e use of commercial i n f o r m a t i o n  These widespread complaints  t h a t the l e g i s l a t i o n  corporate  basic  permits  confidentiality. -*  violations  These  2  alleged  have been generated by of c o r p o r a t e  violations  p r i v a c y or  occur  after  c o r p o r a t e t r a d e s e c r e t s or c o n f i d e n t i a l i n f o r m a t i o n have been d i s c l o s e d t o the  government.  Freedom  of  government. party have  Competitors  Information  Act  The American  trade  secrets,  underscored,  2 4  of t h e t r a d e to  obtain  legislation  but "recent  and perhaps  secret the  holder  trade  does c o n t a i n  then  use t h e  secret  from  exemptions  for third  d e c i s i o n s of the U.S. Supreme  enhanced,  the v u l n e r a b i l i t y  the  Court  of Government  held trade secrets to p u b l i c d i s c l o s u r e . " ^ 2  The  Canadian  legislation Access  counterpart  was p r o c l a i m e d  to Information  expanding the flow  t o the American  i n July,  Act ^ 2  a  was  1983.  legislation  was p r o c l a i m e d ,  t o improve  for  i t s threat to corporate  Canadian  legal  confidentiality.  R e l y i n g upon the American e x p e r i e n c e ,  It  our democratic  critics  f e d e r a l agencies businesses  process  Y e t even  2 6  attacked  neither  results,  the  by  before  the b i l l  these  critics  c l a i m t h a t most  government i n f o r m a t i o n .  f o r information  made  t o U.S.  ( e x c l u d i n g F.B.I, and C.I.A. e n q u i r i e s ) have been made by  s e e k i n g i n f o r m a t i o n about t h e s e c r e t s of t h e i r c o m p e t i t o r s .  Although  industrial  80% of t h e r e q u e s t s  information  2 7  o f i n f o r m a t i o n e n q u i r i e s a r e not s e e k i n g  i s alleged that  of  The announced purpose of the  of i n f o r m a t i o n t o Canadian v o t e r s .  the  freedom  freedom  t h e Canadian  legislation  espionage.  or  appears  American to  governments  legalize  a  intended  certain  amount  2  8  such of  11  The  foregoing  underestimated economy.  a  indicates  the s i g n i f i c a n c e  The Canadian  information plays  debate  stored  major  statute  role  in  though  corporate  corporate doubts  20(6)  counsel  sectors  the r e c o r d s  of  doubts  health,  public  subsection public  also  be  some  foundation.  or  permits  interest clearly  competitive third a  Canadian  information  economy  exemption  at  least  of these  As  and 106  to  be  provisions  one  leading  protections. ^ 2  For example,  secrets  and  to public disclosure.  t o an o v e r r i d e  corporate  i n the p u b l i c  safety  the  20(1),  the e f f e c t i v e n e s s  legitimate  would  have  The f e d e r a l government  contains  i n section  c o n f i d e n t i a l i t y are s u b j e c t  disclosure  i n an  of 27 M i n i s t r i e s of State  legislation  secrets  t o have  allows  laws  may  of j o i n t v e n t u r e s w i t h t h e p r i v a t e s e c t o r .  the Canadian  trade  appear  protect  upon  new  government i n s t i t u t i o n s a r e now s u b j e c t Even  a  these  legislators  opens the doors t o the huge q u a n t i t i e s of  many  a r e s u l t of the l e g i s l a t i o n ,  for  our  i n the government data banks.  p a r t i c i p a t e s i n a multitude  other  of  that  The  the exemptions t o  provision. released  Section when  the  i n t e r e s t as i t r e l a t e s t o the p u b l i c  protection  of  the environment.  release  of c o n f i d e n t i a l  outweighs  the f i n a n c i a l  This  information loss,  same  where the  prejudice  to the  p o s i t i o n , or i n t e r f e r e n c e w i t h the c o n t r a c t u a l n e g o t i a t i o n s of  party. party  information.  Another who  has  Section  discouraging been  aspect  injured  by  74 p r o h i b i t s any c i v i l  a r e the l i m i t a t i o n s a  mistaken  action  placed  disclosure  of  f o r t h e recovery  of  damages caused by an erroneous d i s c l o s u r e by a government employee so long as t h e d i s c l o s u r e was made i n good  faith.  Recent case law c o n f i r m s t h a t the o v e r r i d i n g o b j e c t i v e to  Information  Industries  Act  2 9 a  i s the d i s c l o s u r e  L t d . and M i n i s t e r  Economic E x p a n s i o n ,  2 9 b  of i n f o r m a t i o n .  f o r Industry,  Trade  of the Access In Re M a i s l i n  and Commerce, R e g i o n a l  the Court emphasized two p r i n c i p l e s t h a t a r e t o be  12  applied  t o any attempt  confidential codifies "public  information  the r i g h t access  clearest  t o use t h e exemption  disclosure".  of p u b l i c  ought  grounds  or t r a d e  access  to  First,  since  government  that  Second,  doubt  the court  ought  to  placed  be  except  resolved  t h e burden  the statute  information,  n o t t o be f r u s t r a t e d by t h e c o u r t s  so  2 9 0  secrets.  i n s. 20(1) t o p r o t e c t  such  on t h e  i n favour  of p e r s u a s i o n  of upon  the p a r t y r e s i s t i n g t h e d i s c l o s u r e of t h e i n f o r m a t i o n . ^ * * 2  To  return  profession, "ensures  we  to  Hammond's  can a g a i n  two  critical  ask whether  challenges  t h e Access  t h e c r e a t i o n and . . . u t i l i z a t i o n  f o r the  t o Information  of new i n f o r m a t i o n " ?  apparent  assumptions Canadian  underlying  legislators  information the  conclusion  problems.  t h e Access may  have  i n our s o c i e t y .  economics  forced  from  seriously  seem  i s that  certain  2 9 e  of t h e  Act are u n r e a l i s t i c .  underestimated  t h e value  of  paradigm and u n f a m i l i a r i t y w i t h  t o have  created  attitudes conditioned  and  unforeseen  by an i n d u s t r i a l  redress  t h e imbalance  society,  legislators  the  i n d i v i d u a l and t h e f e d e r a l b u r e a u c r a c y .  T h e i r i n t e n t i o n was t h a t t h e  s t a t u t e would extend t h e c i t i z e n ' s p r o p e r t y  r i g h t s to information held i n  government  t h e s t a t u t e would  new  our  the  thought  us  to Information  The p r o p e r t y  of i n f o r m a t i o n  Working  upon  Act  Does t h e  s t a t u t e p r o t e c t " a g a i n s t unwise...withdrawals of ...new k n o w l e d g e " ? The  legal  files.  However, i f t h e c r i t i c ' s c l a i m s a r e c o r r e c t , t h e f i r s t legislation  i n the information  that  are counter-productive.  free  exchange  businesses Instead  between  of  to avoid  information,  field Instead we  has s e r i o u s  economic  of a s t a t u t e  have  enacted  d i s c l o s u r e and t o l a b e l  major Canadian  a  that  encourages t h e  law t h a t  information  consequences  encourages  as c o n f i d e n t i a l .  o f a s t a t u t e t h a t encourages i n d u s t r y and government  cooperation,  13  we  have  a  law  that  discourages  business  open d i s c u s s i o n s with government. statute may  allows  legalized  are  now  i n f o r m a t i o n economy. avoid  making  any  transformation important  for  competitive The society. and  industrial  We  facing  espionage.  to our  a  the  not  An  yet  computerized  domestic  difficult  task  costly  social  society  harmony,  competitor  of  and  with  converting  to  an  e x i s t i n g paradigms t o  minimal  critical  for  Achieving social  our  the  costs  is  international  position.  The  subsequent c h a p t e r s  information  predominant  unethical  errors.  t h e s i s i s p a r t of the t r a n s i t i o n p r o c e s s  employer and  and  sown."3°  must t h e r e f o r e examine our  unintended  i n frank  F i n a l l y , there i s a c l e a r r i s k t h a t the  y e t be a b l e " to reap where i t has Canadians  from p a r t i c i p a t i n g  in  the  computer  employee s i t u a t i o n s concern  of  the  to an  i n f o r m a t i o n based  examine the r e l a t i o n s h i p between the  law  industry.  the  The  precise  where l e g a l r i g h t s  parties.  The  central  focus  i s on  to i n f o r m a t i o n are  question  will  be  a an  assessment of the adequacy of e x i s t i n g laws to meet the needs of employers and  employees, and t o serve the p u b l i c i n t e r e s t .  14  FOOTNOTES;  CHAPTER I  1.  S c i e n c e C o u n c i l of Canada (1982-83), Annual Report; a t page 21.  2.  John  C.  Lautsch,  Theoretical  and  Communications  Policy  (1983) V o l . IV, No. Challenge  Firms,  1982/83  Science  Council  4.  Supra,  also  an I n f o r m a t i o n S o c i e t y : 4a  A.  Silversides,  Study  Information  of  Some  Economy,  Michael Jenkin,  Canada;  H.  Menzies,  Toronto.  Tomorrow Is Too L a t e , (1982/83) Report finds  a  Significant 1984,  at  Shift  The  Stead,  Science C o u n c i l of Canada, P l a n n i n g Now  Economy, Globe and M a i l , June 22 5.  Nations:  (1982) James Lorimer and Company,  A l v i n T o f f l e r , The T h i r d Wave, (1980) see  of  1982/83 S c i e n c e C o u n c i l of Canada; G.  3.  2;  Wealth  1, Computer/Law J o u r n a l 101;  Computers on t h e Job,  note  the  C o n s i d e r a t i o n s about an  of D i v e r s i t y ,  Threshold  and  Toward  for 33.  Information  12.  Forbes magazine, You Mean We've Been Speaking Prose a l l These Y e a r s ? , April  11,  1983  p.  142.  6.  I d . , a t 144-145.  7.  H. D. Toong and A. Gapta, P e r s o n a l Computers, ( 1 9 8 3 / A p r i l ) S c i e n t i f i c American  8.  D.  9.  The  87.  S. Sodhi, The Canadian  Canadian Law  Abridgement,  D i c t i o n a r y , (1980).  (2nd  Edition  Phrases J u d i c i a l l y C o n s i d e r e d i n Canadian 10.  I d . , a t page  11.  Funk  and  1977)  Table  of  Words  and  Lippincott  and  Reports.  236.  Wagnall's  Standard  Desk  D i c t i o n a r y (1980),  Crowell. 12.  R.  Grant  Hammond, Quantum P h y s i c s , Econometric  Rights to Information  (1981) 27 M c G i l l Law  Models  J o u r n a l 47.  and  Property  15  13.  Computers  and  Law  S o c i e t y of B.C. 14.  Institute  (July  1983),  Continuing Legal Education  a t p. 5.1.01.  Id.  14a. For an e x t e n s i v e d i s c u s s i o n J. and  Palmer,  R.  Resendes,  Corporate  software  C o p y r i g h t and  Affairs/Canada at  p r o v i d e d by  instructions  of the problems  that  this  tells  p  study  the  i n defining  the Computer  5-15. at  A  pg.  computer  6  how  software see  (1982) Consumer  general d e f i n i t i o n was  "a  set  to  solve  a  of  of  precise  particular  problem." 15.  Daniel  T.  Brooks,  Registering  Agreements  Copyrights  I n s t i t u t e , Computer Law 16.  Wayne  Lilly,  Business 17.  The  with  i n Computer  Consultants Software  and  Employees  and  (1982) P r a c t i s i n g  Law  - A c q u i r i n g Computer Goods and  Problem  with  Backing  Brains  Services.  (1983/May)  Canadian  84.  F o r b e s , C a p i t a l O f f e n s e (1983) January 17th a t page  100.  17a. I d . 17b.  1A.  18.  Supra, note 12,  49.  19.  Supra, note 12,  52.  20.  A c c e s s t o I n f o r m a t i o n A c t , 1980-81-82-83 (Can.) , c l l l , S c h . I .  20a. Supra., note 12,  50.  21.  5 U.S.C. S e c t i o n  552.  22.  N a t i o n a l Labor R e l a t i o n s Board v . Robbins T i r e and Rubber Co. 437 U.S.  23.  (1978)  214 a t 242,57 L E d 2d 159, 98 S C t 2311,(1978)  See Mark R. A r n o l d , Who's G o i n g F i s h i n g i n Government F i l e s ?  (1976) 6  J u r i s D o c t o r 17; Johnson, Treatment o f C o n f i d e n t i a l Documents by the Federal  Trade  Commission  (1978)  46  Antitrust  L.J.  1017,  at  16  1036;  O'Reilly,  Government  Freedom of I n f o r m a t i o n Act 24.  5 U.S.C. S e c t i o n 5 5 2 ( b ) ( 4 ) .  25.  D.  Glancy,  D i s c l o s u r e of  Information  Act,  N a t i o n a l Labor U.S.  214  P r i v a t e S e c r e t s under  (1975) 30 Bus.  Law  Trade  Under  2  Secrets  E.I.P.R.  R e l a t i o n s Board  (1978), note  (1981)  D i s c l o s u r e of  38  at  1125,  the  38  v. Robbins T i r e  and  Supra.,  26.  S e c t i o n 2(1) of the Access  1134.  U.S.  -  and C h r y s l e r Corp. v. Brown 441  25a.  at  39  Freedom  of  referring  to  Rubber Co.  U.S.  the  281  ,  437  (1979).  20 to I n f o r m a t i o n Act p r o v i d e s :  The purpose of t h i s a c t i s t o extend the p r e s e n t laws of Canada t o p r o v i d e a r i g h t of access t o i n f o r m a t i o n in records under the control of a government i n s t i t u t i o n i n accordance w i t h the p r i n c i p l e s t h a t government i n f o r m a t i o n s h o u l d be a v a i l a b l e t o the p u b l i c , t h a t n e c e s s a r y e x c e p t i o n s t o the r i g h t of access should be limited and specific and that d e c i s i o n s on the d i s c l o s u r e of government i n f o r m a t i o n s h o u l d be reviewed i n d e p e n d e n t l y of government. 27.  Laurent 1982)  Carrier,  The  Access  National;  I n f o r m a t i o n Can  to  Ross  Information  W.  McFarlane  May  Carry  Q.C.,  Prove C o s t l y (May/June 1983)  Spy  Threat  Corporate The  (Dec.  Freedom  of  Canadian Lawyer, a t  23. 28.  I d . , Both of the a r t i c l e s noted use the 80%  29.  Id.,  Ross  W.  McFarlane  i s corporate  figure.  counsel  f o r General  Motors  of  Canada L t d . 29a.  Supra.,  29b.  (1984) 10 D.L.R. (4th) 417  29c. I d . a t 29d.  IdN  at  note  26. (Fed. C t . T r i a l  Div.)  420. 420.  confidential government  One  possible  limitation  i n f o r m a t i o n i s t h a t the  data banks  i n the  on  the  disclosure  i n f o r m a t i o n must  c o m p i l a t i o n or  format  exist  requested  of  in  the  by  the  17  applicant. grounds  The  difficulty  i n preparing  for refusing disclosure.  F i n a n c e o f New Brunswick  (1984)  the i n f o r m a t i o n  See r e Lahey  can be  and M i n i s t e r o f  10 D.L.R. ( 4 t h ) 758 under R i g h t t o  I n f o r m a t i o n A c t 1978 (N.B.) C. R-10-3. 29e. Supra., note 12. 30.  I n t e r n a t i o n a l News S e r v i c e v . A s s o c i a t e d P r e s s , a t 239  (1918) 248 U.S. 215,  18  II  WHO  QUALIFIES AS AN  A.  GENERAL CONSIDERATIONS The  our  Information  society.  for  and  changed  areas  the  computers  has  of  employment  generation  of  industry also  employs  of  customer  jobs  are  in  being  dramatically raised  engineers,  employees who  marketing,  nature  as w e l l as managerial  researchers,  These are the key  computer  ancilliary  of  trained  development a t each new  American  technicians  are charged  technology. l e g i o n s of  w i t h the  The  other  support,  the  design  booming people  and  North  in  maintenance,  the  finance  accounting. The  later  skilled  employees  distribute  obtain  access  competitive of  i n c r e a s i n g use  highly  programmers.1 and  R e v o l u t i o n has  While many u n s k i l l e d  e l i m i n a t e d , .the demands  EMPLOYEE?  the  to  who  first  software  the  and  employer's  demands f o r t h e i r  develop  hardware  confidential  talents  and  the  the to  technology,  the  and  customers  product  then  normally  information.  q u i c k l y changing  structure  the i n d u s t r y a l s o means t h a t the s k i l l e d employees are h i g h l y m o b i l e  the l a b o u r market. product will  When they move to a new  employer, the knowledge of  i n f o r m a t i o n of the p r e v i o u s employer moves w i t h them.  examine the  extent  to  which  an  employer  can  impose  The  in the  This thesis  o b l i g a t i o n s of  c o n f i d e n c e and s e c r e c y upon h i s former employees. This  thesis  deliberately  employment  relationship.  employment  relationship  information  in  the  concentrates  However, i s the  this  on  focus  information does  not  o n l y means t o o r g a n i z e  computer  industry.  The  assume  the  legal  rights  in  the  that  the  production categories  of of  p a r t n e r s h i p , independent c o n t r a c t o r , i n c o r p o r a t i o n and p r i n c i p a l / a g e n t a r e o t h e r ways t o o r g a n i z e the development of hardware and these  separate  relationship.  categories  must  be  distinguished  software.  from  the  However, employment  19  Apart legal  from  the  reasons  motives  for  of  business  separating  independent c o n t r a c t o r s .  employees  each  group  and  particularly  o b l i g a t i o n s imposed on any first  examining t h a t  from  An  to  there  are l e g a l  employees.  are  employee d i f f e r s  implied  contractor hand,  as can  an  that  profit"5,  The  as  an  and  subtleties peculiar the  precise  Is the  other  pursue  rarely  his  fixed  upon  own  agents,  upon  a  is  not  the or  good  same  upon  faith  independent  On  the  onerous  directors  that  other  fiduciary and  senior  employee f a c e s d i f f e r e n t  partner.  fixed  f o r a l l the debts and  and  whereas an  Unlike  " c a r r y i n g on b u s i n e s s  employee  f o l l o w i n g reasons.  self-interest.  with  s i m i l a r l y , an  imposed  loyalty  contract,3  operating  contractor?  groups f o r the  employment  person  with  liabilities  legal  partners,  an  i n common w i t h a view a  partner's  of the  joint  and  partnership.6  employment r e l a t i o n s h i p a l s o r e c e i v e s d i s t i n c t i v e treatment under  doctrine  of  restraint  a l t h o u g h the partnership,  business,  of  trade.7  independent  s c r u t i n y i s given  t y p e s of r e s t r a i n t s on  restraint  should  to other  contractor/contractee  i s even argued t h a t t h e  employment  Subsequent c h a p t e r s  doctrine applies generally  a more r i g o r o u s  contrast to other It  the  employer a r e not and  partners  Therefore,  status.  o b l i g a t i o n s of  placed  those  several l i a b i l i t y  that  is  are  than  employee and  the  with  of a c o r p o r a t i o n . 4  obligations  to  of  from the  more f r e e l y  employee  obligations officers  part  important  i n f o r m a t i o n worker cannot be determined without  individual's legal  employee must comply  are  agents,  as an employee, an agent, a p a r t n e r or a independent An  there  While a l l of t h e s e groups f a c e o b l i g a t i o n s under  the d o c t r i n e o f b r e a c h o f c o n f i d e n c e , to  strategy,  be  to  w i l l point  out  r e l a t i o n s h i p s such  and  the  employment  sale  of  a  restraints in  trade.8  "reasonableness t e s t " considered  against  the  when a p p l i e d equitable  to  an  standard  20  unconscionability.9  still  start  with the assumption t h a t employment r e s t r a i n t s are prima f a c i e v o i d .  This  initial  assumption  Many  courts  i s i n clear  that  are  less  adventureous  c o n t r a s t t o the more d e l i b e r a t e  approach taken on o t h e r r e s t r a i n t s such as s o l u s One  final  analytical  agreements. ^ 1  reason f o r d e t e r m i n i n g an i n d i v i d u a l ' s  legal  status  arises  from the C o p y r i g h t A c t .  C o p y r i g h t p r o t e c t i o n f o r software i s i n c r e a s i n g l y  important  t o t h e s i z e of the market.  Act  i n Canada due  S e c t i o n 12(3) of the  p r o v i d e s a presumption of ownership of c o p y r i g h t f o r an In  summary, a  different  legal  o f f i c e r s and A  skilled  position  employee  than  i n the computer  agents,  independent  employer.  industry  former  illustration  plaintiff  sales  defendant. sales  rep  or  senior  directors.  dramatic  The  occupies a  contractors  of  this  point  was  provided  by  judgement of R e i d J . i n I n v e s t o r s S y n d i c a t e L t d . v . V e r s a t i l e Inc.  11  had  applied  representatives At t r i a l ,  was  an  f o r an i n j u n c t i o n  from  selling  the i n j u n c t i o n  employee  and  was  that  the  Investments  t o p r e v e n t one  account l i s t s  restrictive  of i t s  t o the c o r p o r a t e  r e f u s e d on the grounds  the  1981  covenants  that  the  in  the  1? employment c o n t r a c t were unreasonably On  appeal  to  the  Ontario  restrictive.  Court  of  Appeal  s u c c e s s f u l , but on somewhat s u r p r i s i n g grounds.  the  plaintiff  was  Although the argument had  >  not  been r a i s e d  i n the lower c o u r t ,  classify  the  sales  salesman  was  bound by  level  employee.  conflict  with  individual  He his  salesman  rep as  an  wider  was  agent  the Court of Appeal was of  fiduciary  the  plaintiff.  obligations  principal.13  directly  affected  applied to v i t a l business information.  Thus, the  the  legal  an  agent  than t h o s e o f a  not p e r m i t t e d t o p l a c e h i m s e l f  former  As  persuaded t o  lower  i n a position  legal  status  protection  of  that  the  of the was  21  B.  THE  JUDICIAL TESTS FOR  The  courts  general  caution.  For  EMPLOYEE  cannot determine employment s t a t u s  definition  generalizations  DETERMINING STATUS AS AN  of  of the  an  employee.  specific  Such  judicial  example, an employee has  simply  looking at  definitions  t e s t s , and  been  by  must be  are  a  only  treated  with  defined:  "as an i n d i v i d u a l who has e n t e r e d i n t o or works under ( o r , where the employment has ceased, worked under) a c o n t r a c t with an employer, whether the c o n t r a c t i s f o r manual labour, c l e r i c a l work or o t h e r w i s e , i s expressed or i m p l i e d , o r a l or i n w r i t i n g , and whether i t i s a c o n t r a c t of s e r v i c e or apprenticeship."15 This d e f i n i t i o n a  contract  "subject do  his  for  to the work".  execution  then d i s t i n g u i s h e s between a c o n t r a c t  services.16  a  servant  command of h i s master as In  contrast,  of the work ...  f o r whom he  Thus,  the  i s not  or  to the  independent  under the  employee  Instead  contractor, law  has  of  d e f i n i t i o n s , what are  person  not  adhered  willingness rigid  decisions.  Appeal  authoritative others.  an  to  Rather  a d o p t i n g one  the  is  contractor  order  a  person shall  " i n the  actual  or c o n t r o l of the  person  to  one the  court  English  and  to  a v a r i e t y of  of  for  have  any Lord  Locomotive Works L t d . demonstrates t h i s  tests  one  from  that an  determine  independent  answer i s t h a t the common  i d e n t i f y i n g the  Canadian  changing  decisions  judgement  general  test  statements a d o p t i n g The  The  judicial distinct  static  adjust  formula,  as  therefore i s only  control test.  the  employee  an agent, or a p a r t n e r ?  relationship. definite  is  and  does i t . "17  a d i l u t e d v e r s i o n of the w i d e l y r e c o g n i z e d  a  service  manner i n which he  T h i s d e f i n i t i o n h i g h l i g h t s the c o n t r o l element, and  whether  of  courts  economic  employment  have  times.  Instead  t e s t s have been used also  been  t e s t that  Wright  in  careful  flexible attitude.  in  not  necessarily  Montreal  shown  v.  a of  recent to  make  excludes Montreal  22  In e a r l i e r cases a s i n g l e t e s t , such as the presence or absence of c o n t r o l , was o f t e n r e l i e d on t o determine whether the case was one of master and s e r v a n t ... In the more complex c o n d i t i o n s of modern i n d u s t r y , more complicated t e s t s have o f t e n t o be a p p l i e d . ... In many cases the question can only be settled by examining the whole of the v a r i o u s elements which c o n s t i t u t e the r e l a t i o n s h i p between the p a r t i e s . ® 1  A s i d e from the also  indicates  primarily  a  acceptance of m u l t i p l e  that  the  question  existence  of  fact.  of  t e s t s , L o r d Wright's  the  After  the  employment initial  Due which  parties  have  upheld  a  between  attached  decision  provisions  of  employees  rather  Lacourciere  a  J.A.  the  of  stated  the  i n the l i g h t of  the  As  the  frequently contract  ignore  in  the  labels  question.  The  f o r m a l i t i e s t o examine the substance of  Referee  contract. than  to  parties.  a  of  1  proper approach looks p a s t the relationship  is  relationship. 9  to t h i s f a c t u a l approach, the c o u r t s  the  relationship  determination  r e l e v a n t f a c t o r s , then the c o n t r a c t i s t o be c o n s t r u e d c i r c u m s t a n c e s governing the  statement  a  The who  Ontario ignored  r e s u l t the  wholesalers  as  Court the  of  Appeal  express  recently  recitals  i n d i v i d u a l s were h e l d  stipulated  in  the  the  to  and be  contract.  that:  F u r t h e r , we see no e r r o r i n the use of the w r i t t e n c o n t r a c t made by the l e a r n e d R e f e r e e . He was quite r i g h t i n l o o k i n g a t the e f f e c t of i t s p r o v i s i o n s r a t h e r than a t i t s formal r e c i t a l s . ... The Referee d i d not i g n o r e the terms o f the c o n t r a c t where they evidenced the conduct of the r e l a t i o n s h i p between the p a r t i e s ; he merely d i s r e g a r d e d the r e c i t a l s and p r o v i s i o n s p u r p o r t i n g to p r o v i d e f o r the purchase and s a l e of the newspapers by the c i r c u l a t i o n managers as w h o l e s a l e r s . The r e c i t a l s and p r o v i s i o n s were not i n accordance w i t h the facts,. . . . 20  In summary, Canadian c o u r t s have f o l l o w e d L o r d Wright's acceptance of multiple now  t e s t s f o r d e t e r m i n i n g the  employment r e l a t i o n s h i p .  examines the t h r e e most w i d e l y used t e s t s .  This  chapter  23  C.  THE  CONTROL TEST  Western over the the  courts  conduct of work as  employment  reflects the  Canadian  have  early  been u s i n g  the  control  a dominant f a c t o r i n t e s t i n g the  relationship.  a typical  long  The  1913  emphasis on  decision  the  i n Re  r i g h t of  the  exercised  existence  Western C o a l  of Co.  employer t o d i r e c t  work. The e x t e n t of the r i g h t of c o n t r o l seems t o be the important question in distinguishing between the position of a s e r v a n t and that of an independent c o n t r a c t o r , ... There seems no more reason f o r r e f u s i n g t o r e c o g n i z e as h o l d i n g the l e g a l p o s i t i o n of s e r v a n t and to r e c o g n i z e h i s compensation as wages, a teamster u s i n g h i s own wagon and team, than a c a r p e n t e r u s i n g his own tools or a laborer his own spade. The predominant and p r e v a i l i n g element i n each case i s the p e r s o n a l s e r v i c e , and a personal s e r v i c e which i s s u b j e c t t o the d i r e c t c o n t r o l of the employer.21 This  decision  judicial  approach  was  summarized  i n S h o r t v. Henderson L i m i t e d  in  the  1946  House  of  Lords  per L o r d Thankerton:  [L]et me r e c a p i t u l a t e the f o u r i n d i c i a of a c o n t r a c t o f service derived by the L o r d J u s t i c e - C l e r k from the a u t h o r i t i e s r e f e r r e d to by him: these are (a) the master's power of s e l e c t i o n of h i s s e r v a n t ; (b) the payment of wages or other remuneration; (c) the master's r i g h t t o c o n t r o l the method of doing the work; and (d) the master's r i g h t of suspension or d i s m i s s a l . The l e a r n e d Judge adds t h a t a c o n t r a c t of s e r v i c e may still e x i s t i f some of these elements are absent altogether, or p r e s e n t o n l y i n an unusual form, and t h a t the p r i n c i p a l requirement of a c o n t r a c t of s e r v i c e i s the r i g h t of the master i n some r e a s o n a b l e sense t o c o n t r o l the method of d o i n g the work, and t h a t t h i s f a c t o r of s u p e r i n t e n d e n c e and c o n t r o l has frequently been t r e a t e d as c r i t i c a l and d e c i s i v e of the legal q u a l i t y of the r e l a t i o n s h i p . 2 2 Although more c o m p l i c a t e d t e s t s have emerged to meet the more complex conditions modern Alberta  of  modern i n d u s t r y ,  judges. and  statements  In  the  British in  Short  wording of the c o n t r o l  past  the two  Columbia v.  decades have  Henderson  test.24  control  factor  the  applied  Limited.23,  retains  appeal either or  courts Lord  else  a  i t s appeal in  to  Ontario,  Thankerton's very  similar  24  However, other control  of  the  dissatisfaction skilled  and  computer  has  been  the by  dominant the  are  typical  examples.  computer  of  industry  factors.  organization  cottage  The  the  early  numbers  of  highly  Software programmers i n Such  information  employees  economy  or  and  control.  the  courts  test's  failure  1966  project The  tele-commuting  as  are  the  are  the  normally  work  accentuate  Many of the  typical  of  the  assignments adoption  from  a  of  personal  this  features  traditional  o f f i c e hours, l o o s e l y  widespread  (working  will  antithesis  a d o p t i o n of f l e x - t i m e  e l e c t r o n i c means) w i l l  control  judicial  the employer e x e r c i s e s a minimal amount of  employment  structures, direct  Thus,  This  the  supervision.  development  employer's  with using  factor.  increasing  to n o n - h i e r a r c h i a l m a n a g e r i a l s t y l e s .  control  As  as  caused  to a given p r o j e c t and  The  of  performed  increasing d i f f i c u l t y  l a r g e l y s e l f - d i r e c t e d employees.  c o n t r o l and  trend  have had  work  industry  assigned  courts  all  defined  reduce  the  the  electronic  residence  via  r e s u l t i n even more detached c o n t r o l .  these  have to  been  increasingly  recognize reservations  the  changing  were  W h i t t a k e r v. M i n i s t e r of P e n s i o n s S N a t i o n a l  uncomfortable reality  expressed  by  of  with  the  employment.  Mocatta  J.  in  Ins.25.  I t seems c l e a r , t h e r e f o r e , from the more r e c e n t cases t h a t persons possessed of a h i g h degree of p r o f e s s i o n a l skill and expertise, such as surgeons and civil engineers, may nevertheless be employed as servants under c o n t r a c t s of s e r v i c e , n o t w i t h s t a n d i n g that t h e i r employers can, i n the nature of things, exercise extremely l i t t l e , i f any, c o n t r o l over the way i n which the s k i l l i s used. The t e s t of c o n t r o l i s , t h e r e f o r e , not as d e t e r m i n a t i v e as used t o be thought t o be the CclS6 /  In the was  1976  • • •  case o f Rosen v. The  even more c r i t i c a l  Marceau commented:  about  the  Queen,  26  the F e d e r a l  l i m i t a t i o n s of  this  Court of Canada  test.  Mr.  Justice  25  Superintendence and c o n t r o l cannot be the d e c i s i v e t e s t when one i s d e a l i n g with p r o f e s s i o n a l man, or a man of some p a r t i c u l a r s k i l l and experience. I n s t a n c e s of t h a t have been g i v e n i n the form of the master of a s h i p , an engine d r i v e r , a p r o f e s s i o n a l a r c h i t e c t o r , as i n t h i s case, a c o n s u l t i n g engineer. In such c a s e s t h e r e can be no q u e s t i o n of the employer t e l l i n g him how to do work; t h e r e f o r e , the absence of c o n t r o l and d i r e c t i o n i n t h a t sense can be of l i t t l e , i f any, use as a t e s t ... 27  Yet factor,  i t can even  be  for  argued  highly  C o u r t of  A u s t r a l i a has  than the  actual  employment, Zuijs that  v.  the  a  skilled  pointed  exercise  then  that  of  ultimate  and  to  the  court  should  autonomous  the  potential  control. control  Wirth Brothers Properietary  Ltd.,  ignore  the  professions.  control The  r i g h t of c o n t r o l ,  I f the  must  not  relationship  rest  with  the  Dixon  C.J.  made the  High rather  i s one  of  employer.  In  argument  : The duties t o be performed may depend so much on s p e c i a l s k i l l of knowledge or they may be so c l e a r l y i d e n t i f i e d or the n e c e s s i t y of the employee a c t i n g on his own r e s p o n s i b i l i t y may be so e v i d e n t , t h a t l i t t l e room f o r d i r e c t i o n or command i n d e t a i l may e x i s t . But t h a t i s not the p o i n t . What matters i s l a w f u l a u t h o r i t y to command so f a r as t h e r e i s scope f o r i t . And t h e r e must always be some room f o r i t , i f only i n i n c i d e n t a l or c o l l a t e r a l m a t t e r s . 2 8  D.  THE As  MULTIPLE TEST i n d u s t r i a l society  expanded a f t e r World War  away from the b a s i c c o n t r o l t e s t . over the to  be  employee was  reviewed  also  still  M o n t r e a l Locomotive Works L t d . that  the  more  complicated  complex  tests,  2 9  c o n s i d e r e d i n t e s t i n g the  i n d i c a t o r , the  Lord  Wright's  s i g n a l l e d the  conditions  Lord  courts  Although an employer's apparent  a useful  increased.  I I , the  Wright existence  of  of the  judgment  of o t h e r in  major change.  modern  outlined  list  a  industry series  of  moved  control factors  Montreal After  called  for  elements  employment r e l a t i o n s h i p :  v.  noting more to  be  26  I t has been suggested t h a t a f o u r f o l d t e s t would i n some cases be more a p p r o p r i a t e , a complex i n v o l v i n g (1) control; (2) ownership of the t o o l s ; (3)chance of profit; (4) r i s k of l o s s . C o n t r o l i n i t s e l f i s not always c o n c l u s i v e In many cases the q u e s t i o n can o n l y be s e t t l e d by examining the whole of the v a r i o u s elements which c o n s t i t u t e the r e l a t i o n s h i p between the p a r t i e s . In t h i s way i t i s i n some cases p o s s i b l e t o d e c i d e the i s s u e by r a i s i n g as the c r u c i a l question whose b u s i n e s s i s i t , o r , i n o t h e r words, by asking whether the p a r t y i s c a r r y i n g on the b u s i n e s s , i n the sense of c a r r y i n g i t on f o r h i m s e l f o r on h i s own b e h a l f and not merely f o r a s u p e r i o r . ^ 3  This  open  approach  Canadian  to  accepted  in  multiple  f a c t o r s i s shown by  courts.  Telegram P u b l i s h i n g Co. the  Referee  and  the  had  t e s t ( s ) being Appeal. had  The  Ltd.  emphasized  "economic  the  classification  The  Court of  Appeal  and  Amm.  i n the  original  31  what he  the  considered  d e t a i l , Lacourciere, context The for  of  1946  The  referee  choice  d i d not  a l l of  the  J.A.  simply  the  been in  the  use  judgment  in  factors  to  and  be  concern the  elements  apparent  lack  of  clients  predict  referee  tests in  any  s t a t e d t h a t such t e s t s were a c c e p t a b l e  in  Without d i s c u s s i n g the two  considered  test  predictability. the  of  the  have a l l become p a r t o f the expanded a  the  in  dismissal,  with  test  Court  to determine whether the  by  judgment.  Canadian and  payment  of work, hours of work, and  difficulty  Re  of names to d e s c r i b e  material  of  classification,  "organizational"  deeply  appropriate  widely  32  d e c i s i o n i n M o n t r e a l v. M o n t r e a l Locomotive, opened the  selection  service, place  One  termed  of the Montreal v. M o n t r e a l Locomotive  many other  Power  had  c r i t i c a l p o i n t on appeal was  properly  flexibility  Ontario  dependency" t e s t .  a p p l i e d by  of  has  the  r e l a t i o n s h i p between the p a r t i e s .  the  degree  issue  which  classification  remuneration,  the p e r s o n a l  list.  How  of  courts.  exclusive  o b l i g a t i o n to work  3 3  uses can of  English  way  multiple  lawyers a  factors  and  particular  their  is  the  business  relationship?  27  Directing  the  court  to c o n s i d e r a m u l t i t u d e of f a c t o r s c r e a t e s an  discretion  f o r the  court.  subjective  view of the  any  more  exclusion  of  a c h i e v e the contracts  c o n c e n t r a t i o n on  effective.  If  a l l others,  then  r e s u l t desired would  necessary.  the  the  by  expressly  Many of  approach p e r m i t s  the  the  to  court  or  British  would be  include  to  arrive  Columbia  control one  at  would  test  organised  The  alleged  whatever  a contract  as  factors  were  employers Standard  j o i n t venture  existed  the  plaintiff.  In s u p p o r t , the  defendant r e f e r r e d  a  the  plaintiff's  compensation  "...  which  set  to t w e n t y - f i v e p e r c e n t of the  net  B.C.  to  and v.  Court" of  Appeal  c o n t r o l t o f i n d t h a t an D i s h e r the  partnership  been  a new  and  was  d e c i s i v e , and  The court  to  factors,  such as  Canada was  established  faced  exclusive  between  the  w i t h the  3 4  The  service  In Donkin  argument t h a t  parties.  correspondence r e f e r r i n g t o a p a r t n e r s h i p .  strength  equivalent  p r o f i t s as computed s e m i - a n n u a l l y . " other  to  The  a  supporting  agreement a l l o t i n g a percentage of p r o f i t s i n l i e u of  salary, not  a sum  employment r e l a t i o n s h i p e x i s t e d .  Supreme Court of  had  e v i d e n c e was  the  looked  at  to  employment  In A l l i s o n v. of  the  between h i m s e l f and clause  a  not  to  so  cases show t h a t  control test.  that  of  adopt  dominant p a r t y .  exclude  argued  factor  were  relationships  early  defendant  the  courts  t r i e d t h i s t a c t i c to circumvent the Lumber Co.  the  relationship.  However, c o n t i n u e d be  The  enormous  of  an the  r e j e c t any  employment s i t u a t i o n was multiple  factor  parties.  found to  this exist.  t e s t approach comes i n  particular factors  t r u e r e l a t i o n s h i p between the  Yet  that  are  inconsistent  a  evidence 3 5  allowing with  the  28  E.  THE As  ORGANIZATION OR with  other  INTEGRATION TEST  developing  areas  of  i n f l u e n c e on employment r e l a t i o n s h i p s . Lord  Denning  special  recognized  skills.  traditional  Highly  sense  c o u r t should  the  by  the  Denning has  Therefore  are  of  not  this  had  an  the i n t e g r a t i o n t e s t ,  independence  specialists  employers.  Lord  In p r o p o s i n g  increasing  trained  law,  employees  controlled  test  suggests  with  in  the  that  the  look a t the degree t o which the s p e c i a l i s t i s i n t e g r a t e d i n t o  the b u s i n e s s o r g a n i z a t i o n . The  case  of  Stephenson, J o r d a n  and  Harrison  Ltd.  v.  MacDonald  and  Evans p r o v i d e d the i n i t i a l f o r m u l a t i o n of t h i s approach: • Under a c o n t r a c t of s e r v i c e , a man i s employed as p a r t of the b u s i n e s s and h i s work i s done as an i n t e g r a l p a r t of the b u s i n e s s ; whereas under a c o n t r a c t f o r s e r v i c e s h i s work, although done f o r the b u s i n e s s , i s not i n t e g r a t e d i n t o i t but i s o n l y a c c e s s o r y to i t . 3  A data p r o c e s s i n g manager i n a l a r g e c o r p o r a t i o n i s an skilled corporate data  employee  executives  processing  business.  who  would l a c k the  substance  The  functions of  clear  involved.  data  of  are  processing  corporate  advantage  by  this  e x p e r t i s e to c l o s e l y  Although  a  most  s u p e r v i s e or c o n t r o l a  a key are  test.  example of  p a r t of  the  corporate  necessarily tied  to  the  department.  this  of the r e l a t i o n s h i p .  a b l e to a s s e s s  covered  manager, h i s a c t i v i t i e s  d a i l y o p e r a t i o n of every The  be  6  test  is  the  attention  paid  to  the  By t a k i n g a wide p e r s p e c t i v e , the c o u r t i s  the a c t u a l s i g n i f i c a n c e of the r e l a t i o n s h i p to the p a r t i e s  Thus,  i n Rosen v.  The  Queen, the  Federal  Court  of  a b l e t o p r o p e r l y d e a l w i t h an apparent l a c k o f c o n t r o l by the  Canada employer.  The work done by the p l a i n t i f f f o r the t h r e e s c h o o l s a t which he taught was done as an i n t e g r a l p a r t of the c u r r i c u l a of the s c h o o l s ; t h e c o u r s e s were r e g u l a r courses and, i f I may say so, the b u s i n e s s i n which he was a c t i v e l y p a r t i c i p a t i n g was the b u s i n e s s of the s c h o o l s not h i s own. ' 3  was  29  Yet  this  test  has  inherent  i n d i v i d u a l i s g o i n g to be may  decide  data  to  engage  processing  performing  a  individuals qualify  as  integrated  systems  function not  that be  In  insurance  to  Accordingly,  the  few  this  integrated  and  in  every  programmers  situation to  highly  organization. to  the  the  business a  new  individuals  are  organization, Functions  skilled  The  develop  normal o p e r a t i o n s .  respects.  s a f e t y are  principal  current  and  is ancillary  employees i n a l l o t h e r  Not  i n t o the  analysts  application.  will  advertising, ancillary  limitations.  Thus  but  still  such as  may  research,  examples of departments t h a t may  activity  of  a  business  d e c i s i o n s have chosen to r e l y  the  be  organization.  e x c l u s i v e l y on  the  integration test. The  1979  Lavigne L t d .  d e c i s i o n of the reflects  both the m u l t i p l e organization  this  t e s t of  Ontario  caution.  Lord  t e s t expounded by  The  Wright Lord  Court of  integrated  not  Mayer d e c i s i o n and  other  and  unanimous d e c i s i o n  Denning.  used. The  business  The  merely a c c e s s o r y  cases i l l u s t r a t e ,  the  as a backstop or s a f e t y net t o the m u l t i p l e  F.  SUMMARY examining  the  three  r e l a t i o n s h i p , several conclusions compel the c o u r t s as the  an  employee r a t h e r  courts  tests.  t o apply  are  This  the f a c t s .  given  a rigid  than an a  flexibility  wide  conclusion  work i n q u e s t i o n  best  After  i n Mayer v.  distinct  and  was  to  to  the  that  the  "was  clearly  it."38  integration test  As  the  functions  test.39  tests  are apparent.  to  Conrad  referred  i n M o n t r e a l Locomotive,  f a c t s s a t i s f i e d whatever t e s t was i n t o the  Appeal  for  the  employment  P r e s e n t case law  does  not  framework f o r c l a s s i f y i n g an i n d i v i d u a l  agent or ranging  independent c o n t r a c t o r .  discretion in  the  extends even f u r t h e r i n t o the  choice  Instead, of  legal  i n t e r p r e t a t i o n of  30  One  over-riding  flexibility. employment mutual  The  judiciary  contracts  intent  relationship, examined. the  of  in  and  the  seems  to  consistently  light  the  lie  discretion,  the  t h a t are based Another  behind  of  their  particular  parties,  their  conduct  surrounding  this  commercial  after  i g n o r e any  c o u r t s are  able  t o make d e t e r m i n a t i o n s  to change.  to  these  situation.  of  legal  broad status  relationship.  broad  interpretative  powers  lies  in  Once the l i m i t a t i o n s o f the c o n t r o l  were  relatively  the  alternatives. and  shifts  judges  moved  In t h i s way  i n the  the  economy.  law  has  kept  Such a g i l i t y  quickly  to  the  will  be  and  workers  will  be  test  distinct practices  even more important  the computer i n d u s t r y are even more independent,  s o p h i s t i c a t e d than i n d u s t r i a l workers.  two  pace with b u s i n e s s  the c o u r t s are c o n f r o n t e d with an i n f o r m a t i o n economy. in  the  T h i s i s not an area of the common law which has been  trapped i n o u t - d a t e d d o c t r i n e s . obvious,  be  terms o f  With t h i s  4 0  the  a l l must  specific  the  The  entering  environment  with  advantage  real  interpret  circumstances.  conflict  on the r e a l i t y o f the  deliberate  r e c o g n i z e s the need t o  At the same time, the c o u r t s may  contract that  response  objective  Skilled  as  employees  more m o b i l e ,  and more  The d i v i d i n g l i n e between managers  even more b l u r r e d ,  and  there w i l l  be  an  increasing  v a r i e t y o f work arrangements. The  dangers  associated with  appear t o be l i m i t e d .  The  the  courts'  biggest social r i s k  l o s e s i t s awareness of e x t e r n a l s o c i a l  changes.  lead  and  the  to i n a p p r o p r i a t e c l a s s i f i c a t i o n s , past  r e c o r d of  examination the  judges  broad  discretionary  l i e s with a j u d i c i a r y  economic  the c o u r t s seems t o minimize  informed  of the  that  Such a b l i n d s p o t c o u l d inefficiencies.  this  t h a t the c o u r t s g i v e to the c i r c u m s t a n c e s well  power  risk.  The  o f each  current business trends.  Yet  intense  case  keeps  In c o n c l u s i o n ,  31  the common law i s w e l l - e q u i p p e d i s an employee.  to d e c i d e whether a p a r t i c u l a r  individual  32  FOOTNOTES;  1.  H.  Menzies,  Toronto;  Science  Society; of  Computers  on  Council  the  CHAPTER I I I  Job,  (1982)  James  of Canada, P l a n n i n g  Tomorrow i s Too L a t e  Now  Lorimer  f o r an  Processing  Society  (C.I.P.S.)  Census a t page 2 0 which i n d i c a t e s t h a t computer  installations  Co.  Information  (1982/83) R e p o r t No.33; F o r a measure  the i n c r e a s i n g s i g n i f i c a n c e of computers i n Canada  Information  and  i n Canada  1984  i n May  see Canadian  Canadian  1979  there  Computer were 8598  (not i n c l u d i n g computers t h a t  f o r l e s s t h a n $1 ,000.00 per month).  In December  rent  1983 the number of  i n s t a l l a t i o n s had i n c r e a s e d t o 16643. 2.  Id.  3.  Chapter  IV  examines  the  Fiduciary  and  Implied  Obligations  of  an  Employee. 4.  Id.  5.  Partnership  6.  I d . a t s. 11 and 12.  7.  Chapter  V  A c t , R.S.B.C. 1979, c. 312, s. 2(1) d e f i n i n g p a r t n e r s h i p .  provides  a  detailed  examination  of  the  doctrine  of  r e s t r a i n t of t r a d e , and Chapter V I I summarizes the c o n c l u s i o n s o f the thesis. 8.  I d . a t p. 118.  9.  I d . a t p. 126-29.  10.  I d . a t p.  129-30.  11.  Copyright  A c t , R.S.C. 1970,  c C-30;  See S i l v e r s o n v. Neon P r o d u c t s  (1978) 39 C.P.R. (2d) 234. 12.  (1982) 126 D.L.R. (3d) 451, a t 467-468.  13.  (1983) 149 D.L.R. (3d) 46, a t 51.  33  15.  16 H a l s b u r y ' s Laws of England 313 a t P a r a . 501.  16.  M c A l l i s t e r v. B e l l L b r . & P o l e Co. [1931] 3 W.W.R. 767, 45 B.C.R. 30.  17.  M o n t r e a l v . M o n t r e a l Locomotive Works L t d . , [1946] 3 W.W.R. 748, 756-757,  [1947] 1 D.L.R. 161 (H.L.) a f f i r m i n g  18.  I d . , a t 756 W.W.R.  19.  S t . John  v . Donald  [1926]  S.C.R.  ( 3 r d . Ed. 1983).  at  [1945] S.C.R. 621.  371, per A n g l i n  C.J.C.,  quoting  McCardie J . i n P e r f o r m i n g R i g h t s S o c i e t y v . M i t c h e l l & Booker  [1924]  1 K.B. 762, a t 767. 20.  Re Telegram P u b l i s h i n g Co. L t d . and Amm e t a l . 456, a t 460-461  21.  (1979) 94 D.L.R. (3d)  (Ont. C.A.).  (1913) 4 W.W.R. 1238, 12 D.L.R. 401; s e e a l s o Re P a r k i n E l e v a t o r Co; Dunsmoor's C l a i m O.A.R.  ,(1916) 37 O.L.R. 277; Saunders v . T o r o n t o  265; and Canadian P e r f o r m i n g  E x h i b i t i o n Assoc.  Society  v . Can. N a t .  [1938] O.R. 476.  22.  (1946), 115 L.J.P.C. 42, a t 47  23.  I d . , note 15.  24.  Marine P i p e l i n e  & D r e d g i n g L t d . v . Canadian F i n a O i l L t d . (1964) 46  D.L.R.  (2d) 495 ( A l t a .  (1980)  116 D.L.R.  340  Right  (1899) 26  C.A.); Re N e l s o n  e t a l . and Gubbins  (3d) 486 (B.C.S.C.) a f f ' d  (B.C.C.A.); Re T e l e g r a m P u b l i s h i n g  Co. L t d . and Amm (1979) 94  25.  [1967] 1 Q.B. 1567, a t 167.  26.  (1976) C.T.C. 462; 68 D.L.R. (3d) 380 (Fed. C t . T r i a l I d . , a t 465-66 ( C . T . C ) ; a t 383-84 (D.L.R.).  28.  (1955) 93 C.L.R. 561, a t 571.  29.  Supra, note 18, a t 756.  /'  al.  (1981) 122 D.L.R. (3d)  D.L.R. (3d) 456, a t 461 (Ont. C.A.).  "27.  et  Div.).  34  30.  Supra, note 18, a t 756-757.  31.  Supra, note 20.  32.  Supra, note 20, a t 461  33.  The f a c t o r s and s u p p o r t i n g a u t h o r i t i e s a r e l i s t e d i n H a l s b u r y s supra, note  15.  approach, 479  F o r more see O d i n  (B.C.S.C.),  recent  v . Columbia  applications  of themultiple  factor  C e l l u l o s e Co. L t d . (1968) 62 W.W.R.  and Earthworm  Red R i v e r  Limited  v . Underwood,  M c L e l l a n & A s s o c i a t e s L t d . [1972] 1 W.W.R. 362 (Man. Q.B.). 34.  [1924] 3 W.W.R. 481, 34 B.C.R. 257.  35.  (1913) 49 S.C.R. 60, 16 D.L.R. 610.  36.  [1952] 1 T.L.R. 101, a t 111 (C.A.).  37.  (1976)  68 D.L.R.(3d)  MacDonald  380, a t 383 (Fed. C t . T r i a l  Div.);  see a l s o  v . M.N.R. [1974] C.T.C. 2204 and Barnard v . T.M. Energy  House L t d . [1982] 4 W.W.R. 619 (B.C. Co. C t . ) . 38.  (1980) 105 D.L.R. (3d) 734, a t 737-738 (Ont. C.A.).  39.  C o - o p e r a t o r s I n s . A s s ' n . v. Kearney  40.  Supra, note 20.  (1964) 48 D.L.R. (2d) 1, a t 22-3.  35  III  EMPLOYER'S PROPRIETARY RIGHTS TO INFORMATION;  A.  GENERAL CONSIDERATIONS We a r e w i t n e s s i n g a t e c h n o l o g i c a l r e v o l u t i o n t h a t i s reshaping our w o r l d , c a l l i n g f o r new, i n n o v a t i v e responses from p e o p l e . D a i l y , technology i s c r e a t i n g new o p p o r t u n i t i e s f o r the human mind t o expand i n t o areas o n l y dreamed of a few s h o r t years ago Increasingly, those c o u n t r i e s t h a t can draw f o r t h t h e i r i n n o v a t i v e t a l e n t a r e those t h a t w i l l p r o s p e r . 1  The central  preceding  theme of t h i s  information paradigm  based  that  an  resource.  chapters  thesis.  provided Chapter  economy, and then  currently  concluded places  two  being  these  policy  increasingly Chapter  used  I introduced  reviewed  by lawyers  tensions  greater  examined  on  only  of an  information-as-property  increase  information  the l e g a l  f o r the  t h e concept  and l e g i s l a t o r s .  will  value  the  material  chapter  as our s o c i e t y as  tests  The  an  economic  that  determine  whether an employment r e l a t i o n s h i p e x i s t s between two p a r t i e s .  The l e g a l  2  I I then  background  s t a t u s of employee must be d i s t i n g u i s h e d from the other independent c o n t r a c t o r  or agent because of the d i f f e r e n t l e g a l  t h a t a t t a c h t o each g r o u p . This to  third  information  underlies employee. right  obligation  concentrates  on an employer's  Chapter  selected  to  proprietary  I , one example of h i g h  illustrate  the a p p l i c a t i o n  rights  technology of  legal  Software and i t s c r e a t i o n , d i s t r i b u t i o n and marketing w i l l be  reference The  such as  3  As d i s c u s s e d  has been  principles. the  chapter  information.  categories  product.  i n t e n t of t h i s an  employer's  What  to r e s t r i c t  chapter  i s t o examine the p r o p r i e t a r y b a s i s  demands  are the l e g a l  for legal  protection  against  grounds upon which an employer  an ex-employee's  activities?  a  that  former  c l a i m s the  What i n t e r e s t i s a  court  36  p r o t e c t i n g by a skilled  then  Later,  r i g h t s to  focus in  the  and  criminal  recent  of  the  employee's  but  any  employer's  interests  of  execute  This  space  chapter w i l l  of  does  the  the  has  always t r i e d  employer  and  the  to  employer's  proprietory  r e s t r a i n t of  of  analyzed  offered  a complete  an  by  in  the  light  trade. field  discussion  of  4  of  a l l of  employer's p r o p r i e t a r y r i g h t s to  based product be  viewed  society at  delicate balancing  case law  confidence.  area.^  always  employees and  of  doctrine employer  an  legislation,  be  permit  information must  an  breach  review  compete w i l l  f o r an  not  copyright  and  between  i n c o r r e c t to discuss other  secrets  r i g h t s to  protection  rights  a  trade  balance  developments i n t h i s  software or  to  theory  V,  degrees of law,  or c o n f i d e n t i a l i t y a g a i n s t  computer i n d u s t r y ?  requirements  I t would be  An  the  the  specific  There are  the  on  secrecy  software under the p a t e n t and  Chapter  interests of  o b l i g a t i o n s of  employee i n the  employer's and  enforcing  act  as  i n a narrow competing  large.  in this  r e c o n c i l e the  The  area.  law  with has  English  contradictory  employee, w h i l e s i m u l t a n e o u s l y  perspective. both  the  always  had  and  Canadian  demands of  preserving  the  and  protecting  employment were w e l l  summarized  the p u b l i c i n t e r e s t . The in  the  objectives 1960  quotation American  of  American  presents courts.  the  common law  decision  certain Judges  of  Wexler  themes have  on  that long  v.  Greenberg.  The  following  have  reoccurred  i n Canadian  been  concerned  with  employer's  p r o p r i e t a r y r i g h t s , as w e l l as the employee's r i g h t of m o b i l i t y and of  livelihood,  and  encouragement of  the  i n t e r e s t of  society  in  open  competition  innovation.  