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An Ineffective Self-help Remedy

A recent decision of the Federal Court allowed the plaintiff claims for copyright infringement