Society as a whole greatly benefits from technological improvements. Without some means of post-employment p r o t e c t i o n to a s s u r e that valuable  and  choice and  the  37  developments o r improvements a r e e x c l u s i v e l y those of the employer, the businessman c o u l d not afford to subsidize r e s e a r c h or improve c u r r e n t methods. In a d d i t i o n , i t must be r e c o g n i z e d t h a t modern economic growth and development have pushed the b u s i n e s s venture beyond the size of the one man f i r m , f o r c i n g the businessman to a much g r e a t e r degree to entrust confidential business information relating to technological development t o a p p r o p r i a t e employees. While r e c o g n i z i n g the u t i l i t y i n the d i s p e r s i o n o f r e s p o n s i b i l i t i e s i n l a r g e r f i r m s , the optimum amount of ' e n t r u s t i n g ' w i l l not occur u n l e s s the r i s k o f l o s s t o the businessman through a breach of t r u s t can be h e l d to a minimum.  , '  On the o t h e r hand, any form o f p o s t employment r e s t r a i n t reduces the economic m o b i l i t y of employees and l i m i t s t h e i r p e r s o n a l freedom to pursue a p r e f e r r e d course of livelihood. The employee's bargaining p o s i t i o n i s weakened because he i s p o t e n t i a l l y s h a c k l e d by the a c q u i s i t i o n of a l l e g e d t r a d e s e c r e t s ; and thus paradoxically, he i s r e s t r a i n e d , because of his increased e x p e r t i s e , from advancing f u r t h e r i n the i n d u s t r y i n which he i s most p r o d u c t i v e . Moreover, as previously mentioned, society suffers because competition is diminished by slackening the d i s s e m i n a t i o n of i d e a s , p r o c e s s e s and methods. 7  Any of and  legal  system i n a t e c h n o l o g i c a l l y advanced n a t i o n f a c e s the  reconciling  these  employees.  As e a r l y as  employee's r i g h t Colgate to  competing p o l i c y  the  trade.  principles doctrine  of  Although  8  throughout restraint  employers, and  the  on  the. r i g h t s  there  have  centuries, trade  employees.  At the same time, interest  the of  to choose a l i v e l i h o o d .  E n g l i s h c o u r t s d i s p l a y e d the  contractual limitations  lawful  r e s p e c t to  employers  160 2 the E n g l i s h c o u r t s f a c e d the i s s u e of  to m o b i l i t y and  v. B a c h e l e r ,  concerns w i t h  task  to  of an  been  individual  the  courts rival  of  i n i t i a l objections  modifications  Canadian  balance  In the case  an  to engage i n a of  today  the  legal  apply  interests  of  the the  9  Canadian c o u r t s a l s o r e c o g n i z e t h a t a s t r o n g p u b l i c  surrounds the employment r e l a t i o n s h i p .  There has been a  constant  38  legislative limit the  and  judicial  or prevent  competitive  competition. ideal  I n v e s t i g a t i o n Act, the be  rejection  language.  Taschereau J .  basic  footing injury  policy  that  the preventing  t o the p u b l i c .  Canadian competition Ltd.  courts  the A c t .  "The s t a t u t e  or lessening  standpoint." have  1 2  i s entitled to  J . summarized  proceeds  of competition  upon the  i s in itself  an  injury or public  1 1  similarly  t h e Manitoba  has endorsed  and the p r o h i b i t i o n s o f t h e A c t cannot  spoken  i n t h e employment r e l a t i o n s h i p .  v. B i g g a r ,  "The p u b l i c  I t i s n o t concerned w i t h p u b l i c  b e n e f i t from any o t h e r  that  t o the Combines  In t h e same d e c i s i o n , K e l l o c k  1 0  underlying  o f Canada  In r e f e r e n c e  stated that  b e n e f i t s of free competition,  the  i n t h e marketplace  The Supreme Court  i n vigorous  evaded by good m o t i v e s . "  of actions  Court  out on  t h e importance  In T.S. T a y l o r  o f Appeal  reviewed  of  Machinery Co. a  restrictive  employment covenant and then asked: Why would t h e c o u r t s not recognize h i s freedom t o c o n t r a c t and g i v e e f f e c t t o a r e s t r a i n t imposed upon him by h i s own agreement? The answer l i e s i n the f a c t that there i s a another freedom which must be c o n s i d e r e d , t h e freedom o f a man t o c a r r y on h i s l a w f u l t r a d e o r p r o f e s s i o n without h i n d r a n c e , t o t h e b e n e f i t o f h i m s e l f and h i s f a m i l y and the community a t l a r g e . To t h e extent t h a t r e s t r a i n t s a r e p l a c e d upon a man's r i g h t t o earn h i s l i v i n g and t o make the b e s t use o f h i s s k i l l s , the country a t large s u f f e r s . " 9  Finally,  t h e Canadian p o l i t i c a l  f o r c r e a t i o n and i n n o v a t i o n . in  patent  and c o p y r i g h t  system has long  provided  incentives  The obvious i l l u s t r a t i o n o f t h i s p o l i c y l i e s  legislation.  Canadian  inventors  and authors a r e  rewarded and encouraged by t h e g r a n t o f a s t a t u t o r y monopoly on q u a l i f y i n g works.  Under  copyright  holder  the C o p y r i g h t receives  the  A c t and t h e P a t e n t statutory  Act, the patent  protection  that  permits  or an  39  i n v e n t o r , to  exploit his  against unauthorized How  then  maintenance of information  balance  copying.  do  these  to be  between  the  pivotal  restraint  of  employee by by  the  trade.  t e s t i n g the  reasonably  It  freedom  of  his  for  innovation  employers,  age?  Or  creation  employees,  apply  to  and  current  the  public  extremes?  existing  common  law  is  the  doctrine  d o c t r i n e a l l o c a t e s r i g h t s between employer  In  the  competing  i s the  employees  of the r e s t r i c t i v e  effect,  promises  of  by the employee w i l l o n l y be e n f o r c e d to  guard  protect  the  covenants  non-competition  interests  and  given  i f the r e s t r a i n t s  proprietory  of  of  or are the  1 0 a  is  unanticipated relationship. employers,  of  information  reasonableness  necessary  employer.  of  the  employee/covenantor.  non-disclosure  suggested  that  imbalances  in  The  Wexler  employees  However, i n 1985, computer  This  to  e x i s t i n g accommodation between the  to p r e c a r i o u s of  author  encouragement  interests  point  an  policies  adequate i n the  r a p i d l y being t i l t e d The  and  Is the  or  1 0  basic  competition,  economy?  demands going  invention,  industry.  these  and  the the  information  delicate  decision aptly the  public  economy  weighting described  that  were  of the  that  courts  the  and  and  software;  (3) p o s s i b l e p o l i c y b i a s e s i n the e x i s t i n g law;  in  legislators  (1) an i n c r e a s i n g commercial r e l i a n c e on s e c r e c y confidentiality; over ownership of  employment  realities  aware of the dimensions of the f o l l o w i n g f a c t o r s :  (2) the c o n f u s i o n  creating  tensions  apparent  same t e n s i o n s are a f f e c t e d by new  I t i s suggested  is  and  between I960.  1 1  i n the must  be  40  (4) the p o l i c y o b j e c t i o n s t o p r o p e r t y r i g h t s i n i n f o r m a t i o n . Each o f these concerns w i l l be b r i e f l y  (1) I n c r e a s i n g Commercial Why  R e l i a n c e on Secrecy and  Confidentiality:  does the widespread use o f s o f t w a r e l e a d t o i n c r e a s e d  concern w i t h c o n f i d e n t i a l i t y ? not  explored.  depend  upon  the  responsibilities..."  between  decision.  In  were  secondarily  only  industrial  1960,  firm.  and s e l l i n g  t h e Wexler used  Today,  trade  The s u c c e s s f u l development o f software does  employer  1 2  simply  employees  as  court  discussing  to  was  produce  a software firm  secrets.  achieving  Aside  a  "dispersion  suggested  the  in  trade  primary  the  on  the  licensee.  software his  arrangements  that As  1 3  a  as an a u t h o r i z e d  strict  result,  even  licensee  Wexler  products  that  of  an  i s i n the b u s i n e s s o f p r o d u c i n g  from t h e mass d i s t r i b u t e d  impose  of  secrets  packages f o r  p e r s o n a l computers, most commercial software i s marketed under licensing  commercial  obligations the  must now  of  employer be  restrictive  confidentiality  that  simply  concerned about  uses  trusting  employees. Aside  from  the  confidentiality  problem  in distribution,  s p e c i a l problems i n the development of s o f t w a r e . c r e a t e d by a s i n g l e of employment.  employee  Usually  working alone  the i d e a  Only r a r e l y  there  i s software  under a w e l l d e f i n e d  f o r a new  contract  s o f t w a r e package comes e i t h e r  from an i n t e r n a l group o f employees, o r i s an update o r improvement package  already  offered  by  a  competitor.  Even  specification  s t a g e , t h e w r i t i n g o f the source c o d e  program  likely  will  approach costly  i s that  mistakes.  be  well  a  group  organized  However, t h i s  effort. group  work  are  The  after 1 4  initial  and t e s t i n g o f t h e  logical  reason f o r t h i s  spurs c r e a t i v i t y  type o f group e f f o r t  the  of a  and  t o produce a  avoids trade  41  s e c r e t d i r e c t l y c o n f l i c t s with l e g a l e f f o r t s t o e s t a b l i s h a c l e a r c l a i m to confidentiality.  (2) C o n f u s i o n Over Ownership of Software The  widespread  concerns  over t h e ownership  are p o t e n t i a l l y many competing the  software  developer from legal  use o f i n f o r m a t i o n such issue.  c l a i m s t o ownership.  development means t h a t  disgruntled answers,  employees?  there  fees?  How  outside licensors Although  a r e many  who  t h e r e can be  Who h o l d s t h e l e g a l r i g h t s t o l i c e n s e  and t o r e c e i v e t h e u s e r l a w s u i t s from  has heightened  The l a r g e number o f i n d i v i d u a l s  i n v o l v e d i n software  avoid  as s o f t w a r e  these  interested  does  the "employer"  of s i m i l a r  questions  groups  who  programs o r  do n o t have  require a  easy  definite  response. Specifically, chain  must  Licensees actions  be  t h e marketing  able  to reassure  o f software  taken  by o t h e r  a l s o worry about  staff  do  a t a l l p o i n t s i n the d i s t r i b u t i o n  customers  not wish  about  t o be  t h e ownership  third  c l a i m a n t s t o software  parties  ownership.  in  issue.  injunction  Marketeers  must  t h e r e p u t a t i o n o f the p r o d u c t , and t h e r e s u l t i n g l o s s o f  s a l e s i f e i t h e r a c o m p e t i t o r o r a former employee puts f o r t h a c o n f l i c t i n g c l a i m on ownership. Financing ownership  the development  o f software  and the a s s o c i a t e d l e g a l  been r e c o g n i z e d i n f i n a n c i a l  also  rights.  circles,  Now t h a t  their  money i n t h e i n f o r m a t i o n s e c t o r .  seen  t h e use o f r e s e a r c h and development  and most r e c e n t l y  h i g h t e c h n o l o g y has  a preferred  The p a s t  limited  through common shares i n a c o r p o r a t i o n t o pass 1 6  about  t h e r e a r e many i n v e s t o r s w i l l i n g t o  risk  investors,  requires certainty  three  years  have  partnerships, ^ flow1  on r e s e a r c h tax c r e d i t s t o  share  issue  t o take  advantage  42  of  the F e d e r a l  credit.  Special  However, whatever r o u t e  1 7  viability The  government's  of t h e investment  lawyer who prepares  the  t h e l i c e n s e e users  ownership q u e s t i o n .  they  are  receiving  infringement licensor legal  provide  More  well-defined  ship  software?  rights.  t o render  a  acquired. of software  have  license  and  will  importantly,  definite  interests i n  not  be  party  request  against  that the l i c e n s o r  maintenance,  goes out of b u s i n e s s  t o an  type o f  that  and t h a t  that  that the  this  l i c e n s e e s a r e concerned  they  they a r e or becomes  1 9  i n t h e E x i s t i n g Law  t h e r e b i a s e s i n t h e common law governing  that  legal  must be able  a c o n t r a c t u a l indemnity  (3) P o s s i b l e P o l i c y B i a s e s Are  r e s t s on a s c e r t a i n a b l e  r i g h t s f o r software  i n the event  bankrupt.  valid  them with 1  protected  investors, the  I n f a c t , most s o p h i s t i c a t e d u s e r s  liability. ®  receive  i s selected to attract  I n i t i a l l y , t h e l i c e n s e e s want t o be assured  a  action.  Investment t a x  the f i n a n c i n g prospectus  l e g a l o p i n i o n on t h e a s s e t s b e i n g Finally,  Refundable  always  Recovery  conflict  with  t h e unique  attributes  T h i s p o r t i o n of t h e d i s c u s s i o n w i l l  light  of t h e b a s i c  First,  i t should  policy  be  noted  considerations that  t h e employment  noted  the groups  relation-  of i n f o r m a t i o n  consider  paragraphs a l l had i n t e r e s t s i n common with t h e employer.  as  t h i s question i n  i n t h e Wexler  discussed  such  decision.  i n the p r e c e d i n g The d e v e l o p e r s ,  the marketeers, t h e f i n a n c i e r s , and the u s e r s a l l expect the law t o d e f i n e a  bundle  of p r o p e r t y  r i g h t s t o secure  and p r o t e c t  their  interests.  But  the  law must a l s o c o n s i d e r t h e r i g h t s of employees and t h e p u b l i c i n t e r e s t  in  encouraging  competition  and i n n o v a t i o n .  p o l i c i e s be a f f e c t e d by i n f o r m a t i o n  employment?  How  then  will  the b a s i c  43  The favour  d o c t r i n e o f r e s t r a i n t o f t r a d e i l l u s t r a t e s two p o s s i b l e b i a s e s i n of  the  recognizes  common  law  a qualitative  by an employee.  f a r more r i g i d of proof  First,  existing  2  as compared t o r e s t r i c t i v e Trial  0  c o n s t r u c t i o n t o employment covenants.  covenants  2  formation  employer  employee  over h i s employer. to  the  The h i g h e r  T h i s apparent  have t h i s  a  shift  of  standard  way t o a d j u s t f o r  same advantage i n the  Arguments can now be made t h a t t h e  a c t u a l l y enjoys  characteristics  granted  a  still  o f t h e employment c o n t r a c t ?  information  law  covenants t h a t a r e  f o r the employer has been viewed as t h e proper  Does t h e i n f o r m a t i o n  case  c o u r t s have been d i r e c t e d t o apply a  the employer's advantage i n b a r g a i n i n g . ^  both  the  d i f f e r e n c e between r e s t r i c t i v e  by t h e vendor o f a b u s i n e s s granted  employee.  practical  negotiating  i n the balance  information  and  advantage  o f power r e l a t e s to  the  speed  of  t e c h n o l o g i c a l change. Qualified electrical response  engineers  Information there  addition,  employees  are i n short  t o the o f f e r s  difficult  and  information  such  supply,  and f r e q u e n t l y  of competitors.  f o r an  employer  such  as software  to detect  At t h e same  or  to prevent  can be e a s i l y  i s no p h y s i c a l evidence  left  there  personal  appropriate  i s a considerable  software.  as programmers  Creating  change  time, loss  to a l e r t  level  jobs i n  i t i s very  of  and i n e x p e n s i v e l y  behind  software  or top  software.  duplicated,  the employer.  In  i n c e n t i v e f o r the employee t o  i s notably  labour  intensive.  A  d e p a r t i n g programmer might understandably  f e e l t h a t he i s e n t i t l e d t o have  at  The  least  information  one  copy  of  h i s labours.  r e l a t e d s e c t o r s a l s o means t h a t  y e t developed f o r i n f o r m a t i o n  employees.  unsettled  nature  of  most  no c l e a r code o f e t h i c s has  44  Finally, appropriation barriers  there  the  obvious  and use o f software  t o entry  regulatory  is  f o r personal  i n the software  controls.  financial  industry  A departing  incentive  gain.  behind  There a r e not many  and almost a t o t a l  employee  finds  the  absence o f  i t relatively  easy t o  e s t a b l i s h a new b u s i n e s s t h a t d i r e c t l y competes w i t h h i s former employer. In Brooks  a  recent  discussed  article  f o r the P r a c t i s i n g  the l e g a l  concerns  American software i n d u s t r y . surprising statutory service  lack  of  monopolies  bureaus,  among  to protect  small  corporate  mass marketeers a l l thought t h a t  Institute,  o f t h e major  According  concern  Law  participants  t o t h e surveys c i t e d ,  many  groups  software. users,  Daniel  about  i n the  there  was a  t h e adequacy  For a v a r i e t y  of  T.  of  reasons,  government, u n i v e r s i t i e s and the  external  statutory protection  was a low  priority.21 Brooks then  noted the t h r e a t o f software p i r a c y ,  employees posed the g r e a t e s t factors users all  contributing  (corporations  the other  r i s k f o r the f i r m s i n v o l v e d .  t o software  piracy  and employees),  groups  were  viewed  by  that  possible conclusion  the  employer  holds  employment  relationships.  employment  should  home  as  manageable  that  He compared the  users,  and by o r g a n i z e d  employees earned the d e s c r i p t i o n o f a "very One  and c o n c l u d e d  by  industrial  pirates.  problems,  Although piracy  troublesome p r o b l e m . "  by  2 2  i s t h a t the e x i s t i n g case law wrongly assumes the balance There  be viewed  of  are strong  bargaining arguments  as a r e l a t i o n s h i p between  strength that  in  a l l  information  equals,  with  no  s p e c i a l b i a s f o r t h e employee. A second i n a p p r o p r i a t e has  b i a s i n the e x i s t i n g law on r e s t r a i n t o f t r a d e  been h i g h l i g h t e d by t h e Law Reform Commission o f B r i t i s h Columbia.  In  45  its  1984 Report on Covenants i n R e s t r a i n t o f T r a d e  that  courts  have  fails  t o meet  After  examining  modern  the t e s t  2 2 1 3  enforceablity  ,  ruled  that  of reasonableness  "[M]odern b u s i n e s s  society,  factors...  traditionally  a must  practice,  and t h e changing  judicial  2 2 a  t h e Commission  restrictive  covenant  be w h o l l y  complexity  " s t r i k e a f a i r e r balance  covenants.  The reform  of  of t h e r e l e v a n t  t h e Commission recommended new l e g i s l a t i o n t o a l l o w of r e s t r i c t i v e  that  unenforceable.  the increased perception  noted  was  partial  put f o r t h to  between covenantor and c o n v e n a n t e e " ,  2 2 c  T h i s d i s c u s s i o n has o u t l i n e d two b i a s e s i n the e x i s t i n g law t h a t work in  favor  of the employee/covenantor.  I t i s suggested  that  the o r i g i n a l  j u s t i f i c a t i o n s f o r t h e b i a s e s a r e no l o n g e r v a l i d f o r t h e s k i l l e d  employee  i n t h e computer i n d u s t r y .  (4) P o l i c y O b j e c t i o n s A law.  final This  chapter.  t o Property  Rights  i n Information  c o n s i d e r a t i o n must be t h e " p r o p e r t y " was  referred  t o as  a  Hammond r e j e c t s the p r e s e n t  legal  o r i e n t a t i o n of e x i s t i n g  paradigm  i n the i n t r o d u c t o r y  strong f a i t h i n property  concepts as  b e i n g i n a p p r o p r i a t e and w a s t e f u l f o r t h e e f f i c i e n t use of i n f o r m a t i o n . Hammond's view, t r a d e of  the information  s e c r e t laws wrongly  as t h e i r  "property",  encourage t h e h o l d e r s instead  of a  to think  valuable  resource. There a r e a l s o sound economic reasons t o support t h i s p o l i c y ( o f promoting wide-spread use of i n f o r m a t i o n ) : research and i n f o r m a t i o n generation i s expensive; d u p l i c a t i o n of e f f o r t i s w a s t e f u l ; e x c e s s i v e s e c r e c y promotes espionage, and s e r i o u s d i v e r s i o n of e f f o r t occurs every day i n i n d u s t r y t o f i n d out what c o m p e t i t o r s a r e doing. I t i s a measure of t h e p r e s e n t f a i l u r e of western legal systems that industrial innovators are increasingly a v o i d i n g t h e very systems s e t up t o  In  social  46  promote disclosure. Consensual agreements and t r a d e - s e c r e t p r o t e c t i o n a r e now t h e p a r a d i g m a t i c way o f d e a l i n g w i t h i n f o r m a t i o n , r e s e a r c h and development output. 2 3  The are  arguments  not well  literature. noting.  that  Hammond uses t o support  recognized However,  Eight  either  i n Canadian  the s p e c i f i c  separate  caselaw  arguments  points  are  h i s non-property or  i n the legal  are provocative  advanced  stance  against  and worth classifying  i n f o r m a t i o n i n the s t r i c t concept o f p r o p e r t y . 1)  The concept o f s o l e ownership i s i n a p p r o p r i a t e f o r information.  2)  C e r t a i n types o f i n f o r m a t i o n m u l t i p l i e d a t low c o s t  3)  Information  4)  Unused i n f o r m a t i o n i s g e n e r a l l y o f no v a l u e . But i f i n f o r m a t i o n i s used t o o much, i t can e n t e r t h e p u b l i c domain and again have no v a l u e .  5)  Creation of information i s usually a joint a c t i v i t y ; d i v i s i o n o f ownership i s e x t r a o r d i n a r i l y difficult.  6)  The l o n g e r frequency s t a t u t o r y monopolies a r e o u t of phase with the shorter frequency for information innovation.  7)  Volume o f i n f o r m a t i o n has reached over-whelming proportions, yet classical economics assumes complete i n f o r m a t i o n about p r o p e r t y i n t h e market.  8)  Information cannot be r e a s o n a b l y p r i v a t e goods and p u b l i c g o o d s .  can be  infinitely  g e n e r a l l y does n o t d e p r e c i a t e  with use  separated  into  2 4  In  contrast  information  to  Hammond's  i n Canadian  law r e p o r t s  displays  a strong  property  recently  proposed  that  information  arguments,  orientation.  the s o l u t i o n  was t o develop  or  the limited i n current  For example,  legal  definition  of  literature  an E n g l i s h  t o t h e commercial  an expanded  discussion  writer  e x p l o i t a t i o n of  of property  that  was  47  appropriate  to modern c o n d i t i o n s .  Law  d e a l t with the  Journal  contract. in  Schauenburg  employee  who  employer. the  The  2 5  of r e s t r i c t i v e  author commented on Industries  used  v.  the  1979  Borowski.  confidential  covenants i n the Ontario The  2 6  information  to  employment  High C o u r t d e c i s i o n  case  involved  compete  with  a  former  his  former  Although the author approved o f the c o u r t s d e c i s i o n t o r e s t r a i n  employee,  f o r the  use  Another r e c e n t a r t i c l e i n the Queens  2 4 3  r e a d e r s were c a u t i o n e d  not  to  ignore  the  "property"  basis  decision: One s h o u l d be c a r e f u l not t o take the r a t i o n a l e of Schauenburg v.Borowski too f a r . I t i s submitted t h a t w h i l e i n f o r m a t i o n not t o t a l l y s e c r e t may be e n t i t l e d to p r o t e c t i o n i f i t s c i r c u l a t i o n i s v e r y limited, n e v e r t h e l e s s , t h e r e must be a s u b s t a n t i a l degree o f s e c r e c y i n o r d e r t o brand the i n f o r m a t i o n with the exclusivity which i s a c h a r a c t e r i s t i c of property r i g h t s and which w i l l g i v e the r e a s o n a b l e employee n o t i c e t h a t the i n f o r m a t i o n i s h i s employer's and not merely p u b l i c p r o p e r t y . 2 7  With present  a  arguments  copyright) the  similar  to  creations  property  orientation,  f o r extending the  protect  software.  ( i e ; p r o p e r t y ) of  numerous  American  s t a t u t o r y monopolies The  2 8  line  of  programmers and  for  these  works  ultimately public  inhibits  affects  good  interests.  is As  corporations  the  best Brooks  want  the  advance  national served  by  points  property  and  protection  u n a u t h o r i z e d d u p l i c a t i o n of s o f t w a r e . In types  of  summary,  this  information,  discussion such  concerns f o r the common law  as  large to  and  of  unless  protected  science,  and  Accordingly,  the  private  software  prevent  are  and  Lack of p r o t e c t i o n  interest.  recognition  most  i s that  developers  technology  public  the  out,  of  ( i e : patent  reasoning  then t h e r e are d i s i n c e n t i v e s t o c r e a t e computer works.  articles  the  house  property and  user  same  type  of  creation  of  new  2 9  illustrates software,  t h a t governs the  is  that also  the  creating  new  policy  employment r e l a t i o n s h i p .  48  B.  PATENT PROTECTION FOR The  first  common law  legal  computer  cases  INFORMATION  system  i n Canada  t h a t are  technology.  emerging  As  3 0  a  i s just  beginning  from  the  of  the  result  to  widespread  encounter  i n t r o d u c t i o n of  widespread  use  of  p r o c e s s o r s , the l e g a l system i s s t a r t i n g to re-examine e x i s t i n g of  law.  can  be  One  In  an  the  data  concern  p r o p e r l y a p p l i e d t o the  as computer  in  particular  i s whether p r e s e n t  the  micro-  principles  statutory protection  p r o t e c t i o n of e l e c t r o n i c  information  such  software. i n f o r m a t i o n economy, the  generations  of  technology  information material.  major advances a r e measured by  used  to  process,  store  and  gains  distribute  However, each apparent advance i n the p h y s i c a l  and t e c h n i c a l hardware o n l y camouflages the r e a l c r e a t i v e i n n o v a t i o n . true  l e a p forward  system  software  personal key  t h a t must have a l r e a d y o c c u r r e d  and  a p p l i c a t i o n software.  computer, the  supporting  major  vendors  behind  the  such  as  p h y s i c a l product.  s e c u r i t y o f software In  Canada,  protection Copyright result,  of Act  the  has  3 2  broadcasting  such  is  for  the  a p p l i c a t i o n software  to  The  of  a  u s u a l l y ranks as  a  Thus, the r e a l concern  protect  critical  purchaser  the  ideas  and  legal  focus  must  for  information be  on  the  for  the  nor  the  r a t h e r than on the p r o t e c t i o n o f hardware. legislation  software  neither  technologies  i n the  I.B.M.  i s i n the d e s i g n of the  Even  f a c t o r i n e v a l u a t i n g t h e competing models.  The  is  been  statute as  that  limited.  possibly Neither  significantly  amended  specifically videotape,  o r computer software.  could  the  Patent  since  recognizes  satellite  be  used Act  3 1  the  192 0s.  any  of  the  communications,  In some s i t u a t i o n s the b a s i c  As  a new  cable concepts  l e g i s l a t i o n have been e f f e c t i v e l y a p p l i e d t o d e a l with more r e c e n t  49  technologies.33  B  u  t  t  n  following  e  discussion w i l l  to s t r e t c h the e x i s t i n g p a t e n t l e g i s l a t i o n been u n s u c c e s s f u l . protection  Thus, t h e d i f f i c u l t i e s  of information are well  show t h a t  the attempt  t o cover computer software has with using patent  illustrated  law f o r the  by r e v i e w i n g t h e software  situation. Before  t h e software  position  i s reviewed,  p a t e n t l e g i s l a t i o n w i l l be i d e n t i f i e d . a  reward  f o r inventors  monopoly years."  right  permits  publish  t o the e x p l o i t a t i o n  During  3 4  who  the l i m i t e d  the p a t e n t  holder  after  their  right  i n return  i n v e n t i o n s over  o f the p a t e n t  of  monopoly,  actions  for a  a p e r i o d of the s t a t u t e  to protect h i s  3 5  f o r an i n v e n t i o n under  i s made t o t h e Canada  o f the s p e c i f i c  to prevent  inventions  of t h e i r  The g r a n t o f a p a t e n t i s l i m i t e d  s u b j e c t matter  legal  exists  an a p p l i c a t i o n  granted. the  protection  use.  concepts  In t h e o r y , p a t e n t s a r e g r a n t e d "as  t o use i n f r i n g e m e n t  i n v e n t i o n agains u n a u t h o r i z e d No  term  the general  Patent  the l e g i s l a t i o n Office  as t o time  invention,  and t h e p a t e n t  (17 y e a r s )  A patent  until  holder  u n a u t h o r i z e d use o f the s u b j e c t matter  and t o has t h e  i n Canada.  A l s o , t h e i n v e n t o r named i n the a p p l i c a t i o n must be t h e o r i g i n a l i n v e n t o r of  the proposed  subject  matter.  3 6  This  latter  requirement  can  cause  s e r i o u s problems i n o b t a i n i n g a p a t e n t f o r an i n v e n t i o n made by a group o f individuals  (i.e.:  a  software  development  group),  employee who r e f u s e s t o a p p l y f o r t h e p a t e n t . Can  computer,  software  be  patented  o r by an  individual  3 7  under  the  Patent  Act?  f o l l o w i n g two s e c t i o n s o f t h e l e g i s l a t i o n a r e r e l e v a n t : Section 2 I n v e n t i o n means "... any new and u s e f u l a r t , p r o c e s s , machine, manufacture o r c o m p o s i t i o n o f matter, o r any  The  50  new and useful improvement in any art, process, machine, manufacture or c o m p o s i t i o n of matter;" Section 28(B) "No p a t e n t s h a l l i s s u e f o r an i n v e n t i o n t h a t has an i l l i c i t o b j e c t i n view, or f o r any mere s c i e n t f i f i c p r i n c i p l e or a b s t r a c t theorem." ( u n d e r l i n i n g added) As s t a t e d i n 2 above, the t o the  current  s t a t e of the  a degree o f n o v e l t y Can  software  Patent Act?  The  i n v e n t i o n must be new  technology.  or u s e f u l as  Thus, t h e r e  i s a requirement f o r  or uniqueness i n the s u b j e c t matter of the be  patented  as  judgement o f the  a  computer-related  Federal  Canada was  Leave to a p p e a l from t h i s d e c i s i o n to the  refused.  under  the  current  Supreme Court o f  3 9  In a s h o r t t h r e e page d e c i s i o n , P r a t t e J . noted t h a t i n substance Schlumberger program d i r e c t e d a computer to perform m e c h a n i c a l l y o f mathematical c a l c u l a t i o n s . calculations  could  be  computer to perform the advance i n the  the  Court o f Appeal i n Schlumberger  3  i n Canada.  invention.  invention  Canada L t d . v. Commissioner of P a t e n t s ® appears t o r e p r e s e n t law  compared  The  performed  observation mentally  by  c a l c u l a t i o n s d i d not  technology.  was  the  a series  then made t h a t the same  humans.  Simply  c o n s t i t u t e a "new  using  a  or u s e f u l "  In the words of P r a t t e J . :  ... the f a c t t h a t a computer i s or s h o u l d be used t o implement d i s c o v e r y does not change the n a t u r e of t h a t discovery. What the a p p e l l a n t c l a i m s as an i n v e n t i o n here i s merely the d i s c o v e r y t h a t by making c e r t a i n calculations according to certain formulae, useful information could be extracted from certain measurements. T h i s i s not, i n my view, an invention w i t h i n the meaning of s . 2 . 4 0  Accordingly  the  appeal  was  dismissed  w i t h i n the meaning of s e c t i o n 2 had The the  on  the  grounds  that  no  been e s t a b l i s h e d .  Canadian Patent O f f i c e views the Schlumberger case as  following  rule:  invention  confirming  51  <  "A computer program per se, an a l g o r i t h m , or a s e t of i n s t r u c t i o n s to operate a computer (which i s e s s e n t i a l l y mathematical i n f o r m a t i o n developed from an a l g o r i t h m ) i s not p a t e n t a b l e . " 4 1  The case  o r i g i n a l d e c i s i o n of the P a t e n t Appeal  provides  applications.  a  more  extensive  set  of  Branch i n the  guidelines  Schlumberger  for  any  future  4 2  (a) Claims  to a computer per se a r e not p a t e n t a b l e ;  (b) Claims to a new patentable;  method of o p e r a t i n g a computer a r e  not  (c) Claims to a computer programmed i n a n o v e l manner, e x p r e s s e d i n any and a l l modes, where the n o v e l t y l i e s s o l e l y i n the program or a l g o r i t h m , are not d i r e c t e d to p a t e n t a b l e s u b j e c t matter under S e c t i o n 2 of t h e Patent Act; (d) Claims to a computing apparatus programmed i n a n o v e l manner, where the patentable advance is in the apparatus i t s e l f , are p a t e n t a b l e ; and (e) Claims t o a method or p r o c e s s s p e c i f i c n o v e l apparatus d e v i s e d d i s c o v e r e d i d e a are p a t e n t a b l e .  c a r r i e d out w i t h a to implement a newly  4 2 3  Thus, protection any  the  f o r novel  concept  advances  shows  that  patent  legislation  i n the p h y s i c a l t e c h n o l o g y ^ ,  but  4 2  the Schlumberger d e c i s i o n p o i n t s out a b a s i c l e g a l of  a  c r e a t i o n of new  provides resists  patent  was  never  intended  to  provide  reality:  protection  for  the the  information.  COPYRIGHT PROTECTION This  to  example  attempt to stake a monopoly on the u n d e r l y i n g i d e a f o r the i n v e n t i o n .  In f a c t ,  C  software  s e c t i o n analyses  electronic  principal  information  illustration.  Canadian c o p y r i g h t l e g i s l a t i o n and  again  will  be  using  as  i t applies  software  as  the  52  In b r i e f Copyright applies  f a s h i o n the a n a l y s i s w i l l move through t h e o p e r a t i o n o f t h e  Act  4 3  , and then  t o software.  Finally,  p r o t e c t i o n f o r software The  key  follows. idea.  t o the q u e s t i o n  o f whether c o p y r i g h t  t h e American  features  particular  idea  with  copyright  w i l l be d i s c u s s e d . of  the  Canadian  copyright  The c o p y r i g h t system i s designed The  experience  properly  itself  cannot  way i n which t h a t  be  idea  legislation  a r e as  t o p r o t e c t t h e e x p r e s s i o n o f an  the subject  of copyright,  i s expressed.  Colin  only the  Tapper  presents  t h i s view o f c o p y r i g h t l e g i s l a t i o n by s t a t i n g : The b a s i c p r o t e c t i o n a f f o r d e d by c o p y r i g h t i s d i r e c t e d against reproduction o f the form of the o r i g i n a l material. The i d e a upon which t h e o r i g i n a l i s based i s not p r o t e c t e d as such, nor i s any p r o t e c t i o n a f f o r d e d a g a i n s t any use o f t h e c o p y r i g h t m a t e r i a l which does not i t s e l f i n v o l v e c o p y i n g . Independent c r e a t i o n and the e x p l o i t a t i o n o f i d e n t i c a l , but uncopied, m a t e r i a l is also unaffected. It i s difficult to specify p r e c i s e l y and i n advance j u s t where t h e d i s t i n c t i o n between an i d e a and i t s form o f e x p r e s s i o n w i l l be drawn by a c o u r t . 4 3 3  Another registered Copyright  feature with  i s that  the Copyright  e x i s t s as soon  work i s c r e a t e d .  Even  avoids The  notice  t h e defence  statute  also  from t h e a u t h o r ' s Also, if  a court  t o be  does  legally  artistic,  registration  a  lengthy  time  y e a r s , o r the l i f e  death.  or  i s not mandatory,  was unaware  t o be  enforceable.  4 3 1 3  dramatic  there are  R e g i s t r a t i o n a c t s as  to a l l p o t e n t i a l i n f r i n g e r s .  the i n f r i n g e r  provides  n o t have  musical  by the a c t o f r e g i s t r a t i o n .  that  registration action  Registry  of copyright  Minimum p e r i o d i s f i f t y  i n Canada  as any l i t e r a r y ,  though  some advantages p r o v i d e d constructive  copyright  4 3 0  This  o f the c o p y r i g h t .  f o r copyright  4 3 d  protection.  of the author p l u s f i f t y  years  4 3 e  e s t a b l i s h e s c e r t a i n presumptions  t o prevent  infringement  i s taken.  that  are useful  For example, t h e  53  registration copyright. for at  establishes One  copyright  last  a  feature of  even have to be  first  ask  our  date  for  the  creation  Canadian system i s t h a t  an  r e g i s t r a t i o n does not have to prove o r i g i n a l i t y  the time of r e g i s t r a t i o n .  Can  definite  computer software be  applicant  (authorship)  registration.  protected  by  copyright  whether a software program can be  S e c t i o n 3.(1)  the  A copy of the work t o be r e g i s t e r e d does not  f i l e d a t the time of  o r " l i t e r a r y work" and  of  t h e r e f o r e be  eligible  defined  i n Canada? as an  We  must  " a r t i s t i c work"  for protection.  d e f i n e s c o p y r i g h t as f o l l o w s :  For the purposes of t h i s A c t , " c o p y r i g h t " means the s o l e r i g h t to produce or reproduce the work or any s u b s t a n t i a l p a r t t h e r e o f i n any m a t e r i a l form whatever, t o p e r f o r m , o r i n the case of a l e c t u r e t o d e l i v e r , the work or any s u b s t a n t i a l p a r t t h e r e o f i n p u b l i c ; i f the work i s u n p u b l i s h e d , t o p u b l i s h the work o r any s u b s t a n t i a l p a r t t h e r e o f ; and i n c l u d e s the s o l e r i g h t (a) to produce, reproduce, perform, or p u b l i s h any t r a n s l a t i o n of the work; (b) i n the case of a dramatic work, to c o n v e r t i t i n t o a n o v e l or o t h e r non-dramatic work; (c) i n the case o f a l i t e r a r y , dramatic or m u s i c a l work, to make any r e c o r d , p e r f o r a t e d r o l l , cinematograph f i l m ; or o t h e r c o n t r i v a n c e by means of which the work may be m e c h a n i c a l l y performed or d e l i v e r e d . S e c t i o n 2. of the  Act p r o v i d e s  the f o l l o w i n g d e f i n i t i o n s :  " A r t i s t i c work" i n c l u d e s work sculpture, and artistic architectural works of art photographs ;  of p a i n t i n g , drawing, craftsmanship, and and engravings and  " L i t e r a r y work" i n c l u d e s maps, c h a r t s , and c o m p i l a t i o n s . T h i s s t a t u t e came i n t o f o r c e i n 1924 since  that  recognize  any  date. of  As the  a  result,  technologies  and the that  has  plans,  been s u b s t a n t i a l l y unamended  legislation have  tables,  been  does  not  developed  expressly  since  1924.  54  Therefore,  i n order  copyright  must  be  to  apply  argued  copyright  by  analogy  protection  to  much  to  older  software,  the  generations  of  technology. However, logically  covers  electronic concluded  using  the l i t e r a l  application  a l l w r i t t e n documentation  information.  English  and  t h a t program d e s c r i p t i o n s ,  o f the statute,  copyright  i n v o l v e d i n t h e c r e a t i o n of  Canadian  lawyers  have  therefore  flow c h a r t s , and u s e r manuals can be  d e s c r i b e d as l i t e r a r y works and t h e r e f o r e p r o t e c t e d by c o p y r i g h t . The  major  difficulty  d i s t i n c t i o n between source  with  copyright  protection  code and o b j e c t c o d e . ^  arises  Since  4  4 4  with  the  source code i s  meant t o be read by human programmers, and can be expressed i n a p h y s i c a l form  that  i s comparable  that  source  t o an a l l e g e d  code i s covered  copy, a s t r o n g c l a i m can be made  by the s t a t u t e .  Another  argument i n support  of p r o t e c t i o n f o r source code i s t h e r i g h t o f t r a n s l a t i o n . only  extends  t o the o r i g i n a l  work, but a l s o  C o p y r i g h t not  t o the r i g h t  " t o produce,  reproduce, perform o r p u b l i s h any t r a n s l a t i o n o f t h e w o r k ; " . it  can be argued  object  program  programming It itself  that writing i s simply  a  the source  46  Therefore,  code i n FORTRAN o r COBOL as an  translation  of  the o r i g i n a l  work  into  a  language.  i s much more d i f f i c u l t i s covered  t o argue  by t h e C o p y r i g h t  that  Act.  an o b j e c t code  First,  program  by  an o b j e c t program i s  d e s i g n e d t o be machine r e a d a b l e , and i s not i n t e n d e d t o be r e a d by a human being.  Object  code  impulses  on magnetic  i s normally tape.  expressed  A claim  of  electrical  f o r copyright protection  of object  code t h e r e f o r e c h a l l e n g e s a b a s i c premise the c o p y r i g h t was designed  i n the form  o f the l e g i s l a t i o n .  Given  t o secure t h e e x p r e s s i o n o f an i d e a ,  4 7  that  then i t  55  must be grant of  assumed  copyright  the  Two  States  the  expression  must be  intelligible  to machine communications would be  act.  United  that  dissenting  opposed the  s o f t w a r e on t h i s b a s i s .  to  contrary  protection  for  They s t a t e d the p h i l o s o p h i c a l c o n f l i c t over  the  of  CONTU r e p o r t  intent the  extension  the  to the  To  in  American  4 8  s t a t u s of o b j e c t code as  commissioners  to humans.  copyright  follows:  [A] society that accepts in any degree such e q u i v a l a n c e s o f human b e i n g s and machines must become impoverished i n the long run i n those a s p e c t s on the human s p i r i t which can never be f u l l y q u a n t i f i e d and which machines .... w i l l never be a b l e t o e x p e r i e n c e , never be a b l e to b r i n g t o l i f e , never be a b l e t h e r e f o r e t o communicate. 49  Another  problem  protection under  of  the  Copyright  the m a t e r i a l the  object  a  software  identifying floppy from the  code.  There  is a  Act  expressed  c h a r a c t e r i s t i c s of  Canadian general  legislation  requirement  in a material  original  program  disk.  disks.  with the  lacks  a  the  Only the  work  material  apparent  program  is  computer can  humanly  tell  code  conclusion  the  is  the  and  any  copy i s the  Object code that  human  provides  senses.  A  indistinguishable d i f f e r e n c e between  translated  i s that  effect,  i t can  into  some  There i s a b a s i c t e c h n o l o g i c a l c a p a b i l i t y t h a t f u r t h e r undermines  the  source  arguable  object  to  work  t o observe  infringement  form  a  be  nor  an  are  until  able  a l l e g e d i n f r i n g i n g copy. required  software  Therefore, copy,  original  In  the  neither  copyrighted  hard  5 0 a  the  for  that  form.50a  sense, the t e s t f o r a c o p y r i g h t  containing  a blank  medium of  be  c h a r a c t e r i s t i c s that  disk  two  the  In a l i t e r a l  comparison of the for  under  form requirement a n t i c i p a t e s t h a t a c o u r t be  distinguishing  thereof.  exists  infringed.  code v e r s u s  object  code d i s t i n c t i o n .  Although  source  code might  56  initially  be expressed  code n o r m a l l y types  be expressed  o f codes  tangible  in electrical  are increasingly  being  to i n t a n g i b l e f o r m a t s .  protection respect  i n the form o f hard  must  be t e s t e d  to the p a r t i c u l a r  impulses  with  i n the e n t i r e  Therefore,  5 0 1 3  not only  the issue  by t h e type  form o f e x p r e s s i o n  o f code,  that  legislative  o f software  range o f  but a l s o used  .  5 0 c  copyright.  There  5 1  nor d e c i s i v e l y  has a l s o  a c t i v i t y t o d e a l with the q u e s t i o n .  1984,  the  entitled  t h e House Federal  o f Commons  government  been  Although  has n o t y e t approved  released  "From Gutenberg t o T e l i d o n " .  5 2 a  the C o p y r i g h t A c t t o p r o v i d e i n t e l l e c t u a l programs.  5 2 1 3  However,  i t i s doubtful  implemented i n t h e next two to t h r e e  applications software One  Ltd.  i n Ontario  copyright.  and Quebec  Stanford , 5 3  locutory  injunction  to prevent  software  on  disks  the i n t e r l o c u t o r y  a  there are  have  e r  cover  any changes.  paper  on  In  copyright  proposes r e v i s i o n s t o  p r o p e r t y p r o t e c t i o n f o r computer that  these  proposals  will  be  5 2 c  months a number o f i n t e r l o c u t o r y started  5 4  the p l a i n t i f f  infringement  and on c h i p s .  were no a p p l i c a b l e Canadian t r i a l to  rp^g p p  very  to t e s t  the i s s u e o f  In Apple Computer I n c . v . Computermat I n c . , Software  and M i c h a e l  floppy  i t s white  years.  However, d u r i n g the p a s t twenty-four  with  a t the  p e r s i s t e n t rumors o f amendments t o the C o p y r i g h t A c t t o s p e c i f i c a l l y software,52  both  of copyright  was b e i n g  t o 1983, Canadian c o u r t s had n o t d e a l t d i r e c t l y  the question  little  on a f l o p p y d i s k ,  expressed  time o f t h e a l l e g e d a c t o f i n f r i n g e m e n t . Prior  copy documentation, and o b j e c t  was  seeking  an  inter-  of i t s alleged copyright i n 5 5  After  noting  d e c i s i o n s , Mr. J u s t i c e  d e c i s i o n o f the F e d e r a l Court  of America I n c . v . C o i n e x V i d e o Games I n c . , 1 9 8 2 . 5 6  that  Hughes  o f Appeal  there  referred  i n Nintendo  In the Nintendo case,  57  interlocutory permanently firmware  relief  wired  is a  had been granted  on a c h i p  technical  t o p r o t e c t software which had been  (normally  hybrid  that  called  firmware ^),  in effect,  5  occupies  a  middle  ground  between  hardware and s o f t w a r e . In  the Apple case, Mr. J u s t i c e Hughes r e f u s e d t o g r a n t the i n j u n c t i o n  request, but s t i l l  recognized the seriousness o f the p l a i n t i f f ' s  claim to  copyright.  The i n t e r l o c u t o r y o r d e r p r o v i d e d t h a t i f t h e defendant  to  selling  continue  the s o f t w a r e ,  bond t o secure the p l a i n t i f f ' s is  perhaps  Ltd.,  significant  that  i t was r e q u i r e d t o p o s t  wished  a $100,000.00  p o t e n t i a l r e c o v e r y o f damages a t t r i a l .  the other  corporate  defendant,  Software  It One  d i d n o t even c o n t e s t the i n j u n c t i o n a p p l i c a t i o n a g a i n s t i t s software  sales.  5 8  In  a second  Computing  interlocutory  System,  software i s s u e .  6 0  5 9  Mr.  proceeding,  Justice  Steele  Space F i l e  dealt  more  L i m i t e d , v . Smart directly  with  the  A l t h o u g h t h e d e c i s i o n i s as y e t u n r e p o r t e d , Mr. J u s t i c e  S t e e l e a p p a r e n t l y was w i l l i n g  t o admit  that the p l a i n t i f f ' s  documentation  manual, source code program, and o b j e c t code program were a l l p r o t e c t e d by copyright.  The Court r e p o r t e d l y s t a t e d  that:  The manual i s i n p r i n t e d form. The source code and the programs a r e e l e c t r o n i c a l l y r e c o r d e d on d i s k s b u t a r e c a p a b l e o f , and have been, p r i n t e d from them. They a r e o r i g i n a l i d e a s expressed i n a p a r t i c u l a r form. They a r e the proper s u b j e c t o f c o p y r i g h t . 6 1  The I.B.M.  most v.  Spirales  restraining copyright  optimistic  the  interlocutory  Computers  defendants  i n a BIOS  software  Inc.  from  6 2  i s that  o f Reed  , . which  granted  an  infringing  program.  I.B.M. P.C. ( p e r s o n a l computer)  decision  the  The BIOS  and i s permanently  plaintiff's system  J. i n  injunction apparent  i s p a r t o f the  affixed  on a c h i p i n  58  the  computer's  read  only  memory  (ROM).  Although  63  received a copyright r e g i s t r a t i o n c e r t i f i c a t e object  code l i s t i n g s  alleged  act  of  f irmware/chip. Thus,  as expressed  infringement  f o r both the source  had  code and  i n i t s T e c h n i c a l Reference Manual, the  was  the  physical  duplication  of  the  63 a  the  I.B.M.  v.  i n t e r p r e t e d as extending code  the p l a i n t i f f  Spirales  interlocutory  decision  can  be  c o p y r i g h t p r o t e c t i o n t o o b j e c t code even when t h e  i s p h y s i c a l l y burned  into  a  silicon  chip  and o n l y  employed f o r  machine communication. It  i s suggested  reasoned.  that  t h e I.B.M. v . S p i r a l e s judgement  The d e c i s i o n f a i l s  which software software  t o d i s t i n g u i s h between t h e v a r i o u s media i n  can be expressed,  copyright  decisions  and r a t h e r l o o s e l y r e f e r s t o a number of from  c r i t i c i s m appears t o be confirmed Court Inc.  judge  to  On  6 3 c  defendants  January  Inc. claim  memory  (ROM)  17,  1985, case  c h i p . * - However, 3  summary,  creator's  Mr.  protection  to  Cullen  on a l l of the i s s u e s  This  6 3 1 3  Apple  agreed  Canada  that  covering  the  an Apple  f o r i t s Autostart  read-only  the arguments were not c o n v i n c i n g  a  rights  the  protection  to electronic  reasonable  copyright  information.  conclusion  is  that  But  f o r the e l e c t r o n i c v e r s i o n s  copyright certain, reaches  type  of  for this  Tapper  injunction  Justice  documentation  less  jurisdictions.  by the r e c e n t r e f u s a l of another F e d e r a l  interlocutory  to copyright 63  other  enough  the i n t e r l o c u t o r y i n j u n c t i o n order.  In  shows,  an  had an arguable  Canada  t o secure  grant  i s not w e l l  and e s p e c i a l l y a similar  of i n f o r m a t i o n  marginally  with  t h e software  example  the  supporting  written  i s protected  of a software  regard  a  As  i n the absence of any t r i a l  conclusion  secures  by  copyright.  program  is  far  court decisions.  to the United  Kingdom's  59  copyright  legislation.  Since  the  legislation  contains  "no  explicit  r e f e r e n c e s t o computer programs, and as i t s a p p l i c a t i o n t o them has not far  been  tested  i n the  remain s p e c u l a t i v e . " The  Copyright  information  6  courts  any  final  judgment  upon  the  matter  so  must  4  Act does p r o v i d e one  employer.  c o p y r i g h t , S e c t i o n 12  Although  the  o t h e r source  original  of p r o t e c t i o n f o r an  author  normally  holds  the  (3) r e v e r s e s t h i s presumption i n the c o n t e x t of the  employment r e l a t i o n s h i p . Where the author was i n the employment of some o t h e r person under a c o n t r a c t of s e r v i c e or a p p r e n t i c e s h i p and the work was made i n the course of h i s employment by t h a t person, the person by whom the author was employed s h a l l , i n the absense o f any o t h e r agreement to the contrary, be the first owner of the copyright. 6 4 3  As d i s c u s s e d i n the p r e v i o u s c h a p t e r , can  be  an  important  independent  commercial  c o n t r a c t o r s and  L t d . , the B.C.  impetus  employees.  Supreme Court  relied,  the  6413  provides copyright years  of  Computer Software C o p y r i g h t A c t certain  legislation.  Computer/Law  for  of  the  Journal.  use.  v i a c o p y r i g h t was  His  In S i l v e r s o n v. Neon  Products  ex-employee.  of 1980 to  United  States  has  1980  amendments Mihm  who  between  attempt  statutory  reviewed  copy and  c o n c l u s i o n was  6  5  were  States  information  now  more  double  and  640  i n the U n i t e d  had for  recently  the  to dismiss a  protect  protection  resell  prescription  distinguishing  any  with  6 6  from c o m p e t i t o r s  personal  for The  experience  effectiveness  piracy  lessons  for  i n p a r t , upon sec 12(3)  c o p y r i g h t i n f r i n g e m e n t a c t i o n brought by an The  s e c t i o n 12(3)  than  via three  software. considered  threat  of  The in  software  from i n d i v i d u a l s who  t h a t p r o t e c t i n g computer  the  copy  software  " n e i t h e r e f f e c t i v e nor p r a c t i c a l " to d e a l with e i t h e r of  60  these  threats.  The  explanation  copyright  infringement  difficult  and  correct,  then  and  uncertain  to  of great the  conflicts feared would  other  area,  extinguish  or  for  may  law  under the  copyright  holder  U.S.  in  trade  For  copyright secret  copyright  Canada  is  prevent  the  waiver  principles will publication user.  If  of  be a  the  of  trade  trade  holder  secret of  p u b l i c , then the h o l d e r Following  this  the  to  the  public?  registration industry Congress  not  Fortunately, the  secret  United  subject  intend Act.  to  has  to  While  the  U.S.A.  secret  protection  to  legal  rule i s that  provided  to  the  information  to  the  secret.  then i s whether  possibility  the U.S.  a  original  specific  p r o t e c t i o n f o r the  the  state  was  widespread  his  general  protection  States  pre-empt  the  This point i s c r i t i c a l  l e g a l question  Finally,  of  the  This  disclose  released  information  that  plagued  the  the  copyright software  Supreme Court r u l e d t h a t  trade  secret  law  with  the  avoided i n Canada so  long  6 8  t h i s pre-emption i s s u e can  matter  nor  noted p r e v i o u s l y ,  next s e c t i o n , the legal  in  amounted to the p u b l i c a t i o n of the  f o r almost a decade. did  As  protection.  ends the  might pre-empt t r a d e  f e d e r a l Copyright  as  the  final  caused by the requirement of  registration.  l o g i c , the c r i t i c a l  In  are  a number of years i t  protection.  cannot c l a i m c o n t i n u e d  r e g i s t r a t i o n of a c o p y r i g h t  provide  protection  required  secret  reviewed i n the  not  legislation.  not  m a t e r i a l at the time of c o p y r i g h t  i s too  appears t o a v o i d one  concern among American software producers was disclosure  detecting  i f Mihm's c o n c l u s i o n s  6 7  act  States.  Federal  pre-empt  of  o b t a i n i n g a recovery  value."  Canadian c o p y r i g h t  registering  process  information.  e x p e r i e n c e d i n the U n i t e d  that  "The  i t and  Canadian  effective protection for electronic In one  that  then p r o v i n g  to be  amendments  was  of  the  copyright  be  i s not  filed  with  the  copyright  61  application.  A l s o , the Canadian s t a t u t e does not r e q u i r e m a t e r i a l s  marked with the  i d e n t i f y i n g copyright  Under American law materials  the  and  the  date o f  first  copyright  is .strictly  a  qualifies  copyright  stating that  construed  as a b r o g a t i n g  by  copyright  statutory  any  r i g h t of  right,  "nothing  in  Finally 45  of  this  the  , although  the  section  Act  6  shall  8  a  be  j u r i s d i c t i o n to r e s t r a i n a breach of  Thus, s e c t i o n 45  r e g i s t r a t i o n does not  section  be  publication.  requirement of marking the p u b l i c a t i o n date on  u n a v o i d a b l y r a i s e d the pre-emption c o n f l i c t .  t r u s t or c o n f i d e n c e . "  to  c o u l d be  destroy  the  a marginal assurance  c o n f i d e n t i a l a s p e c t s of  that trade  secrets. In  conclusion,  the  patent  and  copyright  marginally  e f f e c t i v e i n coping  industry.  Accordingly,  s e c r e t and  c o n t r a c t u a l o b l i g a t i o n s that apply  D.  Legal  Trade  secret  t h i s t h e s i s has  equity,  and  has  absence  of  trade  a p p l i c a t i o n and English should  be  dimensions  in  received secret  Canada  almost no  is  the  summarized i n the L t d . v. Menzel:  duty  1913  of  only  computer  on the  trade  employees.  Secrets: a  in  v i g o r of t h i s area of the recognized  granted to p r e v e n t what was of  chosen to c o n c e n t r a t e to s k i l l e d  are  i n the  creation  of  the  common  s t a t u t o r y r e c o g n i t i o n . 69  legislation  Courts have l o n g  Canada  INFORMATION  P r i n c i p l e s of Trade law  in  with r i g h t s to i n f o r m a t i o n  TRADE SECRET PROTECTION FOR 1. The  laws  Canada  has  not  law  However,  constrained  the the  law. that  legal  and  equitable  relief  termed a "breach of c o n f i d e n c e " .  confidence  and  imposed  on  an  Chancery d e c i s i o n i n Amber S i z e and  employee Chemicals  The were Co.  62  In my view, a f t e r g i v i n g the a u t h o r i t i e s the best a t t e n t i o n I can, the law stands t h u s : The Court w i l l r e s t r a i n an e x - s e r v a n t from p u b l i s h i n g or d i v u l g i n g t h a t which has been communicated to him i n c o n f i d e n c e or under a c o n t r a c t by him, express or i m p l i e d , not to do so: M o r r i s o n v. Moat, 9 Hare, 241, and g e n e r a l l y from making an improper use of i n f o r m a t i o n o b t a i n e d i n the course of c o n f i d e n t i a l employment: Tuck & Sons v. P r i e s t e r , 19 Q.B.D. 629, and, f u r t h e r , from u s i n g to h i s l a t e master's d e t r i m e n t i n f o r m a t i o n and knowledge surreptitiously obtained from him d u r i n g h i s , the s e r v a n t ' s employment: Robb v. Green, (1885) 2 W.B. 1, 315. 70 Outside obtain  o f the  relief  confidential  employment r e l a t i o n s h i p , p l a i n t i f f s  from  the  courts  information  o u t s i d e of any  arose  for  breach  of  i n a business  whether  or  was  q u a s i - c o n t r a c t o r i m p l i e d term of confidence.72  to the  obtained T  n e  common  the i n f o r m a t i o n i n such a  as to be bound by the o b l i g a t i o n s of confidence.73 Lord  Denning's d e c i s i o n i n Seager v. Copydex Ltd.74 i l l u s t r a t e s  scope of  the  doctrine.  confidential  product  which ended without defendant  England  summary, are  case concerned  the  to  the  parties entering  used  the  The  damage award from the  Lord  protected  Denning  affirmed  by  general  the  p r o t e c t i o n a f f o r d e d the p l a i n t i f f was  a plaintiff defendant  who  had  during  into a contract.  plaintiff's  a l t e r n a t i v e product.  r e c e i v e d a lump sum In  The  information  thereafter  market i t s own  The  confidence  setting,71  element i s t h a t the defendant must have o b t a i n e d way  have been able  information  plaintiff  to  the  disclosed  negotiations However,  the  develop  and  s u c c e s s f u l l y sued  and  Court. that theory  specific of  trade  breach  of  secrets  in  confidence.  based upon:  [T]he broad p r i n c i p l e o f e q u i t y t h a t he who has received information i n confidence shall not take u n f a i r advantage o f i t . He must not make use of i t t o the p r e j u d i c e of him who gave i t without o b t a i n i n g h i s consent. 75  63  This  formulation  clearly  received i n a business Canadian established Chemicals  the  noted  have  English  above  was  generally  adopted  Ontario  by  that  the  upon an  jurisdiction express  term  Copydex, the O n t a r i o  it  was  the  statement  of  a breach  contract.  Court  principles  i n Amber  Court  of  Size  Appeal  in  i n other d e c i s i o n s i n Canada.77  a l s o i n agreement w i t h  to r e s t r a i n  basic  In a d d i t i o n / the d e c i s i o n o f Seager  been c i t e d w i t h a p p r o v a l are  the  The  6  Canadian c o u r t s  followed  jurisprudence.  I n t e r n a t i o n a l T o o l s L t d . v. K o l l a r ^ . v. Copydex has  not  context.  courts  by  p r o t e c t s i n f o r m a t i o n whether or  Almost  of Appeal  of  L i m i t e d v. Ashton and Ashton P r e s s Mfg.  Co.  Denning's  confidence  two  i n the  Lord  decades  statement  does not  before  depend  Seager  v.  w e l l known d e c i s i o n of C r a i n stated:  The cases on t h i s s u b j e c t of t r a d e s e c r e t s e s t a b l i s h that independently of any express covenant or c o n t r a c t , an ex-employee who, i n the course of h i s employment, a c q u i r e d a knowledge of a s e c r e t process belonging to his employer, arising out of the c o n f i d e n t i a l r e l a t i o n between an employer and his employee, i s under an i m p l i e d o b l i g a t i o n not to use t h a t knowledge upon l e a v i n g h i s employment.78 These to  other  legal  software. of  general  questions  of the  that  theory  are  there  or  any  confidential  important  as  a violation  reasons  for  information?  of a t r a d e  for  of  confidence  information  Once  these  emerges.  Is  property  right  or  a c t i n g to d e a l with  last  question  will  be  a trade  issues  then  equity  secret?  In  d i s t i n g u i s h i n g between  question  This  of breach  secret a  discussed  are  a  fact  resolved,  substantive an  under  C r i t i c a l Remedies f o r Breach of an Employee's O b l i g a t i o n s .  as  breach  in  law,  secret a  legal the  and  secondary  legal  inadequate  i n Chapter VI  and  trade  lead  such  Is the r i g h t t h a t i s b e i n g v i o l a t e d p r o p e r l y viewed as a  confidence  are  statements  right,  a  remedy? topic  of  64  The  first  of  the  above  questions  i s perhaps the  e a s i e r to  answer.  Canadian c a s e s c l e a r l y apply o b l i g a t i o n s of c o n f i d e n c e a f t e r the e x i s t e n c e of  a trade  v.  s e c r e t has  Lagopoulos,  been proved.  Alberts  7 9  Lithographic  Supplies  communication  of  the  (Edgar  Ltd.  trade  As  i n Computer C e n t r e P e r s o n n e l L t d .  T.)  v.  Ltd.  Sikatory,  s e c r e t s imposes  an  v.  Mountjoy,  the  8 1  courts  obligation  of  or  80  Molnar  accept  that  confidence  upon  recipient. Yet  there  information  are  has  other  been  important  protected  decisions  i n circumstances  not be based on the  e x i s t e n c e of a t r a d e s e c r e t .  the  of  Supreme  Court  Canada  in  upheld  the  where  v.  A l b e r t a Blue  Cross  Plan  h e l d t h a t o b l i g a t i o n s of c o n f i d e n c e personnel  files  the c o u r t s do  of an not  employer.  find  8  2a  confidentiality  ^he  critical  and  8 3  matter was  of  A l b e r t a Court  Even i n cases on to f i r s t  relief  could  a  tenure  of  Appeal  applied to  employment  the  obligations,  i d e n t i f y a trade secret. and Leeson  existed confidential  In  (Alta.  Guyer O i l Co. v . F u l t o n ( a f f i r m e d by S . C . C . ) ,  whether t h e r e  8 2  In A l b e r t a Human R i g h t s  d e c i s i o n s such as Chevron s t a n d a r d L t d . v. Home O i l Co. C o u r t Of A p p e a l ) ,  the  c o u l d t h e o r e t i c a l l y be  i t n e c e s s ary  confidential  In S l a v u t y c h v. B a k e r  recommendation w r i t t e n by a u n i v e r s i t y p r o f e s s o r . Commission  which  84  information  the  which  had been communicated to the employee. In s p i t e of the trade  secrets  obligation both  and  ambivalence of the d e c i s o n s , the d i s t i n c t i o n between  confidential  of confidence  categories,  l i m i t e d range of communicated  and  the  information  enunciated  definition  information. treated  as  One  i s important.  i n Seager v. Copydex  of  trade  secrets  limitation  confidential,  8  Although 5  covers  will a  the  protect  much  more  i s t h a t i n f o r m a t i o n may  yet  not  qualify  as  a  be  trade  65  secret.  Secondly,  i f the i n f o r m a t i o n i s a l r e a d y i n the p u b l i c domain, the  use o f the i n f o r m a t i o n by a b u s i n e s s The U.S.  definition  of  a  trade  secret  Restatement of T o r t s c o n f i r m s  range  of  circumstances  Since  the  following  business",  and  competitors",  to  how  than  could  equitable  limits  the  a  in  Section  o b l i g a t i o n s of  trade  secret  non-profit  s e c r e t p r o t e c t i o n i n the U n i t e d  contained  7 57  of  the  t h a t t r a d e s e c r e t s cover a more l i m i t e d  the  definition where  cannot be a t r a d e s e c r e t .  secrets  provides  research  to  an  confidence.  use  "in  one's  "advantage  over  organization  claim  trade  States?:  A t r a d e s e c r e t may c o n s i s t o f any formula, p a t t e r n , d e v i c e or c o m p i l a t i o n of i n f o r m a t i o n which i s used i n one's b u s i n e s s , and which g i v e s him an o p p o r t u n i t y t o o b t a i n an advantage over c o m p e t i t o r s who do not know or use i t . I t may be a formula for a chemical compound, a p r o c e s s f o r manufacturing, t r e a t i n g or p r e s e r v i n g m a t e r i a l s , a p a t t e r n f o r a machine or o t h e r d e v i c e , o r a l i s t of c u s t o m e r s . 8 6  Canadian trade Ashton secret  secret 8  6  a  also  adopted  Chevrier  taken  possession  a u t h o r i t i e s that  from  of  J.  such  accepted  American  trade  have  secrets  a  limited four  cases. to  seriously  A l l of  Schauenburg I n d u s t r i e s L t d . v . B o r o w s k i even i n a b u s i n e s s i n f o r m a t i o n and  definition.  similar  commercial 8 6 D  considered  the In  scope  R.I.  d e s c r i p t i o n s of these  definitions  enterprises.  of  Crain a  v.  trade limited  Similarly,  Craig J . correctly  a  noted  in that  c o n t e x t a d i s t i n c t i o n can be drawn between c o n f i d e n t i a l  a trade secret:  While i t would not be c o r r e c t to d e s c r i b e t h i s p r o c e s s o r the o p e r a t i o n a t r a d e s e c r e t , i t i s my o p i n i o n t h a t i t i s confidential information. Borowski w r o n g f u l l y used t h i s c o n f i d e n t i a l i n f o r m a t i o n ; t h a t i s , i n the sense t h a t i t had been e n t r u s t e d to him as g e n e r a l manager and i n the b e l i e f t h a t he would not d i s c l o s e i t to the d e t r i m e n t of the p l a i n t i f f s . Information may be c o n f i d e n t i a l i f the whole r e s u l t i s not known  66  though i t s s e p a r a t e f e a t u r e s or i n g r e d i e n t s 'have been p u b l i s h e d or are c a p a b l e of b e i n g a s c e r t a i n e d by a c t u a l i n s p e c t i o n by any member of the p u b l i c ' : A n s e l l Rubber Co. P t y . L t d . v. A l l i e d Rubber I n d u s t r i e s L t d . , [1967] V.R. 37 a t p. 49.86c Thus, one for of  initial  making the  legal  confidence.  The  trade  secret  used  to  can  i s possible.  aforementioned limited  a  competitive  be  There  d i s t i n c t i o n between a t r a d e  be  achieve  confidence essential  will  conclusion  more  to  cases  are  s e c r e t and  indicate  that  advantage.  widely  applied  scope  to  any  of  secret i s  obligations  persons  a  who  meet  of the  criteria.  employment r e l a t i o n s h i p s a s s o c i a t e d  the o r g a n i z a t i o n s research  the  However,  reasons  an o b l i g a t i o n  p a r t i e s i n b u s i n e s s where the  T h i s t h e s i s w i l l be examining r i g h t s t o i n f o r m a t i o n of  valid  units,  generally  will  i n v o l v e d can the  be  wider  more  with the  i n the wide range  computer i n d u s t r y .  range from p r i v a t e b u s i n e s s e s t o  legal  applicable  bounds  of  than  the  obligations narrower  Since  non-profit  of  confidence  concept  of  trade  secrets. The  courts  information  have  such  established  as  computer  obligations  of  confidence  information  so  long  J.  as  the  both  basic  i n the case of Coco v. A.N. First,  software.  protect  three  prerequisites  Clark  information  In  trade  for  effect,  secrets  elements are  i n the  and  protection  equitable  other  types  As  stated:  words of  Lord  Greene, M.R. i n the Saltman case must 'have the n e c e s s a r y q u a l i t y of c o n f i d e n c e about i t ' . Secondly, that information must have been imparted in c i r c u m s t a n c e s i m p o r t i n g an o b l i g a t i o n o f confidence. T h i r d l y , t h e r e must be an u n a u t h o r i z e d use of t h a t information to the detriment of the party communicating i t . 8  6  e  of  the  established.  (Engineers)86d  itself,  the  of  Megarry  67  In Thomas M a r s h a l l in But  England  (Exports) L t d . v . G u i n l e ,  further c l a r i f i e d  the t h r e e  elements  a g a i n , Megarry V.C. was c a r e f u l t o recognize  protection  of  information  could  apply  to  8 6 f  t h e Chancery D i v i s i o n  given  i n the Coco  that the c r i t e r i a either  trade  information  setting. 9  These requirements f o r t h e p r o t e c t i o n o f i n f o r m a t i o n  discussed  i n more d e t a i l  Proprietary  i n Chapter V under  I n t e r e s t and the Reasonableness  Section  f o r the  secrets  confidential 8 6  i f the communication took p l a c e  case.  or  i n an i n d u s t r i a l  D - The  w i l l be  Employer's  Test.  2. Trade S e c r e t s and Software: There identify for  are  trade  information  legal,  secrets  technical,  as t h e dominant  i n the computer  discussed,  both  protecting  the new i n f o r m a t i o n  or  existing  copyright  such as software  market  considerations  non-contractual  industry.  legal  As t h e p r e v i o u s  and p a t e n t  technologies.  the o b l i g a t i o n s of confidence  activities  and  laws  protection  two s e c t i o n s  are i l l - s u i t e d f o r  In c o n t r a s t , t r a d e  are p a r t i c u l a r l y  that  suited  to  secrets  information  development and m a r k e t i n g .  Trade s e c r e t s p r o t e c t s c o n f i d e n t i a l i n f o r m a t i o n t h a t i s b e i n g used by a business  entity  to maintain  employee o r an o u t s i d e r who r e s p e c t and p r e s e r v e  software  1977, a survey industry.  protection possible  advantage.  r e c e i v e s such i n f o r m a t i o n  t h a t s e c r e t and e q u i t y w i l l  t o make use o f t h e c o n f i d e n c e In  a competitive  t o h i s own b e n e f i t .  As d i s c u s s e d , an i n confidence  not permit  the r e c i p i e n t  8 7  was taken o f the p a r t i c i p a n t s i n the U n i t e d  The survey  o f f e r e d by p a t e n t  asked  p a r t i c i p a n t s t o compare  law, c o p y r i g h t  must  law, t r a d e  p r o t e c t i o n o f f e r e d by t e c h n i c a l f e a t u r e s  such  States  the l e g a l  s e c r e t s , and the as  cryptographic  68  coding,  releasing  program  access.  of object  program  The survey  only,  concluded  and o t h e r  that  trade  means  secrets  w i d e l y used method o f l e g a l p r o t e c t i o n i n the American It the  i s t h e l i n k between c o m p e t i t i v e  d o c t r i n e o f breach  of confidence  of  limiting  was  t h e most  industry,87a  advantage and s e c r e c y t h a t makes  c r i t i c a l f o r t h e software  industry.  The computer s e c t o r depends h e a v i l y upon t h i s l e g a l d o c t r i n e f o r a number of  reasons. First,  the  competition over  computer  and r a p i d  marketplace  growth.  Large  p e r i o d s o f two t o t h r e e y e a r s  new p r o d u c t s . relatively frequency  The p r o d u c t  short.  As  as compared  life  Hammond  the same  means t h a t l i t i g a t i o n to  divert  corporate  must be d i r e c t e d  c y c l e s o f both observed,  the speed  resources  to maintaining  i n t r o d u c t i o n o f new  characteristics and  term  a f t e r the f a c t . There  is a  key  emphasis  marketplace  Most vendors cannot court b a t t l e .  afford  A l l efforts  edge and keeping  pace  with  s e c r e c y i n the development factor.  These  8 9  industry  i s on immediate p r o t e c t i o n  eventual  trials  to recover  losses  9 0  are other  market  characteristics  c l o s e l y t o the p r o t e c t i o n o f s o f t w a r e . introduced  term  o f the s t a t u t o r y  i n the software  As a r e s u l t ,  remedies r a t h e r than  short  8 8  a competitive  products  occur  and hardware a r e  has a  frequencies  a lengthy  a l s o mean t h a t l e g a l  interlocutory  information  o f change  into  intense  o f 10% t o 2 0%  software  i s often self-defeating.  each new g e n e r a t i o n o f s o f t w a r e . and  shifts  by  due t o t h e c o n t i n u a l i n t r o d u c t i o n o f  t o the l o n g e r  time,  characterized  market  monopolies ( i e : p a t e n t and c o p y r i g h t ) . At  is  i n many  industries  that  link  trade  secrets  I n f o r m a t i o n p r o d u c t s a r e now b e i n g  to increase productivity  and t o c u t l a b o u r  69  costs.  However,  technology  these  i s allowed  example,  the  systems  once  can  only  be  the  sector  as  new  the  will  use  heart  of  technology  is  the  general,  this  importance of t r a d e instances,  phenomenon  of  which  have  manual  Thus,  price  systems. of  the  purchaser's software effect  package of  there  products  protection  The  creates  software  and  o f t used  software  operation.  Accordingly, new  first  the  the  using unauthorized  costs  ago  i s enormous p r e s s u r e  of  must to  strategies role  degree  increases  of  In most  the  i s to the  the  accounting,  abandoned  parallel  discount  entry  converting  the  into  to  any  the rival  a  result  of  the  lock-in  be  first  in  the  market.  get  of  process.  high  various  ploy  As  vendors  a major d e f e n s i v e  their  establish  dependency.  dependency,  marketing  plays  enormous  For  assisted  computer i n d u s t r y .  long  to  the  dependency  marketing  module  operations.  to another system.  automated  r e p o r t i n g systems have  information  manufacturing  software  m a n u f a c t u r i n g and  if  (computer  introduced,  s e c r e t p r o t e c t i o n f o r the  companies  CAM  a  i n t e g r a t i o n makes i t d i f f i c u l t to then c o n v e r t In  realized  to p l a y a major r o l e i n c o r p o r a t e  manufacturing  manufacturing) Therefore,  benefits  advance warning  competitors.  i n preventing  d i s c l o s u r e of i n f o r m a t i o n to secure  about  Trade  the  secret  competitors  from  a market l e a d .  Dominant companies i n the i n f o r m a t i o n s e c t o r a l s o t r y to c o n t r o l t h e i r markets vendor  through will  unique and of  one  be  strategy  everything  of  of  manufacturer  another readily  "product  p o s s i b l e to  incomparable to those  particular  hardware cannot  do  the  9 1  d i s t i n g u i s h i t s products  of i t s r i v a l s . normally  manufacturer. transferred  differentiation" .  from  In  For example, the  cannot the  one  be  same software  used way  to  basic system  A  large  as  being  software  operate  the  information to  another.  70  Software  i n c o m p a t a b i l i t y can  technical  problem  accordingly, software  sector.  ill-defined  heightens  factors  Since the  the  raise  vendor  strategy  standards.  dependency  race.  These  employees  risks  and  of  the  trade  the  installed  a l l producers  theory  a  of  a  rather  Product software  than  just  a  differentiation,  purchaser  upon t h a t  vendor.  These  sales,  of  be  stakes  customer base i s so  must not  be  accentuate  general secret  f o r competitors  left the  concerns deals  behind  piracy over  with  i n the  important  information  for  i n the p r o d u c t of  these  development  information,  confidential risks  continued  bribery  of  information.  The  emphasizing  the  by  p r e s e r v a t i o n of a b u s i n e s s ' c o m p e t i t i v e s e c r e t s . However, i t s h o u l d be the  perfect  marketing trade  protection  and  United  States. of  degree  own  by  general  the  research.  Finally,  secrets i s  First,  will  the  the  not  widespread  eventually destroy The  software  the  American c o u r t s have  b e i n g marketed  under  a  confidence  by the vendor l i c e n s o r , i t appears  distribution more  will  liberal  s e c r e t s must  tolerated  in  the  approach  on  the  American  be  High Court  be  contrasted  in Australia  with 9 3  or  the the  more House  94  theory  independently  trade  So l o n g as the o b l i g a t i o n s of  mass  alleged trade  the  from  program  computer  i n the U n i t e d K i n g d o m .  competitor his  with  However,  9 2  of  information public.  of  r e s t r i c t i v e approach taken  Second,  a  theory  software.  c o n s i s t e n t l y maintained  generous  publication  of Lords  computer  l i c e n s i n g agreement.  are c l e a r l y and a  making the  dealt s p e c i f i c a l l y  restrictive  that  for  t h a t the  s u c c e s s f u l s a l e of  s e c r e t by  already  said  of  trade  developing enforcing  secrets  the  trade  does  not  same software secret  prevent  program  a  from  o b l i g a t i o n s against  71  former trade.  employees  eventually  conflicts  T h i s c o n f l i c t w i l l be d i s c u s s e d  w i t h the d o c t r i n e  of r e s t r a i n t  i n depth i n Chapter  V.  of  72  FOOTNOTES: 1.  Dr.  S t u a r t L.  Smith,  Chairman  CHAPTER I I I of the  Science C o u n c i l  of Canada, i n  Canadian B u s i n e s s / S p e c i a l Supplement, F a l l / 1 9 8 3 a t page 2.  Supra., p.8-13.  3.  Supra., Chapter I I .  4.  Chapter V, The Employer's T e s t a t page  5.  Canadian  industry (3d) the  O.R.  fraud, An  McLaughlin  seen a dramatic i n c r e a s e confidential  255  and  Supreme Court  with  a  287(1)(b)  counterfeiter.  1984  on  are q u i t e  (1983)  tapes,  computer  149  D.L.R.  case which  raises  be  the  subject  of  appeal t o the Supreme Court of  of Canada  decision  computer of  the  did  Criminal  (The  not  constitute  Code.  In  i n Regina  a  Regina  v.  Criminal  Code t o  convict  c i r c u m s t a n c e s of v i d e o t a p e p i r a c y  similar.)  crime v.  under  Kirkwood  (2d) 65 the O n t a r i o Court of Appeal  In Regina v. T u r n e r  a videotape and  (Ont. H.C.)  r e p o r t e d i n Case Comments (1984) 1 C.CL.R. 222,  convicted  the  [1980] S.C.R. 331 h e l d t h a t the u n a u t h o r i z e d a c c e s s t o and  s u b s e c t i o n 338(1) of the  piracy  Stewart  i n f o r m a t i o n can  (1983) 5 C.C.C. (3d) 393, 42 C.R. used  v.  (Ont. C.A. ) i s a t e s t  i s currently  i n the number of  i n f o r m a t i o n and  Regina  confidential  earlier  interference paragraph  to  (2d)  whether  or  Canada.  relating  42  issue  theft  law has  i n the p a s t 3 y e a r s .  583,  Reasonableness  130.  criminal  prosecutions  P r o p r i e t a r y I n t e r e s t and the  SC2.  software June  18,  the accused were  of committing m i s c h i e f t o p r i v a t e p r o p e r t y , b e i n g computer  contrary  t o paragraph  a l s o Hammond, Grant R.,  387(4)(a)  of  the  Criminal  Code.  T h e f t of I n f o r m a t i o n (1984) 100 Law  See  Quarterly  73  Review 252; Webber, C., Computer Crime; (1985)  2  Concept B. M.  C.C.L.R.  49;  i n Computer  The  Empire  Finlay,  What Has Not Been C o n s i d e r e d  J . , Problems  Crime L e g i s l a t i o n  Strikes  Back;  (1984)  Criminal  with  the  "Property"  1 C.C.L.R. 182; Green,  Remedies  f o r Video  Piracy  (1984) 1 I.P.J. 1 . 6.  (1960) 399 Pa. 569, 125 U.S.P.Q. 471  7.  Id.  8.  (1602) C r . E l i z . 872; 78 ER.  9.  Doerner v.  Bliss  C. P.R.(2d)  1,  1097.  & Laughlin  (S.C.C);  Wong  Indust. v.  I n c . (1980)  Cook  (1979)  102  2 S.C.R. 865, D.L.R.  (3d)  54 616  (B.C.S.C). 10.  R.V.  Howard Smith Paper M i l l s  L t d . (1957) S.C.R. 403, 8 D.L.R. (2d)  449, a t 452. 10a. Chapter V d i s c u s s e s the d o c t r i n e i n depth. 11.  Supra., note 2.  12.  Supra., note 2.  13.  For example, see C R . and  14.  Hansen, J r . , Software D i s t r i b u t i o n , Remarketing  P u b l i s h i n g Agreements  (1984) 4 Computer Law J o u r n a l 625.  Source code or source programs must be c o n t r a s t e d o b j e c t programs. Institute  The  materials  glossary  f o r the  (Continuing  Legal  t o o b j e c t code or  (1983) Computers Education  and the Law  Society  of  p r o v i d e s the f o l l o w i n g e x p l a n a t i o n s a t pages 5:1:25 and 5:1:32: Source program: a computer program w r i t t e n i n symbolic language which w i l l be c o n v e r t e d i n t o an a b s o l u t e language o b j e c t program u s i n g a p r o c e s s o r program.  B.C.)  74  O b j e c t code: a b s o l u t e language output from a compiler or assembler which i s i t s e l f executable machine code or i s f u l l y complied and i s ready t o be loaded i n t o the computer. 15.  M.W.  Berwind  Partnerships  and  E.R.  (1982)  Martin,  Research  Practising  Law  and Development  Institute,  Computer  Limited Law  A c q u i r i n g Computer Goods and S e r v i c e s 339. 16.  Financial 17th,  17. 18.  P o s t December  10th, 1983 page 28; F i n a n c i a l  Post  December  1983 a t page 35.  Id. F o r example,  the model  conditions  Columbia Hydro A u t h o r i t y  of c o n t r a c t  used by the B r i t i s h  i n a c q u i r i n g computer systems s e t s out such  a p r o v i s i o n t o p r o t e c t the l i c e n s e e . 19. 20.  Id. Maguire v . N o r t h l a n d D.L.R.  521  Drug  (S.C.C.);  Co.  Cope  (1935)  v.  S.C.R. 412 a t 416, (1935) 3  Harasimo  (1964)  50  W.W.R. 639,  (B.C.C.A.) 20a. Chapter  V  Section  2  discusses  the Special  Status  of  Employment  Restraints. 21.  Daniel  T.  Copyrights  Brooks,  Agreements  i n Computer  with  Software,  Consultants  (1982)  Practising  and Law  Registering Institute,  Computer Law - A c q u i r i n g Computer Goods and S e r v i c e s a t 52 t o 57. 22.  Id.  22a. Law  Reform Commission  of B r i t i s h  R e s t r a i n t o f Trade (1984). 22b. I d . , a t p . 5. 22c. I d .  Columbia, Report  on Covenants i n  75  23.  R.  Grant  Hammond, Quantum P h y s i c s ,  Rights to Information 24.  I d . note 23,  24a.  Libling, (1978)  (1981) 27 M c G i l l Law  Models  J o u r n a l 47,  and  at  Property  58.  a t 55-56.  D.F., 94  Econometric  The  Law  Concept  Review  of  Property;  Quarterly  argues t h a t A n g l o - A u s t r a l i a n  103  case  at  law  Property 103,  104  recognizes  in  where  Intangibles the  property  author  rights i n  i n t a n g i b l e s based on the f o l l o w i n g p r i n c i p l e : An expenditure of mental or p h y s i c a l e f f o r t , as a r e s u l t of which t h e r e i s c r e a t e d an e n t i t y , whether tangible or i n t a n g i b l e , vests i n the person who brought the e n t i t y i n t o b e i n g , a p r o p r i e t a r y r i g h t to the commercial e x p l o i t a t i o n of t h a t e n t i t y , which r i g h t i s separate and independent from the ownership of t h a t e n t i t y . 25.  B r a i t , R i c h a r d A., Contract  The  Use  of R e s t r i c t i v e Covenants i n the Employment  (1981) 6 Queens Law  26.  (1980) 101  27.  Supra., note 25,  at  28.  See  Oxman, J.C.,  for  D.L.R. (3d)  Journal  example  Integrated  29.  Supra, note 16,  30.  Sections  and  d e c i s i o n s ; see Software for  and  Law  32.  Copyright  C  of  Jurimetrics  Journal  and 405;  P r o t e c t i o n of Computer Programs  (1979) 20 J u r i m e t r i c s J o u r n a l  this  Chapter  E l e c t r o n i c Games, Software  A c t , R.S.C. 1970, Act,  f o r Strong  20  Protection  18  at 55-56.  L i m i t e d , January 14th, Patent  (1980)  Property  will  identify  recent  Canadian  a l s o George E. F i s k , C o p y r i g h t P r o t e c t i o n f o r Computer  Computers,  31.  Intellectual  Masks  A Proposal  Under the C o p y r i g h t  B  701.  417  Circuit  Lawlor,R.C,  414.  and  1982, c.  R.S.C. 1970,  for  seminar  Electronic  a t page 8. P-4. c.  C-30.  titled  Games  Legal  Protection  published  by  Oyez  76  33.  F o r example,  copyright  protection  has been  applied  t o p r e v e n t the  u n a u t h o r i z e d v i d e o t a p i n g of f i l m s i n Warner B r o s . Seven A r t s I n c . v. CESM TV L t d .  (1971 ) 65 C.P.R. 215; and see Canadian  L t d . v. R e d i f f u s i o n I n c . (1954) Ex. C.R. 382. Canada  has u p h e l d  infringement  the c o p y r i g h t  took  place  after  tapes and then a c e t a t e masters.  Corp.  The Supreme Court o f  i n a m u s i c a l work intervening  Admiral  even  productions  though the v i a master  Compo Co. L t d . v . B l u e C r e s t  Music  I n c . e t a l . (1980) 105 D.L.R.(3d) 249. 34.  Jeremy  Philips  and M i c h a e l Hoolahan,  U n i t e d Kingdom Law P r a c t i c e  Employees'  (Oxford,1982)  a t 1.  35.  Supra, note 31, s e c . 5 6 ( 1 ) .  36.  For a g e n e r a l overview of the l e g i s l a t i o n Computer-Related Protection  Subject  Matter  at  I n v e n t i o n s i n the  see D.A. H i l l ,  p. 1  i n seminar  P a t e n t s and  titled  Legal  f o r Computers, Software and E l e c t r o n i c Games p u b l i s h e d by  Oyez L i m i t e d J a n 14th/82. 37.  Supra, note 34; see a l s o George Hunter and G i l b e r t  S. Sharpe.  Patent  R i g h t s I n An Employee's I n v e n t i o n ; A Comparative A n a l y s i s and a Model F o r Reform  (1975) 23 C h i t t y ' s Law J o u r n a l 253.  38.  (1981) 56 C.P.R. (2d) 204 (F.C.A.).  39.  (1982) 63 C.P.R. (2d) 261 (S.C.C.).  40.  Supra. note 38, a t 206  41.  Supra, note 36, a t 7 r e f e r r i n g t o S e c t i o n 12.03.01(g) of t h e Canadian P a t e n t O f f i c e Manual of Examining P r o c e d u r e s .  42.  Supra. note 36, p . 8  42a. "Firmware"  and " c h i p " a r e d e f i n e d i n note 54.  I t can be argued t h a t  firmware o r P.R.O.M. (programmable r e a d only memory) c h i p s r e p r e s e n t physical experience See  technology  that  suggests t h a t  Backer,  S.A.,  i s patentable. this  argument  Means-Plus-Function  must  However,  the  be t r e a t e d  Claims  American  cautiously.  i n Computer  Related  77  Patent  Applications  J o u r n a l 25. form  of  law.  See  amending  in  the  United  A l s o , the American  legal  protection  Semiconductor Title  17  of  States  the  instead  Protection  U.S.  5  Computer/Law  government has r e c e n t l y c r e a t e d a  f o r chips  Chip  (1984)  Code  Act  by  of of  relying 1984  addition  upon  new  patent  (P.L. 98-620)  of  Chapter  9  as  o u t l i n e d i n (1985) 1 C o p y r i g h t Law J o u r n a l 1. 42b. I d . 43.  R . S . C , 1970, c-C-30, as  am.  43a. C o l i n Tapper, Computer Law 43b. See f o r example Bulman Ltd.  (1982)  132  (1982 Longman Group L t d . 2nd Ed.) a t 16.  Group L t d . v. "One  D.L.R.  (3d)  104  at  111  W r i t e " A c c o u n t i n g Systems (Fed. C t .  Trial  Div.)  e n f o r c i n g an u n r e g i s t e r e d c o p y r i g h t i n a c c o u n t i n g forms. 43c. Supra, note 43, sec 22. 43d. The  issue  of the l i a b i l i t y  f o r damages of an o u t s i d e r  who  receives  c o n f i d e n t i a l i n f o r m a t i o n from an employee w i l l be examined i n Chapter VI - The C r i t i c a l Remedies f o r Breach of an Employee's O b l i g a t i o n s . 43e. Supra, note 43, sec 5. 44.  Supra, note 43a, a t 18; and see supra note 30 George F i s k , C o p y r i g h t P r o t e c t i o n f o r Computer Software and E l e c t r o n i c Games a t 11.  45.  Supra, note 14.  46.  Supra, note 43, sec 3(1) ( a ) .  47.  Supra, note 43a.  48.  N a t i o n a l Commission on T e c h n o l o g i c a l Uses of C o p y r i g h t e d Works, Report 9 (1978), a t 27.  49.  Id.  Final  78  50.  Canadian A d m i r a l at  386  must  which  be  Corp. L t d . v. R e d i f f u s i o n I n c .  states that  expressed  capable  of  to  "for copyright  some  extent  identification  endurance."  The  and  reference  preamble to s e c . 3(1)  at  having  to  Szibbo,  S o c i e t y of B.C. 50c.  Id.  51.  George  Fisk  Computer  and  a t Chapter  4, pg. 6,  i n Globe  and  Law 52.  For  example,  Government  see  of  B.  Canada,  Communcations 52b.  permanent  contained  in  the  Materials  for  (February  Dec.  23,  dated Dec.  1985).  1983,  d e c i s i o n i n Apple  at  1983;  B15;  Mr.  Computer Inc.  (Ont. H.C.) 6,  Education  see  reached  the  also Fisk,  (1983) 1 Canadian  Computer  Eischen,  Consumer  Revisions  Reporter and  to  the  Copyright  Act  25.  Corporate  Affairs/Department  of  (1984).  I d . , a t pages 79-87.  52c. T h i s was and Mr.  the  February  opinion  P e t e r Grant,  organized  53.  form,  27.  (1983) 1 Canadian Computer Law 52a.  is  less  Continuing Legal  7 and 30  Developments i n Software C o p y r i g h t  Reports  or  Canada  (1983) 75 C.P.R. (2d) 26  same c o n c l u s i o n i n h i s judgement G. New  in  The  Mail,  J u s t i c e Hughes i n the i n t e r l o c u t o r y v. Computermat I n c .  form  "work" i t  some m a t e r i a l  more  382  terms.  Copyright  1980's p u b l i s h e d by  quoted  in  in a  C.R.  of the A c t .  50b.  i n the  a  material  See note 54 f o r an e x p l a n a t i o n of these  Copyright  subsist  least  50a.  A. , The  to  (1954) Ex.  by  the  15th,  expressed a t the  law  by  two  panelists,  seminar on  Continuing Legal Education  1985.  (1983) 75 C.P.R. (2d)  26  (Ont  H.C.)  Mr.  Lance  Turlock  " C o p y r i g h t i n the  1980's"  S o c i e t y of B.C.  held  on  79  54.  Supra, note 14, following  at 5.1.07 and  5.1.16 where the G l o s s a r y  provides  explanations:  Firmware - a term u s u a l l y r e l a t e d to microprogramming and those s p e c i f i c software i n s t r u c t i o n s t h a t have been more or l e s s permanently p l a c e d into control memory. An e x t e n s i o n t o a computer's b a s i c command ( i n s t r u c t i o n ) r e p e r t o i r e to c r e a t e a user-oriented instruction set. This extension to the basic i n s t r u c t i o n s e t i s done i n r e a d - o n l y memory and not i n software. The r e a d o n l y memory c o n v e r t s the extended u s e r - s p e c i f i c i n s t r u c t i o n s to the b a s i c i n s t r u c t i o n s of the computer. Floppy d i s k s - storage d e v i c e s i n the form of s m a l l f l e x i b l e d i s k s (about the s i z e of 45 rpm phonograph records) used for random access requirements in c o n t r o l l e r s and CPU's and as a compact s u b s t i t u t e f o r punched cards. A typical floppy disk provides c a p a c i t y f o r about 300,000 data b y t e s . F l o p p i e s were o r i g i n a l l y developed f o r low c o s t , low c a p a c i t y data s t o r a g e , and r e l a t i v e l y low data t r a n s f e r r a t e s . Also known as d i s k e t t e s . C h i p s - m i c r o p r o c e s s o r s t h a t are complete computers on a s i n g l e c h i p of s i l i c o n . No l a r g e r than 1/2-inch square, they c o n t a i n a l l the e s s e n t i a l elements of a central processor, including the control logic, instruction decoding, and arithmetic processing circuitry. To be u s e f u l , the m i c r o p r o c e s s o r c h i p or c h i p s are combined with memory and I 0 integrated c i r c u i t c h i p s to form a "microcomputer", a machine almost as p o w e r f u l as a minicomputer. They u s u a l l y f i l l no more than a s i n g l e p r i n t e d c i r c u i t board. 55.  Id.  56.  (1982) 69 C.P.R. (2d)  57.  Supra, note  54.  58.  Supra, note  53.  59.  (1984) 75 C.P.R. (2d)  60.  Id.  61.  I d . , a t p.282.  122,  281  46 N.R.  (Ont  311  H.C.)  (Fed. O A .  ) .  the  80  62.  (1984),  80  C.P.R.  (2d) 206,  12 D.L.R.  ( 4 t h ) 351  (Fed. C t . T r i a l  Div.) 63.  I d . , a t p. 354 D.L.R.  63a. I d . , a t p. 354. 63b.  I d . , a t p. 355.  63c. Globe and M a i l , January 26, 1985 a t p. B2. 63d. I d . 64.  Supra, note 43a a t 18.  64a. Supra, note 43, s e c . 12(3). on  copyright  52a,  invites  copyright  I t s h o u l d be noted t h a t the white paper  revision  called  "From Gutenberg  public  comment  on  i n the employment  the i s s u e  relationship,  v a r i o u s arguments i n Appendix  t o Telidon" of  first  supra  note  ownership  and b r i e f l y  states  of the  I I , pg 113-117.  64b. Supra, Chapter I I a t p g 17-20. 64c.  [1978] 6 W.W.R. 512 a t 517-18; (1978) 39 C.P.R. (2d)  65.  17  U.S.C.  101,  117  (Supp.  IV  1980) as  amended  234.  by  the Computer  and t h e P e r s o n a l Computer;  I s t h e 1980  Software C o p y r i g h t A c t , a t 1980, 94 S t a t . 3015. 66.  M.T. Mihm, Software P i r a c y  Software C o p y r i g h t A c t E f f e c t i v e ?  (1983) 4 Computer Law/Journal 171.  67.  I d . , a t 192-193.  68.  Kewanee O i l Co. V. B i c r o n Corp. 416 U.S. 470 (1974).  68a. Supra, note 43. 69.  The s t a t u t o r y of  references  to trade secrets  the C o p y r i g h t A c t supra, note  Trade  Marks  i n Canada occur i n sec.45  43 and perhaps  Act  1952-53,  c.49 s.  business p r a c t i c e  contrary  t o honest  7  which  indirectly  prohibits  industrial  i n the  any a c t or  o r commercial  usage  81  in  Canada, but see MacDonald v. Vapour Canada L t d . (1976) 66 D.L.R.  (3d)  1 (S.C.C).  states  have  prosecute  In the United  passed  trade  the t h e f t  States  secret  of t r a d e  Trade S e c r e t s Law Handbook  laws.  71.  Coco v. A.N. C l a r k E n g i n e e r i n g L t d .  72.  P r i n c e A l b e r t v . Strange  73.  For a  Pty. 74.  see Jager,  number  of  of s t a t e s Melvin  F.,  the  that 1983  (1983) i n Appendix F, a t 333.  [1913] 2 Ch. 239, a t 244-245.  confidence  For a l i s t  secrets  70.  relatively  a considerable  [1969] R.P.C 41.  (1849) 1 Mac. & G. a t 25.  recent  discussion  of the types  see Deta Nominees P t y . L t d . v . V i s c o u n t  of breach o f  Plastic  Products  L t d . [1979] V.R. 167.  Seager v. Copydex  [1967] 2 A l l E.R. 415 assessment of damages  see  [1969] R.P.C 250. 75.  I d . , note 74, a t 416.  76.  (1968) 67 C.P.R. (2d) 386.  77.  Appd.in  Slavutych  v . Baker  (1974)  41  S.C.C. (1975) D.L.R. (3d) 224; a p p l i e d Home  O i l Co. (1980)  D.L.R.  (3d) 71, a f f ' d .  i n Chevron Standard L t d .  22 A.R. 451 ( A l t a . C t . Q . B . ) ;  v.  considered i n  Stephenson v. B a b i y Motors L t d . [1978] 5 W.W.R. 645 (B.C.S.C) 78.  [1949] O.R. 303 ( H . C ) ; a f f i r m e d  79.  (1976) 58 D.L.R. (3d) 352 (Ont. H.C.J.).  80.  (1978) 79 D.L.R. (3d) 108  81.  (1974) 14 C.P.R. (2d) 197 (Ont. O A . ) .  82.  Supra, Note 77.  (Ont. H.C.J.).  82a. [1983] 6 W.W.R. 758, a t 765-67 concluded  that  confidential  t h e evidence  obligations.  [1950] O.R. 62, a t 68-69.  (Alta. O A . ) .  In t h i s case the Court  d i d not j u s t i f y  the imposition of  82  83.  [1982] 3 W.W.R. 427 ( A l t a .  C.A.).  84.  [1973] 1 W.W.R. 97 (Sask. Q.B.) and [1977] 4 W.W.R. 112 (S.C.C.).  85.  Supra, note 74.  86.  Restatement  86a.  [1949] 2 D.L.R. 481 (Ont. H . C ) , a f f i r m e d  86b.  (1980) 101 D.L.R. (3d) 701 (Ont. H . C ) .  of T o r t s 757 (1939). [1950] 1 D.L.R. 601 (C.A.).  86c. I d . , a t 706. 86d.  [1969] R.P.C. 41  86e. I d . , a t 47. 86f.  [1978] 3 A l l E.R. 193 (Ch.D.) discussed  i n Chapter  The elements  IV, S e c t i o n  will  D. under  be i d e n t i f i e d and  t h e heading  Employer's P r o p r i e t a r y I n t e r e s t and t h e Reasonableness  of  The  Test.  86g. Supra., note 8 6 f , a t 209-210. 87.  Supra, note 74.  87a. J . Palmer,  R. Resendes,  " C o p y r i g h t and t h e Computer"  (1982) Consumer  and C o r p o r a t e A f f a i r s , Canadian Government. T h i s r e p o r t p u b l i s h e d t h e survey by M i l l e r  (1977), a t 94.  88.  Supra., note 24 i n Chapter I .  89.  The Japanese  company  trade  i n an undercover  secrets  C.I.A.  Hitachi  i n the United  was r e c e n t l y "sting"  States.  caught  operation  Fortune,  stealing  that  I.B.M.  involved the  Dec. 12, 1983;  IBM's  C o u n t e r o f f e n s i v e i n Japan, December 23, 1983, p . 97, Lee Smith. "How IBM 90.  Stung H i t a c h i " , F o r t u n e , March 7, 1983, David B. T i n n i n , p. 50.  Chapter  VI discusses  remedies  and t h e importance  of i n t e r l o c u t o r y  i n j u n c t i o n s f o r the p r o t e c t i o n of s o f t w a r e . 91.  See G e r a l d Brock,  "The U.S. Computer  Power" a t page 89 where  the author  I n d u s t r y - A Study  identifies  the t h r e e  i n Market structural  83  f e a t u r e s of the actions. (i.e., 92.  See  The  computer i n d u s t r y t h a t most a f f e c t p r i c e and features  are  I.B.M.), and t e c h n i c a l  Management  C.L.S.R. 921  Science  a t 922  O'Brien  (1978) N.D.  94.  O.  v. Komesaroff  Mustad  (H.L.).  & Son  v.  S.  differentiation,  concentration  progress.  America  d i s t r i b u t e d to approximately 93.  product  product  600  Inc., 111.  v.  Cyborg  Systems  where c o n f i d e n t i a l  Inc.  software  6 was  customers.  (1981) 41 A.L.R. 259, A l l c o c k & Co.  [1963]  a t 266  (H.C.  3 A l l E.R.  of Aust.) 416,  at  418  84  IV  THE  FIDUCIARY AND  Chapters that  apply  IV  to  V  skilled  Chapter I I I has decisive  and  will  will  discuss  the  employees i n the  concluded  protection  analysis  IMPLIED OBLIGATIONS OF AN  for  therefore  that  specific  information  computer i n d u s t r y .  patent  and  information focus  EMPLOYEE  copyright  in  upon the  the  The  laws do  computer  protection  obligations preceding  not  provide  industry.  a v a i l a b l e to  This  employers  under the employment r e l a t i o n s h i p . The legal from law  employment r e l a t i o n s h i p can  obligations the  in  upon an  employment the  event  impose  employee:  the  r e l a t i o n s h i p ; the  that  the  employee  is  This  will  be  specifically  doctrine  of  r e s t r a i n t of  context  of  the  restrictive  separately  categories  due  to  places  upon an  using  carefully  obligations.  employees  implied,  a  the  trade  by  common  f i d u c i a r y ; and  in  and  of  arise  the  employment  discussed  An  drafted  are  level  employer  restrictive  who  agreement.  Chapter V  the  the  in  the  enforcement  of  subject operate  level  protects  had  his will  relied  employees  trade be,  s o l e l y upon  who  are  implied  obligations.  impose a c e r t a i n degree of r e s p o n s i b i l i t y , upon an  i s another  f i d u c i a r y and  legal  reason  express  of  implied to  be  lower  level  all  three  employee t o  information.  for discussing  obligations  by  theory,  deemed  However,  each  secrets in  to more onerous o b l i g a t i o n s than the under  discussed  r e s p o n s i b i l i t y which  covenants,  p r o t e c t i o n than i f he senior  of  m a i n t a i n the c o n f i d e n t i a l i t y of the employer's There  imposed  that  of o b l i g a t i o n s f o r employees must be  contrasting  Similarly,  who  categories,  the  employee.  to g r e a t e r  fiduciaries  obligations  as  r e s u l t i n g from  categories  covenants.  These t h r e e  entitled  implied  viewed  obligations  category  distinct  obligations  express c o n t r a c t u a l last  three  an  the  interplay  employee.  between  Implied  and  85  fiduciary  obligations  obligations.  If  unreasonable,  then  unenforceable. in  part  lead  the  the  employers feature  unfairness  Law  Reform  existing  employee's  is  of t h i s  that  restrictive  discussed  employers  in  encounter  the in  information  and  trade  industry.  On  the  one  r e l i a n c e on  secrecy  and  to  secrets side  are  employees  change  jobs  f e a r i s t h a t they w i l l information  to  the  new  software.  in  the  same  particularly are  protection  not  their  acute  forced  displace  More  The  an  employee's  in  into  the an  the  difficulty  computer increasing  industry  On the o t h e r  wide  side,  more v u l n e r a b l e  particularly, of  which  confidential  comply w i t h the  inevitably reveal previously employer.  for  ameliorating  difficulties  employers more and  sector  this  express covenant i s  the  protect  c o n f i d e n t i a l i t y to  of  partial  4  to  employers  be  wholly  absence o f  The  2  I f an  chapters,  attempting  changes i n t e c h n o l o g y have made the misappropriation  is  then move e a s i l y t o a review of an  previous  to  covenantee/employer  express covenants do  p r a c t i c e of the r e s t r i c t i v e l i c e n s i n g of software.  the  judged  recommend the  covenants.  3  contractual  covenant  all-or-nothing  r e m a i n i n g f i d u c i a r y or i m p l i e d o b l i g a t i o n s . As  the  is  However, i n the  1  an  i s that  express  covenant  fiduciary obligations.  s t r u c k down, Canadian c o u r t s  the  r e s u l t f o r the  produces  express  or  restrictive  covenants.  law  to  Commission of B.C.  e x i s t i n g law  implied  backstop  result  restrictive  the  a  particular  vis-a-vis  of  as  the  The  enforcement o f reform,  a  act  when  computer  i s that  to  skilled  industry,  acquired  the  the  confidential fiduciary  and  i m p l i e d o b l i g a t i o n s cannot o v e r r i d e the employee's r i g h t t o use  his  and  employee's  knowledge  interests  in  competition  with  i n job m o b i l i t y must be  employer's c o n f i d e n c e s  and  trade  a  former  balanced  secrets.  employer.  against  the  The  skills  p r o t e c t i o n of  the  86  Two the  conclusions  be  apparent a t the  l e g a l l i m i t s of employee's f i d u c i a r y and  evolving.  The  application. for  will  precedents  Second, an  are  implied  obligations  uniform  w i t h the  are  a  use  of t h i s  chapter.  First,  i m p l i e d o b l i g a t i o n s are nor  employer a c h i e v e s the  c o n f i d e n t i a l information  and  not  end  predictable  strongest  legal  still  in  their  protection  of express covenants; f i d u c i a r y  secondary  and  less  effective  form  of  protection. A.  Implied  Obligations:  Fiduciary common law. being that  the an  In c o n t r a s t ,  implied  to  entitled  his  to  of  are  has  an  employer  damages  for  Canada L t d .  v.  imposed  upon  employees  by  the  general  i m p l i e d o b l i g a t i o n s are most o f t e n c o n s i d e r e d  term of the  employee  loyalty  Stores  obligations  employment c o n t r a c t .  impied during the  obligation the  breach  contract of  of of  those  P h i l i p s e t a l . , the 5  Thus, the  good  faith,  service. duties. British  An In  law  assumes  honesty employer State  Columbia  6  and is  Vacuum  Court  Appeal approved t h i s view of i m p l i e d terms i n an employment agreement: The p r i n c i p l e t h a t an u n f a i t h f u l employee may be answerable i n damages i s w e l l established in the d e c i d e d cases a l t h o u g h , as L o r d Greene M.R. p o i n t s out i n H i v a c L t d . v. Park R o y a l S c i e n t i f i c Instruments L t d . , [1964] 1 A l l E.R. 350, t h i s branch o f the law may not yet have been f u l l y explored i n i t s remoter aspects. Bowen L . J . r e f e r s to the p r i n c i p l e i n t h i s language i n Lamb v. E v a n s , [1893] 1 Ch. 218 a t p. 229: 'The common law, i t i s t r u e , t r e a t s the m a t t e r from the p o i n t o f view o f an i m p l i e d c o n t r a c t , and assumes t h a t t h e r e i s a promise t o do t h a t which i s p a r t of the b a r g a i n , or which can be f a i r l y i m p l i e d as p a r t o f the good f a i t h which i s n e c e s s a r y to make the bargain effectual. What i s an i m p l i e d c o n t r a c t o r an i m p l i e d promise i n law? I t i s t h a t promise which the law i m p l i e s and a u t h o r i z e s us t o i n f e r i n o r d e r t o g i v e t h e t r a n s a c t i o n t h a t e f f e c t which the p a r t i e s must have i n t e n d e d i t t o have, and without which i t would be futile.'  as  of  87  There  have  been  numerous  decisions  i n both  c o u r t s which have a p p l i e d t h e same p r i n c i p l e s . implied  then  o f an employer's  ( o r ought the  employee  interests respect  t o know)  that  cannot  to  confidential  employment r e l a t i o n s h i p .  information.  the  This  8  So l o n g  information  general  information  Canadian these  used t o p r o t e c t the as t h e employee  he i s a c q u i r i n g c o n f i d e n t i a l  use  of the employer.  and  More s p e c i f i c a l l y ,  7  o b l i g a t i o n s o f the employee have been w i d e l y  confidentiality knows  English  information,  i n conflict  with  the  o b l i g a t i o n o f good f a i t h  with  clearly  continues  beyond  the  9  These g e n e r a l p r i n c i p l e s have not y e t d e a l t with t h e key q u e s t i o n f o r skilled  employees  i n the computer  between t h e employer's c o n f i d e n t i a l and  general  information  that  industry.  What  information  the employee  i s the d i v i d i n g  and the s k i l l s ,  can c a r r y w i t h  line  knowledge  him?  What a r e  the l i m i t s imposed upon employees by t h e i r i m p l i e d o b l i g a t i o n s ? First, good  during  faith  the term  and l o y a l t y  employer's  interests.  do not permit  1 0  work f o r another employer raises  the  disclosed.  strong  of employment  activities  I t can even  be argued  i n h i s spare  likelihood  an employee's  that  that that  o b l i g a t i o n s of  conflict  an employee  time, i f t h e p a r t - t i m e confidential  with t h e cannot  employment  information  will  be  1 1  Once the employment r e l a t i o n s h i p has ended, t h e employee i s f r e e t o use  h i s acquired  employer.  Absent  skills  and knowledge  any e x p r e s s  covenants  d u t i e s , t h e ex-employee's r e l a t i v e l y any  confidential  Herbert  or secret  1 2  with  o r the i m p o s i t i o n  limited responsibility  information  Morris L t d . v. S a x e l b y  i n competition  provided  Lord A t k i n s o n  the of  former  fiduciary  i s to respect  by t h e ex-employer.  said:  In  88  ... a man who goes i n t o an o f f i c e i s e n t i t l e d t o make use i n any other office, whether h i s own o r t h a t o f another employer, o f the knowledge which he has a c q u i r e d i n the former o f d e t a i l s o f o f f i c e o r g a n i s a t i o n ... the knowledge of the reasonable mode of general organization and management o f t h e b u s i n e s s o f t h i s k i n d , and t o make use o f such knowledge, cannot be regarded as a b r e a c h o f c o n f i d e n c e ... a l t h o u g h t h e p e r s o n may have l e a r n t i t i n t h e c o u r s e o f b e i n g taught h i s t r a d e ; 1 3  Lord  Shaw  further  employer's t r a d e  separated  the  s e c r e t s by s a y i n g  employee's  knowledge  from  the  that:  ... a man's a p t i t u d e s , h i s s k i l l , h i s d e x t e r i t y , h i s manual o r mental a b i l i t y — a l l those t h i n g s which i n sound p h i l o s o p h i c a l language a r e not o b j e c t i v e , b u t s u b j e c t i v e — t h e y may and they ought n o t t o be r e l i n q u i s h e d by a s e r v a n t ; they a r e not h i s master's p r o p e r t y ; they a r e h i s . own p r o p e r t y ; they a r e h i m s e l f . 1 4  These  statements  evidentiary protect  confirm  burden when the employer  confidential  dealt  exclusively  representative, information employer.  about  employment.  ex-employee  of  t o use i m p l i e d  The  a  difficult  obligations to  solicitation  with  two  major  i t can be  said  clients  which  clients  of  customers  that  as t h e employer's  the employee  has  i s " s p e c i a l or p e c u l i a r "  these  two  clients  immediately  after  However, where t h e ex-employee i s simply  16  to a l l other  can compete  freely  competitors  sole  acquired 1 5  to t h e  against  that  and n o n - f i d u c i a r y  the former  such  a  junior  employees,  employee  has  termination using  then  employer. ? 1  the Since  to the lower-level,  i t i s normally  received  of  information  i n t h e market,  o b l i g a t i o n s a r e n o r m a l l y argued with r e s p e c t  non-management prove  tries  faces  I f t h e employer can demonstrate t h a t an employee  these  i s available  implied  employer  Thus, t h e employee can be l i a b l e f o r damages r e s u l t i n g from the  soliciting  that  then  an  information.  i l l u s t r a t e s this point. had  that  special  d i f f i c u l t to confidential  information. There i s another dimension t o t h e employer's d i f f i c u l t i e s to  rely  upon the p r o t e c t i o n  of implied  obligations.  i n seeking  I f t h e employer has  89  not  thought  i t  necessary  to  use  express  covenants  to  protect  i n f o r m a t i o n , a c o u r t i s g o i n g t o be r i g h t f u l l y  s u s p i c i o u s about  claims  rights.  of  confidentiality  and  proprietary  If  his  subsequent  an  employer  possesses unique t e c h n o l o g y or unique  software, then the employer  must use  express  proprietary  from  covenants  to  separate  these  trade  g e n e r a l i n f o r m a t i o n or know-how t o be r e c e i v e d by the In  the  employer  case  employee.  & F i n i s h e r s L t d . v. Holloway  p o s s e s s e d a unique p r i n t i n g t e c h n o l o g y t h a t was  competitors.  The  ex-employee secret  of P r i n t e r s  secrets  from  employer taking  process.  employer  was  was  any  to  an  in  to prevent  the the  absence  of  ex-employee  18  e t . al.19 the  unknown t o o t h e r  injunction  documents or photographs  However,  unable  entitled  to prevent  that  express  an  d e s c r i b e d the covenants,  from p u t t i n g  the  h i s general  knowledge of the unique p r o c e s s a t the s e r v i c e of a c o m p e t i t o r . J.  the  As  Cross  stated: I f Mr. E l l i o t t i s r i g h t i n t h i n k i n g t h a t t h e r e are f e a t u r e s i n h i s p r o c e s s which can f a i r l y be r e g a r d e d as t r a d e s e c r e t s and which h i s employees w i l l i n e v i t a b l y c a r r y away w i t h them i n t h e i r heads, then the proper way f o r the p l a i n t i f f s t o p r o t e c t themselves would be by e x a c t i n g covenants from t h e i r employees r e s t r i c t i n g t h e i r f i e l d of a c t i v i t y a f t e r they have l e f t t h e i r employment, not by a s k i n g the c o u r t t o extend the general e q u i t a b l e d o c t r i n e to prevent breaking confidence beyond a l l r e a s o n a b l e bounds. This  drawn  comment r a i s e s  between  reading  of  the  covenants, retained  the  a in  a rather  extent  cases  of  can  obligations  do  extend  distinction  i s of  implied  and  d e r i v e the  non-fiduciary memory.21  dubious  to  limited  can  corollary  include value  fiduciary  principle  employee  The  distinction  use  is  matters  because  that  t o measure the s i g n i f i c a n c e  absent  whatever a  merely  is  sometimes  obligations.^ A  that,  any  fine  express  information i s  fiduciary  employee's  remembered.22  i t misdirects  form of the i n f o r m a t i o n r a t h e r than t o i t s c o n t e n t . is  that  attention  The c o r r e c t  of the i n f o r m a t i o n t o the p a r t i e s  This to  the  approach and  the  90  and  the c i r c u m s t a n c e s  employee.  The  under  memory  which  the i n f o r m a t i o n  distinction  ignores  was  these  received  by t h e  underlying  policy  concerns. However, the  t h e dubious  relative  weakness  information. are  the  distinction  of implied  The p r e c e d i n g  critical  way  regarding  obligations  discussion  to  move  points  beyond  memory  does  to protect out that  emphasize  the employer's  express  the rudimentary  covenants  and  uncertain  protection of implied o b l i g a t i o n s . There i s another weakness w i t h i m p l i e d basis  f o r implied  especially force.  obligations  can be  f o r computer i n d u s t r y The  obligations  initial  relationship.  i t  is  depend  c o n t r a c t u a l theory of confidence.  i n this  section  assume t o a r i s e  directly  incorrect  totally  upon  to  say  that  contract.  implied  Thus, i n I n t e r n a t i o n a l T o o l s  Justice  from any u n r e s t r a i n e d  approach  obligations.  preferred  from  that  and work  implied  the c o n t r a c t u a l  a wider MacKay  employee's certain  implied  cases  the  has been s u p p l a n t e d by t h e e q u i t a b l e concepts o f b r e a c h  to p r o f i t  Another  noted  an In  v. K o l l a r , the Ontario  of Appeal extended t h e o b l i g a t i o n s o f c o n f i d e n c e who stood  f o r employers,  2 3  However, obligations  troublesome  The t h e o r e t i c a l  employers who d e a l w i t h a u n i o n i z e d  paragraphs  are generally  obligations.  has been  first  i m p l i e d terms as b e i n g  b r e a c h o f employment  noted  o f t h e source t h e case  2 5  the Ontario of implied  authorities  (1886),  basis f o r  obligations.  that  2 4  Court o f Appeal  identified  a n c i l l a r y t o the c o n t r a c t and o b s e r v e d :  In P e a r c e v . F o s t e r  outsider  duties.  a r e j e c t i o n o f the c o n t r a c t u a l  I n Regina v . F u l l e r ,  statement  to a t h i r d party  Court  17 Q.B.D. 536 a t p .  539, L o r d Esher, M.R., s a i d : "The r u l e o f law i s , t h a t where a p e r s o n has e n t e r e d into the p o s i t i o n of s e r v a n t , i f he does a n y t h i n g i n c o m p a t i b l e w i t h t h e due or f a i t h f u l d i s c h a r g e o f h i s duty t o h i s master, t h e  Mr. the  91  l a t t e r has a r i g h t t o d i s m i s s him. The r e l a t i o n o f master and s e r v a n t i m p l i e s n e c e s s a r i l y t h a t the s e r v a n t s h a l l be i n a p o s i t i o n t o perform h i s duty duly and f a i t h f u l l y , and i f by h i s own a c t he p r e v e n t s h i m s e l f from doing so, t h e master may d i s m i s s him." Having r e g a r d t o these a u t h o r i t i e s , while I t h i n k t h e duty c o u l d be s a i d t o be an i m p l i e d term o f both t h e c o n t r a c t o f h i r i n g and t h e c o l l e c t i v e agreement, f o r the purpose o f d e t e r m i n i n g t h e j u r i s d i c t i o n o f t h e board, I p r e f e r t o s t a t e i t as a duty e s t a b l i s h e d by the common law t h a t i s i n h e r e n t i n and a t t a c h e s t o t h e r e l a t i o n s h i p o f master and s e r v a n t . The r e l a t i o n s h i p o f employer and employee b e i n g e s t a b l i s h e d , t h e duty attaches t o t h e r e l a t i o n s h i p as a matter o f law, whether t h e r e i s o r i s n o t a c o l l e c t i v e a g r e e m e n t . 26  Another more r e c e n t the  notion  law.  that  d e c i s i o n o f the Ontario  the implied  obligations  In Bee C h e m i c a l Co. v . P l a s t i c  express r e s t r i c t i v e three years. employer's  trade  a  are established  Paint  supports  by t h e common  and F i n i s h L t d . ,  certain  2 7  covenants were l i m i t e d t o a post-employment p e r i o d o f  The defendants had engaged i n a f l a g r a n t use o f t h e i r  t r y i n g t o apply issued  Court o f Appeal  secrets  throughout  the three  year  period.  o r extend t h e express l i m i t a t i o n p e r i o d ,  permanent  injunction  based  upon  the  former  Rather  t h e Court  employee's  than simply  implied  obligations: We do n o t t h i n k we have any power t o e n f o r c e t h e r e s t r i c t i o n s i n t h e agreements f o r any p e r i o d longer than i s s e t out i n t h e agreements, and t h a t P a r k e r , J . , ought not t o have done so. On t h e o t h e r hand, an i n j u n c t i o n a g a i n s t t h e defendants r e s t r a i n i n g them from v i o l a t i o n o f t h e i r common law o b l i g a t i o n s need not be s u b j e c t t o a t h r e e year o r any o t h e r l i m i t a t i o n . In our view t h a t i n j u n c t i o n should be p e r m a n e n t . 28  There a r e s e v e r a l important reasons f o r c o n s i d e r i n g implied remedies  obligations. depending  confidential obligations.  Firstly, whether  information 2 9  arises  there an  may  be  employee's  from  contract  t h e source o f t h e  different liability o r from  l i m i t a t i o n s on for  general  misusing equitable  92  Secondly, this  the contractual  protection  approach t o i m p l i e d  i s not a v a i l a b l e  employees a r e u n i o n i z e d .  t o an employer  This possible  conflict  terms may mean  whose arises  skilled  computer  from the Supreme  Court o f Canada's d e c i s i o n s i n McGavin T o a s t m a s t e r v . A i n s c o u g h earlier  there  3 0  and t h e  case o f S y n d i c a t C a t h o l i q u e des Employes de Magasins de Quebec,  I n c . v . Companie Paquet L t e e . It  that  can be argued t h a t  can be no r i g h t  relationship agreement.  32  relationships  except  3 1  these  or duties such  as  Supreme Court arising are  d e c i s i o n s have h e l d  o u t o f t h e employer/employee  spelled  out  in  the  collective  of c o u r s e , such a r a t i o would o n l y a p p l y t o those already  certified  that  under the c o l l e c t i v e  employment  bargaining  process.  T h i s argument i s based upon c e r t a i n statements o f t h e Supreme Court t o t h e effect  that  agreement  the common  comes  into  law i s i r r e l e v a n t  force  between  once  a collective  t h e employer  bargaining  and t h e u n i o n .  example, i n S y n d i c a t C a t h o l i q u e , Judson J . i n the m a j o r i t y d e c i s i o n  For stated  that: There i s no room l e f t f o r p r i v a t e n e g o t i a t i o n between employer and employee. C e r t a i n l y t o the e x t e n t o f t h e m a t t e r s covered by t h e c o l l e c t i v e agreement, freedom o f c o n t r a c t between master and i n d i v i d u a l servant i s a b r o g a t e d . The c o l l e c t i v e agreement t e l l s t h e employer on what terms he must i n t h e f u t u r e conduct h i s master and s e r v a n t r e l a t i o n s . 3 3  Then l a t e r L a s k i n C.J.C., i n the McGavin T o a s t m a s t e r d e c i s i o n The r e a l i t y i s , and has been f o r many y e a r s now throughout Canada, t h a t i n d i v i d u a l r e l a t i o n s h i p s as between employer and employee have meaning o n l y a t the h i r i n g stage and even then t h e r e a r e q u a l i f i c a t i o n s which a r i s e by r e a s o n o f union s e c u r i t y c l a u s e s i n c o l l e c t i v e agreements. The common law as i t a p p l i e s t o i n d i v i d u a l employment c o n t r a c t s i s no l o n g e r r e l e v a n t t o employer-employee r e l a t i o n s governed by a c o l l e c t i v e agreement which, as t h e one i n v o l v e d here, d e a l s w i t h d i s c h a r g e , t e r m i n a t i o n o f employment, severance pay and a h o s t o f o t h e r m a t t e r s t h a t have been n e g o t i a t e d between union and company as the p r i n c i p a l parties thereto. 3 4  stated:  93  Admittedly, specifically prohibit  these  covered  were  i n the c o l l e c t i v e  an i m p l i e d  However, the cases  statements  primarily  of t h e c o n t r a c t  do r e v e a l a p o t e n t i a l  legal  who d e a l s w i t h u n i o n i z e d i n f o r m a t i o n workers.  agreement of n o n - d i s c l o s u r e collective As  have g r e a t  with  problem  o f employment.  f o r any employer  C e r t a i n l y , t h e cases p o i n t  difficulty  i n e n f o r c i n g an  agreement.  a side  reality  Columbia  note,  i t i s suggested  that  t h e problems  of information  are s t a f f e d  the  would  i n the majority  by  i n c l u d e t h e Insurance  unionized  employees.  C o r p o r a t i o n o f B.C  Hydro, B.C.Systems C o r p o r a t i o n , and B.C. Telephone.  October main  obvious.  i s t h a t many o f t h e l a r g e s t computer i n s t a l l a t i o n s i n B r i t i s h  installations B.C.  express  s i g n e d by an i n d i v i d u a l employee o u t s i d e o f a  p r o t e c t i o n i n t h e u n i o n i z e d s e t t i n g a r e wider than i s immediately The  items  agreement, and t h e r e f o r e might n o t  o b l i g a t i o n as p a r t  out t h a t any employer w i l l  dealing  1983 t h e r e computer  were approximately installation  40 employees  a t B.C.Hydro.  (I.C.B.C.),  For example, i n  engaged  Thirty  Such  i n operating  of these  employees  were members of t h e O f f i c e and T e c h n i c a l Employees Union (O.T.E.U.).35 In summary, an employer implied  i n t h e computer  i n d u s t r y can r e l y  upon t h e  o b l i g a t i o n s of an employee f o r a degree o f l e g a l p r o t e c t i o n , but  such p r o t e c t i o n i s rudimentary.  B.  Fiduciary Obligations: The  fiduciary  concept  a comprehensive d e f i n i t i o n .  covers  t o o many f a c t u a l s i t u a t i o n s t o be g i v e n  Instead of looking for a r i g i d  classification  system, t h e c o u r t s examine t h e general characteristics the power t o a c t w i t h  of f i d u c i a r y relationships: r e s p e c t t o t h e p r o p e r t y of  94  another; t h e r e p o s i n g o f t r u s t , and r e l i a n c e ; t h e independent power o f one i n d i v i d u a l t o b i n d another t o l e g a l t r a n s a c t i o n s ; t h e r e l a t i v e power i n h e r e n t i n the nature o f t h e r e l a t i o n s h i p s themselves and t h e a b i l i t y of t h e p a r t i e s t o look out f o r t h e i r own i n t e r e s t s . 3 6  Thus,  the r e l a t i o n s h i p s that  limited  i n number.  fiduciary  Historically,  relationship  promoter-company, co-partner. possible  between  fiduciaries.  this  classified  law has  list  does  not exhaust reveal  a r e not  recognized  a  director-company,  principal-agent,  and  partner-  the categories of that  a relationship  elements o f t r u s t , r e l i a n c e and r e l a t i v e power, t h e  c o u r t can impose a f i d u c i a r y o b l i g a t i o n . clearly  fiduciary  trustee-beneficiary,  I f the circumstances  c o n t a i n s t h e necessary  as  t h e common  solicitor-client,  However,  3 7  can be  imposed by t h e Supreme Court  Such r e s p o n s i b i l i t i e s have been  o f Canada upon  a limited  number o f  m a n a g e r i a l employees. In Canadian A e r o S e r v i c e L t d . v . O ' M a l l e y , he  then was) r e c o g n i z e d  reliance  upon  employee  then  the  position  employees.  limited  of confidential  of conflict  J u s t i c e L a s k i n looked  with  such  to  the  c o n f i d e n c e and  circumstances  implied  occur,  t o compete  regulate  against  h i s conduct  obligation  t h e employer.  of  against As a  so as n o t t o be i n a  t h e i n t e r e s t s o f t h e employer.  Specifically,  a t t h e defendants' r o l e i n the o r g a n i z a t i o n :  [T]hey a c t e d i n those p o s i t i o n s (as p r e s i d e n t and v i c e p r e s i d e n t ) and t h e i r remuneration and r e s p o n s i b i l i t i e s v e r i f i e d t h e i r s t a t u s as s e n i o r o f f i c e r s o f Canaero. They were "top management" and n o t mere employees whose duty t o t h e i r employer, u n l e s s e n l a r g e d by c o n t r a c t , c o n s i s t e d o n l y o f r e s p e c t f o r t r a d e s e c r e t s and f o r confidentiality o f customer lists. Theirs was a l a r g e r , more e x a c t i n g duty which, u n l e s s m o d i f i e d by s t a t u t e o r by c o n t r a c t (and t h e r e i s n o t h i n g o f t h i s s o r t here) , was s i m i l a r t o t h a t owed t o a c o r p o r a t e employer by i t s d i r e c t o r s . 3 9  the  No l o n g e r a r e  i n f o r m a t i o n , o r t o the r e s t r i c t i o n  information  t h e employee must  When  trust,  obligations of a f i d u c i a r y .  obligations  confidential  fiduciary,  t h a t employers impose great  has t h e h i g h e r  employee's  non-disclosure using  certain  Mr. J u s t i c e L a s k i n (as  3 8  95  Laskin  then d e s c r i b e d  the  defendants' p o s i t i o n s as more a k i n  to  the  f i d u c i a r y r o l e o f agents r a t h e r than t h a t o f mere employees: A l t h o u g h they were s u b j e c t to supervision of the o f f i c e r s o f the c o n t r o l l i n g company, t h e i r p o s i t i o n s as s e n i o r o f f i c e r s of a s u b s i d i a r y , which was a working o r g a n i z a t i o n , charged them w i t h i n i t i a t i v e s and with r e s p o n s i b i l i t i e s f a r removed from the o b e d i e n t r o l e of servants. I t f o l l o w s t h a t O'Malley and Z a r z y c k i stood i n a fiduciary relationship to Canaero, which in its g e n e r a l i t y betokens l o y a l t y , good f a i t h and avoidance o f a c o n f l i c t of duty and s e l f - i n t e r e s t . Descending from the g e n e r a l i t y , the f i d u c i a r y r e l a t i o n s h i p goes a t least this far: a d i r e c t o r or a senior o f f i c e r l i k e O'Malley or Z a r z y c k i i s p r e c l u d e d from o b t a i n i n g f o r h i m s e l f , e i t h e r s e c r e t l y or without the a p p r o v a l of the company (which would have t o be p r o p e r l y m a n i f e s t e d upon f u l l d i s c l o s u r e of the f a c t s ) , any p r o p e r t y or b u s i n e s s advantage e i t h e r b e l o n g i n g to the company o r f o r which i t has been n e g o t i a t i n g ; and e s p e c i a l l y i s t h i s so where the d i r e c t o r o r o f f i c e r i s a p a r t i c i p a n t i n the n e g o t i a t i o n s on b e h a l f of the company. 40  The  first  paragraph  distinctions.  First,  fiduciary  and  express  quotation  describes  restrictive  by  above  sets  i t r e i n f o r c e s the obligations  the  of  out  separation  contract" , 4 1  several  important  between the  employees.  d i f f e r e n c e between i m p l i e d  However, J u s t i c e L a s k i n was "enlarged  cited  In and  substance,  clear  reference  to  the  the  fiduciary duties.  c a r e f u l to note t h a t these c a t e g o r i e s a  implied,  use  could  be  of  express  title  f o r an  The  actual  are  better  covenants.  Second, the  passage p o i n t s  employee does not responsibilities  convert and  him  out into  initiatives  that a glossy impressive an  instant  assigned  to  fiduciary. an  4 2  employee  i n d i c a t o r s of f i d u c i a r y s t a t u s than the o r g a n i z a t i o n a l rank or t i t l e .  The  result  and  i s t h a t any  confidence,  can  now  s e n i o r employee, i n s p e c i a l c i r c u m s t a n c e s of t r u s t be  found t o be  a fiduciary.  f i d u c i a r y must not be a p p l i e d r i g i d l y , but can  extend beyond the end  o f the  employment  The  classification  as  a  once a c h i e v e d , such o b l i g a t i o n s contract:  96  In h o l d i n g t h a t on the f a c t s found by the t r i a l Judge, t h e r e was a breach of f i d u c i a r y duty by the p r e s i d e n t and v i c e - p r e s i d e n t which s u r v i v e d t h e i r r e s i g n a t i o n s I am not t o be taken as l a y i n g down any r u l e of l i a b i l i t y to be read as i f i t were a s t a t u t e . The g e n e r a l standards of l o y a l t y , good f a i t h and avoidance of a c o n f l i c t of duty and s e l f - i n t e r e s t t o which the conduct of a d i r e c t o r or s e n i o r o f f i c e r must conform, must be t e s t e d i n each case by many f a c t o r s which i t would be r e c k l e s s t o attempt to enumerate e x h a u s t i v e l y . Among them are the f a c t o r s of p o s i t i o n o r o f f i c e h e l d , t h e nature of the c o r p o r a t e o p p o r t u n i t y , i t s r i p e n e s s , i t s s p e c i f i c n e s s and the d i r e c t o r ' s or managerial o f f i c e r ' s r e l a t i o n t o i t , the mount of knowledge possessed, the c i r c u m s t a n c e s i n which i t was o b t a i n e d and whether i t was s p e c i a l o r , indeed, even p r i v a t e , the f a c t o r o f time i n the c o n t i n u a t i o n of f i d u c i a r y duty where the alleged breach occurs after termination of the r e l a t i o n s h i p with the company, and the c i r c u m s t a n c e s under which the r e l a t i o n s h i p was t e r m i n a t e d , t h a t i s whether by r e t i r e m e n t o r r e s i g n a t i o n o r discharge.43 A f t e r t h e Canaero d e c i s i o n classified  s e n i o r employees  been c a u t i o u s t o a v o i d any  as  i n 1973,  a number of Canadian  fiduciaries.44  unreasonable  However, the  cases  have  c o u r t s have  e x t e n s i o n of the concept.  As i n  A l b e r t s v. Mountjoy,45 the e m p l o y e e / f i d u c i a r y i s u s u a l l y a t r u s t e d g e n e r a l manager or A  lower  s e n i o r e x e c u t i v e of l o n g s e r v i c e  level  employee  i s not  with the c o r p o r a t e  c o n s i d e r e d t o be  a  fiduciary,  j u n i o r employee p a r t i c i p a t e s i n the breach of the f i d u c i a r y C.J.H.C.  (as  he  then  f i d u c i a r y o b l i g a t i o n s as  was)  noted  the  difference  employer. unless  duties.  between  In t h i s case the defendant Mount joy stood i n a f i d u c i a r y r e l a t i o n s h i p t o the p l a i n t i f f and t h e r e was a c c o r d i n g l y imposed upon him a " l a r g e r , more e x a c t i n g duty" than a duty simply to respect his former employer's t r a d e s e c r e t s and the c o n f i d e n t i a l i t y o f i t s customer l i s t s . As w e l l , where a defendant o f lower rank such as t h e defendant B u t t might have c l a i m e d immunity from the d u t i e s a t t a c h i n g t o a f i d u c i a r y , he l o s t t h a t advantage i n j o i n i n g w i t h Mountjoy i n the new b u s i n e s s v e n t u r e which s u c c e s s f u l l y d i v e r t e d the b u s i n e s s o p p o r t u n i t y of his former employer and fixed him with the same f i d u c i a r y duty as M o u n t j o y . 46  Estey  implied  follows:  the  and  97  The lower  c o u r t s seem to be aware t h a t w i d e l y e x t e n d i n g  ranking  Burns & Co. fiduciary  employees  would  cause  other  v. Gratham I n d u s t r i e s L t d . ,  status  for  the  defendant  4 7  policy  Mr.  fiduciary duties to  problems.  In  Nelson  J u s t i c e Hughes r e j e c t e d the  employees,  and  then  urged  care  in  a p p l y i n g the Canaero d e c i s i o n : T h i s case has been w i d e l y f o l l o w e d and has gone f a r to s t i m u l a t e a tendency which can be d i s c e r n e d i n r e c e n t d e c i s i o n s to narrow the ground on which an employee can s a f e l y l e a v e h i s job and a t the o t h e r end of the s c a l e upon which an employer can safely discharge his servant. The l a t t e r . has been in d i f f i c u l t i e s f o r a l o n g e r time than the former because o f the r a p i d l y growing p o p u l a r i t y of a c t i o n s f o r u n j u s t dismissal. The p r i n c i p l e s of the marketplace, the laws of supply and demand, freedom of competition and freedom o f a c t i o n g e n e r a l l y are always i n r e t r e a t b e f o r e measures taken and d o c t r i n e s developed i n the name o f s o c i a l j u s t i c e , and i t may be s a i d w i t h some c o n f i d e n c e t h a t i f the t e n d e n c i e s I have r e f e r r e d to p e r s i s t both master and s e r v a n t w i l l be l o c k e d i n t o an e n d u r i n g r e l a t i o n s h i p from which they can escape o n l y a t heavy c o s t . 4 8  Other commentators have c r i t i c i z e d the Canaero d e c i s i o n as l e a d i n g to an  emerging  "unfairness p r i n c i p l e "  f i d u c i a r y employees. so  vaguely  guidance  defined  except  The and  that  t o be  complaint  must  refrain  employees from  unfair  the o b j e c t i v i t y o f these c r i t i c s i s q u e s t i o n a b l e . In  spite  obligations industry.  are A  of  these  clearly  chief  judicial  relevant  programmer  the  o b l i g a t i o n s of  i s made t h a t f i d u c i a r y o b l i g a t i o n s are  subjective that  they  a p p l i e d to  to  and  i n charge of  left  without  conduct.  4 9  However,  cautions,  fiduciary  employees a major  in  the  software  computer  development  p r o j e c t meets many o f the g e n e r a l c h a r a c t e r i s t i c s o f a f i d u c i a r y . project  ordinarily  corporate  i s conducted  undertaking  and  is  i n confidence, usually  of  any  5 0  critical  skilled  are  i s normally  great  employer's c o m p e t i t i v e p o s i t i o n i n the marketplace.  an  significance  Such a expensive to  Even though the  the chief  98  programmer  might  important  role  the  of  lack  employees  not  be  i n the  the  senior  research  traditional  in  a  and  status.  industry  fiduciary the key  concept  will  the  probably  business s i g n i f i c a n c e of  of  management  development e f f o r t At  c h a r a c t e r i s t i c s of a f i d u c i a r y . and  employee  present do  his  more than o f f s e t s  time,  not  rank,  the  majority  satisfy  the  of  general  However, as the c o n f i d e n t i a l i t y , expense,  software development s t e a d i l y i n c r e a s e s ,  r a i s e the  level  of  legal  obligations placed  the upon  employees.  In  summary,  confidentiality  and  category  of  face  serious  two  fiduciary  implied  discussions  good f a i t h  First,  status  shown  depends  However,  computer  i r T r e l y i n g upon the  how  does  be  that  impose . h i g h e r  upon employees than those  obligations.  employee w i l l  has  obligations  difficulties  theory.  highly-skilled  fiduciary  fiduciary  employer  classified  the  upon  an  case  a  as  law  complex  required  industry  protection know when  a fiduciary?  is  standards  still  variety  of  of  by  the  employers offered  by  a particular The  preceding  evolving,  and  subjective  that  factors.  Second, even i f an employee i s deemed to be a f i d u c i a r y , the employer must still  prove  p a s s e d on  the  existence  and  limits  to the  employee.  In o t h e r  The  employment i n f o r m a t i o n  real  solution  confidential  is  information  i n the employment  that  from the the  has  confidential  initially  information  employer  should drafted  not  f a i l e d to s e p a r a t e  alleged confidential  through,carefully  contract.  the  words, f i d u c i a r y o b l i g a t i o n s are  a r e t r o a c t i v e s o l u t i o n to an employer who general  of  have  information.  protected  restrictive  the  covenants  99  C.  F i d u c i a r y O b l i g a t i o n s and the B r i t i s h Columbia The  p r e c e d i n g d i s c u s s i o n p o i n t s out  employees who  are i n t i m a t e l y  p r o j e c t are l i k e l y  the  that  B.C.  a  required legal  software  widening  gap  f o r the  theory.  prosper, avoid  have a f i d u c i a r y  of  development  This proposition  raises  In  effect,  between this  the  this  analysis  industrial  fledgling  strategies  i n d u s t r y and  software  will  conclude that  are  the a s s o c i a t e d  i n d u s t r y i s t o grow  and  of  interest  effort. f o r the  Such key  activities  employees  and  raise  and many  managers  who  status.  an overview  required.  highly-skilled  i n f o r m a t i o n , engage i n c o o p e r a t i v e marketing,  duplication  conflicts  First,  of  the  w i t h a major software  summary, i f the B.C.  i t must share  unresolved  is  exists  Industry  i s s u e s when i t i s c o n s i d e r e d i n the c o n t e x t  industry.  success  In  wasteful  t h a t many of  t o be c o n s i d e r e d f i d u c i a r i e s .  a number o f u n r e s o l v e d p o l i c y of  connected  Software  of the B.C.  i n d u s t r y and the wider  software market  A r e c e n t r e p o r t by Touche Ross & Co. p r o v i d e s the necessary  data.51  In  North  America,  expanding  a t a dramatic  per annum throughout  rate.  a l l segments  of  the  software  market  are  Growth i s p r e d i c t e d t o be i n excess of  the decade of the  1980's.^  30%  2  The Canadian market i s expected t o grow from an e s t i m a t e d $608 m i l l i o n i n 1981, (the most r e c e n t y e a r f o r which data was a v a i l a b l e ) t o $2.3 b i l l i o n i n 1986, an average annual growth of 31 percent. The American market annual growth r a t e d u r i n g t h i s p e r i o d has been f o r e c a s t a t 34 p e r c e n t - from $3.7 b i l l i o n (U.S.) i n 1981 t o $16.2 b i l l i o n (U.S.) i n 1986. The American f i g u r e s exclude custom software which, i n 1981, was r e p o r t e d t o be $1.5 b i l l i o n (U.S.). Thus, the t o t a l N o r t h American market, which i n 1981 was l e s s t h a t $6 b i l l i o n , (U.S.), i s e s t i m a t e d t o be over $20 b i l l i o n (U.S.) by 1986.53 However, their  revenue  minimal States.  B.C.  software  (approximately  penetration 5 4  of  suppliers 80%  markets  of in  rely  mostly  gross Eastern  upon B.C.  revenues), Canada  and  and  in  markets f o r have the  only  a  United  100  At  the  end  t y p i c a l B.C. revenues  of  the  r e s e a r c h r e p o r t , Touch Ross & Co.  software s u p p l i e r .  More than h a l f  of l e s s than $100,000 i n 1982,  summarized  the  of the companies r e p o r t e d  and employed l e s s than 5 people.55  Such a c o r p o r a t i o n t y p i c a l l y : i s managed by a p r o p r i e t o r or s m a l l backgrounds and i n t e r e s t s are p r i m a r i l y  group of p a r t n e r s technical;  l a c k s the marketing knowledge and e x p e r t i s e r e q u i r e d s t r o n g l y i n the p a c k a g e - o r i e n t e d markets of the 80's;  whose  t o compete  does not have s u f f i c i e n t f i n a n c e s or borrowing power to i n v e s t h e a v i l y e i t h e r i n e x t e n s i v e p r o d u c t development or i n marketing; has inadequate u n d e r s t a n d i n g of how t o p r e p a r e and p r e s e n t a b u s i n e s s p l a n which w i l l i n f l u e n c e p r o s p e c t i v e sources of funds f o r p r o d u c t and marketing development; o f t e n i n v e s t s time i n d e v e l o p i n g p r o d u c t s which are s i m i l a r o t h e r s a l r e a d y developed which have c o m p e t i t i v e advantages; emphasizes d o i n g functions.56 This d e s c r i p t i o n number of assumptions managerial means  expertise  that  legal  r a r e l y make use such  part  of  often  of the t y p i c a l about  to  protection  with  exclusion  covenants  the  First,  pronounced  i s generally  are  of  software s u p p l i e r i n B.C.  legal protection.  combined  the  initially  ignored.57  executed  leads to a  orientation  such c o r p o r a t i o n s agreements. by  the  Even i f  parties,  the  do not s p e c i f i c a l l y d e f i n e c o n f i d e n t i a l i n f o r m a t i o n , and are n o t an  ongoing  program  to  maintain  the  s e c r e c y of  the i n f o r m a t i o n .  T h i s l a c k of r e g a r d f o r express covenants means t h a t f i d u c i a r y then  managing  the g e n e r a l l a c k of  technical  of n o n - d i s c l o s u r e o r non-competition  restrictive  covenants  functions,  to  become  a  more  important  legal  protection  for  the  obligations  B.C.  software  supplier. A second assumption companies are l i k e l y organization  style  i s t h a t many of the i n d i v i d u a l s i n v o l v e d i n these  t o be  classified  i s egalitarian  as f i d u c i a r i e s .  rather  First,  than h i e r a r c h i c a l .  the g e n e r a l Information  101  is  shared  freely  i n v o l v e d , r a t h e r than  access t o  c o n f i d e n t i a l i n f o r m a t i o n b e i n g l i m i t e d t o a need-to-know b a s i s .  Important  strategic  by  consensus,  rather  than  are l i k e l y  t o have  and m a n a g e r s / d i r e c t o r s .  multiple roles The degree  the status of f i d u c i a r y  of confidence,  Initially,  the f i d u c i a r y  restrictive  These  licensing  agreements  confidence.58  single  transfer  software  by t h i s  software  under  and  individuals?  i n d u s t r y emphasis  f o r the d i s t r i b u t i o n  to users  trust,  classification?  s t a t u s i s c o n s i s t e n t with  agreements  employees/  fiduciaries.  an a p p r o p r i a t e one f o r such  What a r e t h e c o n f l i c t s i n i n t e r e s t produced  on  one  as s k i l l e d  r e l i a n c e p l a c e d upon such i n d i v i d u a l s may make them i n t o Is  by  T h i s emphasis on a p a r t n e r s h i p s t y l e of o p e r a t i o n means t h a t  key p e o p l e  officers  the i n d i v i d u a l s  d e c i s i o n s a r e made  individual. the  among  strict  of  software.  obligations of  s u p p l i e r s a r e t h e r e f o r e engaged i n t h e b u s i n e s s of  c o n f i d e n c e a r e complimentary t o these software t r a n s f e r arrangements. However, broader survival list  fiduciary  industrial  obligations  strategies  that  o f t h e B.C. I n d u s t r y .  of possible strategies.  are must  difficult be  to  undertaken  reconcile  with  to  the  The Touche Ross & Co. r e p o r t i s o l a t e d a  As w e l l ,  i t should  be remembered t h a t t h e  r e p o r t was commissioned j o i n t l y by t h e f e d e r a l and p r o v i n c i a l and  will  undoubtedly  remedial l i s t  be  assure  considered  i n setting  industrial  governments, policy.  The  included, i n part:  .  Development o f an I n d u s t r y M a r k e t i n g A s s o c i a t i o n  .  Networking Agreements Between S u p p l i e r s These i n f o r m a l agreements would d e a l w i t h t h e problems o f s c a r c e r e s o u r c e s and access t o markets by encouraging c o o p e r a t i o n i n p r o d u c t development and i n t h e p r o v i s i o n o f s u p p o r t s e r v i c e s . O r g a n i z a t i o n of I n d u s t r y - w i d e T r a i n i n g A c t i v i t i e s Collection and D i s s e m i n a t i o n Market Developments  of  Information  on  R a t i o n a l i z a t i o n o f t h e I n d u s t r y Through Mergers59  Products  and  102  I t i s n o t suggested t h a t an i n d i v i d u a l ' s f i d u c i a r y o b l i g a t i o n s cannot be  r e c o n c i l e d with t h i s w e l l i n t e n t i o n e d i n d u s t r i a l a c t i o n p l a n .  the  action plan  and  p r o d u c t development, and the t r a n s f e r of i n f o r m a t i o n  This  basic  information For  emphasizes s h a r i n g  premise  that  of information  software  companies  example,  consider  altruistic  the s k i l l e d  instructor  software  programs  fiduciary  obligations?  Similarily,  and  with  discuss  without  remembered  and  companies  His corporate  transfer  the  details and  duplicate  of  these  still  each  of information.  are a l o g i c a l  confidential  not  other's  breach h i s  development  Networking  s o l u t i o n to avoid  How can  agreements  t h i s waste o f  supplier  openly  d e t a i l s of h i s company's development and m a r k e t i n g  compromising  these  employer  i t s software products.  But how can t h e manager of a software  the i n t i m a t e  programs  share  mergers.  e x p e r i e n c e d programmer who wishes  programmers,  of s h a r i n g  associations  resources.  discuss  other  software  due t o a l a c k  marketing  scarce  through  i s n o t always c o n s i s t e n t with b a s i c f i d u c i a r y o b l i g a t i o n s .  depends upon c o n f i d e n t i a l i t y t o p r o t e c t  efforts  f o r t r a i n i n g , marketing  should  to i n s t r u c t i n an i n d u s t r y - w i d e t r a i n i n g program.  the  However,  his fiduciary  discussions  will  be  with  obligations?  I t must  competitors  in  the  be  same  industry. Again,  i t i s n o t suggested  Once t h e problem i s i d e n t i f i e d , employer's  consent  Confidentiality control  to  the  agreements  the release  that  these c o n f l i c t s  are i r r e c o n c i l a b l e .  t h e i n d i v i d u a l employee c o u l d  necessary  disclosure  and s e c u r i t y  of t h e i n f o r m a t i o n  in a  arrangements  to a specific  obtain the  limited  could  be  forum.  used  to  group o f o u t s i d e r s .  Many such v a r i a t i o n s o f t h i s nature c o u l d be used t o r e s o l v e t h e c o n f l i c t .  103  However,  it  is  suggested  that  such  i n d u s t r y - w i d e u n d e r t a k i n g i s improbable. using  non-disclosure  unlikely  that  the  The  agreements to p r o t e c t  more  remote,  a  external  sophisticated suppliers  are  approach not  presently  themselves i n t e r n a l l y .  threats  of  to  i t is  fiduciary conflicts  would change the p r e s e n t p r a c t i c e . Thus, the strategies  gap  between  for legal protection  elimination  of  duplicate  p r o d u c t s , m a r k e t i n g and arrangements involved  the  meet  and  t h a t many o f these key  training.  At  the the  obligations  obligations  of  employees w i l l  f i d u c i a r y o b l i g a t i o n s due  for  i s widening.  e f f o r t and  fiduciary  strict  strategies  i n d u s t r i a l growth and  the  Industry s u r v i v a l c a l l s  sharing  of  vital  information  same time r e s t r i c t i v e demand  that  the  confidentiality. i n c r e a s i n g l y be  to t h e i r ignorance of the  The  key  on  licensing employees  conclusion  i n breach of  law.  for  is  their  104  FOOTNOTES:  1.  Law Reform  Commission  CHAPTER IV  of British  Columbia, Report  on Covenants  in  R e s t r a i n t of Trade (1984) a t p. 5. 2.  _Id.  a t p . 34-36  restrictive arguably thereby  outlining  the current  covenant i s u n e n f o r c e a b l e .  provide  a court with  position  The t h e o r y  a choice  i n law when a of severance  can  o f covenants t o e n f o r c e and  a v o i d l e a v i n g the covenantor t o t a l l y  unfettered.  See p. 63-  69 f o r a d i s c u s s i o n of o v e r r e a c h i n g and severance. 3.  Chapter V a t p. 115-17.  4.  ^ d . ; see a l s o (2d)  Kent Drugs L t d .  260 (Man.  (1984) 56 A.R.  C.A.);  Monarch  [1954] 3 D.L.R., a t 621  6.  I d . , a t 625.  7.  Robb  v . Green  Services  L t d . v. Houlding  [1895]  (B.C.OA.).  2 Q.B.  315,  a t 320;  Reliance  Cordage Co. v .  (1969) 5 D.L.R. (3d) 297, a t 312-12 (Sask. Q.B.); Guyer O i l  Co. e t a l . v. F u l t o n e t a l . affirmed  Messenger  147 ( A l t a . C t . o f Q.B.).  5.  Hetterly  v . Kronson e t . a l . (1983) 78 C.P.R.  [1977]  [1976] 5 W.W.R. 356, a t 367  (Sask. O A . )  2 S.C.R. 791; I n v e s t o r s S y n d i c a t e L t d . v. V e r s a t i l e  Investments L t d . (1982) 126 D.L.R. (3d) 451, a t 467-8 (Ont. H.C.). 8.  Saltman E n g i n e e r i n g v. Campbell (1948) 65 R.P.C. 203, a t 211-13.  9.  Robin-Nodwell v. Foremost Developments S.O);  Guyer O i l Co.  v.Fulton  (1966)  52 C.P.R. 244 ( A l t a .  [1976] 5 W.W.R. 356,  a t 367  (Sask.  OA.) . 10.  Supra., note (2d)  7; Genesta Mfg. L t d . v . Babey  94 (Ont. H . C ) ;  e t . a l . (1984) 48 O.R.  Re Wosk's L t d . and Teamsters U n i o n L o c a l 351  (1984) 13 L.A.C. (3d) 64 (B.C.).  105  11.  H i v a c , L t d . v. Park Royal  Scientific  Instruments L t d . [1946]  1  All  E.R. 350 ( O A . ) . 12.  [1916] 1 A.C. 688 (H.L.).  13.  I d . a t 704.  14.  I d . a t 705.  15.  Monarch  Messengers  Services  L t d . v. H o u l d i n g  (1984)  56  A.R.  147  ( A l t a . C t . o f Q.B.) a t p. 152. 16.  Id., a t p. 153.  17.  Kent Drugs L t d . v . Kronson (1983) 78 C.P.R. (2d) 260 (Man. O A . ) .  18.  Chapter  V  a t p.  137-141  discusses  the d i s t i n c t i o n  between  trade  s e c r e t s and know-how. 19.  [1964] 3 A l l E.R. 731.  20.  ^ d . a t p. 736.  21.  DCF Systems L t d . v. Gellman Osier,  J . o f the O n t a r i o  absence  of  restrictive  (1979)  41 C.P.R.  High C o u r t  states  covenants,  ...  (2d) 145 a t p. 157.  that  have  employees a  right  " i n the in  such  c i r c u m s t a n c e s t o make use o f i n f o r m a t i o n they have r e t a i n e d i n t h e i r memories r e g a r d i n g former c l i e n t s o r customers". 22.  N e l s o n Burns & Co. L t d . v . Gratham I n d u s t r i e s L t d . (1984) 150 D.L.R. (3d)  (Ont. H.C.)  D.L.R.  a t p.  711  citing  (3d) 108 as a u t h o r i t y  fiduciary  Alberts  f o r imposing  v. Mount joy  (1977)  confidentiality  upon  79 a  f o r matters r e t a i n e d i n memory.  23.  Supra., n o t e s 5 and 6.  24.  (1968) 67 D.L.R.  (2d) 386  289. 25.  [1968] 2 O.R. 564 ( O A . ) .  26.  I d . , a t 567.  (Ont. O A . )  varying  56  D.L.R.  (2d),  at  106  27.  (1979) 47 C.P.R. ( 2 d ) , a t 133 d i s m i s s e d on November 6,  (Ont. C.A.)  Leave t o appeal t o S.C.C.  1979.  28.  I d . , a t 135.  29.  T h i s c l a s s i f i c a t i o n i s s u e w i l l be d i s c u s s e d i n Chapter VI on  Critical  Remedies f o r Breach of An Employee's O b l i g a t i o n s . 30.  (1975) 54 D.L.R. (3d) 1  (S.C.C).  31.  (1959) 18 D.L.R. (2d) 346.  32.  For example,  see R o b i t a i l l e  v. Vancouver Hockey C l u b L t d . (1979) 19  B.CL.R. 158, a t p. 167 ( B . C S . C ) . 33.  Supra., note 31, a t 353-54.  34.  Supra., note 30, a t 6.  35.  As p e r i n t e r v i e w with Mr.Ken Wright, S e c u r i t y O f f i c e r , B.C.  Hydro on  a tour of the computer i n s t a l l a t i o n a t 970 B u r r a r d S t r e e t , Vancouver, B. C.. 36.  Fridman, G.H.L., McLeod J.G.  R e s t i t u t i o n , The C a r s w e l l Company L t d .  Toronto, 1982 a t p. 569. 37.  Id. , a t 568-69.  38.  (1974) 40 D.L.R. (3d), a t 371.  39.  I d . , a t 381.  40.  I d . , a t 381-82.  41.  Supra., Note 3 9.  42.  Kent Drugs L t d . v. Kronson  (1983) 78 C.P.R. (2d) 260  a t 265  (Man.  C. A . ) . 42a. For an updated summary o f the a u t h o r i t i e s on t h i s Ltd. 621  v. B u l k S t e e l and Salvage L t d . (No. 2) (Ont. H.C)  a t p.  625-6  stating  that  point  see B. Love  (1982) 141 D.L.R. (3d) a  fiduciary  cannot  use  c o n f i d e n t i a l i n f o r m a t i o n f o r h i s own b e n e f i t a f t e r the t e r m i n a t i o n o f employment.  107  43.  Supra., note 38 a t 391.  44.  W.J. C h r i s t i e & Co. v. Green e t a l . (1981) 121 D.L.R. (3d), (Man.  C.A.);  Schauenburg  Industries  L t d . v . Borowski  at  (1980)  D.L.R. (3d), a t 701 ( O n t . H . C ) ; 309925 O n t a r i o L t d . v. T y r r e l l 127  472 101  (1982)  D.L.R. (3d), a t 99 (Ont. H . C ) .  45.  (1978) 79 D.L.R. (3d), a t 108 (Ont. H . C ) .  46.  I d . a t page 119.  47.  (1984) 150 D.L.R. (3d), a t 692 (Ont. H . C ) .  48.  I d . , a t 711.  49.  Atkinson,  P.Y.,  Employees  - The Emerging  Spencer,  R.A.  Fiduciary  "Unfairness"  Duties  Owed  Principle  by  (1983)  Departing 8  C.B.L.J.  501. 50.  The o b j e c t i v i t y o f t h e a u t h o r s they r e l y  upon the d i s c u s s i o n  Industries  i s questionable  L t d . e t . a l . (1984)  their  that  success  motive  150 D.L.R.  fail  accompanying personal  denied  costs  i n the l i t i g a t i o n .  t o a moral  authors  third  the c o u r t  state  patent  corporation.  co-defendant  that  principle.  The a u t h o r s  t o two defendants i n s p i t e o f  The a u t h o r s a t t r i b u t e the c o u r t ' s  the p l a i n t i f f  infringement  action  The p l a i n t i f f  on a breach  v . Gratham  (3d) 692 a s t h e prime  d i s t a s t e f o r the defendant's  to  a t p. 510-12  i n N e l s o n Burns & Co. L t d .  example o f an ' i n c o r r e c t l y a p p l i e d u n f a i r n e s s conclude  since  legal  was  against  was a l s o  of r e s t r i c t i v e  conduct.  successful the  The  i n an  defendant's  successful  against  a  covenant.  Thus, t h e  T r i a l Judge e x e r c i s e d h i s d i s c r e t i o n and r e f u s e d c o s t s t o a l l p a r t i e s except state  on t h e p a t e n t that  described  P.Y.  infringement  Atkinson  was  issue.  the c o u n s e l  i n t h e a r t i c l e as b e i n g  The a u t h o r s a l s o f o r the two  "successful".  f a i l to  defendants  108  51.  Touche  Ross  Industry, Industry  &  March and  Partners, 1984  Research  of  the  British  Report p r e p a r e d  S m a l l B u s i n e s s Development, and  of R e g i o n a l Economic Marketing:  Study  A  Expansion.  Focus  on  Columbia  f o r B.C.  Distribution  Ministry  the F e d e r a l  See a l s o S t u a r t , R.B. Strategies,  Software of  Department  M i c r o Software Touche  Ross  &  P a r t n e r s , u n p u b l i s h e d paper. 52.  I d . a t p. 52.  53.  I d . a t p.  54.  Id.  55.  Id.  56.  Ij3. a t p. 51 .  57.  The  53.  writer  Commercial  Law  Information computer  is  Chairman  of  the  Computer  S u b s e c t i o n i n Vancouver,  Processing  industry  Society.  representatives  conclusion. 58.  Supra., Chapter I I I a t p. 40-41.  59.  Supra., note 51 at p.  52.3.  Law  and a member of the  Discussions from  Committee  these  with both groups  of  the  Canadian  lawyers  confirms  and this  109  V  COVENANTS IN RESTRAINT OF The  preceding  which are  chapter e x p l o r e d  a p p l i c a b l e to s k i l l e d  though t h e s e employer's  o b l i g a t i o n s do confidential  express covenants p r o v i d e This express  chapter  will  the  theoretical  source  of  third  The  extent  party  will  fiduciary obligations  computer i n d u s t r y .  degrees of  the  the  last  limits  express by  t r u s t or  information  obligations. a  varying  protection  chapter  sources  to  the  Even for  concluded  of  the  protection of  an  that  confidential  an  does  outsider  an  arise who  employer's  reviewed  provided  by  confidentiality  or  discussion w i l l  This  1  when  i s not rights  i n Chapter VI  not  consider  obligations  fiduciary relationships.  of be  to  covenants  contract,  confidential obligations  confidential  such  provide  Since imposed  property,  and  the most e f f e c t i v e p r o t e c t i o n .  are  alternate  implied  employees i n the  discuss  covenants.  the  information,  non-disclosure  equity,  TRADE  an  issue  employee  bound by to  claim  such  as  of  the  passes  contractual damages  dealing  with  from  critical  remedies. The  courts  c o n t r o l the  use  d o c t r i n e of r e s t r a i n t of t r a d e . of s o c i a l p o l i c y . competing  The  tensions  of  express  restrictive  In essence, t h i s d o c t r i n e  Supreme C o u r t of Canada i n 1935  associated  covenants v i a  with  employment  is a  the  statement  a p t l y presented  covenants  in  the  r e s t r a i n t of  trade. P u b l i c p o l i c y , as i n t e r p r e t e d by the C o u r t s , requires on the one hand t h a t employers be l e f t f r e e t o p r o t e c t from v i o l a t i o n t h e i r p r o p r i e t a r y r i g h t s i n b u s i n e s s , and on the other hand, t h a t every man be l e f t f r e e to use t o h i s advantage h i s s k i l l and knowledge i n t r a d e 2  These  competing  industry.  After  years,  employer  an  tensions  t r a i n i n g and is  are  easy  supervising  economically  to an  damaged  identify  in  employee by  the  for  the a  departure  computer number of  of  that  110  employee. business  The  loss  sophisticated clauses  t h e employee  employment c o n t r a c t .  to confidential  up a  employer. more  t h e employee  t o agree  covenants  prevent  the r e l e a s e of c o n f i d e n t i a l Such  of  and  employer clause.  non-disclosure  information  a r e an  a prudent  to a non-disclosure  non-competition  clauses  I f t h e p o t e n t i a l employee i s  information,  express  employment.  sets  employers r e q u i r e new employees t o agree t o non-competition  access  require  then  used as a t r a i n i n g ground f o r f u t u r e c o m p e t i t o r s ,  i n the i n i t i a l  be g i v e n  also  when  t h a t competes d i r e c t l y w i t h t h e former  To a v o i d being  to  i s aggravated  employer's  after  are  will These  used  to  the t e r m i n a t i o n of  primary  source  of  legal  p r o t e c t i o n a g a i n s t an employee who p o t e n t i a l l y c o u l d misuse the b u s i n e s s ' s g o o d w i l l , customer l i s t s ,  trade connections  On t h e o t h e r hand, such w i d e l y  to  agreement. market  competing  employers,  The p u b l i c i n t e r e s t  i s impeded  by t h e wide  information.  d e f i n e d r e s t r a i n t s can operate  an employee t h e p r i s o n e r o f the employer. services  or c o n f i d e n t i a l  an  Without t h e r i g h t  employee  i s tied  spread  use o f these  to o f f e r h i s  t o the  s u f f e r s i f free competition types  t o make  original  i n the labour of  restrictive  clauses. These  competing  i n t e r e s t s have  challenged  the courts  Canada and t h e U n i t e d S t a t e s f o r over t h r e e hundred y e a r s . struggle  to maintain  a reasonable  balance  between these  in Britain,  The p e r s i s t e n t contrary  demands  produced t h e d o c t r i n e o f r e s t r a i n t o f t r a d e .  A. Why S h o u l d Employers Use E x p r e s s Covenants o f R e s t r a i n t ? Under t h e d o c t r i n e o f r e s t r a i n t o f t r a d e , t h e p r o t e c t i o n a v a i l a b l e t o an  employer  is  limited  generally  to  goodwill  and  confidential  11.1  information.  This  reasonableness,  does  protection, not  which  ordinarily  must  allow  meet  the  the  employer  employees from l a t e r becoming c o m p e t i t o r s of the b u s i n e s s . summarised the  employer's p o s i t i o n i n the  Saxelby where he  the  case of  tests  of  to  prohibit  Lord  Atkinson  Herbert Morris  v.  stated:  He i s undoubtedly e n t i t l e d t o have h i s i n t e r e s t i n h i s t r a d e s e c r e t s p r o t e c t e d , such as s e c r e t p r o c e s s e s of manufacture, which may be of v a s t v a l u e . And that p r o t e c t i o n may be secured by r e s t r a i n i n g the employee from d i v u l g i n g the s e c r e t s or p u t t i n g them t o h i s own use. He i s a l s o e n t i t l e d not t o have h i s o l d customers by s o l i c i t a t i o n or such o t h e r means e n t i c e d away from him but freedom from a l l c o m p e t i t i o n per se a p a r t from both these t h i n g s , however l u c r a t i v e i t might be t o him, he i s not e n t i t l e d to be p r o t e c t e d a g a i n s t . He must be p r e p a r e d to encounter t h a t even a t the hands o f a former employee. 3  The  limits  of  the  c o n f i d e n t i a l information  legal and  protection  f o r trade  the next s e c t i o n s of t h i s c h a p t e r . drawing of the skill  to  protect  l i n e between the  compete his  with  proprietary  the  that  can  be  claimed  employee's r i g h t to use and  interests.  the  Thus, the  right  of  always been  the  h i s knowledge  and  the  employer  employer must  enforced  o n l y goes so f a r as t o r e a s o n a b l y  the employer's g o o d w i l l  or t r a d e  secrets.  the  the  incentives  reviewed.  Why  detailed discussion for  the  use  of  of  the  express  i s i t imperative  that  underlying  covenants a  computer  to  demonstrate  t h a t the covenant t o be  Before  the  s e c r e t s w i l l be c l o s e l y examined i n  A major d i f f i c u l t y has  employer  for  protect  legal principles,  should  be  industry  more c l o s e l y employer  take  r e s t r i c t i v e covenants from employees a t the time of h i r i n g ? One the  contrary  signing  of  view i s t h a t  the  employment  an  employer i s a u t o m a t i c a l l y  agreement  even without  protected  express  by  covenants.  112  Under the t h e o r y of i m p l i e d o b l i g a t i o n s a l i m i t e d amount of p r o t e c t i o n i s available  a g a i n s t former  employees.  that  Supreme  of  the  Court  Canada  d u t i e s of management l e v e l O'Malley  et  has  conduct  avoidance of  a  "general  of a c o n f l i c t o f duty and  director  or  a  senior  the  standards  fiduciary v.  of  loyalty,  self-interest  t o which  officer  IV concluded  o b l i g a t i o n s p r o v i d e o n l y minimal  employers.  expanded  noted  In Canadian Aero S e r v i c e L t d .  t o the  However, the d i s c u s s i o n i n Chapter implied  recently  employees.  a l . , Laskin J. refers  good f a i t h and the  As w e l l , the p r e c e d i n g chapter  must  conform,...".  that f i d u c i a r y  4  d u t i e s and  p r o t e c t i o n f o r computer i n d u s t r y  I n s t e a d , employers are compelled  t o use  restrictive  covenants  i n employment c o n t r a c t s f o r the f o l l o w i n g reasons.  (i)  Wider i n t e r e s t s can be p r o t e c t e d v i a the use of express It  is  easier  voluntarily  for  entered  a  court  into  by  to  the  employee,  equitable  obligations.  So  necessary  t o p r o t e c t the  employer's  restriction.  A reasonable  long  enforce  as  covenant  an  a  can  contractual  than  rather  express  interests, even be  covenants  vague,  covenant a  undertaking,  is  court w i l l enforced  general  reasonably enforce  by  an  the  outright  p r o h i b i t i o n a g a i n s t an employee's r i g h t t o compete, i f such a p r o h i b i t i o n is  justified  the E l s l e y enjoined to  i n the c i r c u m s t a n c e s .  case , 5  former  enforce  and  the High  Both the  Court  Supreme Court  of A u s t r a l i a  of  Canada i n  i n Geraghty v.  Minter  employees and p a r t n e r s from o u t r i g h t c o m p e t i t i o n i n o r d e r  express  covenants.  Even  though  these  cases  factually  w i t h s o l i c i t a t i o n of customers by the ex-employee o r e x - p a r t n e r , t h e ratios  are  6  clearly  a p p l i c a b l e to  the  computer  industry.  As  the  dealt legal Elsley  113  decision  observed,  t h e covenant  from u s i n g "the s p e c i a l the  course  of  was e n f o r c e d t o p r e v e n t t h e ex-employee  and i n t i m a t e  h i s employment.  knowledge" which Thus,  7  the c e n t r a l  p r o t e c t i o n o f t h e employer's unique and v a l u a b l e A  similar  advantage  f o r an employer  he had a c q u i r e d i n concern  i s the  information.  appears  i n those c a s e s  dealing  w i t h more l i m i t e d p r o h i b i t i o n s a g a i n s t t h e s o l i c i t a t i o n o f customers by a former employee.  I f t h e r e was an e x p r e s s covenant a g a i n s t  solicitation,  then t h e employer  can a c h i e v e a wider p r o t e c t i o n  be a v a i l a b l e  via  fiduciary  Estey, points  obligations.  F o r example,  C.J.H.C., as he then was, i n A l b e r t s out  the weaker  covenants. to  or implied  position  of  than would  e t a l . v . Mountjoy  t h e employer  who  customers'  names,  a  former  employee,  ( i i ) E x p r e s s covenants a s s i s t employer's i n f o r m a t i o n . Whether  an employer  obligations,  confidential  i n proving  information  that  must s t i l l  deserves  ability  protection.  of  9  of the  of contractual  demonstrate  8  specific  customers.  the c o n f i d e n t i a l i t y  i s s e e k i n g t h e enforcement  t h e employer  eta l .  i n the absence  r e s t r i c t i v e covenants can s o l i c i t h i s p r e v i o u s employer's  of  lacks  S u b j e c t t o c e r t a i n cases which h i n g e on the employee's  memorize  equitable  the d e c i s i o n of  or  the existence  I f the  employer  cannot prove t h a t the i n f o r m a t i o n was always t r e a t e d as a s e c r e t , then t h e court  can make c o n t r a r y  Ltd.,  before the E n g l i s h  injunction failed  against  to bring  assumptions.  C o u r t o f Appeal,  i t s former  home  I n G. D. S e a r l e  employees  t o i t s employees  & Co. v . C e l l t e c h  the p l a i n t i f f ' s  was  claim  d i s m i s s e d because  the s e c r e t s  which  they  f o r an i t had were t o  114  preserve. a  Cumming-Bruce L . J . observed t h a t "The  business  protects  restrictive  itself  from  covenant; t h a t i s conspicuous by  contracts." Thus,  the  employer  must  information.  courts  not  will  imply  fashion  In  a  the  awareness and  There  i s a direct  regarding  laypeople reads  of  value  derived  vague  before  accepting  to  contract  the  another  mentioned i n the l e g a l  is  interested  in  who  be  to  in  employers  By  legal  an  relevant  protection  for  covenant,  the  express  that  is  tailored  to  clauses.  job,  the  employee on  highlighting  clauses  fiduciary  Supervisors  hiring  restrictive  constraints,  a  the  have  employee's  f a r more impact  duties.  to  the  notice  Each  on  employee  who  notes  the  termination  can r e i n f o r c e t h i s awareness by  I f an  employee seeks l e g a l  restrictions  will  be  advice  specifically  opinion.  unencumbered by appear  is  1 0 a  prior  There i s a l s o a d e t e r r e n t v a l u e who  of  trade  express  i m p l i e d or  employment  references  own  from p u t t i n g the  secrecy.  post-employment r e s t r i c t i o n s . continued  of  employer.  confidentiality,  than the  his  employees  d e t e r r e n t v a l u e of express c o v e n a n t s .  o b l i g a t i o n s , of  obligations  its  i t s absence i n the  his  absence  restraint  s p e c i f i c commercial needs of the  The  from  which  1 0  confidential  (iii)  competition  u s u a l procedure by  of  to any  prospective  Job  applicants  employee.  covenants are  breach are  the  relative  a  favoured  covenant.  r e l u c t a n t to  h i r e an  over  Aside  those from  individual  employer might be e n t i t l e d t o b r i n g i n j u n c t i o n p r o c e e d i n g s .  employer who  are  applicants any  whose  ethical former  115  Finally, parties  there  who  might  is a try  deterrent  to  obtain  value  a  with  respect  business'  to  outside  confidential  third  information.  Once the employee i s aware of the express o b l i g a t i o n s of s e c r e c y , then t h i r d party w i l l on  the  part  injunction. provisions  likely  of  the  The  1 1  be  outsider  may  party  have  been  prosecuted  cases.  1 2  that  may  also  be  the  Such knowledge  employer  subject more  to  to  the  obtain  an  criminal  law  rigorously  in  recent  I n j u n c t i o n s can be i s s u e d more e a s i l y f o r express c o v e n a n t s . Once an e x p r e s s covenant has  court  then  turns  to  the  employer's i n t e r e s t .  I f the  any  u n f a i r use or u n a u t h o r i z e d  greater  are  the  injunction.  injunction  employers  disclosure.  is  to  chances of  The  since  the  courts  most  effectively  protect  the  about h i s t r a d e s e c r e t s , prevent  immediately  1 3  employees  narrowly  being  will  respected.  define  employment agreement.  w i l l be  will  i n t e r l o c u t o r y i n j u n c t i o n to  employer's  l i v e l i h o o d must a l s o be  as b e i n g  that  the  more s p e c i f i c a l l y an express c l a u s e d e f i n e s the t r a d e s e c r e t , t h e  permanent worded  i s an  passed the t e s t s of r e a s o n a b l e n e s s ,  employer i s w o r r i e d  normal  The  remedy  remedy  the  (v)  allow  third  c o n f i d e n t i a l information  (iv)  aware of s e c u r i t y p r e c a u t i o n s .  any  granted  resist right  any to  an  i n t e r l o c u t o r y or  claim  compete  for and  a  broadly  to  earn  a  A common d r a f t i n g p r a c t i c e adopted a  Even i f one  s e r i e s of  or two  express  o f the  covenants  clauses  are  in  by the  s t r u c k down  too wide, then i t i s hoped t h a t the o t h e r more l i m i t e d p r o v i s i o n s enforced.  1 4  E x p r e s s covenants do not d i s p l a c e i m p l i e d or f i d u c i a r y o b l i g a t i o n s . An  employer i s not  protection  provided  by  f o r c e d to choose between e x p r e s s covenants o r the  general  o b l i g a t i o n s of  an  employee.  It  the is  116  suggested Scorah the  that  the  properly  1 5  implied  provided  d e c i s i o n of s t a t e s the  obligations.  that  r e l a t i o n s h i p between  In  this  case,  failed  to d i s t i n g u i s h the  c o u l d be held  of  stated  the  employee  the  failure  " i t cannot be  service  to  to  contract  behave  of  entitled  towards  his  was  of  express  the  express  clause  under  express  covenant  since i t  s e c r e t s from the know-how t h a t  by the employee.  still  the  information  and  However, F a r w e l l J . then  c e r t a i n implied  clause.  obligations in  Specifically,  Farwell  J.  t h a t , because a s e r v a n t covenants i n h i s c o n t r a c t of  properly  service  thereby  enforce  employer's t r a d e  l e g i t i m a t e l y possessed  that  spite  refused  or  the  clause  the  court  knowledge  express  d i s c o v e r e d by the A s s i s t a n t Chemist s h a l l be the e x c l u s i v e p r o p e r t y of The  records  particular  an  v.  or  16  "said  i n T r i p l e x S a f e t y G l a s s Co.  gleaned  Company."  the  Farwell J .  as  to be  a  and  honestly  whole  is  as d i s h o n e s t  employer.  That  too and  obviously  towards wide  his  to  be  employer  enforceable,  to a c t as  unfairly  cannot  so  be  and  and  as  he  that  that he  is  pleases  contention  17 does not a f f o r d a good answer to the P l a i n t i f f s ' In  1981  Versatile  the  Ontario  Investments  express covenant was appears  to  be  However, Mr. term  that  Even  i f such  the  in  Ltd.18  defeated. conflict  Court  refused The with  in to  1  Investors imply  d e c i s i o n of Mr. the  ratio  replace  the  express  term  of  same p u b l i c p o l i c y the  o b j e c t i o n s would a p p l y  Ontario  Court  of  Appeal  term  J u s t i c e Reid Triplex  Ltd.  v.  after  an  initially  Safety  Glass.  b e i n g asked t o imply  already  a narrowly based term c o u l d be  Syndicate  another  J u s t i s e Reid made i t c l e a r t h a t he was  would  importantly,  High  claim." '  declared  to  be  i m p l i e d , Reid J . noted to  strike  i t down.  subsequently  19  rejected  a  void. that More any  117  suggestion  that there  i s no scope f o r common law remedies once an express  c l a u s e has been d e c l a r e d  (vi)  2 0  E x p r e s s covenants e s t a b l i s h an employer's c l a i m t o i n v e n t i o n s . In chapter  patent not  invalid.  I I I t h e c u r r e n t p o s i t i o n on the p r o t e c t i o n o f s o f t w a r e v i a  and c o p y r i g h t  completely  or any o t h e r  laws was p r e s e n t e d .  In g e n e r a l ,  these  statutes are  e f f e c t i v e i n e s t a b l i s h i n g an employer's r i g h t s t o s o f t w a r e  information  r e l a t e d discovery.  However, an employer s h o u l d n o t i g n o r e t h e m a r g i n a l b e n e f i t s o f these laws.  When d i s p u t e s  of p a t e n t decides on  between employers and employees a r i s e over  or copyrights,  t h e outcome.  the implied  example,  t h e wording o f t h e employment c o n t r a c t  normally  In t h e absence o f express covenants, t h e i s s u e r e s t s  or f i d u c i a r y  Hunter  ownership  and  obligations placed  Sharpe  reviewed  i n v e n t i o n s and came t o t h e f o l l o w i n g  the  upon t h e employee.  patent  rules  on  For  employee  conclusion:22  The b a s i c premise i n s o f a r as ownership o f an i n v e n t i o n i s concerned i s t h e same i n t h e E n g l i s h , Canadian and American i n s t a n c e s . In a n u t s h e l l , i n v e n t i o n s b e l o n g t o t h e i r i n v e n t o r , and the r i g h t s o f o t h e r s must be d e r i v e d from an assignment o r l i c e n s e granted by t h e i n v e n t o r o r h i s s u c c e s s o r s , u n t i l such time as t h e patent expires. Reduced t o t h e s i t u a t i o n o f t h e employed i n v e n t o r , o r t h e employee who i n v e n t s , t h e i n v e n t i o n belongs t o t h e i n v e n t o r and t h e employer's i n t e r e s t t h e r e i n a r i s e s by v i r t u e o f t h e i n v e n t o r * s o b l i g a t i o n s i n c i d e n t t o h i s employment c o n t r a c t . " The  Copyright  A c t a l s o s p e c i f i c a l l y r e f e r s t o agreements of c o p y r i g h t  between an employer copyright  and employee.24  presumption,  an  employer  To take  effective  should  specifically  ownership i s s u e i s s e t t l e d i n t h e employment agreement.  advantage  of the  see t h a t t h e  118  This There  review  are  express  of  the  compelling  relevant  legal  covenants of  and  f a c t o r s leads  policy  non-disclosure  to  reasons  and  a  for  summary an  conclusion.  employer  non-competition  to  from an  take  employee  a t the time of engagement.  B. S p e c i a l S t a t u s of Employment R e s t r a i n t s : Chapter  III  explored  imbalances i n the were c r e a t e d economy.  policy  on  or  influenced the  and  the  to p r o p e r t y  legal  existence  special  bias  imappropriate This theory of  of  concerns.  policy  for  of r e s t r a i n t  protection  and  for  were  only  has  Three of t h e s e  shift  the  i n our  in  the  a  doctrine  they  and  the  a mixture identified  factor dealt In  effect,  restraint  history.  historically  recognised  an  based  commercial  software,  law.  of  factors  of  of in  with  is  the  trade  an  industry?  lengthy  by  the  did  no  Heydon  English  that  courts  reasonable of  a  competition against  restraints more  notes  i n respect to three  the  sale  employer  Heydon observes, if  of  This  current  the  reasonable  increasing  fourth law.  new  information  factor  the  of a p a r t n e r s h i p a g a i n s t of  an  However,  the t h r e e c a t e g o r i e s allowed  protection  to  ownership  l i m i t e d to the  goodwill  unanticipated  present  of t r a d e arose  of  creating  r i g h t s i n information  the  As  are  with  over  after  the  employee.27  bias  Initially  century,  protection  strong  b i a s f o r the computer  contracts.26  the  that  involved  biases  employees  employee  eighteenth  the  confusion  Chapter I I I i s more s t r i c t l y the  by  problems  secrecy,  objections  social  factors  employment r e l a t i o n s h i p s . 2 5  Thus,  reliance  four  than  a  a  on  "prevent  s t e a l i n g away t h e employer's customers o r r e v e a l i n g h i s  in  for  former  present  imposed  types the  restraints for  business, of  the  partner,  or an an  the  former employee employee  secrets."28  119  T h i s s e p a r a t i o n of the t h r e e types of r e s t r a i n t s p e r m i t t e d the c o u r t s to  confer  courts  a  special  demand  r e s t r a i n t than As  early  as  a  status  higher  on  standard  for a restraint  19.35, the  employment of  proof  in  enforce  Thus, an  goodwill i n a  of Canada h e l d t h a t judges  more r e l u c t a n t t o e n f o r c e an employer and  T h i s t h i n k i n g was  to  that p r o t e c t s the  Supreme Court  covenant r e l a t e d t o b u s i n e s s  restraints.  Canadian employment business. should  employee covenant than when t h e  goodwill.29  r o o t e d i n the  judicial  awareness o f the  inequality  b a r g a i n i n g power t h a t e x i s t e d i n most employment r e l a t i o n s h i p s .  Denning expressed Drapers v.  the  be  judicial  concerns  w e l l i n the  1957  case  of  Lord M.&  S.  Reynolds:  During the p a s t 40 y e a r s the c o u r t s have shown a r e l u c t a n c e t o e n f o r c e covenants of t h i s s o r t . They r e a l i s e t h a t a s e r v a n t has o f t e n v e r y l i t t l e c h o i c e i n the matter. I f he wants t o get o r keep h i s employment, he has to s i g n the document which the employer p l a c e s b e f o r e him; and he may do so without f u l l y a p p r e c i a t i n g what i t may i n v o l v e . Moreover, i f t h e s e covenants were g i v e n f u l l f o r c e , they would tend to reduce h i s freedom to seek b e t t e r c o n d i t i o n s , even by a s k i n g f o r a r i s e i n wages: because i f he i s not a l l o w e d t o get work elsewhere, he i s very much a t t h e mercy o f h i s employe r.3 0 T h i s h i g h e r burden of p r o o f has C o u r t of Canada.  In 1978,  Mr.  r e c e n t l y been a p p l i e d by the  J u s t i c e Dickson  Supreme  i n the E l s l e y case31 had  c a t e g o r i z e a p a r t i c u l a r covenant i n o r d e r to decide what s t a n d a r d of was to  appropriate.  The  be e n f o r c e a b l e , had  an employer/employee  d e c i s i o n was t o "stand up context."32  to  proof  t h a t the r e s t r i c t i v e covenant, i n o r d e r to the more r i g o r o u s t e s t s a p p l i e d i n  120  There a r e some s e r i o u s q u e s t i o n s about the c o n t i n u e d v a l i d i t y o f t h i s anti-employer  bias.  More p a r t i c u l a r i l y ,  can such a b i a s be j u s t i f i e d f o r  the s k i l l e d employee i n the computer i n d u s t r y ?  The arguments i n favour of  the d i s t i n c t i o n have been summarised as f o l l o w s : (i)  i n the case o f an employment c o n t r a c t t h e r e i s u s u a l l y i n e q u a l i t y o f b a r g a i n i n g power between the p a r t i e s and t h e employee has no e f f e c t i v e say as t o t h e terms o f h i s employment ( e x c l u d i n g the case of unions and c o l l e c t i v e bargaining) .  (ii)  by g i v i n g up h i s r i g h t t o compete an employee may be l o s i n g h i s o n l y a s s e t , f o r l i t t l e remuneration. The s e l l e r of a b u s i n e s s , however, w i l l have the c a p i t a l r a i s e d from i t s sale.  (iii)  when a b u s i n e s s i s s o l d i t would o f t e n be v a l u e l e s s without a covenant n o t t o compete. An employee's l a b o u r , however, remains v a l u a b l e whether o r not he l a t e r competes.  (iv)  t h e e x i s t e n c e o f a post-employment r e s t r a i n t i n c r e a s e s an employer's power over h i s employee s i n c e i t removes from the employee's threats o f r e s i g n a t i o n much of their bargaining strength.  (v)  the e x i s t e n c e of post-employment r e s t r a i n t s diminishes c o m p e t i t i o n , d i s t o r t s t h e market and r e s u l t s i n economic inefficiences.33  Should  t h e r e s t r a i n t of t r a d e d o c t r i n e c o n t i n u e  standard  of p r o o f  sectors  of  the  favouring economy,  the employee? these  t o be a p p l i e d w i t h  In most  traditional  information  arguments  are  a  related somewhat  unconvincing. Computer data  operators,  processing  easily  from  employer  Where e x p e r i e n c e d an  inequality  will  managers to  programers,  integrated  are t y p i c a l  information  employer  due  to  a  power.  of  trained  inexperienced  employment  and  can move personnel.  i t i s difficult  Perhaps t h e  n o t be a b l e t o n e g o t i a t e f r e e l y h i s i n i t i a l  designers,  employees who  lack  employees a r e i n s h o r t s u p p l y ,  i n bargaining  circuit  t o argue employee  c o n t r a c t , but  121  this disability skills.  In  i s e l i m i n a t e d as  a d d i t i o n , the  soon as the employee a c q u i r e s marketable  modern  information  employee  o t h e r n e g o t i a t i n g arguments than t h a t of r e s i g n a t i o n . a p r o j e c t manager who software  has  information  acquired  always  covenants.  has been g i v e n access  An  has  certain a  information  to  t e c h n o l o g i c a l s e c u r i t y systems and software these  and  data bases.  An  over  competitors  employee  might  access  systems i s worrisome f o r the  employer  is  years  trade  s e c r e t s , and  force.  ago,  The  a typical  Today, a software  sharing  final  bureaus,  p u b l i c confidence result to  l o s s of  a low  uses the  In standard high  and m a r k e t i n g of the  summary, of p r o o f  skilled  i n d i v i d u a l s who  there  are  i n favour  information  two of  a  employees  employee.  access  rate  of  information  trusted  limit  turnover law  numerous  i n the i n t e g r i t y  employer c o u l d  experienced developer  the  to h i s  f o r h i s work  of t r a d e s e c r e t s as h i s  very  production  the  employer's  and  i s t h a t the modern  secrets  the  of  Employers such as  utilities  However, such a d e v e l o p e r  from  knowledge  reputation.  primary l e g a l p r o t e c t i o n . hidden  restrictive  an even g r e a t e r c o n c e r n i s the  industrial  normally  gain  of  employer, but  increasingly vulnerable  Fifty  spite  Such  c o s t s o f changing the s e c u r i t y  time  s e c u r i t y systems.  in  employer.  The  branches of government must m a i n t a i n their  also  his  codes t h a t p r o t e c t an  p o t e n t i a l damage to the employer's b u s i n e s s institutions,  A key programmer o r  employee's t h r e a t to p u b l i c i z e the d e t a i l s of  systems must be taken s e r i o u s l y .  financial  acquires  to h i s employer's c o n f i d e n t i a l  leverage  value  rapidly  who . are  can  hardly  keep  the  responsible  for  the  software. major the  that  modern i n f o r m a t i o n  employees  move f r e q u e n t l y and  developments  are  reject  a  employee.  sophisticated  and  e a s i l y between employers.  biased First,  independent Litigation  122  t o p r o t e c t an and  employer's i n t e r e s t s a g a i n s t such  disruptive  proof. key  enough without  Second, the  being  faced  i n f o r m a t i o n employer  with  individuals an  exaggerated  expensive burden  of  i s f a r more dependant upon h i s  employees f o r the s u c c e s s o f h i s b u s i n e s s , and  the l o s s of c o n f i d e n t i a l i n f o r m a t i o n .  is  f a r more v u l n e r a b l e t o  For these reasons,  i t can be  argued  t h a t the b i a s of p r o o f i n favour of the employee s h o u l d be r e j e c t e d i n t h e computer i n d u s t r y . In p r a c t i c e , the c o u r t s may the  higher  standard  of  proof  enforcement  of  a c t u a l l y pay  f o r employment  standard  for  employment  hardship  f o r i n f o r m a t i o n employers.  little  serious attention to  restraints.  restraints Although  may  the  The not  different  be  a  severe  employer's burden i s  d i s c u s s e d , t h i s i n i t i a l d i s t i n c t i o n i s seldom a c r i t i c a l t u r n i n g p o i n t f o r employment  restraints.  particular  covenant  So  long  as  the  The  courts  f a r more than  employer  clearly  emphasize  the  the  reasonableness  vague g e n e r a l  proves  t h a t the  standards  employee had  of  of  proof.  access  t r a d e s e c r e t s , t o c o n f i d e n t i a l i n f o r m a t i o n or t o b u s i n e s s c o n n e c t i o n s , c o u r t s w i l l a l l o w a r e a s o n a b l e p r o t e c t i o n f o r those The  Supreme  illustrates  this  Court point.  insurance  business  with  customers.  the  clause  f o r the  reasonably  decided nature  by and  Canada's Elsley  f o r over At  issue  Mr.  was  been years,  the  i n t i m a t e and  c o n s i d e r i n g the of  p r o t e c t i o n of  nature  the  of  the  in  the and  the  Elsley  manager had of  of  dealt a  special  the  the  In  a  3 4  general  exclusively  knowledge a c q u i r e d restriction  covenantee can  the  case  non-solicitation  t h a t "Whether a  covenantee's  employment. "35  to  interests.  adequacy  J u s t i c e D i c k s o n observed  r e q u i r e d f o r the  character  decision  had  seventeen  p r o t e c t i o n of the  by the employee. is  of  the  business end,  only  be  and  the  Elsley  was  123  prohibited  from  t o be  to use  able  former that  e s t a b l i s h i n g h i s own the  employer.  special  Such  could reasonably  b u s i n e s s o r working f o r o t h e r s so as  knowledge t o c a p t u r e  a broad  covenant  p r o t e c t the  was  the  the  only  customers type  of  of h i s  restraint  employers s p e c i a l v u l n e r a b i l i t y  to  the  l o s s of t h a t employee.36 Instead stressed  of  that  dwelling each  upon  e v i d e n t i a r y burdens,  employment  restraint  must  Mr.  viewed  Justice in  Dickson  light  of  the  Elsley  had  b u s i n e s s r e l a t i o n s h i p between the p a r t i e s : It i s important, I t h i n k , t o r e s i s t the i n c l i n a t i o n t o lift a restrictive covenant out of an employment agreement and examine i t i n a disembodied manner, as i f it were some strange scientific specimen under microscopic scrutiny. The v a l i d i t y , o r o t h e r w i s e , of a restrictive covenant can determined only upon an o v e r a l l assessment, of the c l a u s e , the agreement w i t h i n which i t is found, and a l l of the surrounding circumstances.37 The  court  was  strongly  managed the b u s i n e s s the  details  of the  i n f l u e n c e d by  f o r seventeen  business.  This  y e a r s and strong  the  facts  had  thereby  that  identification  a c q u i r e d a l l of of  the  general  manager w i t h the b u s i n e s s j u s t i f i e d a much h i g h e r degree of p r o t e c t i o n f o r the employer. employer  can  employee than apply  to  Thus, the d o c t r i n e of r e s t r a i n t of t r a d e r e c o g n i z e s t h a t an be  much more v u l n e r a b l e w i t h  t o one  employees  i n a salesman's p o s i t i o n . who  are  confidential information. h i g h e r degree of The that  the  r e s p e c t t o a management  granted  The  varying  same r e a s o n i n g would  degrees  of  access  A h i g h e r degree of access would then  relatively l i t t l e  justify  to a  restraint.  Supreme Court of Canada's r e a s o n i n g i n the E l s l e y case initial  level  burden  of  importance.  proof  in  employment  restraint  indicates  cases  i s of  Far g r e a t e r weight i s given to the p r e c i s e  124  interests  that  the  reasonableness employment  of  employer  the  protection.  restraints is  b i a s i n f a v o u r o f the  claims  to  be  protecting,  Therefore,  largely a  the  and  special  theoretical rather  than  to  the  status a  of  practical  employee.  C. What i s a R e s t r a i n t of Trade? What i s meant by such a r e s t r a i n t the  English  person  has  skills  and  a restraint  i n the  Court the  of  Appeal  right  to  knowledge.  then became the  context  of t r a d e ?  of the  started  freely  have the  Courts  employment r e l a t i o n s h i p ?  from  the  contract  Thus, a g e n e r a l  How  basic principle  for  the  defined In  1920,  that  every  d i s p o s i t i o n of  d e f i n i t i o n of a r e s t r a i n t of  their trade  following:  A c o n t r a c t whereby a r e s t r a i n t i s imposed upon the l i b e r t y o f an i n d i v i d u a l to earn h i s l i v i n g or e x e r c i s e h i s c a l l i n g , or i n o t h e r words, a c o n t r a c t whereby the i n d i v i d u a l l i b e r t y of a c t i o n i s i n t e r f e r e d with and c o n t r o l l e d i s a c o n t r a c t i n r e s t r a i n t of t r a d e . 3 8  This more  early  recent  Contract  a  similiar  a  restraint  of  For  example,  Cheshire  wording  whereby,  been  and  accepted  Fifoot's  contract  in  "Law  restraint  by of of  with  such persons as  he  B r i t a i n have d i s t i n g u i s h e d between  r e s t r a i n t s and  future r e s t r a i n t s .  of trade  can  i f an  during  has  3 9  existing  limits  "A  or p r o f e s s i o n i n such manner and  S e v e r a l r e c e n t cases i n Canada and  right  trade  by which a p a r t y r e s t r i c t s h i s f u t u r e l i b e r t y to c a r r y on h i s  trade, business chooses".  of  authorities.  uses  t r a d e i s one  statement  only  which he the  exist  already  scope  employment  or  is  Thus, an  geographical  not  a  this  i n d i v i d u a l contracts  possesses.  the  In  area  restraint  of  context, to give  up  a  restraint some  legal  express covenant t h a t e i t h e r of  an  employee's  trade.  activities  Similarly,  in  a  125  non-employment case, is  already  right.  subject  an to  i n d i v i d u a l who restrictive  Such a p u r c h a s e r  purchases a p i e c e of p r o p e r t y  covenants  cannot argue t h a t the  i n r e s t r a i n t of trade.40  In an  e x p i r y of a r e l a t e d p a t e n t  o f the covenantors i n the p r e c e d i n g r i g h t to c a r r y on t h e i r t r a d e o r However, the placed  upon  courts  restraints  of  contractual  arrangement,  covenant.  The  Law  are  not  i s not  up  a  legal  r e s t r i c t i v e covenants  f o r the payment of  a restraint  are  computer royalties  of trade.41  None  business. e a s i l y mislead They  not  Reform  given  t h r e e examples were g i v i n g up a f u t u r e  trade. and  not  example t h a t i s r e l e v a n t to t h e  i n d u s t r y , a l i c e n s i n g agreement t h a t p r o v i d e s p a s t the  has  that  just  Commission  by  examine the  the the  wording  points  out  various  disguises  substance of  that  the the  of  the  particular following  employment covenants have b o t h been h e l d to be i n r e s t r a i n t of trade.42 a)  a stipulation that c e r t a i n payments were subject to the recipient's conduct not being detrimental to the payor's i n t e r e s t s invoked t o prevent the r e c i p i e n t from t a k i n g employment elsewhere,43 ;  b)  a requirement that employee leave,44;  However, a paid  expenses  t h a t commissions  due  i f a salesman took employment elsewhere, was  covenantor.  be  and  repaid  should  owing should  enforceable  not  against  the  be the  4 5  Generally or  stipulation  training  the  non-competition  termination  of  the  application  i s the  the r e l a t i o n s h i p .  restraint clauses  of that  trade doctrine applies to are  invoked  employment r e l a t i o n s h i p . c o n t r o l of Two  r e s t r a i n t of t r a d e be  the  questions  employee's  a r e thereby  a p p l i e d to moonlighting  under what c i r c u m s t a n c e s  by  the  non-disclosure  employer  A more s p e c i f i c off-duty raised. by  the  after and  activities Can  the  unusual during  the d o c t r i n e of  employee, and  i f so,  can the d o c t r i n e be used t o s e t a s i d e covenants?  126  The period  initial  arises  d i f f i c u l t y i n applying  from  mentioned, t h e  the  concept of  accepted  definition  whereby a r e s t r a i n t of t r a d e on  a  allows  an  restraint  i s that  employment  ruled  The  that  earlier  the  servant's  contractual  owed  to  doctrine,  put  the  apply  during  the  could  restraint  was  Canadian but  future  and  liberty  to  obligations.48  the  Except  w i t h the  servant's  spare  be  were  where  to  the  return  as  in  using  the  servant's  not  any  specific  problem a  to  employment  duty of l o y a l t y and was  in  applied  not  the  time  carry  e a r l y E n g l i s h case  confined  analysed  Fifoot  the n o t i o n of freedom of  not  authorities  instead  positions  English an  circumstances. composer e n t e r e d  decisions.  employment  In  have It  now  been  now  appears  that  only  under  period,  Instone v. A.  but  outside  good  subject  faith  to  the  clarified the  by  doctrine  On  can  limited  Schroeder Music P u b l i s h i n g Co.,  a young  i n t o a f i v e year employment c o n t r a c t whereby he  that period.50  several  certain  t r a n s f e r t o the p u b l i s h e r h i s w o r l d c o p y r i g h t during  previously  master.49  earlier  authoritative  As  Chesire  Thus, one  doctrine  in a conflict  master,  c o n t r o l of the These  him  the  where  limiting  activities  on  employment  i n d i v i d u a l t o a c c e p t employment r e s t r i c t i o n s  covenant  period.47  trade.  used by  Accordingly,  f o r an employer's promise of compensation.46 specifically  of  as  is a restriction  a trade, business or p r o f e s s i o n .  contract  the d o c t r i n e d u r i n g the  a p p e a l to the  agreed t o  i n a l l c o m p o s i t i o n s produced  House of  Lords,  Lord  Reid  that: Any c o n t r a c t by which a p e r s o n engages t o g i v e h i s e x c l u s i v e s e r v i c e s to another f o r a p e r i o d n e c e s s a r i l y involves extensive r e s t r i c t i o n during that period of the common law r i g h t t o e x e r c i s e any l a w f u l a c t i v i t y he chooses i n such manner as he t h i n k s b e s t . Normally the  stated  127  d o c t r i n e of r e s t r a i n t o f t r a d e has no a p p l i c a t i o n t o such r e s t r i c t i o n s : they r e q u i r e no j u s t i f i c a t i o n . But i f c o n t r a c t u a l r e s t r i c t i o n s appear t o be unnecessary o r to be reasonably capable of enforcement in an o p p r e s s i v e manner, then they must be j u s t i f i e d b e f o r e they can be e n f o r c e d . In the Records  Instone  Ltd.,52  restrictive  a  covenants  case  and  i n C l i f f o r d D a v i s Management L t d . v. W.E.A.  subsequent  Appeal,  the  i n favour o f music p u b l i s h e r s were s e t a s i d e .  The  employment agreements i n both employers,  and  grossly  employees.  In t h e C l i f f o r d  decision  cases  the  Court  of  were s h a r p l y b i a s e d i n f a v o u r o f  inadequate Davis  of  compensation  was  promised  to  judgment, L o r d Denning r e f e r r e d  the the  to the  u n c o n s c i o n a b i l i t y o f the c o n t r a c t as p a r t o f the grounds t o s e t a s i d e the offensive clauses. Therefore,  the  general  conclusion  must  be  that  the  doctrine  r e s t r a i n t o f t r a d e n o r m a l l y does not a p p l y so as t o i n v a l i d a t e confined  to the employment p e r i o d .  restraints  are  so  extensive  and  The  limited  unfair  of  restraints  e x c e p t i o n o c c u r s when the  as  to  invite  of  trade,  the  court  to  interfere. Given  this  definition  of  a  restraint  a c h i e v e the b a l a n c e between the r i v a l The  initial  modern  authority  is  how  do  the  i n t e r e s t s of employer and  Lord  Macnaghten's  statement  N o r d e n f e l d t case:53 The p u b l i c have an i n t e r e s t i n every person's c a r r y i n g on h i s t r a d e f r e e l y : so has t h e i n d i v i d u a l . All interference with individual liberty of action in t r a d i n g , and a l l r e s t r a i n t s o f t r a d e themselves, i f t h e r e i s n o t h i n g more, are c o n t r a r y t o p u b l i c p o l i c y , and t h e r e f o r e v o i d . That i s the g e n e r a l r u l e . But there are exceptions: restraints of trade and i n t e r f e r e n c e w i t h i n d i v i d u a l l i b e r t y of a c t i o n may be j u s t i f i e d by the s p e c i a l c i r c u m s t a n c e s o f a p a r t i c u l a r case. I t i s s u f f i c i e n t j u s t i f i c a t i o n , and indeed i t i s the only justification, if the restriction is r e a s o n a b l e - r e a s o n a b l e , t h a t i s , i n r e f e r e n c e t o the i n t e r e s t s o f the p a r t i e s concerned and r e a s o n a b l e i n  Courts  employee? in  the  128  r e f e r e n c e to the i n t e r e s t s o f the p u b l i c , so framed and so guarded as t o a f f o r d adequate p r o t e c t i o n to the p a r t y ,in whose favour i t i s imposed, w h i l e a t the same time i t i s i n no way i n j u r i o u s to the p u b l i c . 5 4  This  formulation  of  the  law  a c c e p t e d i n both the  E n g l i s h and  alone,  Court  the  Supreme  statements as r e p r e s e n t i n g Given t h i s legal  tests  Appeal four  emerge  r e s t r a i n t of  Canada  has  agreement on  from  trade  Canadian c o u r t s . 5 5  the a p p r o p r i a t e  widespread  that  of  on  these  twice  has  clearly  In the l a s t s i x years  used  Lord  p r i n c i p l e s of  the  been  basic  Macnaghten's  law.^  approach, what a r e  authorities?  The  Ontario  the  Court  of  i n Tank L i n i n g C o r p . v. Dunlop I n d u s t r i a l L t d . r e c e n t l y s e t out  stage  trade.57  inquiry  Mr.  that  is  required  by  the  doctrine  of  J u s t i c e B l a i r noted t h a t the p r o p e r q u e s t i o n s  (1)  [I]s the covenant under review i n r e s t r a i n t of  (2)  [ I ] s the r e s t r a i n t one therefore, void?;  (3)  [C]an the r e s t r a i n t be i n t e r e s t s of the p a r t i e s ? ;  (4)  [C]an i t a l s o be justified as t o the i n t e r e s t s of the p u b l i c ? 5 8  The inquiry  subsequent to  those  computer i n d u s t r y . actually  restraint  forms  a  sections employers The  first  of  which  this  and  against  justified [and]  chapter  employees  question  r e s t r a i n t of  is  trade,  as  trade?; policy  reasonable  reasonable  with  will  this  who  are  of  were:  public  apply  a  in  and,  the  reference  four  involved  in  part the  t o d e c i d e i s whether the r e s t r a i n t and  this  issue  has  already  been  discussed. As p o s t u l a t e d i s the  i n the Tank L i n i n g case59, the element of p u b l i c p o l i c y  second q u e s t i o n  of trade.  addressed by the c o u r t s  Then, the c o u r t should  o f f e n s i v e as  i n d e a l i n g with a r e s t r a i n t  ask whether the r e s t r a i n t of t r a d e i s so  to be v o i d by reason of p u b l i c p o l i c y .  129  for  However, when d e a l i n g w i t h  employment r e s t r a i n t s ,  courts  second  to  bypass  consideration. results  This  from  this  lack  countless  of  question  attention  employment  to  cases  without  much  serious  public  policy  element  the  have  i t i s q u i t e normal  which  have  assumed  that  employment r e s t r a i n t s are prima f a c i e void.60 Recent  Canadian  and  English  authorities  are  suggesting  f a i l u r e to separate  the p u b l i c p o l i c y element from the  reasonableness w i l l  adversely  For  example,  House  of  Cheshire  Lords  (Stourport) restraint  The  developed as  to  new  were  d o c t r i n e of  argue  Esso  this  Petroleum  marketing  authors  and  emphasise  sales  that  classified  circumstances  of  borne i n mind.  as  restraints  today,  have  become  restraint by  referring  to  Co.  v.  Harper's  Garage  of  t h a t the  trade of  may, the  recognize  effect,  the  the  unique  development of The adopted  could  use  confidentiality  the  accepted  public  problems  the  theory face  earlier  different pattern  trade." policy  associated  of  of  6 3  element  to  with  the  software.  Ontario the  courts  solus  trade  "changing  in  the  d o c t r i n e of  arrangements c a l l e d  restraint  'part  trade.  point  s t r u c t u r e of t r a d e ' as encouraging r a t h e r t h a n l i m i t i n g In  of  R e s t r i c t i o n s which i n an  of  this  subsequent t e s t s of  a p p l i c a t i o n o f the  a d o c t r i n e of p u b l i c p o l i c y , and  commerce must always be age  in  the  T h i s case i n v o l v e d the  trade  agreements.  Fifoot61  decision  Ltd.62  of  and  affect  that  Court  cautions  of  Appeal  of  in  Cheshire  the and  Tank  Lining  Fifoot,  case  and  specifically  then  carefully  d i s t i n g u i s h e d the element of p u b l i c p o l i c y from the t e s t o f r e a s o n a b l e n e s s in  the  against  public  interest.64  rigidities  i n the  i n summary, t h e s e d o c t r i n e of  restraint  a u t h o r i t i e s are of  trade.  To  cautioning ignore  the  130  initial  test  of  public  policy  risks  limiting  the  doctrine's  ability  to  r e f l e c t changes i n economic c o n d i t i o n s . But will  i t i s doubtful  soon  restrict facie  D.  change.  The  competition  p u b l i c p o l i c y on  conclusion  that  covenants  which  Employer's P r o p r i e t a r y I n t e r e s t and  the Reasonableness T e s t  The  core  of  the  of  and  the  the  of  r e s t r a i n t of  limitation of the  interest  i n t e r e s t i s the  being  the  the  pointed  of  out  fiduciary employers  confidence  industry.  the  upon t h e  weaknesses  obligations i n the  to  computer  in  Chapter  industry  express covenants t o p r o t e c t t h e i r limits  to  the  proprietary  overview of the  law  employer's was  a t the n a t u r e of  geographic  scope  employer's  III  of  the  protected  licensors. upon  Subsequently, an  confidential should trade  explained  be  employee's  that  most  keenly  secrets.  Chapter  IV  implied  or  information.  Thus,  interested in  This  using  section  examines  i n t e r e s t t h a t a computer i n d u s t r y  employer  i s a l l o w e d to p r o t e c t under the d o c t r i n e of r e s t r a i n t o f What t y p e s of  To  l i c e n s i n g agreements which impose  relying  protect  the • employee.  look  The  the  importance of c o n f i d e n t i a l i t y and  software i s d i s t r i b u t e d v i a r e s t r i c t i v e obligations  always been  section.  d e a l t w i t h the  computer  the  has  upon  courts  restraint.  s p e c i a l focus of t h i s IV,  the  protected,  of  trade  placed  restraint,  being  duration  C h a p t e r s I I I and in  doctrine  validity  employer's  secrecy  prima  6 5  determine the  the  remain  The  restraint  an  must  employment r e s t r a i n t s  h i s former employer are  void.  by  the  employee a g a i n s t  reasonableness  the  that  i n t e r e s t s q u a l i f y f o r the  p r e s e n t e d i n Routh v.  Jones;  6 6  trade. protection?  An  131  In the absence of s p e c i a l c i r c u m s t a n c e s , an employer has no such p r o p r i e t a r y i n t e r e s t as e n t i t l e s him t o p r o t e c t i o n from the c o m p e t i t i o n o f h i s former s e r v a n t per se, nor can a former s e r v a n t be r e s t r a i n e d from t u r n i n g t o account h i s own b u s i n e s s o r p r o f e s s i o n a l s k i l l s , although t h a t s k i l l was a c q u i r e d w h i l e he was i n the s e r v i c e o f h i s former master. On t h e o t h e r hand, where t h e c i r c u m s t a n c e s a r e such t h a t t h e s e r v a n t has, by v i r t u e o f h i s engagement, been p u t i n the p o s i t i o n o f l e a r n i n g h i s master's trade s e c r e t s , o r o f acquiring a special o r i n t i m a t e knowledge o f t h e a f f a i r s o f t h e customers, c l i e n t s o r p a t i e n t s o f h i s master's b u s i n e s s o r o f means o f i n f l u e n c e over them, there e x i s t s a subject-matter of contract, a p r o p r i e t ary interest o r g o o d w i l l i n t h e matter which i s entitled to p r o t e c t i o n , since otherwise t h e master would be exposed t o u n f a i r c o m p e t i t i o n on t h e p a r t of his former s e r v a n t - c o m p e t i t i o n f l o w i n g n o t so much from t h e p e r s o n a l s k i l l of t h e a s s i s t a n t as from the intimacies and knowledge o f t h e master's business a c q u i r e d by the s e r v a n t from the c i r c u m s t a n c e s o f t h i s employment." This interests  statement  summarizes  i n Canada  today.  the  law  In g e n e r a l  being  applied  terms,  the  to  employer's  interest  must  be  r e c o g n i s e d by t h e c o u r t s as a p r o p r i e t a r y i n t e r e s t : commercial o r b u s i n e s s advantages time,  are i n s u f f i c i e n t  the case  law d e f i n e s t h r e e  t h a t t h e employer or  customer  to s a t i s f y  i s allowed  goodwill,  t h e requirement.  general  to protect.  confidential  types  1)  information r e l a t i n g  involve employer  any  rights  competing former  t o the b u s i n e s s ,  Each o f these t h r e e  types  Connections  g l a n c e , t h i s type o f employer's i n t e r e s t  simply  connections  i n turn:  P r o t e c t i o n o f Employer's B u s i n e s s At f i r s t  of p r o p r i e t a r y i n t e r e s t s  These a r e b u s i n e s s  and any t r a d e s e c r e t s r e v e a l e d t o t h e employee. w i l l be reviewed  At t h e p r e s e n t  to  wants  confidential to  protect  information. h i s business  does not appear t o In  and  this  area,  customers  the  from  a  132  employee. the  There does not have t o be the l o s s of a customer l i s t ,  employee  has  to  have removed o t h e r  nor does  c o n f i d e n t i a l documents.  Rather,  the employee have been d e a l i n g d i r e c t l y w i t h the employer's customers,  and  thereby  with  the  means t h a t  the  has  achieved  a  position  of  great  personal  influence  customers. However, the employee has  acquired  competitors. protected intimate  employee's p o s i t i o n of  the  knowledge falls  really  a s p e c i a l type of i n f o r m a t i o n  As noted i n Routh v. Jones67 the  from  knowledge  influence  unfair of  short  the of  competition  that  business.  It  the  status  of  that i s unavailable  employer i s e n t i t l e d is  based  should  trade  be  secrets  on  be  ex-employee's  noted or  to  to  that  such  confidential  information. Laskin  J.  (as  he  then was),  v. Canadian F a c t o r s C o r p . Ltd.68  d e a l t w i t h t h i s type of case i n Cameron In the m a j o r i t y  d e c i s i o n f o r the  C o u r t of Canada, L a s k i n J . observed: The p r e s e n t case i s untrammelled by any c o n t e n t i o n of w r o n g f u l a p p r o p r i a t i o n of a customer or c l i e n t l i s t , or of the wrongful use of trade secrets or c o n f i d e n t i a l information. Nor does i t engage the l i n e of cases d e a l i n g with the s a l e of a b u s i n e s s or o f good w i l l whose v a l u e a t the time of the t r a n s a c t i o n depends on the purchaser being entitled to i t s e x c l u s i v e use. I t r a i s e s simply the p r i n c i p l e on which Courts a c t a g a i n s t c o n t r a c t u a l u n d e r t a k i n g s by an employee not to compete, and I embrace i n t h i s l a s t p h r a s e the p r o h i b i t i o n s i n p a r a s . 2 and 3 o f the contract l e t t e r . That p r i n c i p l e , whether under the C i v i l Code p r o v i s i o n s as to p u b l i c o r d e r (as i n a r t s . 13 and 990) or under the common law, is the a p p l i c a t i o n of a r u l e of reason to a b a l a n c i n g of the i n t e r e s t s of the employer and the e r s t w h i l e employee i n r e p s e c t o f the need o f the former f o r p r o t e c t i o n o f h i s b u s i n e s s and of the l a t t e r f o r economic m o b i l i t y , i n the l i g h t of a p o l i c y t h a t d i s c o u r a g e s l i m i t a t i o n s on p e r s o n a l freedom, and, s p e c i f i c a l l y , on freedom of 69 economic or employment o p p o r t u n i t y .  Supreme  133  Most  restraint  this  straight  the  employer's  presents  of trade  forward  at  right least  cases  i n v o l v i n g employees w i l l  not present  c h o i c e between t h e employee's r i g h t  t o compete and  to protect  the usual  some  h i s business.  minimal  c o n f i d e n t i a l i n f o r m a t i o n possessed  threats  Instead,  to  the  by t h e employer.  trade  case  secrets  or  However, t h e Canadian  F a c t o r s case shows t h a t an employee does not p o s s e s s an a b s o l u t e compete: t h e employer's p r o p r i e t a r y r i g h t s i n h i s b u s i n e s s  right to  will  a l s o be  protected. Western Inventory recent  Inventory  Service  cases  Service  Ltd.  Ltd.  v. F l a t t 1 7  v . Sager70  ( o n t . H.C.)  and Western  (B.C.S.C.) a r e two o t h e r  examples o f  where an employer's n o n - c o n f i d e n t i a l r e l a t i o n s h i p s w i t h i t s  customers were p r o t e c t e d a g a i n s t t h e u n f a i r i n f l u e n c e o f former employees.  2)  P r o t e c t i o n o f an Employer's I n t e r e s t i n C o n f i d e n t i a l The  earlier  requirements discussion  discussion  f o r the also  in  existence  commented  on  i n f o r m a t i o n and t r a d e s e c r e t s . terms  can be used  secrets. this  III dealt  even  with  the  of  confidential  information.72  the  distinctions  between  Although i n most b u s i n e s s  7 3  synonymously, a non-business  Accordingly,  chapter,  Chapter  Information  entity  there  a r e many  The  confidential situations the  cannot h o l d  t h e c a t e g o r i e s have been d i s c u s s e d  though  general  similarities  trade  separately i n i n the b a s i c  p r i n c i p l e s o f law. Canadian c o u r t s r e c o g n i z e  t h a t an employer has p r o p r i e t a r y r i g h t s t o  information  related  to  distinction  i s drawn  between t r a d e  Thus,  In Management  the business.  Recruiters  In  many  of  these  s e c r e t s and c o n f i d e n t i a l  of Toronto  Ltd.  v . Bagg,74  cases,  no  information. a  departing  134  employee who  removed 3 2 job o r d e r s  restraining  injunction.  from  utilizing  and  non-disclosure  Lagopulas76 had  this  the  order  information  the  148 p r o s p e c t  was  granted  i n b r e a c h of  clause.75  applied  acquired  The  and  Computer  to  an  or  intimate  prevent  s u b j e c t to a the  employee  express c o n f i d e n t i a l i t y  Centre  p r i n c i p l e s i n Routh v.  special  f i l e s was  Personnel  Jones77  knowledge  of  to  the  Ltd.  v.  employees  who  affairs  of  the  employer's customers. These c a s e s i l l u s t r a t e employer's p r o p r i e t a r y had  a strong personal  threat  to  the  important government claim  a  second major area  interests.  Although  i n f l u e n c e over the  employer  business  the  arose  from  the  information.  offices,  proprietary  societies interest  in  3)  Chapter  The holder Ontario  trade  III,  regarding  secret  this  theory  section  employer  of  the  must  trade  first  deal  owner  covenant on  of  the  importantly,  the  proved to be  a trade  the  secret.  that  simple  that  to  universities,  rather  must than  Secrets  reviewed trade  in  secrets  Section  D  of  specifically  industry.  dismissed  proprietary  information  with  i t i s the  Although  C o u r t o f Appeal i n 1972  have  biggest  organizations  information  to Trade  generally  prove  secret.78  non-profit  an  secrets.  was  will  also  u n r e s t r i c t e d access  previously,  confidential  employees i n the computer  a restrictive the  noted  P r o t e c t i o n of an Employer's R i g h t s Since  such employees may  employee's  other  t r y i n g to e s t a b l i s h a c l a i m to t r a d e  continuum of  employer's customers,the  As  and  i n the  this  point  seems  owner  obvious,  or the  an appeal f o r the enforcement of  grounds t h a t  interest the  legitimate  the  requiring  employer  seeks  plaintiff  was  protection.79 to  protect  not More  must  be  135  What  types  of  information  Heydon p r o v i d e s these  qualify  as an  employer's  trade  secret?  examples o f t r a d e s e c r e t s :  What i s i n c l u d e d under " t r a d e s e c r e t s " ? The s t a n d a r d examples are processes, formulae, information about customers (e.g. t h e i r names and d e t a i l s u s e f u l i n c o m p i l i n g advertisements about them) , information the first p u b l i c a t i o n o f which has v a l u e , workable s c i e n t i f i c i d e a s and p h y s i c a l o b j e c t s produced by t h e use o f t h e employer's time, money o r labour i n future (e.g. advertisement  80  p r i n t i n g b l o c k s , o r d e r books, p l a n s o r d r a w i n g s ) . Thus, i n the r e c e n t O n t a r i o Ltd.  v. Bagg > 81  32  d e c i s i o n i n Management R e c r u i t e r s o f T o r o n t o  job orders  and  148  prospect  files  p r o t e c t i o n because the i n f o r m a t i o n was h i g h l y v a l u e d c l o s e l y guarded. a  single  secret  Similarily, in  number  an employer  qualify  Beggar,  as t r a d e  the Manitoba  interest  optimum  to  heat  i n d u s t r y , software  cannot make software Using  transfer  coefficient).82  i s developed  and marketed  o f time and money.  secrets. Court  into  This  a tirade s e c r e t simply  an analogous example,  o f Appeal  i n i t s customer l i s t  not a l l customer  In T.S. T a y l o r  Machinery  r e j e c t e d an  lists  Co. L t d . v .  employer's p r o p r i e t a r y  Instead,  the court  had a l e g i t i m a t e n o n - c o n f i d e n t i a l i n t e r e s t  recognized  that the  i n i t s customers due  t h e employee's c o n s i d e r a b l e p e r s o n a l i n f l u e n c e w i t h t h e c u s t o m e r s . The  claim  a  developed  analogy trade  o f customer  secret  lists  i n software  by an employee.  by  where a l l o f t h e p l a i n t i f f ' s customers were  w e l l known t o i t s competitors.83 employer  i n t h e i n d u s t r y and  b e i n g d i s t r i b u t e d as a t r a d e s e c r e t .  naming i t t o be so. can  (an  s e c r e c y , and r e q u i r e s c o n s i d e r a b l e investments  But  for  The c o u r t s have even extended t r a d e s e c r e t p r o t e c t i o n t o  i n the computer  l e a d s t o software  qualified  Thus,  also  shows  that  i f the i n f o r m a t i o n an employer's  an  employer  was  84  cannot  independently  proprietary interest i n  136  its  own  previous an  business  or  trade  customers o f t h e employee.  employment  relationship,  employee a f t e r he d e p a r t s employer by  connections  cannot  claim  the  addition  same  a proprietary  to  can  again  follow  lists  developed  information, relating  an employer  to manufacturing  inventions.87  processes,  i n the c o n t e x t  Documentation charts)  c)  Designs, drawings and models  d)  I n t e r n a l s p e c i f i c a t i o n s and t e s t i n g , e d i t i n g p r o c e d u r e s  e)  Customer  f)  Market i n f o r m a t i o n price l i s t s  g)  B i d d i n g p o l i c i e s and p r o c e d u r e s  h)  Data and d a t a bases  i)  Employee d i s c o v e r i e s o r i n v e n t i o n s  j)  Work r e l a t e d i d e a s o r c o n c e p t s  as a s e c r e t i n o r d e r  information  software  financing,  (user  manuals,  flow  into  policies  must have been c o n t i n u o u s l y secret.  were r e v e a l e d was  pricing  exposed  the p u b l i c  and  8 8  t o q u a l i f y as a t r a d e  the secret  passed  covering  information  i f the s e c r e t s  Once  with  lists  any i n d u s t r y ,  product.  of  s e c r e t s would i n c l u d e : .  b)  destroyed  86  can c l a i m  Software ( o b j e c t code and s o u r c e code) associated  the  In t h e same way, an  a)  In  include  who l a t e r becomes an e m p l o y e e .  and unpatented  the computer i n d u s t r y , t y p i c a l t r a d e  is  customers  i n t e r e s t i n customer  to customer-related  developments  enlarged  from t h e r e l a t i o n s h i p . 8 5  proprietary i n t e r e s t s i n information production  be  I f customers f o l l o w an employee i n t o  an independent s a l e s r e p r e s e n t a t i v e In  cannot  through by  domain  sale  maintained  Any p r o p r i e t a r y  claim  open marketing o f the of  the p r o d u c t ,  and can be used  by  the  anybody,  137  including  the  former  employee  employer can p r o t e c t product must have been m a i n t a i n e d does not p r e c l u d e  Where area  to  writing  an  view of  the  claimed.92  has  for  After  restrictive  c o n t r o l l e d product  allowed  security,  the  However,  information  by  either  has  secret.89  no  clause  the  or  visitors  An  secrecy  reasoning  to the p u b l i c  is  against  into  to  proprietary  intentional  employees  This  distribution  failed  confidentiality  non-disclosure  possible.93  original  secrecy.91  frequent  a l l e g e d s e c r e t , and  need  the  d u r i n g the development period.90  the o b l i g a t i o n s o f  employer the  received  i n f o r m a t i o n p r i o r to p u b l i c s a l e , but  carefully  i n order to maintain  who  advise trade  lost,  the  workshop  employees i n  secret  can  enforcement  employee  appropriation  outsiders  the  raises  is of  the  of  no  be a  longer  confidential  possibility  of  c r i m i n a l p r o s e c u t i o n under r e c e n t Canadian a u t h o r i t i e s . 9 4  4)  Know-How v e r s u s Trade S e c r e t s In p o p u l a r  usage, the term know-how means the " p r a c t i c a l knowledge o f  how  t o do o r accomplish  to  get  something  practical  skill  or  done  a  skilled  knowledge  can  employee. be  with  a  minimum  expertness."95  s i n c e i t d e f i n e s a type by  something w i t h smoothness and  of  The  of  wasted  concept  i n f o r m a t i o n t h a t can If  defined,  the then  employee's the  legal  efficiency; effort;  accumulated  i s potentially be  possessed  ownership limits  of  to  ability  and his  an  helpful carried personal  employer's  proprietary  i n t e r e s t s i n i n f o r m a t i o n can be c l a r i f i e d .  and  c o u r t s have approached an employer's p r o p r i e t a r y r i g h t s  this  British  distinction.  Both the  American using  138  Much has been w r i t t e n differences  that  satisfactory  i n legal  e x i s t between  articles  these  about  t h e s i m i l a r i t i e s and  two concepts.96  Yet a  l e g a l d e f i n i t i o n o f know-how does n o t e x i s t .  completely  Dessemontet, i n  an e x h a u s t i v e t r e a t i s e on t h e l e g a l p r o t e c t i o n o f know-how i n t h e U.S.A., decided  t h a t know-how was a matter o f knowledge r a t h e r  skill.97  He noted t h a t many American  information, different number  definitions.98  o f t h e American  critical  l i m i t e d know-how t o s e c r e t  b u t i n t h e end admitted t o a h o p e l e s s c o n f u s i o n w i t h t h e many  legal  protection  writers  than one of manual  in  S i m i l a r l y , Wheeler  decisions  computer  dealing  software.99  recently  specifically  Her  with  conclusion  reviewed trade  a  secret  highlights  this  problem: "Because o f t h e u n c e r t a i n d i v i d i n g l i n e between t h e employer's p r o t e c t a b l e r i g h t s i n a s p e c i f i c program d e s i g n o r combination and the programmer's s k i l l and e x p e r i e n c e , t h e cases i n v o l v i n g t r a d e s e c r e t p r o t e c t i o n in t h e computer industry employment relationship present particularly difficult questions. Courts, while a t t e m p t i n g t o balance these competing i n t e r e s t s , have been unable solution."  t o achieve  a uniform  and  equitable  1 0 0  The of  Anglo-Canadian c o u r t s have n o t y e t d e a l t w i t h the s p e c i f i c  an employee's  distinctions  that  example,  Lord  provides  a broad  the  employer,  know-how  i n computer  currently  Shaw's judgment  exist  software.  do  not o f f e r  i n Herbert  Morris,  d i s t i n c t i o n between o b j e c t i v e  and  subjective  knowledge  that  Moreover, much  the general  guidance.  Limited  issue  v.  For  Saxelby  1 0 1  knowledge t h a t belongs t o i s the property  employee. Trade s e c r e t s , t h e names o f customers, a l l such t h i n g s which i n sound p h i l o s o p h i c a l language a r e denominated o b j e c t i v e knowledge - t h e s e may not be g i v e n away by a s e r v a n t ; they a r e h i s master's p r o p e r t y , and t h e r e i s no r u l e o f p u b l i c i n t e r e s t which p r e v e n t s a t r a n s f e r o f  of the  139  them a g a i n s t the master's w i l l b e i n g r e s t r a i n e d . On the o t h e r hand, a man's a p t i t u d e s , h i s s k i l l , h i s d e x t e r i t y , h i s manual o r mental a b i l i t y - a l l those t h i n g s which i n sound p h i l o s o p h i c a l language a r e n o t o b j e c t i v e , b u t s u b j e c t i v e - they may and they ought n o t to be r e l i n q u i s h e d by a s e r v a n t ; they a r e n o t h i s master's p r o p e r t y ; they a r e h i s own p r o p e r t y ; they a r e himself. 1 1 5 2  Such a broad but  really  distinction  separates  doesn't h e l p a c o u r t  knowledge  that  lies  computer  industry  between. by  t h e two extremes o f i n f o r m a t i o n ,  t o determine t h e c l a i m s Wheeler  reference  summarizes  to  a  1978  to the p r a c t i c a l  this  problem  action  i n the  against  an  ex-employee/programmer. "Key employees have access t o items o f c o n f i d e n t i a l business information, many of which are often a s s i m i l a t e d i n t o t h e i r g e n e r a l knowledge. I f a second employer asks a computer programmer t o develop a program t o s o l v e a p a r t i c u l a r problem, t h i s programmer w i l l undoubtedly draw upon the knowledge and e x p e r i e n c e gained while with the f i r s t employer. I f t h e employee uses c o n f i d e n t i a l i n f o r m a t i o n o f h i s f i r s t employer t o s o l v e the second employer's problem, i t i s c o n c e i v a b l e t h a t the second employer c o u l d a c q u i r e some o f t h e f i r s t employer's t r a d e s e c r e t s . " 1 0 3  Another more pragmatic J.  i n P r i n t e r s and F i n i s h e r s L t d . v . Holloway.104  that  the court  can be  ownership q u e s t i o n . all  approach t o t h i s problem was taken by  information  employee's  Thus,  which  stock  guided  of  a court  "can f a i r l y knowledge  intelligence  would  not  t o do as he l i k e s  h i s own  by a  recognize  reasonable  This d e c i s i o n suggests employee's  can r e c o g n i z e be regarded  which  a  man  view  an employer's  of the  right to  as a s e p a r a t e  p a r t of the  of  honesty  t o be the p r o p e r t y with.""105  Cross  ordinary  and  o f h i s o l d employer and  Following  this  reasoning,  an  employer's p r o p r i e t a r y r i g h t s t o know-how would end where t h e r e a s o n a b l e employee words  felt  o f Cross  free  t o use the i n f o r m a t i o n  J . , "The law w i l l  defeat  as h i s own p r o p e r t y . i t s own o b j e c t  In t h e  i f i t seeks t o  140  enforce  in this  man."106 whose  field  Other  primary  injunction  standards  c o u r t s have  used  f u n c t i o n was  where t h e  which would be r e j e c t a b l e by  to  this  coordinate  employee h i m s e l f  s e p a r a t i o n of p r o p e r t y  approach  to  restrain  r e s e a r c h , 107  was  clearly  the o r d i n a r y  or  an to  adhering  employee refuse  to t h i s  an  same  rights.108  However, t h i s d i s t i n c t i o n between an employee's g e n e r a l knowledge the  specialized  the  computer  line  knowledge b e l o n g i n g  industry.  are s o l d  skilled  software  also  employer  software  cannot be  company's  does the r e a s o n a b l e  employer's t r a d e  programmers  designs.  then r e f l e c t e d  that a  as t r a d e s e c r e t s , how  h i s know-how from the that  Given  t o the  secrets?  become  highly  and  applied to  entire  product  employee  separate  I t should  a l s o be  specialized  in  noted  certain  I f the programmer i s s u c c e s s f u l , h i s s p e c i a l i z a t i o n i s  i n the s p e c i a l i z e d  software p r o d u c t s  s o l d by  the  employer. i  Both the employer and the employee are dependent upon the same s p e c i a l i z e d p o o l of knowledge. In  summary,  Hammond.  the  writer  agrees  with  a  recent  conclusion  H i s view i s t h a t the d i s t i n c t i o n between g e n e r a l and  knowledge, o r between know-how and meaningless i n the computer  employees.  U l t i m a t e l y , c o u r t s w i l l always have t o i d e n t i f y the  choosing  rights  conduct  to the i n d u s t r y w i t h i n which t h e b u s i n e s s  preceeding  other  careful  the  interests  remains one  paying  between  proprietary  There  almost  of know-how and t r a d e s e c r e t s cannot p r o v i d e  rules  and  specialized  been rendered  infallible  by  by  industry.109  In summary, the concepts for  t r a d e s e c r e t s has  drawn  distinction  d i s c u s s i o n of know-how.  of  a t t e n t i o n to  the  and  employer's  parties,  their  operates.  t h a t i s vaguely  At v a r i o u s times  employers  related  E n g l i s h and  to  the  Canadian  141  c o u r t s have r e f e r r e d t o t h e employee's r i g h t t h a t he can c a r r y i n h i s memory. England which  to  separate  required  several  early  an  Initially,  an employer's organized  courts  t o use whatever  casual  effort  t h e memory t e s t information  t o accumulate  i n the Western  provinces,  Columbia Court o f Appeal, adopted a more l i t e r a l ex-employee had n o t made any w r i t t e n l i s t s , use  whatever  information  he  England and Canada c o n t i n u e recent  qualification  could  states  that  information  and copy.110  version.  Then  the B r i t i s h  So l o n g as t h e  t h e employee was p e r m i t t e d t o Subsequent  t o t h e memory t e s t , an  was used i n  from  including  memorize. 111  to refer  information  employee  courts  although  cannot  in  a more  appropriate  c o n f i d e n t i a l i n f o r m a t i o n o r t r a d e s e c r e t s v i a memorization.112 The  memory  test  f o r determining  must be r e j e c t e d as a r t i f i c a l storage, examples  personal of  information.  and i n a p p r o p r i a t e .  computers and data  modern  proprietary  technology  that  transmission permit  rights  i n information  Electronic f i l i n g , v i a telephone  effortless  disk  l i n e s are  d u p l i c a t i o n of  The scope of an employee's p r o p r i e t a r y r i g h t s should  not be  determined by t h e amount o f e f f o r t r e q u i r e d nor by t h e method by which t h e information ability  i s appropriated.  t o memorize  r e s t r a i n t of trade. the  employer's  compete  5)  ignores  the p u b l i c  f o c u s i n g upon t h e employee's  policy  r u l e of the d o c t r i n e o f  The r e a l concern must be t o b a l a n c e  confidential  information  against  the p r o t e c t i o n o f  t h e employee's  right to  freely.  Other R e l a t e d  Proprietary Interests  Software l i c e n s i n g the  More b r o a d l y ,  agreements must be c o n s i d e r e d  p r o p r i e t a r y r i g h t s of employers.  As noted  f o r t h e i r impact on  i n Chapter  III,  software  142  vendors  transfer  software  as  a  t h e i r p r o d u c t s v i a l i c e n s i n g agreements Which t r e a t  proprietary  trade  secret.  While  the  software  the  vendor  can  l e g i t i m a t e l y c l a i m to h o l d a p r o p r i e t a r y i n t e r e s t , what i s the p o s i t i o n of the l i c e n s e e ?  The  contractually the  vendor  software u s e r ' s p o s i t i o n must be c o n s i d e r e d  obligated  or  to p r o t e c t the  developer  requires  that  under o b l i g a t i o n s of c o n f i d e n c e . to  sign  a  the  trade.  to  any  voluntarily dealings,  placed  restrict exchange  such as  v. Kolokl15, The  The  mutual  protect  the  Usually employees so f a r as  user's  agents,  the  to  covenants  arise  normally  that  limit  with  the  who  future or  Kores  commercial p r a c t i c e .  software  users  who  Such an  have  employer  p r o p r i e t a r y i n t e r e s t p u r s u a n t to  What the  software user i s r e a l l y t r y i n g  u s e r ' s o b l i g a t i o n s of c o n f i d e n c e  are broken by a u s e r ' s employee, then  the  software  terminated  the  vendor.  Thus  software of  an  licensee software,  employee?  usually  unanswered claim so  a  that  continued  the  the  l i c e n c e can  r i g h t to  not  If  use  i s i t s own  trade.  directly  Employers  employees under o b l i g a t i o n s of c o n f i d e n c e .  r e s t r a i n t of  do  trade.  r a t h e r than g e n e r a l  questions  user  not  C o r p . v. Dunlop I n d u s t r i a l l 14  cannot c l a i m to be p r o t e c t i n g i t s own  to  with  and  liberty  restrictive  a r e the e x c e p t i o n s  their  of  i t s own  vendors even go  directly  vendor  future  i n Tank L e a s i n g  significant  doctrine  place  software l i c e n s i n g agreements o r d i n a r i l y do  r e s t r a i n t of  contract  user  secret.  o r employees t o e l i m i n a t e p r i v i t y of c o n t r a c t problems.113  First, create  the  More c a u t i o u s  c o n f i d e n t i a l i t y contracts  consultants  developer's trade  since i t i s  be  question  sufficiently i t can  in  use  by  of  the  the  Canadian  software.  unilateral law  wide p r o p r i e t a r y  protect  the  software  act  exists.  of Can  a  interest in i t s against  a  former  143  One  related  discussed,  would  equitable  and  knows t h a t vendor,  and  be  of  to  the  represents  vendor  outside  express  covenant,  employee(s)  o b l i g a t i o n s of  software the  an  place  fiduciary  the  then  employee  purpose  has  some  parties.116  a  i n the under  confidence.  trade  hopes  secret  of  this  the  more  Once  the  that  direct  However,  situation  general employee  belongs  action  point  being  to  the  against  the  still  does  not  answer the p r o p r i e t a r y i n t e r e s t s t a t u s of t h e l i c e n s e e . Certain covered  by  judical the  doctrine  companies  and  initially  taken  McKenzie. 117 proprietary involving already Court  of  comments have  restrictive by  the  I t was rights  some r i g h t  applied  should  Australia Pty.  Ltd.  The  the  High  of  scope  the  interests  be  scope  in  the  of  the  limiting  must be  i n the  unless  the  legal  the  case  nature  of  from  one  were  principles the  High  interests  Motor E n g i n e e r i n g  Amoco  v.  Then  protectible  was  Ltd.  distinctly  sufficient."118 of  position  Australia  as  interests  involving o i l  Oil  interest,  Rocca B r o s .  Court  A  Mobil  would not,  extended,  v.  the  A u s t r a l i a n cases  in  a commercial  expanded  Amoco A u s t r a l i a comments  "the  property, be  in  court  that  to  agreements.  trial  ...  of  arisen  sales  said  and  relating  Co.  adopted  in  Ltd.119 by  the  O n t a r i o Court of Appeal i n Stephens v . G u l f O i l Canada Ltd.120 I t i s not i n doubt, i n my o p i n i o n , t h a t Amoco was e n t i t l e d i n the c i r c u m s t a n c e s t o o b t a i n the b e n e f i t of a t r a d e t i e i n a i d of the recoupment of i t s investment and i n a i d of t r a i n i n g i n t e r e s t s a r i s i n g out of i t s agreement to supply i t s products to Rocca. The question i s whether o r not the term of the t i e , c o n s i d e r e d i n c o n j u n c t i o n with the convenants t o which I have r e f e r r e d , was greater than was reasonably 121 necessary. In trading  effect,  1  ^  1  these  interests  can  decisions be  appear  recognized  to as  conclude an  that  adequate  commercial basis  for  or the  144  doctrine.  Thus,  a strong  argument  can be made t h a t  a software  user's  investment and t r a d i n g i n t e r e s t i n t h e l i c e n s i n g agreement a r e s u f f i c i e n t grounds f o r p r o t e c t i o n under t h e d o c t r i n e o f r e s t r a i n t o f t r a d e .  In summary, an employer can c l a i m p r o p r i e t a r y r i g h t s i n h i s b u s i n e s s connections, the  modern  latter  and i n h i s c o n f i d e n t i a l i n f o r m a t i o n employer,  category  who  increases  i s either daily  using  and t r a d e  or developing  i n importance.  secrets.  software, t h e  However, t h e d i s t i n c t i o n  t h a t t h e common law i n s i s t s on drawing between know-how and t r a d e i s of l i t t l e value  E.  t o the computer  For  secrets  industry.  Reasonableness Between t h e Employer and Employee  Once a c o u r t  s a t i s f i e s i t s e l f t h a t a computer i n d u s t r y employer has a  l e g i t i m a t e i n t e r e s t t o p r o t e c t , t h e c o u r t then t u r n s t o t h e r e a s o n a b l e n e s s of the p r o t e c t i o n b e i n g  claimed.  In e f f e c t , does t h e r e s t i c t i v e  a c h i e v e an e f f e c t i v e b a l a n c e between p r o t e c t i n g t h e employer's and  preserving However,  cannot  t h e employee's f u t u r e the balancing  employment  r e s t r a i n t s a r e prima  j u s t i f i e d as b e i n g far  exceeds duration  reasonable  Since facie  public void,  a reasonable r e s t r a i n t .  as t o a d e q u a t e l y  protect  limits  and employee  p o l i c y d i r e c t s that a l l  then  t h e covenant  must  be  The r e s t r i c t i o n can o n l y go so  t h e employer's  i n either  interest.  t h e scope  I f t h e covenant  of protection,  of t h e covenant o r i n t h e geographic e x t e n t ,  w i l l be v o i d and u n e n f o r c e a b l e .  information  liberties?  of t h e i n t e r e s t s o f employer  be a s t r a i g h t compromise.  covenant  i n the  then the r e s t r a i n t  145  How  does  overall facts  a  court  answer must of  each  dependent  answer  be  that  employment  upon  the  these  the  questions  court . looks  relationship.  evidence  of  closely  Each  presented  by  reasonableness? at  the  particular  d e c i s i o n must  the  parties.  The  be  highly  Littlewood's  O r g a n i z a t i o n L t d . v . H a r r i s i l l u s t r a t e s t h i s s u b j e c t i v e approach.122 Court e n f o r c e d a covenant not first  t o work f o r one  twelve months a f t e r t e r m i n a t i o n .  Given  specific  competitor  the nature  i n the  of the i n d u s t r y ,  and the p a r t i c u l a r n a t u r e of the c o n f i d e n t i a l i n f o r m a t i o n p o s s e s s e d employee, way  of  the  Court's  c o n c l u s i o n was  p r o t e c t i n g the  employer's  that  such  position.123  s u b j e c t i v i t y , t h e common law has not developed the  courts  on  reasonableness.  p r i n c i p l e s r e l a t i n g t o the First,  early  consideration statement Saxelby, accuring  given  appears  to  determining  general  such  the  the  employee  Parker's  rule  are  was  that  a  number  the  the only  level  of  of  guide  general  decision i n Herbert  against  adequacy  i m m a t e r i a l . 124  court should  restraint  advantages approach  a  the  s p e c i f i c rules to  the  not  &  or  was  disadvantages  is still  whether  the  to  more  "weigh the  disadvantages  reasonable.  the  general v.  advantages  imposed  by  the  not c r i t i c a l i n  Today's the  of  Morris L i m i t e d  r e l a t i v e h a r d s h i p t o the employee was  whether the  the  conventor  The  With  any  there  convenant has  by  test.  s t a t e d t h a t the  the  de-emphasize  to  However,  developed  i n Lord  where he  restraint."125  accepted  cases  a  The  courts  also  covenantor.  restriction  only  The  goes  so  f a r as t o p r o t e c t the i n t e r e s t of the employer. However, consideration  the has  Lord Macnaghten had t h a t the c o u r t may  hardship  to  the  employer  r e c e i v e d some j u d i c i a l i n c l u d e d a dictum  and  the  adequacy  of  the  a t t e n t i o n i n more r e c e n t  years.  i n t h e N o r d e n f e l t case t o t h e  effect  have g r e a t e r freedom to h o l d r e s t r a i n t s as  unreasonable  146  where  there  Petroleum this  has  been  inadequate  Company L i m i t e d v.  consideration.126  Harpers  Garage  Lord  Reid,  (Stourport),  in  Esso  Ltd.,  approved  by both p a r t i e s  strongly  dictum.127 Second, the r e l a t i v e o b l i g a t i o n s undertaken  influenced  the  Instore  A.  v.  Court  Schroeder  unconscionability parties  and  employee. covenant This  On  set and  Columbia  Appeal Music  to  the  totally  the  decision  British  due  the  was  of  basis aside  that  the  conscionability of t r a d e " .  Publishing  inadequate of  due  this to  of  s e t of  t o determine  case  of  Lords  in  bordered  on  promised  facts,  the  u n f a i r n e s s of of  judgment  boat)129,  c o u r t s have  The  consideration  relative  Appeal's  House  i n b a r g a i n i n g power between  extreme  the  the  Co.128  non-restraint  u n c o n s c i o n a b l e s a l e of a f i s h conclude  subsequently  inequality  associated Court  and  trade  cases  i n Harry  l e a d the Law  e x p r e s s l y adopted  to  the the  restrictive the  bargain.  such  as  the  v. K r e u t z i g e r (an  Reform Commission t o  "tests  of  the r e a s o n a b l e n e s s of covenants  fairness  and  in restraint  1 3 0  Heydon m a i n t a i n s  that  the r e l a t i v e  have been c o n s i d e r e d i n o t h e r ways.  b a r g a i n i n g powers of the  The  parties  author s t a t e s t h a t a shortage o f  skilled  l a b o u r , the b a r g a i n i n g power o f a s t r o n g union, o r the n e g o t i a t i n g  skills  of  the  convenantor,  have  affected  a  court's  decision  on  reasonableness.131 The the  time  parties  covenant.132 principle  in  f o r j u d g i n g the r e a s o n a b l e n e s s of the r e s t r a i n t has The  been  agreed  British  Green  v.  to  Columbia  be  Court  S t a n t o n . 133  r e a s o n a b l e n e s s i n the p u b l i c  the  time of The  of  the  Appeal  i n t e r e s t must a l s o be  granting  earlier  court  was  further  between of  applied held  judged a t the time  the this that the  147  employer r e c e i v e d the covenant.134 Supreme Court  (i)  These p r i n c i p l e s were accepted  by  the  of Canada i n Doerner v. B l i s s & L a u g h l i n I n d u s t r i e s Ltd."*35  D u r a t i o n and Geographic Extent of R e s t r i c t i v e Covenants These  two  g o o d w i l l and  elements  and  geographical  areas.  information  or  The  Therefore,  c o n s i d e r a t i o n i f an  are  also  reasonableness  Customer l i s t s spread  of  a  trade  secrets,  then  the  i s the primary  two  test  duration  of  of  the  reasonableness,  any  different  must  concerns  elements  be  tested  confidential  can  be  discussed  protection f o r trade secrets:  non-disclosure and  change as time  restraint  i n f o r m a t i o n i s r e v e a l e d to the p u b l i c , the the  employer's  throughout  Where an employer's i n t e r e s t  Non-disclosure  soon as the  primary  customers  each element.  together.  separate  customers are b e i n g p r o t e c t e d .  progresses,  against  require  secret  restraint  geographic  disappears.  ranks  restraint  as  as  the  means  very  little. Once highly  again,  testing  individualized  peculiar  Canadian applied  reasonableness  exercise.  f a c t s when the  software.  the  However,  employer c l a i m s  of  any  a  court  have  not  as  yet  t o p r o t e c t software.  dealt  with  In the U n i t e d  J u d i c i a l C o u r t of Massachusetts i n 1976.136 employees to develop  eighteen  $100,000.  at  p r o t e c t i o n f o r a trade  restrictive  be  a  certain  secret i n  months  to  a high  complete  The  appealed  being  Analogic  to the Supreme  p l a i n t i f f c o r p o r a t i o n had  speed data a c q u i s i t i o n module which  with  These employees subsequently  w i t h a t h i r d person  covenants  S t a t e s , the case of  C o r p o r a t i o n v. Data T r a n s l a t i o n , I n c . , e t . a l . , was  took  looks  must  Reference i s made t o a r e c e n t American d e c i s i o n s i n c e r e p o r t e d cases  h i r e d two  restraint  development left  the  costs  employ of  formed the defendant company to develop  in  excess  of  Analogic  and,  a similar  data  148  a c q u i s i t i o n module. termination  When l e a v i n g A n a l o g i c , b o t h former employees executed  agreements  which  provided,  inter  alia,  that  t a k i n g any documents o r m a t e r i a l s b e l o n g i n g t o A n a l o g i c . found t h a t the  t h e s e defendants  d i d use drawings,  they  were n o t  The t r i a l  court  documents and a sample o f  p l a i n t i f f ' s module. The  defendant's  plaintiff's  development  module were l i m i t e d  had then marketed  costs  to  t o $2,500.00.  produce  a  copy  The defendant  i t s v e r s i o n o f t h e module a t a p r i c e  of the  corporation  comparable  to,  or  l e s s than, t h e p l a i n t i f f s . 1 3 7 1  R e s t r a i n t of t r a d e p r i n c i p l e s s i m i l a r t o those p r e v i o u s l y reviewed i n this  c h a p t e r were a p p l i e d by t h e Massachusetts C o u r t .  covenant secret with  restricting  competition  will  i f i t " i s reasonably l i m i t e d the p u b l i c  judgement  interest."138  of $12,714.75  against  be  enforced  I t was h e l d t h a t a to protect  i n time and space,  The  court  of  t h e defendants  first  a  and i s consonant instance  and i s s u e d  entered  a perpetual  i n j u n c t i o n a g a i n s t t h e i r manufacturer and d i s t r i b u t i o n o f t h e module. defendants The  The  appealed.  duration  Interestingly, to  trade  of t h e i n j u n c t i o n  was t h e key i s s u e  t h e case was remanded back t o t h e lower  c l a r i f y and add e s s e n t i a l f a c t s t o t h e r e c o r d .  on  the a p p e a l .  t r i b u n a l i n order  I n so doing, t h e a p p e a l  c o u r t made t h e f o l l o w i n g o b s e r v a t i o n s : - Our h o l d i n g today i s n o t t o be i n t e r p r e t e d t o r e q u i r e that t h e d u r a t i o n o f an i n j u n c t i o n be i n f l e x i b l y determined by the amount o f time n e c e s s a r y t o r e v e r s e e n g i n e e r t h e p l a i n t i f f ' s d e v i c e w i t h o u t improper use of t r a d e s e c r e t s . But evidence as t o t h i s time p e r i o d is one factor which should be considered i n d e t e r m i n i n g the r e a s o n a b l e n e s s o f t h e scope o f such an injunction. Of c o u r s e , defendants who have w i l f u l l y attempted to profit through violation on a  149  c o n f i d e n t i a l r e l a t i o n s h i p need not be p l a c e d good a p o s i t i o n as o t h e r honest c o m p e t i t o r s .  in  as  - The p l a i n t i f f i s e n t i t l e d to have i t s t r a d e s e c r e t s p r o t e c t e d at l e a s t u n t i l o t h e r s i n the t r a d e are likely, through l e g i t i m a t e b u s i n e s s procedures, to have become aware of these s e c r e t s . And even then the defendants should not be permitted a competitive advantage from t h e i r avoidance of the normal c o s t s of i n v e n t i o n and d u p l i c a t i o n . Where the defendants have saved substantial expense by improperly using c o n f i d e n t i a l information i n creating t h e i r product, t h e u l t i m a t e c e s s a t i o n of an i n j u n c t i v e o r d e r might w e l l be c o n d i t i o n e d on t h e i r payment of an a p p r o p r i a t e sum to t h e p l a i n t i f f . 1 3 9 In  summary,  the  court  evidence  against  which  Canadian  courts  require  reasonableness i s provided, An  then  the  and  the  test  the  the  factual  once  wanted  has  the  depth  of in  limitations.  a l l o w an  competition  English courts,  case  reasonableness  geographic  courts w i l l of  Analogic  same  of d u r a t i o n and  outright prohibition  Canadian  to  in  hard  the  of  with  Once the  the  evidence  of p r o t e c t i o n .  even been granted  test  injunction.  dealing  adequate l e v e l  factual  by both  reasonableness  has  the been  met.140  F.  The P u b l i c I n t e r e s t and Employment R e s t r a i n t s A post  public  employment r e s t r a i n t  interest  will  can  be harmed by  be  a t t a c k e d on  i t s enforcement.  p u b l i c i n t e r e s t , a covenantee must f i r s t term.  Unfortunately  rather  unsettled.  stating  that  definition,  "The  and  f o r such  Cheshire concept  i s not  & of  the  admits  public  surprising  grounds t h a t  the  To prove harm t o  the  i d e n t i f y the e x t e n t of t h i s vague  a litigant, Fifoot  the  that  case to  a  law  on  this point i s  certain  confusion  interest  admits  of  at  i t has  been  times  l a t i t u d e which i t i s d i f f i c u l t t o defend."141  no  by  precise  allowed  a  150  The  case  general  streams of  theoretical parties  what  defines  the  authority.142  may  may be  public  Both l i n e s  trio  interest.  of  reasonable  in  the  divides  into  two  cases acknowledge t h a t i s r e a s o n a b l e between  public  court  interest.  should  The  properly  a  the real  consider  s o c i a l evidence as d e f i n i n g the p u b l i c i n t e r e s t . of  cases  represents  I n E s s o P e t r o l e u m Co.  Pearce  interest  e x i s t between what  argument a r i s e s over whether the  economic and  Lord  that  difference  and  dividing  A  law  observed  that  the  the  more r e s t r i c t i v e  view of  the  public  L t d . v. H a r p e r ' s Garage ( S t o u r p o r t ) separate  t e s t s of  reasonableness  Ltd.,  might  be  followed  by  merged. There i s not, as some cases seem t o suggest, a s e p a r a t i o n between what i s , r e a s o n a b l e on grounds of public policy and what i s reasonable as between the p a r t i e s . There i s one broad q u e s t i o n : is i t in the i n t e r e s t s of the community t h a t t h i s r e s t r a i n t s h o u l d as between the p a r t i e s , be h e l d to be r e a s o n a b l e and enforceable?143 This the  l i m i t e d view of  statements  Station  Ltd.  of  the  element of p u b l i c i n t e r e s t was  Ungoed-Thomas,  J.  in  Texaco L t d .  v.  Mulberry  1 4 4  But what i s meant by r e a s o n a b l e n e s s w i t h r e f e r e n c e t o the i n t e r e s t s of the p u b l i c ? I t i s p a r t of the d o c t r i n e of r e s t r a i n t o f t r a d e which i s based on and d i r e c t e d to s e c u r i n g the l i b e r t y of the s u b j e c t and not the utmost economic advantage. I t i s p a r t of the d o c t r i n e of the common law and not o f economics. So i t must, of course, r e f e r t o i n t e r e s t s as r e c o g n i z a b l e and r e c o g n i z e d by law. But i f i t r e f e r s to the i n t e r e s t s o f the p u b l i c a t l a r g e , i t might not o n l y involve b a l a n c i n g a mass of c o n f l i c t i n g economic, s o c i a l and other i n t e r e s t s which a court of law might be i l l - a d a p t e d to achieve; but, more important, i n t e r e s t s of the p u b l i c a t l a r g e would l a c k s u f f i c i e n t l y s p e c i f i c f o r m u l a t i o n to be c a p a b l e of j u d i c i a l as contrasted w i t h u n r e g u l a t e d p e r s o n a l d e c i s i o n and a p p l i c a t i o n - a d e c i s i o n v a r y i n g as L o r d E l d o n LC put i t , l i k e the l e n g t h of the c h a n c e l l o r ' s f o o t .  Filling  151  The  d e c i s i o n continued  by  observing:  I f my a n a l y s i s and approach a r e c o r r e c t , unreasonableness i n t h e i n t e r e s t s of t h e p u b l i c r e f e r s t o t h e i n t e r e s t s o f t h e p u b l i c as r e c o g n i s e d i n a p r i n c i p l e o r p r o p o s i t i o n o f law and n o t t h e i n t e r e s t s o f t h e p u b l i c at l a r g e . The q u e s t i o n s which such unreasonableness r a i s e s would thus n o t be whether t h e r e s t r a i n t might be l e s s i n a d i f f e r e n t organizaion of industry or s o c i e t y or whether t h e a b o l i t i o n o f t h e r e s t r a i n t might l e a d t o a d i f f e r e n t o r g a n i z a t i o n of i n d u s t r y o r s o c i e t y , and thus, on b a l a n c e o f many considerations, t o the economic or s o c i a l advantage o f t h e c o u n t r y , b u t whether t h e r e s t r a i n t i s i n f a c t i n our i n d u s t r y and s o c i e t y as a t p r e s e n t o r g a n i z e d , and with r e f e r e n c e t o which our law o p e r a t e s , unreasonable i n the p u b l i c i n t e r e s t as r e c o g n i s e d and f o r m u l a t e d i n such p r i n c i p l e o r p r o p o s i t i o n o f law.145 Both applied  the Esso  by  case  the O n t a r i o  and  t h e statements  Court  of Appeal  Ltd.146  Thus, t h e Court of Appeal  interest  against  doctrine  i . e . , that  of  i n Stephens  tested  possible  the b a s i c p r o p o s i t i o n u n d e r l y i n g a l l men  have  the r i g h t  oriented  approach  judge.148 to  the  Court  of  Appeal  to r e s t r a i n t of trade  v. Gulf  injury  to trade  was  O i l Canada  to the p u b l i c  freely  subject  to  interests.147  rejecting  that  J . were  the r e s t r a i n t o f t r a d e  r e a s o n a b l e r e s t r a i n t s t o p r o t e c t other p r o p r i e t a r y Specifically,  Ungood-Thomas  was  an  adopted  economics  by t h e t r i a l  Henry J . i n t h e lower c o u r t , had a c c e p t e d economic evidence as  the industry  the  conclusion  the  public  wide  impact  of dealer  that  such  agreements  interest;  since  the  were  collective  agreements would be a n t i - c o m p e t i t i v e . 1 4 9 Henry J . * s approach by q u o t i n g  agreements.  He t h e r e f o r e  individually effect  The Court  of  that  contrary  many  of  of Appeal d e a l t  a statement from C h e s h i r e  "Reason and j u s t i c e would seem t o p r e s c r i b e  came t o to  these with  and F i f o o t t h a t  an agreement, r e a s o n a b l e  152  between  the  parties,  should  not  be  upset  p r o b l e m a t i c a l i n j u r y t o the p u b l i c w e l f a r e . " In observe  summary,  this  that  reasonableness  the  s u b j e c t to two  trilogy  of  separate t e s t s .  cases  of  for  lead  one  legal covenant  c o n c l u s i o n was  that  and  the  disuse."151  decision  of  public  policy  even aroused  is falling  some u n u s u a l l y  Fridman s t r o n g l y applauded  and  into  impassioned  commentator was  "the  between what i s r e a s o n a b l e between the p a r t i e s grounds  fancied  1 5 0  a restrictive  The  some  no  to  longer  distinctions  what i s r e a s o n a b l e  statements  the d e c i s i o n o f the C o u r t o f Appeal  on  The  Stephens  of  support.  as a v o i d i n g  "the walk a l o n g the s l i p p e r y path t h a t e v e n t u a l l y l e a d s to the n e g a t i o n of law and the a b d u c t i o n o f the r u l e o f law."152 The takes  second  a  more  approach the  line  of  expansive  authority view  of  on  the  the  limits  court's role.  public  interest  can  The  should  test  be  expressed i n a p r o p o s i t i o n of The h i g h e s t Canadian  tested not  be  against  approach  public  interest  F o l l o w i n g Henry  limited  solid to  J.'s  three  member  any  economic  and  ill-effects  a u t h o r i t y t o date i s the O n t a r i o Court of  Court,  to  social already  law.  i n Tank L i n i n g Corp. v. Dunlop I n d u s t r i a l Ltd.154 the  the  i n the Stephen's c a s e , 153 these a u t h o r i t i e s argue t h a t i n j u r y  evidence.  of  of  Blair  J.A.  Appeal  i n a unanimous d e c i s i o n  disapproved  of  the  restrictive  and made the f o l l o w i n g f o r c e f u l , a l t h o u g h o b i t e r d i c t a comments: Nevertheless, I cannot refrain from expressing my concern t h a t r e s t r i c t i n g c o n s i d e r a t i o n of the p u b l i c i n t e r e s t t o economic and s o c i a l e f f e c t s which i n some f a s h i o n have a c q u i r e d t h e s t a t u s o f l e g a l dogmas, might r e s u l t i n the d o c t r i n e l o s i n g i t s u t i l i t y as a v a l u a b l e i n s t r u m e n t f o r a d j u s t i n g t h i s branch of the law t o changing economic and s o c i a l c o n d i t i o n s .  153  and s u b s e q u e n t l y s t a t e d  that:  I t seems t o me t h a t s i t u a t i o n s can be imagined where a reciprocal restrictive covenant resulting in the complete t e r m i n a t i o n of a b u s i n e s s e n t e r p r i s e might produce economic and social effects demonstrably h a r m f u l t o the p u b l i c i n t e r e s t . The cessation of b u s i n e s s might, f o r example, d e p r i v e the n a t i o n or a r e g i o n o f an e s s e n t i a l i n d u s t r y , an important source o f wealth and employment o r v i t a l technology. Such harmful e f f e c t s would be d i f f i c u l t t o i g n o r e even though they might not be i n c l u d e d i n those e x p r e s s e d i n p r o p o s i t i o n s of law which tend to be concerned w i t h abhorrence of monopoly o r the advancement o f freedom t o t r a d e and competition.^55 As  Blair  J.A.  noted  has not as yet d e a l t In  1981,  i n h i s comments,  specifically  i n the Doerner  the  Supreme C o u r t  of Canada  with the l i m i t s o f the p u b l i c  interest.  case, M c l n t y r e J . , r u l e d t h a t the conduct  of the  1 5fi covenantee  was  a  relevant  matter  However, the  covenantor  corrupt  monopolistic practices.  and  was  that  alleging  affected  that  the  public  the covenantee  Such  conduct  interest.  was  would  engaging  have  been  in in  b r e a c h o f the p r i n c i p l e s o f the law a l r e a d y e x p r e s s e d i n s t a t u t e . Other  lower  considered the  court decisions  economic  O n t a r i o High  and  Court  social not  on  restrictive  benefit  only  looked  covenants  arguments. at  the  In  appear  Sherk  number  of  v.  t o have Horwitz,  obstetricians  p r a c t i c i n g i n an a r e a , but h e l d t h a t d i s r u p t i n g the p a t i e n t s '  relationship  with  In  a  Lintott,  doctor the  was  injurious  Alberta  r e s t r i c t i v e covenant  Court  to of  the  public  Appeal  i n t e r e s t . 157  allowed  s i n c e no harm t o the p u b l i c  an  appeal  interest  to  Baker enforce  v. a  i n a reasonable  level o f c h o i c e i n the d e l i v e r y of h e a l t h c a r e s e r v i c e s had been demonstrated.158 The B r i t i s h Columbia Supreme Court s i m i l a r l y r e c o g n i z e d  154  a wider p u b l i c i n t e r e s t when i t r e f u s e d to  close  where  it  was  the  sole  to refused  source  of  t o compel a drug  supply  for  2000  store local  residents.159 A  similar  judicial  trend  to  a  more  liberal  acceptance  of  economic  e v i d e n c e i s t a k i n g p l a c e i n cases under the Combines I n v e s t i g a t i o n Act.160 The  Supreme  Court  of  Canada  has  expressed  its  acceptance  e v i d e n c e t o p r o v e d e t r i m e n t t o the p u b l i c i n t e r e s t . 1 6 1 ruling  i s i n clear contrast  to ignore  any  to the  trial  judge who  The  of  economic  Supreme Court  expressed  willingness  economic i m p l i c a t i o n s :  Considering, first, "The market s t r u c t u r e " - I b e l i e v e myself on safe ground by s t a t i n g that our Canadian decisions "have c o n s i s t e n t l y r e f u s e d t o be d i v e r t e d by economic or t h e o r e t i c a l arguments about when a market b e g i n s or ends and f i n d the e x i s t e n c e of a market from the p a r t i c u l a r f a c t s of a case," as submitted by the Crown, i n its b r i e f . " 1 6 2  Two  other  increasingly  recent  willing  cases to  economic p r i n c i p l e s t o be Roche Inc. of p r e d a t o r y the  Ontario  prices"  stated,  determination consequence economic advocated economic provided  of the  experts by  evidence by  Restrictive admissability expert's  one  the Trade of  reports.  and of  expert  applied.  In the  in  the  but  part  of  interlocutory Practices expert  to sec.  cannot  An  appropriate  evidence  ( c ) , Linden J . "unreasonably  control  the  to  the  evidence  of low  legal As of  a two  more  flexible  even  more  open  attitude  to  the  R. T.P.C.  is  the  that  the  are  the  court  application  C a t t a n a c h J . noted  courts  c e r t a i n l y relevant."  selected  both  (1)  meaning of  Commission.  economic  34  referred  e x p e r t s . 163  on  the  d e c i s i o n t o c o n v i c t Hoffman-La  i t is  decision  that  evidence  theory  subsequently  the  indicate  i n t e r p r e t i n g the  "Economic  the  on  Act  consider  reasonableness, court  the  p r i c i n g contrary  High C o u r t was  and  under  in  and  Bombardier  This and the  case  the key  approach  Ltd.  discussed  production  i s s u e was  of  whether  v. the the the  155  exclusive  dealing  competition  adopted by  Bombardier  lessened  s u b s t a n t i a l l y i n a market and  or was  likely  to  lessen  then commented:  I would expect t h a t whether c o m p e t i t i o n has been l e s s e n e d i s a f a c t and as such c o n c r e t e evidence c o u l d be adduced t o so p r o v e i f i t had o c c u r r e d . However, whether e x c l u s i v e d e a l i n g i s l i k e l y to s u b s t a n t i a l l y l e s s e n c o m p e t i t i o n i s a f u t u r e o c c u r r e n c e and can o n l y be e s t a b l i s h e d t o be l i k e l y as the i n e x o r a b l e consequence of sound and i r r e f u t a b l y e s t a b l i s h e d economic p r i n c i p l e s . 1 6 4 I t must be of  the  admitted t h a t cases t h a t apply  Combines I n v e s t i g a t i o n s  actions  under  the  doctrine  Act  of  are  not  the c r i m i n a l law  binding  restraint  of  precedents  trade.  provisions for  However,  suggested t h a t combines l e g i s l a t i o n and  the d o c t r i n e of r e s t r a i n t of  share the same r o o t s i n s o c i a l p o l i c y .  The  the  c a s e s c i t e d under the  Combines I n v e s t i g a t i o n A c t  precedents  f o r r e s t r a i n t of  these  areas  two  Corporation  of  the  more l i b e r a l  trade  law  was  cases.  civil it  trade  approach taken  should  be  is  by  persuasive  The  close  r e l a t i o n s h i p between  by  Blair  J.A.  explored  L t d . v. Dunlop I n d u s t r i a l P r o d u c t s L t d .  i n Tank  Lining  1 6 5  I t i s obvious t h a t the covenant i n r e s t r a i n t of t r a d e i n t h i s case would not be l i k e l y to i n v i t e p r o s e c u t i o n under the Combines I n v e s t i g a t i o n A c t , because i t does not a t t a i n c r i m i n a l p r o p o r t i o n s nor c o n f e r market dominance on the parties. I t does not f o l l o w , however, t h a t the covenant c o u l d not be r e g a r d e d as unreasonable w i t h r e f e r e n c e to the public i n t e r e s t under the Nordenfelt doctrine. This r e c o g n i z e d by s.39 [rep. & sub. i b i s . , s. 18(1) of the Act which p r o v i d e s :  39. Except as otherwise provided i n t h i s Part, nothing i n t h i s Part s h a l l be construed to deprive any person of any c i v i l r i g h t of action. Where any agreement c l e a r l y contravenes the A c t , i t w i l l be a u t o m a t i c a l l y s t r u c k down under the second branch of the N o r d e n f e l t t e s t as o c c u r r e d i n Weidman v . Shragge, s u p r a . In o t h e r cases where an agreement f a l l s s h o r t of o f f e n d i n g the s t r i c t c r i m i n a l standards of the Act, i t w i l l still have to f a c e the t e s t of the broader c o n s i d e r a t i o n s of public interest applicable i n c i v i l actions. In summary, the trade  doctrine  l i m i t s of the p u b l i c i n t e r e s t under the r e s t r a i n t o f  remains  a  legal  issue  that  can  only  be  s e t t l e d by  the  156  Supreme C o u r t of Canada. more  liberal  The  most r e c e n t a u t h o r i t i e s appear t o favour  interpretation.  The  doctrine  might  ultimately  require  assessment of the e f f e c t o f an employment agreement on economic and c o n d i t i o n s i n v o l v i n g the p u b l i c . a t the t h r e s h o l d of one  G.  an  social  d o c t r i n e may  be  of i t s g r e a t e s t advances."166  OTHER CONSIDERATIONS 1.  Onus of P r o o f  Well of  In Heydon's words, "the  the  s e t t l e d p r i n c i p l e s of law  restrictive  adopted  i n L i t i g a t i o n of Covenants:  the  covenants.  same l e g a l  restraint.  "The  The  apply  English  and  f o r the  justification  framework  onus i s on the p a r t y  to e s t a b l i s h that  t o a s c e r t a i n the  i t i s reasonable  seeking  i n the  onus f o r e s t a b l i s h i n g t h a t i t i s not  Canadian  reasonableness  authorities of  to e n f o r c e  an  the  have  employment  contract  ...  i n t e r e s t s of the p a r t i e s .  reasonable  The  i n the p u b l i c i n t e r e s t i s  on the p a r t y opposing enforcement..."167 Similar  agreement  reasonableness  of  the  exists  restraint.  covenant must be  considered  given."168  reference  looking  at  contract.  This  developments However,  reasonably  in  the  as  with point  which  attention  parties'  to  the  "[T]he  appropriate question  reference does not occurred  must  be  expectations.  to  of  the  given  Cheshire  that  preclude  the  only  to  judge  the  r e a s o n a b l e n e s s of  time  entirely after  time  covenant a court  formation  to and  a is  from  of  the  f a c t s which  were  Fifoot  that [T] he c o u r t must s c r u t i n i z e the r e s t r a i n t as a t t h e date when the c o n t r a c t was made i n the l i g h t of the c i r c u m s t a n c e s then e x i s t i n g and a l s o i n the l i g h t o f what a t t h a t date might p o s s i b l y happen i n the f u t u r e . The temptation t o c o n s i d e r what i n f a c t has happened by the time of the t r i a l must be r e s i s t e d , f o r a c o n t r a c t c o n t a i n i n g a r e s t r a i n t a l l e g e d to be e x c e s s i v e must be e i t h e r i n v a l i d ab i n i t i o o r v a l i d ab i n i t o . 1 6 9  cautions  157  In  the  context  employment  operate  as a  is  tested against a r i g i d  not  strict  of  legal  burden.  really  that  r e q u i r e d to e i t h e r  the  House of  "[T]he party for  be  onus  Lords of  alleging the  them.  restraint.  such  the  covenantor's  of  proof  Instead,  the  or s e t a s i d e t h e  stated i n Herbert circumstances  judge  of  are proved,  whether  they  There i s no q u e s t i o n of onus one  course,  The  t h a t the c o u r t s h o u l d conclude  covenantor's  conclude  covenantee's  reasonable  geographical  Saxelby,  i t i s a q u e s t i o n of  law  or  do  rest  not  justify  onus  of  proof  also  1 7  between  the  limitations.  parties As  must  circumstances is  reasonable.  to  restraint. the  scope  Demonstrating t h a t the cannot  discussed  prove  extends  all  be  limited  earlier  of  the  c o n f i d e n t i a l i n f o r m a t i o n or t r a d e s e c r e t s . 1 7 3  adequately  can  determine  whether  p r o t e c t the employer's  the  whether  protection.  This  Commonwealth  a  courts,  since  and  this  chapter,  the  required  elements  of  only  goes  so  Next,  f a r as  to  standards  in  interest.  apparently the  the  Such p r o o f a l l o w s the c o u r t  restraint  covenantee h o l d s  statement  of  time  in  to  Heydon argues t h a t c o u r t s have g e n e r a l l y a p p l i e d s t r i c t considering  1 7 1  restraint  t o conclude t h a t t h e employer has a l e g i t i m a t e i n t e r e s t t o p r o t e c t . court  the  or a n o t h e r . " 0  t h a t the r e s t r a i n t  b e i n g protected.172  employer/covenantee  the  As  burden i s t o demonstrate a c o n t e x t i n which t h e c o u r t can  employer's i n t e r e s t is  evidence  the  t h a t the p u b l i c i n t e r e s t would be harmed by the  The  of  on  do  way  case  rules  M o r r i s L t d . v.  must,  not  convenant.  Thus, the r e a l burden on the covenantee i s t o show t h a t a r e such  does  o r covenantee's  of p r o o f .  enforce  When once they  d e c i s i o n of  onus  the p a r t i e s a t t e n t i o n to the f a c t u a l  originally  proving  The  standard  onus of proof will  direct  restraints,  author  a trade  s e c r e t t h a t i s worthy of  applies relies  on  on  a a  general  variety  of  basis  to  earlier  158  Australian, only  has  Canadian  than  R e d u c t i o n Co.  the  any  rule  to  the  The  p a r t i c u l a r ' f a c t s of  on  onus  of  court  to  of  files  conclude  relating  that  the  to  each  For  Ontario The  i n which  information.175  R e c r u i t e r s of T o r o n t o v. Bagg176 the number  proof.  circumstances  confidential  large  However, t h i s  defendant covenantor.  suspicious  employer's  cases.174  of Canada L t d . v. Crane, the  onus of p r o o f to  British  l i m i t e d value.  important  due  and  employer  f a r more  in  Electric  example,  High Court s h i f t e d the onus was  Similarly,  in  the  Management  prospects  confidential  adopted  received  employee had  o f f e r s and had  are  defendant  f a c t s t h a t the job  case  reverse  the  generalization  removed a  allowed  information  the that  deserved p r o t e c t i o n . One  final  Is t h e r e  point  on  the  employer's onus of proof  a d i f f e r e n t onus of p r o o f  should  be  mentioned.  f o r express covenants than f o r breaches  of f i d u c i a r y o b l i g a t i o n s ? This  chapter  existence decision  of  previously  of Megarry V.C.  transfer  of  of p r o o f ?  proving  that Can  the i n f o r m a t i o n  the  existence  information  the  employer  properly  and  t o the  of  the  has  i n Thomas M a r s h a l l  facts  referred  (Exports)  that to  prove the  L t d . v.  employee s a t i s f y the  the  the  helpful  Guinle.177  c o n f i d e n t i a l information  a l s o argue t h a t  and  the  employer's onus  employee's p o s s e s s i o n  l e a d s t o the c o n c l u s i o n t h a t the i n f o r m a t i o n  of will  d i s c l o s e d o r misused? Many cases t h a t make t h i s  employee's in  discussed  c o n f i d e n t i a l information  However, does  be  has  Hivac  protect  an  employees.  f i d u c i a r y or v.  Park  Royal  employer  implied  argument d e a l duties  Scientific  against  and  w i t h a l l e g e d breaches of  must be  Instruments  d e l i b e r a t e and  distinguished.178  Ltd.179  harmful  the  actions  Courts  an As  will  undertaken  by  Such a c t i o n s v i o l a t e an employee's o b l i g a t i o n s of f i d e l i t y . 1 8 0  159  However,  such  enforcement  cases  a r e not d e c i d e d  of covenants  i n restraint  on t h e same of trade.  legal  Express  basis  as t h e  covenants a r e  c o n s i d e r e d t o be prima f a c i e v o i d because they r e s t r i c t t h e employee's u s e of  h i s own s k i l l s Thus,  and  and p e r s o n a l  knowledge.  i n t h e case o f Chevron  Leeson,  doctrine."181  the court The  rejected former  S t a n d a r d L i m i t e d v . Home O i l C o . L t d .  the idea  employee,  of a  Leeson,  "possibility possessed  o f misuse confidential  i n f o r m a t i o n , b u t e m p h a t i c a l l y d e n i e d t h a t he would use i t f o r t h e b e n e f i t of  h i s new employer.  S i n c e Leeson was n o t a t r u s t e e o r d i r e c t o r , he was  not  s u b j e c t t o t h e onerous duty of a v o i d i n g any engagement "which  may  conflict  with  the i n t e r e s t s  I n s t e a d , Moore J . o f t h e A l b e r t a r e s t e d upon t h e former  possibly  o f those whom he i s bound t o p r o t e c t . " Queen's a f f i r m e d t h a t  t h e onus o f p r o o f  employer.  There must be more than a mere p o s s i b i l i t y o f misuse t o s e t t l e l i a b i l i t y on a p a r t y . S u s p i c i o n of misuse o f c o n f i d e n t i a l i n f o r m a t i o n i s i n s u f f i c i e n t - t h e r e must be r e a l e v i d e n c e . Chevron has n o t s a t i s f i e d i t s burden of p r o o f w i t h r e s p e c t t o t h e matters a l l e g e d i n t h e statement of claim.182  160  FOOTNOTES;  1.  CHAPTER V  See The Law Commission Breach o f C o n f i d e n c e (1981) a t p . 18-19; N o r t h P.M. Breach o f C o n f i d e n c e : 149  at  149;  Gurry,  F.  I s There Breach  a New T e s t ?  of  Confidence  (1972) J.S.P.T.L. (1984)  unpublished  m a t e r i a l s a t p . 6. 2.  Maguire  v . N o r t h l a n d Drug Co. L t d . [1935] 3 D.L.R. 521, a t 524 p e r  D y s a r t J , (S.C.C.). 3.  [1916] 1 A.C. 688, a t 702.  4.  (1973) 40 D.L.R.(3d) 371, a t 391.  5.  Elsley  v . J.G. C o l l i n s  I n s . Agencies  L t d . (1978) 83 D.L.R.  (3d) 1  (S.C.C.) 6.  A similar Geraghty  r e a s o n i n g was d i s p l a y e d v. M i n t e r  enforcement  (1979)  26 A.L.R.  o f a non-competition  partnership.  by t h e High  The covenantee  141.  C o u r t of A u s t r a l i a i n The  clause after  case  involved the  the d i s s o l u t i o n  of a  p a r t n e r had a l s o r e c e i v e d t h e r i g h t s t o  the g o o d w i l l o f t h e p a r t n e r s h i p , and c l a i m e d t h a t t h e n o n - c o m p e t i t i o n c l a u s e was the o n l y p r a c t i c a l means of p r o t e c t i n g t h e g o o d w i l l .  Even  though t h e Court noted t h e t h e o r e t i c a l d i f f e r e n c e s between employment and  partnership  restraints,  the  real  r e a s o n a b l e p r o t e c t i o n f o r t h e covenantee. 7.  Supra, n o t e 5 a t p . 8.  8.  (1977) 16 O.R.  9.  Baker  concern  was  to  allow  a  The c l a u s e was e n f o r c e d .  (2d) 682, 79 D.L.R.(3d) 108, a t 112-113 (Ont. H.C.).  v . Gibbons  [1972]  2 A l l E.R.  759; Diamond  Stylus  Bauden v.  P r e c i s i o n Diamonds [1973] R.P.C. 675. 10.  [1982] 8 F.S.R. 92, a t 101.  10a. Read v . Wright 11.  (1963) 45 W.W.R. 108  I n t e r n a t i o n a l Tools v. K o l l a r v a r y i n g 56 D.L.R. (2d) 189.  (B.C.S.C.).  (1968) 67 D.L.R.  (2d) 386 (Ont. C.A.),  161  12.  Regina  v . Kirkwood  (1982)  138 D.L.R.  (Ont. C.A.).  (1983) (3d) 73  148 D.L.R.  (3d) 323; Regina  (Ont. H.C.)  (1983)  v . Stewart  149 D.L.R.  See Chapter I I I F o o t n o t e 5 f o r a d d i t i o n a l  (3d) 583  references.  13.  Chapter VI reviews t h e i n j u n c t i o n remedy.  14.  See t h e u s e f u l d i s c u s s i o n of severance and o v e r r e a c h i n g i n t h e Report on Covenants B.C.  i n Restraint  of Trade,  (1984) Law Reform  Commission o f  a t p . 63-71.  15.  (1938) 55 R.P.C. 21 (Chancery D i v . )  16.  I d . , a t 23.  17.  Id., a t 28.  18.  (1981 ) 12 6 D.L.R. (3d) 451 (Ont.H.C.)  19.  I d . , a t 468.  20.  (1983) 149 D.L.R. (3d) 46 a t p. 50.  21.  Supra, Chapter I I I S e c t i o n s B and C.  22.  George Hunter Invention:  and G i l b e r t  A Comparative  S. Sharpe, Analysis  P a t e n t R i g h t s I n An Employee-  and a Model F o r Reform  (1975) 23  C h i t t y ' s Law J o u r n a l 253. 23.  Id., a t 261.  24.  Supra, Chapter I I I , a t note 64a.  25.  Supra, Chapter I I I a t p. 40-45.  26.  Heydon,  J.D.  The  Restraint  of  Trade  Doctrine  B u t t e r w o r t h s ) a t 20. 27.  Id.  28.  Id.  29.  Supra, note 2.  30.  [1957] 1 W.L.R. 9, a t 18.  31.  Supra, note 5.  32.  Supra, n o t e 5, a t 6.  '  (1971  London,  162  33.  B r a i t , R i c h a r d A., The Use o f R e s t r i c t i v e Covenants i n the Employment Contract  (1981) 6 Queens Law J o u r n a l 414, a t 419.  34.  Supra, note 5.  35.  Supra, note 5, a t 7.  36.  Id.  37.  Supra, n o t e 5, a t 5-6.  38.  Hepworth M a n u f a c t u r i n g Company L i m i t e d v . R y o t t  [192 0] 1 Ch. 1, a t 33  (C.A.). 39.  C h e s h i r e and F i f o o t Law o f C o n t r a c t , ( 1 0 t h E d i t i o n  40.  E s s o P e t r o l e u m Co. L t d . v . H a r p e r ' s Garage A.C.269,  a t 309; Stephens v . G u l f  1981), a t p. 351.  (Stourport)  L t d . [1968]  O i l Canada L t d . (1976) 65 D.L.R.  (3rd) 193, a t 203 (Ont. C.A.). 41.  C u l z e a n I n v e n t i o n s L t d . v . Midwestern Broom Co. L t d . [1984] 3 W.W.R. 11 (Sask. Q.B.) licensing of  A number o f U.S. cases have a l s o c o n s i d e r e d whether  royalties  the l i c e n s e d  a r e e n f o r c e a b l e even a f t e r t h e p u b l i c  trade  secret.  Aronson v . Q u i c k P o i n t  disclosure Pencil  Co.  440 U.S. 257 (1979) and see Case Comment (1978) E.I.P.R. 28. 42.  Law Reform Commission Report on R e s t r a i n t of Trade (1984) a t p. 19.  43.  F u r l o n g v . Burns & Co. (1964) 43 D.L.R. (2d) 689 (Ont. H.C.); T a y l o r v.  McQuickin,  Pitney-Bowes  (1968)  L t d [1966]  2  D.L.R.  (3d) 463  3 A l l E.R.  384  (Man.  Q.B.);  (Q.B.); H e n r i k s o n  Bull  v.  v . Tree  I s l a n d S t e e l Co. L t d . , (1983) 45 B.C.L.R. 115 (B.C.S.C.) 44.  Colonial 242  45.  B r o a d c a s t i n g System L t d . v . R u s s e l l ,  (1964) 48 D.L.R. (2d)  ( N f l d . S.C.).  Inglis C.A.).  v. Great  West L i f e  A s s u r a n c e Co., (1942)  1 D.L.R. 99 (Ont.  163  46.  Supra, note  39.  47.  Warner B r o t h e r s P i c t u r e s I n c . v. N e l s o n  48.  Thwaites  [1936] 3 A l l E.R.  v . M c K i l l o p (1925) 29 O.W.N. 122  v . Dunlop,  [1933] O.R.  246  (OA.);  Bennett-Pacaud  Co.  (OA.)  49.  Sheppard P u b l i s h i n g Co. v . H a r k i n s , ( 1905)  50.  [1974] 3 A l l E.R.  51.  I d . a t 622.  52.  [1975] 1 W.L.R. 61,  53.  160.  9 O.L.R. 504  (OA.)  616.  [1975] A l l E.R.  237.  N o r d e n f e l d t v . Maxim N o r d e n f e l d t Guns and Ammunition Company L i m i t e d [1894] A.O  535  (H.L.).  54.  Id., at  55.  L o r d Macnaghten"s statement was of  Lords  565. not immediately a c c e p t e d by the House  i n the N o r d e n f e l d t d e c i s i o n ,  but  was  expressly  adopted  by  the House of Lords i n Mason v . P r o v i d e n t C l o t h i n g and Supply Company Limited  [1913] A . O 7 2 4 .  P e t r o l e u m Co. 269,  at  See a l s o the more r e c e n t a p p l i c a t i o n i n Esso  L t d . v. Harper's  299-3 00 p e r  Lord Reid.  Garage  For an  see Maguire v. N o r t h l a n d Drug Co. L t d . 56.  (Stourport) L t d . earlier  Canadian  Supra, note  [1968]  A.O  authority,  2.  E l s l e y e t a l . v . J.G. C o l l i n s I n s . A g e n c i e s L t d . [1978] 2 S.C.R. 916, 83 D.L.R. (3d) 1, 36 C.P.R. (2d) 65 a t 5 D.L.R. p e r J u s t i c e Doerner  et a l . v. B l i s s  S.C.R. 865,  Dickson;  & L a u g h l i n I n d u s t r i e s I n c . e t a l . [1980] 2  117 D.L.R. (3d) 547,  a t 551  D.L.R.  57.  (1983) 140 D.L.R. (3d) 659,  a t 663-64.  58.  Id.  59.  Supra, n o t e s 57 and 58 f o r the f o u r q u e s t i o n s .  164  60.  See Western  Inventory  Service  L t d . v . Sager  (1983)  434, a t 439 (Ont. H.C) where Mr. J u s t i c e Krever l i s t s of  law a p p l i c a b l e  employment  t o the doctrine  restraints.  148  D.L.R.(3d)  16 p r o p o s i t i o n s  of the r e s t r a i n t  o f t r a d e and  No mention i s made o f t h e element of p u b l i c  policy. 61.  C h e s h i r e and F i f o o t ' s Law o f C o n t r a c t  62.  [1968] A.C. 269, [1967] 1 A l l  63.  Supra, note 61.  64.  Supra, note 57, a t 668-69.  65.  Supra, n o t e 61, a t 355.  66.  [1947] O.R.  (1981 10th e d i t i o n ) a t 354-55.  E.R. 699.  1 A l l E.R. 179, a t 181.  257, a t 260; C r a i g Agency  Apld. M i l l s of Ontario  e t a l . v. G i l l  L t d . v.Bennett  [1952] et.  al.  (1977) 74 D.L.R. (3d) 562, a t 569 (Ont. H.C.). 67. I d . 68.  (1971 ) 18 D.L.R. (3d) 574 ( S . C . C ) .  69.  I d . , a t 585. and of  Laskin  J . c i t e d Attwood v . Lamont  3 K.B. 571,  Maquire v . N o r t h l a n d Drug Co. L t d . [1935] 3 D.L.R. 521 i n s u p p o r t h i s summary of the law.  70.  (1983) 148 D.L.R. (3d) 434 (Ont. H . C ) .  71.  (1979) 45 C.P.R. (2d) 206 (B.C.S.C.).  72.  Supra,See Chapter I I  73.  [1920]  S e c t i o n D.  Id.  74.  (1971 ) 15 D.L.R. (3d) 604 (Ont. H . C ) .  75.  I d . , a t 607.  76.  (1976) 58 D.L.R. (3d) 352 (Ont. H.C.) a t 359-60.  165  77.  Supra, note 66.  78.  Onus o f Proof under t h e D o c t r i n e of R e s t r a i n t of Trade i s reviewed i n p a r t G o f t h i s Chapter.  79.  Sherk v . H o r w i t z (1973) 31 D.L.R. (3d) 152, a t 153 (Ont.  80.  Supra, note 26 a t p . 86-87.  81.  Supra, note 74.  82.  I n d u s t r i a l Furnaces L t d . v . Reaves [1970] R.P.C. 605 (Ch. D i v . ) .  83.  (1969) 67 W.W.R. 246, a t 254 (Man. C.A.).  84.  Id.  85.  N o r t h e r n Messenger & T r a n s f e r L t d . v . Fabbro (Man.  86.  C.A.).  (1964) 45 D.L.R. (2d) 73  Q.B.).  C a n t o l v . B r o d i Chemicals L t d . (1978) 94 D.L.R. (3d) 265, 42 C.P.R. (2d) 1 11 (Ont. H.C.) .  87.  R.I. C r a i n L t d . v. Ashton aff'd  88.  [1949] 2 D.L.R. 481, a t 485-86  (Ont.  H.C),  [1950] 1 D.L.R. 601 (Ont. C.A.).  This  list  was p r e p a r e d by the author as p a r t  1985  Computers  and Law  Institute  March  of m a t e r i a l s  11th/12th  for  the  1985 C o n t i n u i n g  L e g a l E d u c a t i o n S o c i e t y o f B.C. (as y e t u n p u b l i s h e d ) 89.  Supra,  Note  87  a t 488-89.  A  related  example  i s Mustad  [1963] R.P.C. 97 where the owner of i n f o r m a t i o n a p p l i e d and  disclosed  i t t o the world.  The  information  v . Doson  f o r a patent  i n the patent  s p e c i f i c a t i o n was no l o n g e r p r o t e c t e d as c o n f i d e n t i a l . 90.  Robin-Nodwell  Mfg. L t d . v . Foremost  Developments  L t d . and Nodwell  (1966) 52 C.P.R. 244 ( A l t a . S . C ) . 91.  In P a u l v . Southern Instruments  [1964] R.P.C. 118, t h e p l a i n t i f f was  a b l e t o s u c c e s s f u l l y e n f o r c e o b l i g a t i o n s of s e c r e c y a g a i n s t who l e a s e d phone answering  machines.  customers  166  92.  Supra.  93.  Id.  94.  Supra.  95.  Webster, T h i r d I n t e r n a t i o n a l D i c t i o n a r y S p r i n g f i e l d , Mass.  96.  B r a i t , R i c h a r d A. Contract  Note 90 a t 250-51.  Chapter I I I a t Fn. 5 f o r r e l e v a n t cases and r e c e n t  articles. 1969.  The Use o f R e s t r i c t i v e Covenants i n the Employment  (1981) 6 Queens  Law  J o u r n a l 414, a t 423-424;  Handbook, (1983) a t 95-99.;  Jager,  Melvin  F.  Trade S e c r e t s Law  D.  R e s t r i c t i v e Covenants, T r a d e S e c r e t s , and Wrongful D i s m i s s a l , Law  S o c i e t y of Upper Canada S p e c i a l L e c t u r e s  F i n l a y s o n , George  1976 Employment  Law  251, a t  261-62. 97.  F. Dessemontet, The L e g a l P r o t e c t i o n of Know-how i n t h e U n i t e d of America, (1976 2nd E d i t i o n , t r a n s l a t e d by H.W.  98.  Id.  99.  Wheeler Industry  L. T r a d e S e c r e t s  and  the S k i l l e d  States  C l a r k e ) , a t 15-16.  Employee  i n the  Computer  (1983) 61 W.U.L.Q. 823 a t 839-43.  100. I d . a t p. 43. 101. [1916] 1 A.C. 688  (H.L.).  102. I d . , a t 714. 103. Supra, Note 99 a t 823 Fn. 7 r e f e r r i n g t o G i l l e t t e Co. v. W i l l i a m s F. Supp. 1171 a t 1176-78 (1973) D. 104.  [1964] 3 A l l E.R.  731  360  Connecticut.  (Ch. D. ) .  105. I d . , a t 735. 106. I d . , a t 736. 107. Commercial P l a s t i c s L t d . v . V i n c e n t  [1965] 1 Q.B.  623  108. Chevron  O i l Company  Limited  [1982]  Standard  Limited  3 W.W.R. 427  v.  (Alta.  Home C.A.),  at  p.  446  when  (C.A.).  the  and L e e s o n employee's  167  distinction  between p r i v i l e g e d  knowledge  and p o r t a b l e  knowledge was  a c c e p t e d by t h e c o u r t . 109. Hammond, G.R. Information  Law  and t h e M i s a p p r o p r i a t i o n  i n t h e Computer  Age.  Sept.  of Valuable 24,  1984  Commercial unpublished  m a t e r i a l s c i r c u l a t e d a t U n i v e r s i t y o f Toronto c o n f e r e n c e i n Oct. 1984 a t p . 267. 110. L o u i s v . S m e l l i e  (1895) 11 T.L.R. 515.  111. Waite's Auto T r a n s f e r  L t d . v . Waite  [1928]  3 W.W.R., I c e D e l i v e r y  Co. v . P e e r s and Campbell [1926] 1 D.L.R. 1176 (B.C.C.A.). 112. Supra,  note  90, a t 249, T a s c o  113. D. Wedge, The A c q u i s i t i o n  Telephone Answering Exchange L t d .  o f Packaged Software:  An Overview  (1984)  Canadian Computer Law R e p o r t e r 39, a t 45. 114. (1983) 140 D.L.R. (3d) 659 (Ont. C.A.). 115. Kores M a n u f a c t u r i n g Co. L t d . v . K o l o k M a n u f a c t u r i n g Co. L t d . [1958] 2 A l l E.R. 65, ( C . A . ) . 116. Supra, note 11. 117. [1972] V.R. 315. 118. I d . , a t 318. 119. (1973) 1 A u s t . L.R. 385 (Aust. H . C ) . 120. (1976) 65 D.L.R. (3d) 193 (Ont. C.A.). 121. Id., a t p. 209. 122. (1977) 1 W.L.R. 1472.  See a l s o G r e e r v . S k e t c h l y  [1979] I.R.L.R. 445  a t 447 (C.A.). 123. I d . 124. Heydon, J.D. The R e s t r a i n t of Trade D o c t r i n e , (1971) a t p. 20-21. 125.  [1916] 1 A.O  688, a t 707.  168  126. [1894] A.C. 535 (H.L. ) a t 300-301. 127.  [1968] A.C. 269 (H.L.) a t 300-301.  128. [1974] 616  1 A l l E.R.  171 a t 177-78 (C.A.),  affirmed  [1974] 3 A l l E.R.  (H.L.).  129. (1978) 95 D.L.R. (3d) 231 (BCCA). 130. Supra, note 42 a t 68-69. 131. Supra, note 26 a t 344-45. 132. H.F. C l a r k e L t d . v . T h e r m i d a i r e  C o r p . L t d . (1973) 33 D.L.R. (3d) 13  a t p. 22, r e v e r s e d 54 D.L.R. (3d) 385., ( S C O . 133. (1969) 6 D.L.R. (3d) 680 a t 687. 134. Id. 135. (1981) 117 D.L.R. (3d) 547 a t 556. 136. 358 N.E. 2d 804 (1976), Supreme J u d i c i a l Court o f Mass. 137. Id. , a t 806-07. 138. I d .  '  139. I d . , a t p . 805-08. 140. L i t t l e w o o d s O r g a n i z a t i o n L t d . v . H a r r i s , [1977] 1 w.L.R. 1472; E l s l e y e t . a l . v . J.G. C o l l i n s I n s . A g e n c i e s L t d . ,  [1978] 2 S.C.R. 916.  141. Supra, note 3 9 a t 358. 142. The  public  interest  i n confidential  information  is  also  e x p l o r e d i n o t h e r a r e a s than t h e d o c t r i n e o f r e s t r a i n t o f t r a d e . example, t h e p u b l i c i n t e r e s t breach  o f confidence  Hubbard  v . Vosper  v. P u t t e r i l l in  a  has been  actions: [1972]  recognized  F r a s e r v . Evans  1 A l l E.R.  legal  treatment  1023; I n i t i a l  o f government  For in a  [1969] 1 A l l E.R. 8;  [1968] 1 QB 396; The p u b l i c i n t e r e s t  different  as a defence  being  Services L t d .  a l s o has r e s u l t e d  secrets  rather  than  169  private  proprietory  trade  secrets.  John F a i r f a x & Sons P t y L t d . S t a t e Confidence the Part  Media  Commonwealth  of A u s t r a l i a v.  S e c r e t s , C o p y r i g h t and B r e a c h of  [1981] 8 E.I.P.R. 243; N i c o l A. Breach o f C o n f i d e n c e and [1981]  B/Tensions  12 E.I.P.R. 348; Gurry and Competing  Interests  F. Breach  of Confidence -  - The P u b l i c  Interest  29  (unpublished m a t e r i a l s ) . 143.  [1968] A.C. 269, a t 324 (H.L.).  144.  [1972] 1 A l l E.R. 513.  145.  I d . , a t 526-27.  146.  (1976) 65 D.L.R. (3d) 193 (C.A.).  147.  I d . , a t 213.  148.  (1974) 45 D.L.R. (3d) 161 (Ont. H . C ) .  149.  I d . , a t 200.  150.  Supra,  note  Publishing Diplock  39  a t 213.  See a l s o  Co. L t d . [1974]  Macaulay  v . Schroedor  Music  3 A l l E.R. 616 (H.L) a t 626 where  degraded t h e importance of economic  Lord  t h e o r y and s t r e s s e d t h e  element o f f a i r n e s s between t h e p a r t i e s . 151.  Finlayson, Wrongful 1976  152.  George  Dismissal"  D.  " R e s t r i c t i v e Covenants, Law S o c i e t y  o f Upper  Trade  Canada  Secrets,  Special  and  Lectures  Employment Law, a t 259.  Fridman,  G.H.L.  R e s t r a i n t o f Trade"  "Some  Polemical  Thoughts  on  the Subject  The Canadian B u s i n e s s Law J o u r n a l  153.  Supra, note 146.  154.  (1980) 149 D.L.R. (3d) 659 ( C . A . ) .  155.  I d . , a t 674.  a t 312-13.  of  170  156.  (1981) 117 D.L.R. (3d) 547, a t 553-54  157.  (1971 ) 25 D.L.R. (3d) 675  (S.C.C.).  (Ont. H . C ) , u p h e l d  on o t h e r  grounds a t  (1972) 31 D.L.R. (3d) 152. 158.  (1983) 141 D.L.R. (3d) 571, a t 572-73 ( A l t a . C.A.).  159.  Marathon  Reality  Co.  L t d . v.  Bedford's  Drug  Store  (1980)  25  B.C.L.R. 102 (B.C.S.C). 160.  R.S.C. 1970, c. C-23, 552, 33.  161.  R. v . K.C. I r v i n g L t d .  162.  (1974) 16 C.C.C. (2d) 49, a t 79.  163.  R e g i n a v . Hoffman-La Roche L t d . 1980 48 C.P.R. (3d) 145, a t 180.  164.  (1980) 48 C.P.R. (2d) 248, a t 251.  165.  Supra, note 57 a t 671.  166.  Heydon, J . D.  (1977) 72 D.L.R. (3d) 83, a t 92-94  (S.C.C).  "Recent Developments i n R e s t r a i n t o f T r a d e " (1975) 21  M c G i l l Law J o u r n a l , 325. 167.  Tank L i n i n g C o r p . v . Dunlop I n d u s t r i a l L t d . (1983) 140 D.L.R. (3d) 659, a t 665 (Ont. C.A.); E l s l e y (1978) Saxelby  168.  83  D.L.R.  [1916] 1 A . O  Doerner e t . a l . 117 Ltd.  (3d) 1, a t 9  (S.C.C);  I n s . Agencies L t d .  Herbert  Morris  L t d . v.  689, a t 707.  v. B l i s s  and L a u g h l i n I n d u s t r i e s I n c . e t . a l .  D.L.R. (3d) 547, a t 556 et.al.  v . J.G. C o l l i n s  (S.C.C);  (1981)  Stephens v . G u l f O i l Canada  (1975) 65 D.L.R. (3d) 193 (Ont. O A . ) ; A.-G. A u s t r a l i a  v. A d e l a i d e Steamship Co. L t d . [1913] A . O  781, a t 797.  169.  S u p r a , note 39 a t 359.  170.  [1916] A . O  171.  See H i e b e r t v . P a c i f i c Petroleums L t d . (1980) 50 C.P.R. (2d) 41, a t  689, a t 707.  43-44; P e t r o f i n a Canada L t d . v . G i o n e t 69.  (1973) 9 N.B.R. (2d) 65, a t  171  172.  There i s a l a c k o f case a u t h o r i t y logic  of the c o n c l u s i o n  Developments 325  supra,  Restrictive Law 173.  i s supported  i n Restraint note  dealing  of Trade"  139, a t 44.  with t h i s point, but the  by  Heydon,  J . D.  (1975) 21 M c G i l l  Brait,  Covenants i n t h e Employment  Richard  A.  Contract"  Law  "Recent Journal,  "The Use of (1981) 6  Queens  J o u r n a l 414, a t 437-38.  Consolidated  T e x t i l e s v . C e n t r a l Dynamics L t d . (1974) 18 C.P.R. (2d)  1, a t 11. 174.  Heydon, J . D.  "Recent Developments i n R e s t r a i n t o f T r a d e " (1975) 21  M c G i l l Law J o u r n a l ,  325 a t 336-3 7.  175.  (1958) 29 C.P.R. 134, a t 136 (Ont. H.C.).  176.  (1970) 15 D.L.R. (3d) 684 (Ont.  177.  [1978] 3 A l l E.R. 193 (Ch. D. ) .  178.  Chapter IV d e a l t with  179.  Hivac  v . Park  Royal  Implied  H.C).  and F i d u c i a r y  Scientific  Obligations.  Instruments  L t d . [1946]  Ch. 169  (C.A.). 180. 181.  Id. [1980]  5 W.W.R., 624  ( A l t a . OA.) . 182.  Id.  a t 666-67  (Alta.  Q.B.),  affirmed  [1982]  3  172  VI  THE As  CRITICAL REMEDIES FOR discussed  employee  in  categories  the  of  i n the  previous  computer  implied,  BREACH OF AN  EMPLOYEE'S OBLIGATIONS  chapters,  industry  to  the  his  f i d u c i a r y and  o b l i g a t i o n s of  employer  express  a  skilled  arise  from  separate  obligations.  The  remedies  t h a t are a v a i l a b l e t o d e a l w i t h a b r e a c h of an o b l i g a t i o n depend p r i m a r i l y upon the an  source of the  obligation.  Thus, breach of  express terms  of  employment c o n t r a c t l e a d to the w e l l d e f i n e d p r i n c i p l e s of damages s e t  out  i n Hadley v. B a x e n d a l e l and  who  v i o l a t e s an express r e s t r i c t i v e covenant w i l l be  all  the  losses  formation t o be will  of  that  the  were  subsequent d e c i s i o n s . 2  reasonably  contract.  foreseeable  Where the  implied  i m p l i e d terms of the c o n t r a c t , the  Thus, an  employee  l i a b l e i n damages f o r  to  the  parties  o b l i g a t i o n s are  same r u l e s on  at  the  considered  c o n t r a c t u a l damages  apply.3 The  damages  British for  Columbia  breach  a s s e s s e d on the  employer against  i n the  an  are  party  confidence?  damages a g a i n s t These importance  Their relevance  other  who  industry.  has  similarily  fiduciary breach of issues  First,  obligations contract.  that  what  are  to  the  r e s t r a i n an  grant  that to  be  for  an  4  critical be  from an  appropriate  employee  T h i r d l y , can the c o u r t s  are  damages can  p a r t i c i p a t e s i n or b e n e f i t s  Secondly, what are  stated  awarded  employee's  principles for  from  breaches  exemplary o r  of  a  punitive  an employee f o r a breach of employment o b l i g a t i o n s ?  three to  Appeal  employee's  interlocutory injunction  r e s t r i c t i v e covenant?  of  c e r t a i n remedial  computer  a third  breach of  of  Court  same b a s i s as any  However, t h e r e  an  the  remedial  the  questions  particular  w i l l be  have  been  circumstances  explained  selected of  i n each s p e c i f i c  the  for  their  computer  section.  great  industry.  173  The  assumption  that  nature t o t h e i n d u s t r y not  relevant.  injunctions6, profits9  these  issues  are of a p a r t i c u l a r l y  does not mean t h a t a v a r i e t y of o t h e r  Remedies constructive  such  as  trusts7,  Mareva  Anton  number  these  and  complexity  concentration  of  Remedies a g a i n s t  accounting f o r  computer  industry.  confidentiality party  An  by a p p r o p r i a t i n g competitor.11  contractual  remedies  contractual  obligations  remedies  has  lead  are c r u c i a l  a  may  breach  f o r an employer i n  express  covenants  of  software and then s e l l i n g t h e program t o  i f t h e employee then d i s a p p e a r s ,  of damages  to  Who B e n e f i t s From an Employee's  outsiders  employee  However t h e v e r y  remedial i s s u e s :  a T h i r d Party  t h i r d party  industry.  possible  on t h e t h r e e most c r i t i c a l  Damage Awards a g a i n s t Breach o f C o n f i d e n c e  a third  orders8,  permanent  and d e l i v e r y up10 a r e a l l p o t e n t i a l l y a p p l i c a b l e t o r e d r e s s t h e i n t h e computer  the  remedies a r e  injunctions5,  Piller  l o s s e s s u f f e r e d by employers  1.  critical  or i n j u n c t i o n  are i r r e l e v a n t .  based  upon  The employer's  t h e normal  t h e breach o f concern  i s to  e i t h e r p r e v e n t t h e c o m p e t i t o r ' s use o f the software v i a an i n j u n c t i o n , o r else  to claim  compensation  i n damages i f t h e c o m p e t i t o r has a l r e a d y  s u c c e s s f u l use of t h e software. actions  amount  t o a breach  p r i n c i p l e s o f damages apply First,  I f i t i s assumed  t h e n what  t o such a breach?  i t appears t h a t t h e c o u r t s , i n t h e absence o f express  property  in  r e s t r a i n i n g breaches o f confidence.13 Law  the c o m p e t i t o r ' s  of an o b l i g a t i o n o f c o n f i d e n c e , 12  or  the  that  r i g h t s , are e x e r c i s i n g the concurrent  Commission's  made  report  on Breach  jurisdiction  contract  of e q u i t y  T h i s was a l s o t h e c o n c l u s i o n o f of Confidence14  after  cases such as P r i n c e A l b e r t v . Strange15 and M o r r i s o n v . Moat.16  reviewing  174  I f c o n f i d e n t i a l i n f o r m a t i o n can invoke  t h e p u r e l y e q u i t a b l e powers of  the c o u r t s , then t h e remedies f o r breach o f c o n f i d e n c e subject  t o common  substantive the  law l i m i t a t i o n s .  jurisdiction  equity  not be always  can impose  t o p r o t e c t i n f o r m a t i o n i n those  absence o f c o n t r a c t o r p r o p e r t y  common law.  Instead,  will  i t s own  s i t u a t i o n s where  r i g h t s has removed t h e case from t h e  F u l l a g a r J . of t h e Supreme Court  of V i c t o r i a  expressed  this  concept i n a r e c e n t t r a d e s e c r e t case as f o l l o w s :  I t must a l s o be c o n s t a n t l y borne i n mind t h a t e q u i t y a c t s i n personam upon t h e defendant, t h a t i t i s o n l y unconscionable conduct t h a t e q u i t y w i l l r e s t r a i n o r v i s i t with i t s o t h e r remedies, and t h a t e q u i t y o n l y extends any remedy a t a l l where i t i s s a t i s f i e d both t h a t i t i s j u s t i n a l l t h e c i r c u m s t a n c e s t o extend i t and t h a t t h e r e a r e no remedies a v a i l a b l e a t common law (e.g., by reason of p r o p e r t y a t common law or o f some common law c o n t r a c t ) which a r e i n a l l t h e c i r c u m s t a n c e s 17 adequate. Strong  Canadian  equitable  damages.  confidence  i s an  capacity.  authority This  authority  illustration  plaintiff  may  injunction  Court's  of  f o r the court's upholds  equity  t h e view acting  right  t o award  that  breach  of  i n i t s substantive  I n E l s l e y v . J.G. C o l l i n s Insurance A g e n c i e s L t d . , a unanimous  d e c i s i o n o f t h e Supreme Court  equitable  exists  have  i f he  a  right  of Canada, t h e p r i n c i p l e i s given t h a t : t o damages  i n equity  can e s t a b l i s h h i s e n t i t l e m e n t  c o n s i d e r a t i o n s . " 18  Dickson  power t o award damages i n e q u i t y  t o t h e L o r d C a i r n s ' A c t o f 1858.  J . ( a s he  i n addition  under then  i n the province  the  "a  t o an  appropriate  was) t r a c e d t h e of O n t a r i o  S e c t i o n 21 o f t h i s l e g i s l a t i o n  Where t h e c o u r t has j u r i s d i c t i o n t o e n t e r t a i n an a p p l i c a t i o n f o r an i n j u n c t i o n a g a i n s t a breach o f a covenant, contract o r agreement, or against the commission o r continuance o f a wrongful a c t , o r f o r t h e specific performance of a covenant, contract or  back  provided:  175  agreement, the c o u r t may award damages t o the p a r t y i n j u r e d e i t h e r i n a d d i t i o n to or i n s u b s t i t u t i o n f o r the i n j u n c t i o n or s p e c i f i c performance, and the damages may be ascertained i n such manner as the court d i r e c t s , or the c o u r t may grant such o t h e r r e l i e f as i s considered j u s t . 1 9  The  British  C a i r n s Act, Estates  Columbia  1858,  v.  Supreme Court  i s p a r t of the law  Fuller  Toy  J.  decided  has  considered  whether  of B r i t i s h Columbia.  that  the  Lord  the  Lord  In Arbutus Park  Cairns'  Act  1858  (Imp)  i  c.27,  was  adopted  R.S.B.C.  1960,  in British  Chapter  s e c t i o n 2 of the Law of  these  Columbia  129.20  and  The  award e q u i t a b l e damages.  courts  v i r t u e of  current  Equity Act  a u t h o r i t i e s , the  by  statutory  chap. 224  in  British  Columbia  c o n c l u s i o n on the e f f e c t of the L o r d C a i r n s '  purely  equitable  calculating  the  capacity, award?  presented  some f l e x i b l e  unanimous  decision  Dickson  J.  in  suggested  authority  have  Act,  is  As a the  now  result  power  to  j u r i s d i c t i o n s supports t h i s Act.  2 0 a  c o u r t s have the power t o g r a n t damages i n a what  principles  Fortunately, guidelines Elsley  that  E n g l i s h Law  R.S.B.C. 1979.  A u t h o r i t y from o t h e r  Having c o n c l u d e d t h a t our  the  v.  the  to  usually  Supreme  assist  J.G. the  should  the  Collins common  be  Court  lower  in  Canada  has  courts.  Insurance law  of  followed  In  Agencies  p r i n c i p l e s could  the Ltd, be  f o l l o w e d t o determine e q u i t a b l e damages: I t w i l l g e n e r a l l y be a p p r o p r i a t e t o adopt i n e q u i t y r u l e s s i m i l a r to those a p p l i c a b l e a t law: Spry, E q u i t a b l e Remedies '1971', a t page 552-554. This i s so not because the c o u r t i s o b l i g e d t o a p p l y analogous l e g a l c r i t e r i a , but because the amount of compensation which would s a t i s f y the l o s s s u f f e r e d , and which the c o u r t c o n s i d e r s j u s t and e q u i t a b l e to be p a i d , u s u a l l y happens t o be equivalent t o the amount of legal damages which would be a p p r o p r i a t e . 2 1  However, Mr. common  J u s t i c e D i c k s o n d i d not want the  law  damage  substantive  power  rules of  to equity  be  interpreted in  a  breach  recommended use  as  a of  limitation confidence  of on  the the  action.  176  Accordingly,  the c o u r t c a r e f u l l y p o i n t e d  out  that:  The award i s s t i l l governed, however, by general e q u i t a b l e c o n s i d e r a t i o n s which would not apply i f the p l a i n t i f f were seeking damages a t law r a t h e r than i n equity. These considerations might serve, for example, t o reduce the amount due to such f a c t o r s as d e l a y or a c q u i e s c e n c e . *  However, the related  general  questions  unanswered.  Copydex23 p o i n t s out can  create.  The  relating  the  of  without  the  which  successful Denning  Lord  involved  to  an  negotiating  a  to  develop  and  of  Denning's  to  a  contract.  entering  and  received the  a  lump  protection  equity  p r e j u d i c e of him  judgement  that  who  he  to  that the  unfortunate  who  has  the  in  defendant's The  contract  He  the  information The  from  ended  plaintiff. as the  basis  Lord  "the  in  make use  was  Court.  upon  information  must not  during  plaintiff  the  plaintiff  received  confidential  officers  with  v.  court  negotiations  product.  the  Seager  that a  disclosed  damage award  afforded  the  plaintiff  calculation choice  c o n f i d e n t i a l information Since  a  i t s own  sum  many damage  broad  confidence  of i t to  the  gave i t without o b t a i n i n g h i s consent."24  deciding turned  Denning's  the  into  market  decision  who  invention market  leave  pragmatic c o n f u s i o n  plaintiff  s h a l l not take u n f a i r advantage of i t .  After  above s t i l l  defendant then used the p l a i n t i f f ' s  based  principle  noted  t h e o r e t i c a l and  defendant's  However, the upon  the  case  information course  guidelines  was  was  of to  the  protected plaintiff's  view  the  as analogous t o the t o r t of  conversion  analogy  meant  that  deprived  of h i s p r o p e r t y ,  the l o g i c a l remedy was  property  to the p l a i n t i f f  or t o compel the  the  by  equity,  damages.  unauthorized  use  the Lord of  conversion. plaintiff  had  then e i t h e r t o r e t u r n  defendant t o pay  been the  a royalty for  177  its  use.  Since  the  manufacture t h e i r  defendants  own  product,  had  used  tort  "would  of  be  conversion,  regarded  information".25  as  Lord a  In o t h e r  award.  Denning  real  information  To complete t h e analogy  concluded  outright  words, a f t e r  the defendants became the new  plaintiff's  to  Lord Denning awarded damages c a l c u l a t e d as  a r o y a l t y c a p i t a l i z e d i n t o a lump sum the  the  the  owners of the  that  the  purchase  of  payment  of  damage  the the  with award  confidential damage award,  information.  F o r t u n a t e l y , Canadian c o u r t s have not as y e t f o l l o w e d t h i s p o r t i o n of Denning's  judgment.  unsatisfactory and  the  that  as  the  one  owner.  and  be  basis  of  to  the  for  like  Lord a  by  multiple  to a software  owners.  software  Such a r e s u l t  Denning's and  after  to e x i s t  as  soon as  Mass m a r k e t i n g of the  software  secret.  plaintiff  However, the  from u s i n g the  quite  approach  can  only  assumes  belong  to  can be e a s i l y d u p l i c a t e d  Lord  final  is  confidentiality  Denning's  reasoning  the p l a i n t i f f would judgment.  was  theoretically  Having p a i d  the  owner.  a l s o p u t s the p l a i n t i f f  t h e f u t u r e use of the s o f t w a r e .  conversion  involving  chattel,  If  misappropriation,  from u s i n g the  ceases  of  However, i n f o r m a t i o n such as software  damages, the defendant would be the new  it  tort  damages  software.  is indivisible,  possessed  be b a r r e d  analogy  legal  misappropriation  information  applied  The  i n an  illogical  p o s i t i o n as  to  A b a s i c premise of a t r a d e s e c r e t i s t h a t the by  information  enters  the  public  the defendant c o u l d e f f e c t i v e l y  would then be  the  only  domain. end  the  person p r o h i b i t e d  software.  Another o b j e c t i o n to the t o r t i o u s analogy i s t h a t i t i m p l i e s a system of  compulsory  Seager  v.  confidential  licensing  Copydex  or  damage  information  to  compulsory award sell  forced the  transfer the  of  information.  original  information  at  holder  market  of  p r i c e to  The the an  178  unlawful  appropriator.  The  judgement would shock the would be  g i v i n g up  an  practical  consequences  software i n d u s t r y .  of  such  a  court  In e f f e c t , a software vendor  immediate market edge f o r a f u t u r e  lump sum  damage  award. These the  t h e o r e t i c a l and  United  Kingdom  confidence. the  to  In p a r t ,  pragmatic problems l e a d  recommend  the  a  new  " u n c e r t a i n t i e s or i n a d e q u a c i e s " i n the  Research  and  Protection  Reform  a  the  summary of  party that very  resolved  how of  remedial  difficult  ( i f any)  e x i s t i n g law,  recipients "the  its  to  the  liability  the  c o n f i d e n t i a l information"28,  problems advise  can  which  or  this  clients  protection  against  the  non-authorized  should  cause  with  of  any  draft  software  Injunctions  interlocutory software in  of  real bills  26  report  on  uncertainties  l e g a l damages. C o u r t s have  imposed and  upon  then  to  not  concluded  creates  make i t  provide of  In  third  confidence".29  appropriation  Law  The  statutory  trade  secrets.30  I n s t i t u t e i s recommending t h a t u n a u t h o r i z e d r e c i p i e n t s of  Interlocutory Covenant  competition  be  damages.  1984  action  s e c r e t s h o u l d be s u b j e c t t o a s t a t u t o r y t o r t  a  breach  I n s t i t u t e of  "the  far  alternative  In e f f e c t , the  and  Institute stated  two  protect  the  February,  between e q u i t a b l e  proposes  The  for  based upon t h e i r a n a l y s i s of  f o r w a r d by  In  Institute  trade  tort  Commission i n  e x i s t i n g remedy of  r e c e n t l y put  Alberta.  Law  of T r a d e S e c r e t s 2 7 . the I n s t i t u t e r e f e r r e d t o the difference  firmly  was  in  caused by the  2.  statutory  recommendation was  A s i m i l a r conclusion  the  the  product  to  injunction  trade  secret  software becomes  Restrain  ranks  against  The  action.  Breaches  the  and  strict  of  a  Restrictive  most i m p o r t a n t  ex-employees.  marketplace  outdated,  development must be m a i n t a i n e d .  as  a  the  Given the  speed  secrecy  remedy  with during  to  intense which  a  product  i n t e r l o c u t o r y i n j u n c t i o n i s the l e g a l  179  remedy  that  best  preserves  an  employer's  desire  t o be  first  i n t o the  market w i t h a new p r o d u c t . American software  a u t h o r i t i e s s u p p o r t t h e view t h a t wide spread marketing o f  does  not n e c e s s a r i l y  publication.  Provided  obligations trade  that  of confidence  secret  destroy  the trade  customers  receive  (as i n r e s t r i c t i v e  i s preserved.31  Given  secret the  by  reason  software  of  under  l i c e n s i n g agreements), t h e  t h e wide  spread  d i s t r i b u t i o n of  software, an i n t e r l o c u t o r y i n j u n c t i o n must be viewed as t h e most e f f e c t i v e remedy  to  deal  with  misappropriation  an  could  outright  quickly  lead  employer's s o f t w a r e i n a t h i n l y concern w i l l be t o stop  instance to  disguised  the e r o s i o n  of  the  software  piracy.  marketing  format.  of  a  Any  vendor/  The employer's primary  of h i s market as soon as p o s s i b l e v i a  the i n j u n c t i o n remedy. A trial  strong  monetary  d i s i n c e n t i v e e x i s t s f o r an employer  and a damage award i n s t e a d  former  employees  awards  f o r breach  loss.  A  have  exigible  of c o n t r a c t  successful  of t h e i n j u n c t i o n remedy.  assets only  plaintiff  In p a r t i c u l a r , court  offset  fees.  The e d i t o r  provide  costs  The  litigation.  backlog  litigation  i n our  to increase  t h e damage  a t h e o r e t i c a l recoupment o f pay  f o r the  are i n c r e a s i n g l y  o f the Advocate  c o u r t c o s t s today i n B.C. o n l y r e c o v e r connected w i t h  still  a  Even i f t h e  i n the j u r i s d i c t i o n ,  must  litigation. legal  considering  recently  approximately  expense  of  inadequate t o observed  that  10%-20% o f l e g a l  fees  3 2  civil  courts  t h e importance  combines  with  of i n t e r l o c u t o r y  cases i n B r i t i s h Columbia a r e c u r r e n t l y e x p e r i e n c i n g  the  expense  relief.  of  Civil  delays  o f between 12  t o 16 months from t h e date t h e a c t i o n i s s e t down f o r t r i a l  t o the a c t u a l  court  date.  These  delays  do n o t i n c l u d e  t h e p r i o r time i n v o l v e d  i n the  180  initial  preparation,  pleadings  short  p r o d u c t l i f e of  mean  that  parties'  an  software, the  interlocutory  the  importance  employer  in  Canadian  courts  answered by An  the  will  case where the  r o l e of  limited  view  delay.  of  the  Secondly,  restraint critically  this  delays  determinative  of  the  prior  the  trade.  An to  the  balance  the  that The that  i t had  had  of  remedy  grounds  upon  question  a C o u r t of  and  for  can  an  which  only  be  perspective. Equity  to  remedies a v a i l a b l e  protect  title, to  a  or  party  the  actual  an  could  trial  of  litigation with  were mainly  parties. granting  action private issues  injunction  was  The  courts  strong both  issues.  This  prima  the  reflected low  without  so  undue  property.  The  such  as  the  therefore  not  accordingly  of an i n t e r l o c u t o r y  that  status  relatively  policy  demonstrate a  probabilities)  the  the  injunction was  any  over  public  interlocutory  to  to preserve  interlocutory  deal  by  was  demanded  a  injunction: facie  right  case  existed  (on and  been i n f r i n g e d ;  plaintiff  then had  monetary  compensate  by  volume of  unaffected  plaintiff  the  This  injunction  of  disputes  The  are  relief?  issued  to  the  Division  important  what  injunction  3 4  h i g h s t a n d a r d of proof f o r the  2)  often  The  court  a c l e a r l y c o n f l i c t i n g l e g a l r i g h t or  function  usually of  industry,  legal rights  Firstly,  Chancery  were  1)  is  interlocutory  interlocutory  parties  factors.  the  cases  the  the  the  originally  r i g h t against  between  that  discovery.33  i n j u n c t i o n remedy i n a h i s t o r i c a l  were c l e a r l y i n a d e q u a t e . The  of  grant  i n j u n c t i o n was  in a  several  for  expense of l i t i g a t i o n and  injunction  computer  p l a c i n g the  an e q u i t a b l e  quo  examinations  rights.  Given  else  and  him;  damages  to demonstrate i r r e p a r a b l e obtained  at  trial  would  damage meaning not  adequately  181  3)  The  plaintiff  favoured The in  the  f i n a l l y had  to show t h a t the b a l a n c e  the g r a n t i n g of the i n j u n c t i o n .  h i g h volumes of l i t i g a t i o n 196 0s  injunction  and  197 0s p o i n t e d  requirements.  experienced  out  the  Neither  the  3 5  by  rigidity  the c o u r t s of Chancery  and  litigants  inadequacy  nor  the  a f f o r d the d e l a y s and h i g h c o s t s a s s o c i a t e d with the sheer were  called  private  mini-trials  property  o f p u b l i c and In  the  Ltd.37  remedy l e f t  House of sought  i n j u n c t i o n framework. granting process  of  were  material  the  Also,  courts  these  courts  could  numbers of what  d e f i n i n g i n j u n c t i o n s as  i l l - e q u i p p e d to d e a l  with  a  issues  Lords d e c i s i o n i n American Cyanamid Company to  By  amounted in  different  the  to  effect  establish  a  speedier  and  more  a  court miniature  trying  from  tried  that  cases on  to  avoid  trial. at  an  which  the  Lord early  the  then  Diplock  stage  actual  f o r the existing  noted  "on  v.  effective  e s t a b l i s h i n g a lower t h r e s h o l d of proof  injunctions,  which  courts  affidavit.  of  economic importance.36  1975  Ethicon  by  of convenience  that  evidential  trial  will  be  conducted".38 To Lords  reduce the  held  that  plaintiff's  overloading  only  two  of the  factors  i n t e r l o c u t o r y process,  need  injunction application.  be  The  considered court  whether t h e r e i s a s e r i o u s i s s u e t o be t r i e d , case i s not passed,  then  f r i v o l o u s or v e x a t i o u s . the  court  should  e x i s t s between the p a r t i e s . The  second  examination of the  factor  of  look  the  should  initial  balance  House o f  regard  to  determine  meaning t h a t the  Once t h i s at  with  the  first  plaintiff's  threshold test  of  a  convenience  is  that  3 9  balance  of  convenience  was  related  to  adequacy of damages as a remedy f o r both p a r t i e s .  an The  House of Lords emphasized t h a t the g r a n t i n g of an i n t e r l o c u t o r y i n j u n c t i o n  182  is  normally  damages. loss  by  accompanied  Such an reason  Supreme  Court  by  of  the  Rules  House  undertaking clear  improper  of  invoked  g r a n t i n g of  currently  Lords  be  sets  forth  to  chances  to  i f the  suffers  the  defendant  injunction. same  pay  (The  obligation  B.C.  for  an  45(6).) did  not  liberalize of  cross-undertaking  the  emphasize  s i m p l y t o p r o t e c t the defendant.  attempt  plaintiff's  plaintiff's  undertaking w i l l  i n j u n c t i o n a p p l i c a n t a t Rule The  the  the  obtaining  the Rather,  injunction  relief.  As  plaintiff's  damage  the emphasis was  remedy  and  improve  Lord Diplock stated  a a  i n the  unanimous d e c i s i o n :  I f , on the o t h e r hand, damages would not p r o v i d e an adequate remedy f o r the p l a i n t i f f i n the event o f h i s s u c c e e d i n g a t the t r i a l , the c o u r t s h o u l d then c o n s i d e r whether, on the c o n t r a r y h y p o t h e s i s t h a t the defendant were to succeed a t the t r i a l i n e s t a b l i s h i n g h i s r i g h t t o do t h a t which was sought t o be e n j o i n e d , he would be adequately compensated under the p l a i n t i f f ' s undertaking as t o damages f o r the l o s s he would have s u s t a i n e d by b e i n g p r e v e n t e d from d o i n g so between the time of the a p p l i c a t i o n and the time of the t r i a l . If damages i n the measure r e c o v e r a b l e under such an undert a k i n g would be an adequate remedy and the p l a i n t i f f would be i n a f i n a n c i a l p o s i t i o n to pay them, t h e r e would be no reason upon t h i s ground t o r e f u s e an interlocutory injunction. 4 0  If doubt or  both  of  convenience" directed which  between  future  the adequacy o f damages as a remedy f o r e i t h e r then  the  the  concern  parties.40a  c o u r t s t o c o n s i d e r any either  of  the  In  s h o u l d be  f o r the  this  the  way,  serious public  parties.  For  "balance  House  of  o r economic  example,  in  the  of  Lords factor  American  d e c i s i o n , the House o f Lords c o n s i d e r e d the r e l a t i o n s h i p between  injunction  market.  about  the p a r t i e s ,  affected  Cyanamid the  exists  The  remedy  and  case i n v o l v e d  the  existence  of  a p a t e n t d i s p u t e and  goodwill  in  the  product  the defendant's  proposed  183  introduction  of  court  that  noted  Therefore  no  to  of  the  Ethicon  at  plaintiff's  goodwill.  plaintiff  those  sutures.41  would  introduced  granted  by  medical  closed  the  end  and  who  of  had  Thus the p l a i n t i f f ' s  not no  On  the  would  yet  to  would  be  on  the  laid  contrary,  only  trial  hospitals.  workers  the  defendant,  Resentment  doctors  into British  were  granted.  by  the  suture  sutures  be  i n j u n c t i o n was  be  injunction  type  factories  interlocutory sutures  a  have  market.  off  to  at  if  allow  a  an the  permanent  seriously  directed  The  harm  the  the  successful  become accustomed to u s i n g the  Ethicon  p o t e n t i a l l o s s of market r e p u t a t i o n  was  recognized. This  second  answer many of computer  position.  be The  and  framework. the  more  balance  Software  countered  by  unfortunate  the  have  of  convenience  discussed  concerns  misappropriation  initially  of by  appears  an  employer  an  employee  truth i s that not  widely  the  courts  accepted of  the  i n both  This  carefully  proceeding  awareness leads and  to  the major d i f f i c u l t i e s has  been  where  to the  sidestep  the  confidential  courts lower  to  consider  burden  of  information the  proof  approach There  is  case much applied  by  42  e s t a b l i s h e d by  covenants.  United  Cyanamid  What p o s i t i o n have Canadian c o u r t s taken i n response t o the  flexible  an  market  the  American  the  or  a speedy e f f e c t i v e remedy to p r e s e r v e  U n i t e d Kingdom one  determinative  American C y a n a m i d .  test  in  to  r e a l i z a t i o n t h a t the i n t e r l o c u t o r y i n j u n c t i o n s a p p l i c a t i o n i s  the  involved.  of  previously  Canada In  judicial  normally  the  industry.  o u t s i d e r can  Kingdom  element  the  has has  Ameri can  not not  Cyanamid  been w i d e l y yet  been  decision?  applied an  to  To  date  restrictive  the  more  employment  a u t h o r i t a t i v e Supreme  Canada d e c i s i o n or Court of Appeal case t h a t has  two-part  either expressly  Court  of  accepted  184  or d i s a p p r o v e d of the contracts. about  The  adopting  subsequent  Ltd.  v.  Ontario the  for  courts  lower  decisions  inappropriate  American Cyanamid t e s t w i t h r e f e r e n c e  have  at  the  threshold, rejected  three  J u s t i c e d i s t i n g u i s h e d two  even  the  r e s t r a i n i n g former  Wortmann,44 a  trial  for  House  a  of  were  initially  franchise  of  Lord's  employees.  member branch  contrary  level  t o employment  In  the  case,43  propositions  Drake  Ontario  e a r l i e r d e c i s i o n s and  unsure but as  International High  Court  of  then s t a t e d :  Whatever may be the s i t u a t i o n when p a t e n t s are i n i s s u e or the protection of undoubted t r a d e or business s e c r e t s , we are not p r e p a r e d t o say t h a t i n a case where a r e s t r i c t i v e covenant i n an employment c o n t r a c t i s at i s s u e , the r e l a t i v e l y modest s t a n d a r d adopted i n American Cyanamid i s a p p r o p r i a t e . The Court t u r n s i t s f a c e a g a i n s t such a covenant i n an employment c o n t r a c t , and i t i s incumbent upon the p l a i n t i f f to show t h a t t h e r e i s a t l e a s t a prima f a c i e case t h a t i t w i l l be s u c c e s s f u l a t t r i a l b e f o r e the Court w i l l grant i t s a i d by i s s u i n g an i n t e r i m or temporary i n j u n c t i o n . This, i n our view, the p l a i n t i f f has not done with r e s p e c t t o the p r i m a r y p o i n t made b e f o r e us, t h a t of the e x i s t e n c e of a p r o p r i e t a r y i n t e r e s t to be damaged. 45  The Ltd.46  same by  views  Goodman  J.  were  expressed  and  thereafter  in  Control  accepted  Ltd.  v.  i n Nelson  Gratham I n d u s t r i e s Ltd.47 by E b e r l e J . of the O n t a r i o  Bodi Burns  High Court:  If the t r a d i t i o n a l onus p l a c e d on an a p p l i c a n t f o r i n t e r l o c u t o r y r e l i e f t o e s t a b l i s h a s t r o n g prima f a c i e case is a more stringent requirement than the s a t i s f a c t i o n by such an a p p l i c a n t of the t e s t which has a p p a r e n t l y been imposed by the American Cyanamid c a s e , namely, t h a t t h e r e i s a s u b s t a n t i a l i s s u e t o be t r i e d , then I am of the o p i n i o n t h a t the more s t r i n g e n t s t a n d a r d of p r o o f s h o u l d be r e q u i r e d i n an a p p l i c a t i o n for an i n t e r l o c u t o r y i n j u n c t i o n r e s t r a i n i n g a former employee from committing a b r e a c h of a restrictive covenant c o n t a i n e d i n an employment contract. ® 4  Chemicals &  Co.  v.  185  Although the position, facie  there  Ontario  has  position.  standard  of  Mareva  been one In  proof  to  injunction.  Mareva i n j u n c t i o n s interlocutory  C o u r t of Appeal has  Chitel be  the in  v.  Before  to  injunction  "remedy  employer's burden i n an  restraints. power"  the  must  the  enforcement underlying  of  of  is  The  the  Cyanamid trial  to employment r e s t r a i n t s . Chambers  wording  Cairns  and  to  the  a  proof  for  that  the  stated and  for  that  the 5 1  seems t o be  that  injunctions  been a r e f u s a l t o lower The  statements  in  American  restriction regarding  "imbalance  employment  Cyanamid  the  appears  employment  of  "more s t r i n g e n t  bargaining  test in  the  contracts.52  test  i n t e r l o c u t o r y stage what he  in  test  would  The  allow  will  not  be  of  "a  Doherty  v.  has  received  a  mixed  and  the able  uncertain  c o u r t s i n s o f a r as the lower t h r e s h o l d  to  Craig J.  have (as  serious  " s t r o n g prima f a c i e case".54 Lord  of  interlocutory  P a r t of the c o n f u s i o n  decision  v. L i n d s a y , 5 3  Diplock's  court  courts  r e f e r to the  covenants"  that  r e a c t i o n from the B.C.  Lindsay  application  the  trial.  American  reported  trial  suitable for  policy  employer  employer to accomplish a t an to achieve at  Ontario  courts  restrictive  fear  prima  considered  flexible  injunction application.  trial  the  strong  threshold  remain  In e f f e c t , t h e r e has  traditional  Thus the  i n favor  lower  stated i t s  not be a s u i t a b l e t e s t i n a l l s i t u a t i o n s " .  reached by  employment c o n t r a c t s .  from  court  i n s p e c i a l circumstances,50 the  conclusion  come  the  f o r the  interlocutory  r e j e c t i n g the  American Cyanamid t e s t i s not  to  an  specifically  support  Rothbart,49  applied  American Cyanamid t e s t may The  i n d i c a t i o n of  not  r e s u l t e d from the  considered he  than  question  American  was) to  be  applied rather  However, C r a i g J . then used the Allman55  for  the  initial  Cyanamid.  initially tried"  applies  p r i n c i p l e that  In Lord  than  a  judgement of "irreparable  186  harm  need  not  injunction."56 the  specific  be Lord  proved  performance  of a p e r s o n a l  an o r d e r  an i n j u n c t i o n a g a i n s t  enforcing  a  enforce  a  negative  covenant  by  way  of  C a i r n s had been d e a l i n g with d i f f i c u l t i e s o f o r d e r i n g  court could not enforce issue  to  restrictive  contemplated a s t a n d a r d  services  contract.  Although the  of s p e c i f i c performance/ t h e c o u r t  would  t h e employee where t h e e f f e c t was l i m i t e d t o  covenant. of proof  However,  t h e words  of Lord  Cairns  f o r t h e employer t h a t would be even lower  than t h e American Cyanamid t e s t :  My Lords, i f t h e r e had been a n e g a t i v e covenant, I apprehend, a c c o r d i n g t o w e l l - s e t t l e d p r a c t i c e , a C o u r t of E q u i t y would have had no d i s c r e t i o n t o e x e r c i s e . I f p a r t i e s , f o r v a l u a b l e c o n s i d e r a t i o n , w i t h t h e i r eyes open, c o n t r a c t t h a t a p a r t i c u l a r t h i n g s h a l l n o t be done, a l l t h a t a C o u r t o f E q u i t y has t o do i s t o s a y , by way of i n j u n c t i o n , t h a t which t h e p a r t i e s have a l r e a d y s a i d by way o f covenant, t h a t t h e t h i n g s h a l l not be done; and i n such case t h e i n j u n c t i o n does n o t h i n g more than g i v e t h e s a n c t i o n o f t h e p r o c e s s of the Court t o t h a t which a l r e a d y i s t h e c o n t r a c t between the p a r t i e s . I t i s n o t then a q u e s t i o n o f t h e b a l a n c e of convenience or i n c o n v e n i e n c e or o f t h e amount o f damage o r i n j u r y — i t i s t h e s p e c i f i c performance, by the C o u r t , o f t h a t n e g a t i v e b a r g a i n which t h e p a r t i e s have made, w i t h t h e i r eyes open, between themselves.57  Subsequent B.C. c a s e s have t r i e d t o d i s t i n g u i s h L i n d s a y  v . L i n d s a y as  a non-employment case,58 or have r e j e c t e d t h e statement of Lord general the  p o l i c y grounds.59  statement  C a i r n s on  The s p e c i f i c o b j e c t i o n was made t h a t "To apply  i n a l l i t s force  would  deprive  t h e Court  of d i s c r e t i o n , "  w i t h t h e reminder t h a t "[T]he g r a n t i n g o f an i n j u n c t i o n must always remain a matter o f the C o u r t ' s d i s c r e t i o n , " 6 0 eventually Lindsay.61  rejected  part  of C r a i g  Thus, t h e Supreme Court  J.'s earlier  decision  i n B.C.  i n Lindsay  v.  187  The  difficulty  obscured  and  employment indicate  in  delayed  dealing  the  acceptance  injunctions. an  acceptance  application  to  enforce  decisions confirm  this  with  However,  the of  the  of  the  lower  a  restrictive  conclusion.  Cyanamid seeking  and  granted  two-part the  an  the  American  B.C.  trial,  for  The  plaintiff  was  a  Columbia Court  there  have not  been  any  absence  appear test  of  such  guidance,  the  to have a r r i v e d at d i f f e r e n t  with  respect  to  employment  Ontario  c o u r t ' s r e j e c t i o n of the  overly  cautious.  education,  Modern  j o b m o b i l i t y and  the  same  adequately  be  remedies.  The  to  damages.  individual  time,  Moreover,  judgement of American who  granted  courts  restraints.  by  an  by  the  in on  It  these the  is  two  m  provinces  American Cyanamid  suggested  that  the  lower t h r e s h o l d f o r i n j u n c t i v e r e l i e f i s  employer  have  the  in  the  trial  the  advantages  if a  damage  their  computer  process  delays p r i o r to t r i a l even  was  " u s e f u l summary"  of  c o l l e c t i v e b a r g a i n i n g t o a d j u s t f o r the  by  misappropriator,  the  c o u r t s i n O n t a r i o and B.C.66  conclusions  employees  an  protected lengthy  L t d . et a l .  J.65  imbalance i n n e g o t i a t i n g power between themselves and At  recent  authoritative decisions  trial  do  not r e l a t e d t o employment  of Appeal approved the  Supreme Court of Canada nor by the appeal the  more  employer  clause  for  interlocutory  earlier  a non-competition  test  decisions  Two  former  In a subsequent d e c i s i o n t h a t was  summary,  an  covenant.62  o f the American Cyanamid p r i n c i p l e s g i v e n by Bouck In  court  f o l l o w e d an  deviation  Cyanamid  i n t e r l o c u t o r y i n j u n c t i o n based on  test.  i s s u e s , the B r i t i s h  Allman  In A n d i c o M a n u f a c t u r i n g  i n j u n c t i o n to e n f o r c e  ex-employee.  v.  threshold  v . Gary Bombay e t al.,63 MacEachern C.J. Bouck J,64  Doherty  and  feared  employers.  industry the  higher  other  cannot legal  l i m i t t h e a l t e r n a t i v e remedy award  is  the average employee w i l l  grantednot have  against  an  sufficient  188  assets  to  granting the  satisfy of  a  l a r g e damage award.  injunctions  larger  economic  also  or  public  convenience i s used as the damage, the  court  the p a r t i e s . non-closure  can  focus  In  conclusion,  interlocutory  issues  on  goodwill  decision.  involved.  to  If  consider  the  the  balance  of  t e s t i n s t e a d of i r r e p a r a b l e and  f i n a n c i a l concerns of  became r e l e v a n t  the  issues  the  more  restrictive  a  serious  weakness  presents  closure  f o r the  or  House  approach for  to  the  legal  A  recent  i n the computer i n d u s t r y .  H u l l summarizes the r e m e d i a l problem t h a t f a c e s an  p a s s e s on t r a d e s e c r e t s t o s k i l l e d  the  6 6  maintaining  injunctions  ability  i n the m a r k e t p l a c e and  p r o t e c t i o n of c o n f i d e n t i a l i n f o r m a t i o n comment by  court's  the wider s o c i a l  manufacturing p l a n t s  of Lords i n the o r i g i n a l  the  t r a d i t i o n a l p o s i t i o n on  second p a r t of the  In t h i s way, of  limits  The  employer  who  employees.  One area where i n j u n c t i v e r e l i e f has failed to give e f f e c t i v e p r o t e c t i o n t o l i t i g a n t s i s i n the f i e l d of t r a d e s e c r e t s , i n p a r t i c u l a r where the r e l e v a n t i n f o r m a t i o n i s p a r t p u b l i c , p a r t s e c r e t , o r where i t concerns a f i e l d of t e c h n o l o g y where t e c h n i c a l advance r a p i d l y degrades n o v e l t y o r c o n f i d e n t i a l i t y and b r i n g s the i n f o r m a t i o n into the public domain. 67  3.  Award of Punitive Damages Employment O b l i g a t i o n s : In  summary,  punitive  this  damages  section  in  the  contractual  obligations,  covenants.  Initially,  p u n i t i v e or of  damage  exemplary award  of  against  reviews  event  fiduciary this  that  An  Employee  an  employer's  an  employee  obligations,  section  will  or  p a r t i c u l a r i n t e r e s t to  an  Breach  right  to  breaches  express  discuss  damage awards i n Canada, and  for  the  employer  claim implied  contractual  background  explain  of  why  this  to type  in  the  computer  a  tort  action,  industry. Although punitive  the  damages  award are  not  is  generally  granted  to  associated compensate  with an  injured  party  for  189  tortious  loss.  award t o an of  tort  Instead p u n i t i v e  injured  law.  plaintiff  or  that  exemplary  damages a r e an  additional  goes beyond the compensatory  function  In t h i s sense, the award o p e r a t e s as a f i n e t h a t i s l e v i e d  upon the defendant and p a i d t o the p l a i n t i f f . The c o r r e c t p o s i t i o n i s t h a t aggravated damage o r damages are compensatory to the plaintiff and are to be d i s t i n g u i s h e d from exemplary o r p u n i t i v e damage o r damages which are awarded where i t i s proper t o p u n i s h and d e t e r by the example o f such punishment ( o r p e n a l t y ) , l i k e - m i n d e d individuals. 6 8 3  The  importance o f such an award t o computer i n d u s t r y employer  i t s d e t e r r a n t v a l u e and high costs of Different two  i n i t s extra  financial  contribution to o f f s e t  principles  govern t h e awarding  in addition  t o compensation  (i.e.,  granted i n accordance w i t h the p r i n c i p l e s Such  damages  the  litigation. of p u n i t i v e  j u r i s d i c t i o n s of the U n i t e d Kingdom and Canada.  damages  lies in  must  be  related  damages i n t h e  In England and Wales,  punitive  or  exemplary),  s e t out i n Rookes v .  "either  to  oppressive,  are  Barnard.69  arbitrary  or  u n c o n s t i t u t i o n a l a c t i o n by s e r v a n t s of the government o r t o conduct by the defendant  calculated  compensation  payable  to to  give the  him  a  profit  plaintiff".70  A  likely third  to  exceed  category  noted  the by  Rookes v. B a r n a r d i s an award of p u n i t i v e damages e x p r e s s l y a u t h o r i z e d by statute.71 Only rights  to  the  second  c a t e g o r y noted  information.  r e s t r i c t s the b a s i s  Obviously,  above i s r e l e v a n t the  f o r the award, and  precise  will  to  language  only r e s u l t  employment used  and  severely  i n damages b e i n g  g r a n t e d i n extreme c a s e s . Canadian damages by  c o u r t s have r e j e c t e d  Rookes v. Barnard.72  c a t e g o r i e s , the awarding  the  Rather  limitations  imposed  upon  than b e i n g r e s t r i c t e d  punitive  to precise  of p u n i t i v e damages i s r e s e r v e d f o r t h o s e "cases  where t h e . c o n d u c t of the defendant has been such as t o m e r i t  condemnation  190  by  the c o u r t " . 5 6  Fawcett73  The O n t a r i o C o u r t  o f Appeal  decision  p r o v i d e s a g e n e r a l overview o f t h e Canadian  i n Denison  v.  position:  Exemplary o r aggravated damages are not, broadly s p e a k i n g , awarded i n a c t i o n s f o r b r e a c h o f c o n t r a c t , s i n c e damages f o r breach o f c o n t r a c t a r e i n t h e n a t u r e of compensation, and t h e motives and conduct o f t h e defendant a r e n o t c o n s i d e r e d r e l e v a n t t o the assignment of damages. The a c t i o n f o r breach o f promise o f m a r r i a g e and an a c t i o n upon a c o n t r a c t a g a i n s t a banker f o r w r o n g f u l l y r e f u s i n g t o pay h i s customers' cheques constitute exceptions to this rule. Generally, however, such damages may be awarded i n a c t i o n s o f t o r t such as a s s a u l t , t r e s p a s s , n e g l i g e n c e , n u i s a n c e , l i b e l , s l a n d e r , s e d u c t i o n , m a l i c i o u s p r o s e c u t i o n and f a l s e imprisonment. I f , i n addition t o committing t h e wrongful a c t , t h e defendant's conduct i s 'high-handed, malicious, conduct showing a contempt o f the p l a i n t i f f ' s r i g h t s , o r d i s r e g a r d i n g every principle which a c t u a t e s t h e conduct o f a gentleman', ( t o quote a few examples taken from t h e a u t h o r i t i e s ) h i s conduct i s an element t o be c o n s i d e r e d as a c i r c u m s t a n c e t o a g g r a v a t i o n which may, depending upon i t s e x t e n t o r degree, j u s t i f y an award t o the i n j u r e d p l a i n t i f f i n a d d i t i o n t o the a c t u a l p e c u n i a r y l o s s which he has sustained. I do n o t t h i n k t h a t i t can be s t a t e d w i t h any precision what may be c l a s s e d as a g g r a v a t i n g circumstances but malice, wantonness, insult and p e r s i s t e n t r e p e t i t i o n have always been r e g a r d e d as elements which might be taken i n t o account.74 How does t h e concept o f p u n i t i v e in  the computer  industry?  damages a p p l y t o s k i l l e d  I n the U n i t e d  States,  employees  t h e c o u r t s use such  damage awards t o p r e v e n t and p u n i s h t h e m i s a p p r o p r i a t i o n o f t r a d e s e c r e t s , and a c c o r d i n g l y g r a n t s i z e a b l e p u n i t i v e damage amounts.75 There Canadian However,  a r e many  courts w i l l this  authorities  i s being  Ontario.  In  upon  increasingly  Brown  advance  not award punitive,damages  limitation  damages  that  v.  a  court's  questioned  Waterloo  the legal  that  f o r breach of contract.76  discretion  t o award  a t the t r i a l  Regional  principle  Board  of  court  punitive level i n  Commissioners  of  P o l i c e 7 6 a L i n d e n J . reviewed a number o f r e c e n t d e c i s i o n s 7 6 b and made the following obiter  statement:  191  "Although the g e n e r a l p r i n c i p a l t h a t p u n i t i v e damages are not awarded f o r breach o f c o n t r a c t s u r v i v e s , t h e r e i s no requirement that the general p r i n c i p l e be followed invariably. C e r t a i n l y i n the v a s t m a j o r i t y o f s i t u a t i o n s o f c o n t r a c t breach, t h e r e would be no p o s s i b l e i s s u e of p u n i t i v e damages a r i s i n g . However, j u s t as our c o u r t s have recognized the u t i l i t y of awards f o r damages f o r mental s u f f e r i n g caused by b r e a c h of contract in appropriate c i r c u m s t a n c e s , so too s h o u l d p u n i t i v e damages be a l l o w e d where the and  then  f a c t s demand t h a t they be  awarded.^  60  continued:  Consequently, I conclude t h a t i t i s not beyond the power o f this court to award p u n i t i v e damages i n those rare situations where a contract has been b r e a c h e d in a high-handed, shocking and a r r o g a n t f a s h i o n so as t o demand condemnation by the c o u r t as a d e t e r r e n t . 7 6 0  It  should  recently In  be  followed  Vorvis  contract  v.  noted  that  the  British  justified  a punitive  found  summary,  required  to  skilled  a  clarify  employee  employment  decision the  who  damage award.  the  existing  only  agreement  of  the  existence  award, but  c o u l d o n l y be compensated f o r h i s f i n a n c i a l In  Supreme  Court  has  the more r e s t r i c t i v e view o f the p u n i t i v e damage award.  I.C.B.C., MacFarlane J .  which  Columbia  ruled  Court  confusion.76f the  t h e o r e t i c a l l y does  that  a breach  the  of  plaintiff  loss.76e  Supreme  breaches  of  express  not  not  Canada  Until  that  will  to  fear  an  be  time  obligations  have  However, such an employee s h o u l d  of  the  of  his  exemplary  f e e l too s a f e .  I f the  employee's conduct i n v i t e s condemnation, then the c o u r t s have been w i l l i n g to administer  the punishment.  r e l i e d upon a b r e a c h of  In  a number of  f i d u c i a r y or implied  decisions,  the  courts  have  o b l i g a t i o n s as the b a s i s f o r  a p u n i t i v e or exemplary damages award. In  Schauenburg  $25,000 were awarded appears defendant  to  have  Industries against  been  employee  had  based  an  Ltd.  v.  Borowski,77  punitive  ex-employee/general manager.  upon  infringed  a his  breach former  of  fiduciary employer's  damages The  of  award  duties.  The  copyright  and  192  misused c o n f i d e n t i a l i n f o r m a t i o n . the  The  exemplary damages were j u s t i f i e d  defendant's " f l a g r a n t b e h a v i o u r and  of. h i s  employer  infringing Adams,  copyright." therefore  79  breach  i n breaching  of  an  Mountjoy,  "transcended  employee's  the  with  punitive  appear to r e l y employer's Syndicate "common  Ltd. law  punitive  against  upon the  and  of  damages.  t r u s t and In  82  breached  w h i l e he  the  Bee duty  of h i s e m p l o y e r " .  Court  Appeal,  plaintiff  8 4  Parker  J.  J.,  Ltd.  v.  awarded  in  for  Alberts  fiduciary  v.  duties  relationship"  and  8 1  of  confidential  confidence" Chemical  Co.  to  use  awarded  considered employee.  an  employee  to In  the  court  Plastic  Paint  special  to  $25,000 i n p u n i t i v e  of  the  consider  Ltd.,  each  which  contrary  affirmed  an  Investors  information  purpose and  cases  respect  employee's breach  allowed v.  awarded  These  information. an  or  by the  to  he the  Ontario  damages to  the  employer.  Thus, remedy  former  In a d e c i s i o n l a t e r  83  be  that  either  i s i n t h a t employ f o r h i s own  interest of  have  obligations  "not  Cox  in  p u n i t i v e damages.  non-fiduciary  implied  can  employer-employee  decisions  a  secrets  emphasizing  d u t i e s and  G.E.  Estey  v. V e r s a t i l e Investments L t d .  duty  ex-employee obtains  Canadian  trade  the  by  and  damages  duties.  logic  of  contractual  case  punitive  court to consider  recent  damages  Schauenburg  that  this  a c a l l o u s d i s r e g a r d f o r the r i g h t s  f i d u c i a r y and  fiduciary  severance  t h e r e b y a l l o w e d the Other  The  7 8  indicate  agreed  8 0  his  by  i t appears  for  the  relationship.  that  protection  a of  punitive  damage  award  can  c o n f i d e n t i a l information  This protection w i l l  be  even s t r o n g e r  be  an  i n the  i f the  effective employment  Supreme C o u r t  of Canada approves of p u n i t i v e damage awards f o r breaches of express terms of  contract.  193  FOOTNOTES:  CHAPTER VI  1.  (1854) 156 E.R.  2.  V i c t o r i a Laundry (Windsor) L t d . v. Newman I n d u s t r i e s L t d . K.B. al.  3.  528  a t 145.  (C.A.);  Parta  2  I n d u s t r i e s L t d . v. Canadian P a c i f i c L t d . e t  (1974) 48 D.L.R. (3d) 460 a t 463 (B.C.S.C.).  Investors  Syndicate  L t d . v . V e r s a t i l e Investments L t d . (1982)  D.L.R. (3d) 451 a t 467-69 4.  [1949]  Moore  I n t . (Canada)  (B.C.OA.);  See  B.C.L.R. 332  (Ont.C.A.)  L t d . v.  also  Carter  C.C.L.  (1984)  Industries  56  Inc.  B.C.L.R. v.  issued  discussion  of exemplary damages f o r breach of f i d u c i a r y  to  trade  (1979)  101  Crafts  Holdings  secrets  D.L.R.  (3d)  Ltd.  breach  at  fiduciary  Schauenberg I n d u s t r i e s  701  (1980)  (Ont. H . C ) ; 110  D.L.R.  366  214  (1984)  duties.  56  For  duties  L t d . v.  Pro A r t s (3d)  at  an i n t e r l o c u t o r y  injunction  respect  restrain  207  Adams  a t 333-34 where the B.OC.A. a f f i r m e d to  126  with  Borowski  I n c . v. at  a  Campus  385-88  (Ont.  H.C.) . 5.  The Mareva i n j u n c t i o n can be t r a c e d t o t h e judgment of Lore Denning in  Nippon Yusen K a i s h a  283 Bulk  which  was  v. Karageorgis  applied  C a r r i e r s J.A.;  The  i n Mareva Mareva  [1975] 3 A l l E.R.  Compania  [1980]  1 A l l E.R.  t y p e of i n t e r l o c u t o r y i n j u n c t i o n i s granted specific typical  assets instance  from  dealing  would  be  with to  Noviera  S.A.  213  v. I n t .  (OA.)  an  i n c e r t a i n ways. alleged  debtor  t r a n s f e r r i n g a s s e t s out o f the j u r i s d i c t i o n t o a v o i d e x e c u t i o n creditor.  See  McAllister,  D.M.  Mareva  C a r s w e l l Company L t d . , Toronto, Canada.  This  t o p r o h i b i t an owner o f  the a s s e t s  prohibit  282 a t pg.  Injunctions  A  from by the  (1983)  The  194  6.  Permanent i n j u n c t i o n s a r e c l e a r l y a p p l i c a b l e t o r e s t r a i n from  revealing  former  the trade  employer.  secrets  or  confidential  Consolidated T e x t i l e s  Finish Ltd. to 7.  information of  v. Central  [1974] 2 F.C. 814 (Fed C t . ) ; Bee C h e m i c a l  ex-employers  Dynamics L t d .  Co. v. P l a s t i c  P a i n t and  (1979) 47 C.P.R. (2nd) a t 133 (Ont.C.A.) l e a v e t o appeal  S.C.C. d i s m i s s e d on November 6 t h , 1979.  A c o n s t r u c t i v e t r u s t , a p a r t from one  which i s n o t expressed  r e s u l t i n g t r u s t s , may be d e f i n e d as  i n any i n s t r u m e n t , b u t i s imposed upon a  p e r s o n by a c o u r t o f E q u i t y upon the ground of p u b l i c p o l i c y . . . . s o as to p r e v e n t him from h o l d i n g , f o r h i s own b e n e f i t , an advantage he  has gained  by r e a s o n  o f some f i d u c i a r y  relationship  which  subsisting  between him and o t h e r s , and f o r whose b e n e f i t o n l y i t i s h i s duty t o act 8.  Taylor v. Davis  (1917) 41 O.L.R.  (A.D.).  An Anton P i l l e r o r d e r i s an i n t e r l o c u t o r y remedy t h a t i s sought on an ex  parte  basis  by  a  plaintiff  who  alleges  that  a  defendant  suppress o r d e s t r o y evidence f a v o u r a b l e t o t h e p l a i n t i f f . normally enables the p l a i n t i f f ' s and  searches  at  the  Manufacturing  Processes  International  [1981]  9  agents t o make d i r e c t  defendant's [1976]  1  E.I.P.R.  been  o r d e r d i s s o l v e d - 38 O.R. used  to  get d e t a i l s  Ch.  D-189;  (1982) 69 C.P.R. (2d) 122; Bardeau 355,  premises.  See  Nintendo  The o r d e r  investigations  Anton  v . Crown Food  (2d) 411.  of  55.  Sony  Piller v.  Makers  v. Coinex  Video  (1982) 36 O.R. (2d)  of  otherwise  employees who have passed c o n f i d e n t i a l i n f o r m a t i o n t o t h i r d  9.  v.  The o r d e r has p a r t i c u l a r l y  the i d e n t i t y  M e c h a n i c a l C.P.S. L t d . v . Annette C o l l i n s  may  unknown parties.  (1979) E.I.P.R. D-95.  Account o f P r o f i t s i s t h e remedy which i s d e s i g n e d t o r e s t o r e t o t h e plaintiff  the p r o f i t s  made  by  a  defendant  as  a  result  o f the  195  defendant's  wrongful  conduct.  v. C o r s e t s S i l h o u e t t e L t d . to  a  breach  remedy  of  of  and  (Canada)  213-14 (B.C.C.A.). rather  an  The  plaintiff  account  Ltd.  v.  of  Carter  copyright  must  profits.  Perspective  (1979)  infringement i s the  10.  Delivery  up  by  the  f o r an  Trade 308;  B.C.L.R.  301  at  Moore 207  at  profits  308.  employer's  If  action,  up  and  relief  use  Secrets - A  of  the  which  may  be  d e s t r u c t i o n of any  plaintiff's  the  products  information.  Commonwealth P e r s p e c t i v e (1979)  I n d u s t r i a l Furnaces L t d . v. Reaves  a see  t o c l a i m both damages  v . Campus C r a f t s  i n the defendant's p o s s e s s i o n o r  (1981)  used  50  204.  by  the  confidential manufactured See  Vaver  E.I.P.R.  [1970] R.P.C. 605  301  D. at  a t 627-28  (Ch. D i v . ) ; Needle M a n u f a c t u r e r s L t d . v. T a y l o r  [1975] 2 N.Z.L.R. 33;  Stuckey  of Confidence;  J.E.,  The  Equitable  Information Every Property? 11.  Pro A r t s  i s a type of e q u i t a b l e  wrongful  56  see  See a l s o Teledyne v . L i d o (1982) 68 C.P.R. (2d)  c o u r t s t o o r d e r the d e l i v e r y material  But  the  See Vaver D. T r a d e S e c r e t s -  E.I.P.R.  basis  an a c c o u n t i n g o f p r o f i t s .  C.P.R. (2d) 230;  between  l o s s e s means t h a t the account  20(4) of the C o p y r i g h t A c t a l l o w s the p l a i n t i f f and  choose  The d i f f i c u l t y o f p r o v i n g t h e defendant's  than e v i d e n c i n g the p l a i n t i f f ' s  Commonwealth  40 2 a p p l i e s t h e remedy  (1984)  of p r o f i t s remedy i s i n f r e q u e n t l y used. A  Manufacturing Corporation  [1963] 3 A l l E.R.  confidence.  damages  International  P e t e r Pan  The  assumption  procure  or  here  induce  i s that the  Action  f o r Breach  Is  [1981] 9 S.L.R. 402 a t 426-30. the  breach  of  third the  p a r t y d i d not employment  intentionally  contract.  i n t e n t i o n a l a c t s by the t h i r d p a r t y would a l l o w the employer damages f o r the t o r t o f i n d u c i n g b r e a c h o f c o n t r a c t .  Such  to claim  Salmond on the  196  Law o f T o r t s , 17th Ed (1977) a t p. 367; Unident al.  (1982) 131 D.L.R.  (3d) 225 (N.S.S.C.); N i c h o l l s  al.  [1983]  169 (B.C.OA.);  4 W.W.R.  W.W.R. 144 12.  L t d . v . DeLong e t .  Celona  v. Richmond e t .  v . Kami oops  [1974] 2  (B.C.S.C.).  See the d i s c u s s i o n i n Chapter  III referring  t o Coco v . A.N. C l a r k  ( E n g i n e e r s ) L t d . [1969] R.P.C. 41; Thomas M a r s h a l l ( E x p o r t s ) L t d . Guinle 13.  v.  [1978] 3 A l l E.R. a t 193 (Ch. D i v . ) .  Cornish,  W.R.  "Protection of Confidential  Information  i n English  Law" (1975) 6 I.I.C. 43 a t 54. 14.  The Law Commission  Breach  o f Confidence  Report  (1981) U.K. a t  19,  p a r a . 4.2. 15.  (1849) 1 Mac. & G., a t 25.  16.  (1851 ) 9 Hare, a t 241.  17.  D e t a Nominees  Pty. v. Viscount  Plastic  Products  P t y . L t d . [1979]  V.R. 167 a t 191 18.  (1978) 83 D.L.R. (3d) 1 a t 13 ( S . C . C ) .  19. I d . 20.  [1977] 1 W.W.R. 735 a t 739 Toy J . s t a t e s t h a t t h e e f f e c t i v e the  E n g l i s h Law A c t R.S.B.C.  date o f  1960, c . 129 was Nov. 19th, 1858; s e e  a l s o A n s d e l l v . Crowther (1984) 11 D.L.R. ( 4 t h ed) 614 (B.C.C.A.). 20a. R i c k e t s o n  S. , C o n f i d e n t i a l  Information  - A New P r o p r i e t o r y I n t e r e s t  [1978] 11 M.U.L.R. 289 a t 294-96; Stuckey For  Breach  o f Confidence;  J.E. , The E q u i t a b l e A c t i o n  I s Information  S.L.R. 402 a t 416-17; Wentworth v. Woollahra 42 A.L.R. 69 (High Court o f A u s t ) . 21.  Supra,  22. I d .  note  18, a t 13.  Ever  Property?  [1981] 9  M u n i c i p a l C o u n c i l (1982)  197  23.  [1967]  2  A l l E.R.  414;  [1969]  R.P.C.  250  for  the  assessment  of  damages. 24.  Id., at  416.  25.  Supra, note 23, a t 250-51 i n the assessment  26.  Supra, note 14, a t  27.  Report  28.  _Id., p a r a 3:53  a t p.  44.  29.  I d . , p a r a 3:54  a t p.  45.  30.  I d . , a t p.  31.  Corn-Share  v. Computer Complex 338  (2d),  1341  David  1.  February  1984.  110-137.  C o n t r o l s 357 32.  92-3.  f o r D i s c u s s i o n No.  at  of damages.  (1972)  A.  (6th C i r . ) ;  (2d) a t 105  Roberts,  The  F. Supp. 1229 Data  General  (1971), a f f ' d 458 v.  Digital  F.  Computer  (1975) (Del Ch.).  Advocate,  April/May  1982,  in  the  Entre  Nous  column a t 193-4. 33.  Larry Sun,  34.  R.G. Law  Still, April  "Court C a s e l o a d s Turn Day  18,  Hammond,  Id. at  249.  36.  Hubbard  v.  t o Y e a r s " Vancouver  a t 1.  P r e l i m i n a r y I n j u n c t i o n s (1980) U n i v e r s i t y  Review 240  35.  1983  i n Court  at  of  Toronto  250.  Vosper  [1972]  1  A l l E.R.  (OA.);  Coco  v.  A.N.  Clark  ( E n g i n e e r s ) L t d . [1969] R.P.C. 41. 37.  American 504  Cyanamid Co.  (H.L.).  38.  I d . , A l l E.R.  at  39.  I d . , A.C.  at  399.  40.  I d . , A.C.  at  341.  509.  v. E t h i c o n  [1975] A.C.  396  a t 398;  1 All  E.R.  198  40a.  Lord Diplock f u r t h e r c l a r i f i e d  the balance  o f convenience  element i n  N.W.L. L t d . v. Woods [1979] 3 A l l E.R. 614 a t 625-5. 41.  I d . , a t 343.  42.  D u n f o r d & E l l i o t t L t d . v. Johnson & F i r t h Brown L t d . 143  43.  (1978) 4 F.S.R.  (C.A.) a t 150 r e j e c t i n g t h e a p p l i c a b i l i t y o f American Cynamid.  Yule  Inc.  v. A t l a n t i c P i z z a D e l i g h t F r a n c h i s e  D.L.R. (3d) a t 725 (Ont. H . C ) .  (1968) L t d .  The t h r e e judges  (1977) 80  of the D i v i s i o n a l  Court noted t h a t t h e a p p e l l a n t s argued t h a t t h e r e were t h r e e tests  available  f o r the g r a n t i n g o f i n t e r i m i n j u n c t i o n s .  separate The Court  summarized and i d e n t i f i e d t h e o t h e r two t e s t s as t h e m u l t i - r e q u i s i t e t e s t and the m u l t i - f a c t o r t e s t . Cyanamid  test,  alternate 44. 45.  there  While the Court a p p l i e d t h e American  was no i n d i c a t i o n  tests.  (1980) 108 D.L.R. (3d) 133 (Ont. H . C ) . ^ d . a t 136.  46.  (1979) D.L.R. (3d) 265 (Ont. H . C ) .  47.  (1981) 59 C.P.R. (2d) 113 a t 117 (Ont.  48.  Supra, note 32, a t 271.  49.  (1983) 141 D.L.R. (3d) 268 (Ont.  50.  I d . a t 278.  51.  of disapproval of the other  H.C.)  C.A.).  Id.  52.  Supra, note 46, a t 270-71.  53.  Lindsay  v. Lindsay  (1975) 64 D.L.R.  Greenpeace F o u n d a t i o n  (3d) 761  (B.C.S.C)  of B.C. v. M i n i s t r y o f Environment  W.W.R. a t 586 ( B . C . S . C ) . 54.  I d . , a t 764.  55.  (1878) 3 App. Cas. 709 (H.L.).  applied i n [1981]  4  199  56.  Supra, note 53, a t 765.  57.  Supra, note 55, a t 719-20.  58.  Cascade  Imperial  Mills  L t d . v . Kunsman  [1978]  4 W.W.R. 677  at  680  (B.C.S.C. i n Chambers) 59.  Id.,  a t 679-80.  60.  Servicemaster D.L.R.  Industries  (3d)  v. S e r v i c e m a s t e r  376 a t 378-79  Sask-Workwear I n c . v . O l l i n i k  (B.C.S.C. [1983]  of V i c t o r i a  (1980) 101  i n Chambers);  applied i n  1 W.W.R. 631 a t 635-36  (Sask.  Q.B.) 61.  Supra, note 53.  62.  Supra,  note  (Western)  58, a t 680;  L t d . V. United  note  60, a t 379;  Brotherhood  see also  C.J.A.  [1982]  Trus  Joist  6 W.W.R. 744  (B.C.S.C). 63.  (1983) 49 B.C.L.R 47 a t 48-49 (B.C.S.C. i n Chambers).  64.  Kelly  Douglas  Registry 65.  But  (1981) C8100345  Vancouver  Sewerage & Drainage D i s t r i c t  v . Ambassador I n d u s t .  (1982) 41 B.C.L.R. (C.A.). see  Stittgen  v . L u e t k e B r i n k h a u s u n r e p o r t e d B.C.C.A., No. C.A.  000156, June 8 t h , J.A.  Coast I n d u s t r i e s  (B.C.S.C).  G r e a t e r Vancouver Ltd.  66.  v. P a c i f i c  comments t h a t  1983  [1983] B.C.D. C i v . 1892-15 a t 10 where Esson  interlocutory  injunctions  t o enforce r e s t r i c t i v e  covenants s h o u l d o n l y be g r a n t e d i n e x c e p t i o n a l c i r c u m s t a n c e s . 67.  H u l l J.K., at  68.  Some Problems  of I n j u n c t i v e R e l i e f  [1981] 9 E.I.P.R. 258  260.  Supra, note  37.  68a. Cherniak E.A.,  Morse J.R.,  Aggravated, P u n i t i v e and Exemplary Damages  i n Canada (1983) L.S.U.C. S p e c i a l L e c t u r e s a t p.  157.  200  69.  [1964] A.C. 1129 (H.L.).  70.  The  Law Commission  (1981) B r e a c h o f C o n f i d e n c e  (United  Kingdom) a t  69, p a r a . 4.83. 71.  Supra, note 69, a t 1226-7.  72.  M c E l r o y v. Cowper-Smith and Woodman (S.C.C.)  ; Banner  (B.C.S.C),  upheld  v . Marwest on a p p e a l  Cardinal Construction  (1967) 60 W.W.R. 85 a t 86 and 93  Hotel  Co. (1969)  (1976)  75 W.W.R.  L t d . v . The Queen i n R i g h t  69 W.W.R. 462 729 ( B . C . C A . ) ;  o f Ontario  (1981)  122 D.L.R. (3d) 703 a t 705 (Ont. H.C.) 73.  Robitaille  v . Vancouver  Hockey  Club  L t d . [1981]  3 W.W.R. 481  a t 509 ( B . C . C A ) . 74.  [1958] O.R. 312 a t 319-20  75.  Telex  Corp.  v . I.B.M.  $1,000,000 i n p u n i t i v e trade  secrets.  (Ont. C.A.). 510 F  (2d) 894 (10th C i r 1975)  damages f o r t h e m i s a p p r o p r i a t i o n  The t r a d e  secrets  were  disclosed  awarded  of I.B.M.'s by  ex-I.B.M.  employees. 76.  Guildford Toronto  v. A n g l o - F r e n c h Steamship Co. (1884) 9 S.C.R. 303 a t 309;  Hockey  Club  v . Arena  Gardens  o f Toronto  L t d . (1924) 55  O.L.R. 509, p e r Orde, J . , a t 518 and 521; Dobson v. Winton & Robbins Ltd.,  [1959]  D.L^R.  (3d) 20 a t 21 (Ont. S . C ) p e r Southey, J . ; McMinn v. Town o f  Oakville  S.C.R.  775; J e n n e t t  v. Federal  I n s . Co. (1976) 72  (1978) 85 D.L.R. (3d) 131 a t 134.  76a. (1982) 37 O.R. (2d) 277 ( H . C ) . 76b. P i I o n v . Peugeot Canada L t d . (1980) 29 O.R. (2d) 711 (H.C.J.); Nantec v . P a r i s i e n e t . a l . (1981) 18 C C L . T . 7 9 76c. Supra, note 76a a t p. 292. 76d. I d .  (Ont. H.C.J.).  201  76e. ( 1982)  134 D.L.R. (3d) 727  ( B . C . S . C ) : a t 735, a f f i r m e d  by a d i v i d e d  c o u r t a t (1984) 53 B.C.L.R. 63 (B.C.C.A.). 76f.  On J a n . 11, 1985 t h e Globe and M a i l r e p o r t e d  on page B-2 a 6 m i l l i o n  d o l l a r p u n i t i v e damage c l a i m  f o r breach o f c o n t r a c t  against  The p u n i t i v e damages c l a i m  Seaboard S u r e t y Co.  wider c l a i m damages.  f o r an a l l e g e d 50 m i l l i o n  The u n c e r t a i n t y  dollars  by Noranda I n c .  i n direct  i s p a r t of a contractual  o f t h e a p p l i c a b l e law and the sheer amount  of money i n v o l v e d makes t h i s case worthy of a Supreme C o u r t of Canada decision. 77.  (1979) 50 C.P.R. (2d) 69  (Ont. H . C ) .  78.  Id., a t 80 .  79.  (1979) 24 N.B.R. (2d) 65 a t 73  80.  (1978) 79 D.L.R. (3d) 108  81.  I d . , a t 117 and 121.  82.  (1982) 126 D.L.R. (3d) 451 a t 467-69 (Ont. H . C ) .  83.  (1978) 41 C.P.R. (2d) 175 a t 180  84.  (1979) 47 C.P.R. (2d) 133 (Ont. C.A.), l e a v e t o a p p e a l t o t h e Supreme  (N.B.S.C).  (Ont. H . C ) .  Court o f Canada was d i s m i s s e d  (Ont. H . C ) .  on November 6,  1979.  202  VII  CONCLUSION  It the  should  be  computer  concern assess  of  industry  the  where  this  legal  rights  general,  an  information There  the  conclusion  employee's In  is  that  unauthorized  the  are  a  research  short,  the  law  has  a  Canadian  computer  not  yet  of  recognized  changes t h a t have g r e a t l y i n c r e a s e d the  law  industry  appropriation  in  major  will  be  employer  confidential  the  social  and  v u n e r a b i l i t y of  the  employer.  research  that  support  conclusions  the  general  narrower c o n c l u s i o n s have been p r e s e n t e d , w i l l be  of  present  adequately  have been c e r t a i n s p e c i f i c  thesis  t h a t have emerged  conclusion.  from  Once  a number of g e n e r a l  these  observations  discussed.  In  Chapter  II  have  imaginatively  with  the  legal  from  existing  framework are  for  the kept  t h e s i s explored pace  principles  employee.  employee  courts  information  central objective  s t r a i n e d to p r o t e c t  technological  The  employment  t o serve the i n t e r e s t s of the p u b l i c .  information.  an  to  on  and  against  as  focussed  the adequacy of e x i s t i n g laws i n meeting the needs of employers  increasingly  The  thesis  to  In  parties.  that  was  employees, and  the  remembered  The  an  the  given  that  various  independent  case  law  with  does  area  societal  of  law  change.  the  where the  This  determine whether an  t e s t s used by  chapter  individual  courts  to  were  not  apply  a wide r a n g i n g  compel of  the  the  courts  employee  discretion  i n the  to  status. choice  courts dealt  qualifies  d i s t i n g u i s h an  c o n t r a c t o r , agent or p a r t n e r  determination  t h a t can be a p p l i e d .  an  reviewed. a  rigid  Instead, of  legal  the  tests  T h i s broad d i s c r e t i o n means t h a t the c o u r t s are w e l l  203  equipped  to  deal  with  the  independent, mobile and Other chapter  specific  surveyed  perspective  of  proprietary interests  of  classifying  the  more  were  made  in  the  third  chapter.  policy.  1  information,  employers  against  summary, the  in  order  the  law  the  to  has  competing  social  and  protect  an  always had  This  from  the  employer's  t o balance  the  employees  and  i n t e r e s t s of  t e c h n o l o g i c a l changes c r e a t e d  by  i n f o r m a t i o n economy have c r e a t e d imbalances i n t h i s d e l i c a t e weighting  of the the  of  employer's p r o p r i e t a r y r i g h t s to i n f o r m a t i o n  social  In  problems  s o p h i s t i c a t e d i n f o r m a t i o n worker.  conclusions  r i g h t s to  the p u b l i c . the  an  subtle  legal principles.  computer  skilled  industry  The  s c a l e s have s h i f t e d  i s now  operating  at  so t h a t  a marked  an  employer i n  disadvantage  to i t s  employees.  If  an  appropriate  balance  is  to  be  regained,  l e g i s l a t u r e s must respond to the p o l i c y concerns c r e a t e d  courts  an i n c r e a s i n g commercial and c o n f i d e n t i a l i t y ;  2)  the number of l e g i t i m a t e groups who depend upon r i g h t s to i n f o r m a t i o n and who suffer from the confusion over the ownership of information;  3)  unjustified law;  4)  the p o l i c y o b j e c t i o n s information.  biases  to  in  the  property  and  by:  1)  policy  r e l i a n c e on  the  secrecy  existing  rights in  2  Chapter I I I a l s o reviewed the employers patent  and  securing software  in  the  computer  copyright  r i g h t s to  laws  industry. in  information  distributors  and  specific 3  Canada such  as  employers  The are  legal protection available to general only  computer have  conclusion  marginally software.  resorted  to  was  effective As  a  that in  result,  non-disclosure  204  systems such as the  restrictive  o b l i g a t i o n s of  l i c e n s i n g of  confidence  software.  the  equitable  are  and  w i d e l y used l e g a l p r o t e c t i o n f o r i n f o r m a t i o n  Trade s e c r e t s  c u r r e n t l y the  and  most e f f e c t i v e  r i g h t s i n the  employment  relationship. The  implied  discussed only  in  and  fiduciary  Chapter  offer  minimal  information.  Even  IV.  The  legal  obligations  a  that  such  obligations  i n d u s t r y employees who This  possible  precedents that  of  there  lack  the  can  relationship  except  must c o n t r a c t  may  of  no as  the  or  be  Canada.  confidential expense  and  possibility fiduciary  information. business t h a t the  B.C. The  software  industry  will  the  only  are  cases of  comes  from  arguably  rule  the  employment  agreement.  to be m i n i m a l l y  Due  to  employer  protected.  i t i s clear that f i d u c i a r y  skilled of  employees secrecy,  information considered  c o n t r o l an  is a  computer  i m p l i e d o b l i g a t i o n s , an  who  the  increases,  receive associated  so  does  a fiduciary.  employee's  unsophisticated  that  out  collective  degree  of  also creates  strategies  w i t h the  highly  employee w i l l be  Moreover, the  cooperative  incompatible  As  importance  obligations  circumstances.  to  implied  against  employees  arising  i n the  weakness of  applicable  confidential  agreement.  These  3a  In s p i t e of c e r t a i n j u d i c i a l r e s e r v a t i o n s , are  were  obligations  certain  enforceable  f o r express covenants i n order  obligations  has  unionized  duties  s p e l l e d out  general  employee  over  of  these  employer's  a collective  control  rights  an  was  employees  l o y a l t y to h i s employer, there  not  covered by  Supreme Court  be  t h i s problem and  are  for  skilled  o b l i g a t i o n s of good f a i t h , honesty and danger  skilled  o v e r a l l conclusion  protection  though  of  and  conduct  immature  the  However, in limited  status  of  the  c o n f l i c t s with f i d u c i a r y o b l i g a t i o n s . required  for  industry  f i d u c i a r y requirements of s e c r e c y  success  and l o y a l t y .  3 c  are  205  Chapter information covenants offered  V  dealt  employer  with  of  must be p a r t i c u l a r i l y  of r e s t r a i n t .  by i m p l i e d  the d o c t r i n e  Instead  restraint  skilled  of  trade.  An  i n t h e use of express  of r e l y i n g upon t h e m i n i n a l  o b l i g a t i o n s and f i d u c i a r y d u t i e s ,  protection  employers  should  aware of the f o l l o w i n g advantages t o s p e c i f i c c o n t r a c t u a l r e s t r a i n t s :  In  1)  Wider i n t e r e s t s can be p r o t e c t e d express covenants;  2)  Express covenants assist in proving the c o n f i d e n t i a l i t y of t h e employer's i n f o r m a t i o n ;  3)  Express covenants act d e t e r r a n t f o r employees;  4)  I n j u n c t i o n s can be i s s u e d more e a s i l y t o p r e v e n t breaches of express covenants, than f o r breaches of i m p l i e d or f i d u c i a r y o b l i g a t i o n s ;  5)  Express covenants do fiduciary obligations;  6)  Express covenants e s t a b l i s h an employer's t o i n v e n t i o n s and t o c o p y r i g h t s .  view  copyright,  of t h e r e l a t i v e l y  and  implied  and  as  a  fiduciary  warning  protection  and  implied  a  or  claim  provided  obligations,  by  achieves a stronger  non-disclosure  patent,  employers  computer i n d u s t r y must a c t d e c i s i v e l y a t t h e time of h i r i n g . clearly  4  v i a t h e use o f  not d i s p l a c e  weaker  be  i n the  An employer  l e g a l p o s i t i o n by t a k i n g express covenants of  and non-competition  from  t h e employee  a t the time  of  engagement. The law  s p e c i a l status  was reviewed.  higher would  burden  vendor.  t o employment  Historically  of proof  a purchaser  given  A f t e r reviewing  t h e common  an employer has been r e q u i r e d  i n t h e enforcement  of a b u s i n e s s  r e s t r a i n t s under  of employment  i n an a c t i o n a g a i n s t  t o face a  r e s t r a i n t s than  a competing  t h e h i s t o r i c a l arguments, t h e c o n c l u s i o n  former  was made  t h a t t h e s p e c i a l s t a t u s accorded employment r e s t r a i n t s was u n j u s t i f i e d and inappropriate  for s k i l l e d  employees i n t h e computer i n d u s t r y .  5  206  A number of more n e u t r a l c o n c l u s i o n s were a l s o made w i t h the  elements  normally  of  only  the  can  be  of  applied  to  English  d e c i s i o n s have r e c e n t l y used the  exception  being  applied  occurs  i n v i t e the c o u r t t o A  second  observation  the  harmful  United to the  c o u r t has  of  relates  have  public policy  determined  First,  that  the  limit  However,  an  are  so  doctrine employee's  several authoritative  doctrine to set aside  employment  period.  extensive  restraints  This  and  limited  u n f a i r as  to  the  public  Recent appeal warned  basis  that  that a r e s t r a i n t  of  court  prima  f o r the  policy  reason  public  judgments facie of  of p u b l i c p o l i c y .  policy start  void.  the  element with  the  courts,7  a c t u a l l y operates of  the  reasonableness  of  the  determine  the  nature  employer's  limitations  faced  with  assumption  b  there  u t  as a severe  core  of  However, the  This pattern i s l i k e l y  appeal  The  when  facie  in  assumptions  In  exists,  theory,  being  the  interest  imposed.  that  is little  f o r the  trade  being  being  the  to  has  upon  the  prima  warnings  assumption  always  the  courts  protected,  order  that this  be  The  are  of the  a  employer.  doctrine  placed  bypass  restraints  are  second  restraint.  i n spite  evidence  restraint,  In  employment  employment  the  once  the proper  c o u r t s normally  to continue  of  limitation of  an  disadvantage  restraint  validity  to  d e c i s i o n s i n Canada  doctrine.  trade  element  q u e s t i o n i s to ask whether the r e s t r a i n t of t r a d e i s so o f f e n s i v e as t o v o i d by  to  6  trade.  Kingdom  the  restraints  interfere.  d o c t r i n e of r e s t r a i n t and  engagement.  during  when the  doctrine.  restraints  after  were  employment  trade  liberty  that  the  restraint  respect  employee.  look  and  then  qualify  for  been  at  first the  at  the To the  spatial  protection,  an  employer must prove the e x i s t e n c e of a p r o p r i e t a r y i n t e r e s t : commercial o r business  advantages  are  insufficient.  The  three  recognized  types  of  207  proprietary  interests  confidential  information  revealed  t o the  One  not  the  business  relating  to the  conclusion  employer and  relates  employee.  determine whether an employer has  attempting secrets  to  is  Instead,  divide  not  the  attention  connections  or  business,  customer  and  any  goodwill,  trade  secrets  employee.8  cautionary  s h a r e d by  are  a  The  way  ultimately  the  nature  of  the  content of the  information  information  a proprietary interest.  employee's  fruitful  courts  to the  an  to  knowledge  to  identify  identify  the  into a  know-how  conduct and  example  or  proprietary  i n t e r e s t by  partie's relationship, their  For  does  trade  interest.  paying  careful  to the  industry  w i t h i n which the b u s i n e s s o p e r a t e s . 9 Chapter V proprietary  discussed  rights  to  one  protect  selected  was  a  covenant  of  non-disclosure  required the  by  software  right  of  software  software trade  use  to  detailed  licensee upon  secret.  the  licensee.  place  between  does not  possess a p r o p r i e t a r y trade  who  No the  impose  employees.  Such  to protect  such a  t r a n s f e r of parties.  Since  can  the  protect i t s e l f the  definition  advantages covenant•  as  i n contract.  proprietary  a  sensible  way  rights to  to  example  covenants  the  extending  rights  to  doctrine  employer from u s i n g  this  commercial type  the  of  of the  confidence  l i c e n s e e i s a r g u a b l y unable  enforce  a  licensee/employer  o b l i g a t i o n s of  include  are  c o n f i d e n t i a l i t y of  I t i s suggested t h a t the c o u r t s  of  of  restrictive  software, the  d i s q u a l i f y the  employee, but  the  The a  proprietary  Equitable  imposed upon the  inadequacy  l i c e n s o r i s only  p r o t e c t i o n of a r e s t r i c t i v e covenant. be  the  to  i n t e r e s t i n the  would t h e r e f o r e  of  employer.10  attempts  it's  However  takes  of  information  l i c e n s o r s i n order  software  restraint  an  illustration  should or  to  extend  business  restrictive  208  Technological  and  social  changes  have  also  resulted  p r o t e c t i o n f o r the p u b l i c i n t e r e s t element i n the d o c t r i n e trade.  The  definition  threat of  to  what  the  public  constitites  public  employment r e s t r a i n t can be a t t a c k e d the p u b l i c i n t e r e s t w i l l law  be  i s q u i t e u n s e t t l e d on  conflict  e x i s t s i n the  case  definition law  admitted to d e f i n e the p u b l i c It  appears t h a t  resolve  the  appellate  dispute.  courts  properly  the  the  on  economic  would the  a court  allow  restraint instrument interest An existing  an  has  social  conditions  industry. trade  post  grounds t h a t  evidence  arisen  case  A major  that  called  in  the  evidence which a  social  not  policy  allowable  r e s t r a i n t of  can  be  upon  to  trial  and  court  can  to  without  the  concludes  able  trade  will  to an  of  ultimately the  p u b l i c . Such an  recognize  thesis be  evidence i s adopted  restraint in light  a f f e c t i n g the  scope  This  will  of  employment  j u d i c i a r y the  unique  that  fulfill  its  expanded  effect  approach  features  of  the  doctrine  of  true  role  an  scope  for  the  as  public  element. employer  in  principles  restraints.12 the  to a s s e s s  the  of  a  However, the  Canada must be  argument  doctrine  social  of  of  approach towards the  and  computer  appropriate  economic and  Supreme C o u r t , the  require  theory,  i n d e f i n i n g the p u b l i c i n t e r e s t .  If a more l i b e r a l by  limited  of the p u b l i c i n t e r e s t .  the  of  interest.11  critical  over the  consider  on  Supreme Court  A  In  i t s enforcement.  lack  overly  by the covenantee on the  harmed by  the  interest.  a  of r e s t r a i n t of  i n t e r e s t a r i s e s from an  the  in  in  on  computer the  Each p a r t y  reasonableness  reasonable  the  the  of  onus has  a  industry of  of  not  with  disadvantaged respect  s e p a r a t e onus of p r o o f  covenants.  interests  proof  is  the  The  onus  parties  to is  to  the  the  employment  i n ascertaining  establish on  by  that  employer  it who  is is  209  seeking  to  restraint  enforce i s not  the  contract.  i n the  The  i n t e r e s t s of  onus  the  for  e s t a b l i s h i n g that  p u b l i c i s on  the  the  employee  who  upon what  has  opposes enforcement. More s p e c i f i c a l l y , sometimes  been  the  described  employer/covenantee cannot r e l y as  "the  I n s t e a d the employer/covenantee has context  i n which  interest  will  be  However, these burden on the  Although  an a f f i r m a t i v e burden to demonstrate a  conclude  that  employee's  The  employer's p r o p r i e t a r y  principles  on  onus of proof  do  of  an  o b l i g a t i o n s were  for  breach  areas.14  in  there  basis  or  The for  benefits  are  specified  equity.  the  the  actions  employee's first  not  a  conclusion  damage  from  an  award  after  termination.  impose an  u n c e r t a i n t i e s i n the  flexible  guidelines  for  was  unreasonable  the  a  breach  existing  analyzed  that  against  employee's  do have the power to award e q u i t a b l e damages. has  doctrine."13  by  adequate  participates  can  misuse  harmed  specific  generally  court  of  employer.  Remedies three  the  possibility  there  third of  is  party  of  who 1  Supreme Court  calculation  a  confidence. ^  remedy, Canadian  The  in  the  courts  of Canada damages i n  1 6  second  interlocutory  remedial injunctions  topic  was  against  assessment  skilled  employees  confidential  information  against  employees  Although  the  Lords  American  Cyanamid  i n the  attempted to lower the  burden p l a c e d upon an  courts  refused  have  so  interlocutory traditional  far  injunction  policy  to  action.17  lower The  statements r e g a r d i n g  the  the  most  critical  legal  a p p l i c a n t , the O n t a r i o employer's  refusal  is  of  misappropriate  protect  of  as  who  granting  weapon  House  ranks  the  information.  outsiders.  remedy  of  confidential to  This  the  burden  motivated  employment r e s t r a i n t s  or case trial  in by  such as  an the the  210  "imbalance  of  power"  in  Columbia t r i a l  courts  appear t o a d o p t i n g a l e s s r e s t r i c t i v e  failure  to  weakness the  adopt  the  f o r the  computer The  favour  of  American  protection  of  Although  guidelines  information  the  approach,  presents  i n employment  British  a  the  serious  relationship in  industry.  or  employment  employer.  Cyanamid  t h i r d r e m e d i a l t o p i c was  punitive  the  exemplary  damages  obligations.  damage awards as information.  a very  to determine whether a c o u r t against  Canadian  an  courts  employee  are  for  currently  could  a  grant  breach  using  of  punitive  e f f e c t i v e remedy f o r the p r o t e c t i o n of  employment  °  Concluding Observations: As improve  with  any  the  legal  j u d i c i a r y can the  law,  or the  i n the  made the secret.  The  law  reform,  next  five  call  years.  I n s t i t u t e of discussion  the  desire and  Law  to  report  Canada.  information  The  tort  which  and  Reform  out  this  might be  and  in  B.C.  Law  followed  of a  Alberta  prospective  called  in has  recently The  prompted, i n information  courts. . 2 1  r e l a t e d statutory proposals  Reform Commission has  of  trade  recommendation.  t o extend the r e m e d i a l powers of the other  The  reform body  s t a t u t o r y t o r t was  existing  to  reform.  of m i s a p p r o p r i a t i o n  set  of a new  employer.  e x i s t i n g boundaries  a p r o v i n c i a l law  Research  protect  There have a l s o been two in  First,  for a statutory  t e n t a t i v e suggestion  20  p r i n c i p a l methods  i n d i c a t i o n s t h a t both of these r o u t e s  Institute's  employers,  an  two  a c t i v e r o l e i n expanding the  a  by  are  a v a i l a b l e to  distributed  part,  there  l e g i s l a t u r e s can undertake s t a t u t o r y  initial 1 9  of  protection  take an  There are Canada  area  elsewhere  for legislation  to  21 1  permit p a r t i a l  enforcement of r e s t r i c t i v e  r e s t r a i n t of t r a d e . an The  Such a reform would d e a l w i t h the  unenforceable r e s t r i c t i v e  covenant has  upon an  been r e l e a s e d  Second, significant Ontario.  in  the  shift,  two  i n the  Even though the  the  employment  years  p o s i t i o n of  there the  trial  d e c i s i o n s do not  relationship,  the  has  Regina  Turner24, convict of  the  v.  Kirkwood22,  Ontario  courts  accused p a r t i e s who  confidential  the  information,  Copyright  Regina  a  limited,  deal with a  v.  used  the  in  information  and  judicial law  Regina  criminal  f o r the  but  courts  clear  Stewart23,  Act  ^  2 1  appellate  show  A white  In a t r i o of c r i m i n a l  e i t h e r arranged  sold  and  decisions  imaginatively  had  been  directly  w i l l i n g n e s s t o respond to t e c h n o l o g i c a l change. decisions,  government.  p r o t e c t i o n t o computer s o f t w a r e .  past  of  h a r s h impact which  which recommends amendments t o  t o c l e a r l y extend c o p y r i g h t  doctrine  employer/covenantee.21a  f i n a l s t a t u t o r y i n i t i a t i v e comes from the F e d e r a l  paper has  in  covenants under the  v.  law  to  misappropriation  c o u n t e r f e i t videotapes,  or  interfered  w i t h computer tapes w i t h o u t a u t h o r i z a t i o n . Even . more copyright an  the  first  decisions  on  emerged.  In  the p r o t e c t i o n of software o b j e c t code have now  Court r u l e d  copyright.  t h a t both  The  source code and  judgment  establishes  These reform  hold  computer  developments out  the  industry.  comparison w i t h the i s doubtful  change.  in  hope  the of  i f the  law  law  improved  However, speed of  case  law  object  the  s o f t w a r e much more f i r m l y than the p r e v i o u s  it  interlocutory  u n r e p o r t e d 17 page i n t e r l o c u t o r y d e c i s i o n i n I.B.M. v. S p i r a l e s 2 5 ,  Federal by  and  significantly,  copyright  the  protection proceeds  t e c h n o l o g i c a l change.  can  protected  protection  cases noted i n the t h e s i s . and  reform  code were  keep a b r e a s t  of  the  proposal for at  a  the  for  of 2 6  statutory  employers  in  the  snail's  pace  in  Thus, i n  conclusion,  a c c e l e r a t i n g waves of  212  FOOTNOTES: CHAPTER V I I  1. 2.  Supra, Chapter I I I a t 35-47. Id.  3.  Supra, Chapter I I I a t 48-66.  3a.  Chapter IV a t 92-93.  3b.  Chapter IV a t 97-98.  3c.  Chapter IV a t 99-103.  4.  Supra, Chapter V a t 110-117.  5.  Supra, Chapter V a t 118-123.  6.  Supra, Chapter V a t 127.  7.  Supra, Chapter V a t 129-130.  8.  Supra, Chapter V a t 130.  9.  Supra, Chapter V a t 137-140.  10.  Supra, Chapter V a t 141-144.  11.  Supra, Chapter V a t 149-150.  12.  Supra, Chapter V a t 156.  13.  Supra, Chapter V a t 159.  14.  Supra, Chapter V I a t 172-173.  15.  Supra, Chapter VI a t 177.  16.  Id.  17.  Supra, Chapter VI a t 178-180.  18.  Supra, Chapter VI a t 188-192.  19.  I n s t i t u t e o f Law Research and Reform  (Edmonton, A l b e r t a ) , P r o t e c t i o n  of Trade S e c r e t s , Report f o r D i s c u s s i o n No.1 February, 1984. 20.  I d . a t 59.  21.  I d . a t 88-91.  213  21a. Report on Covenants i n R e s t r a i n t o f Trade (1984) a t p.5. 21b. From Gutenberg t o T e l i d o n ; A White Paper on C o p y r i g h t  (1984) a t p.  79-80. 22.  (1983) 5 C.C.C. (3d) 393, 42 O.R. (2d) 65 (Ont C.A.)  23.  (1982) 38 O.R. (2d) 84 (Ont. H . C ) , r e v ' d by (1983) 42 O.R.  (2d) 255  (Ont C.A.) 24.  Unreported  decision  Ont. H . C ,  June  18,  1984 n o t e d  i n (1984) 1  Canadian Computer Law R e p o r t e r 222, September 1984. 25.  I.B.M. v. S p i r a l e s Computers I n c . (1984) 12 D.L.R. ( 4 t h ) 351 (Fed. Ct. T r i a l Div.)  26.  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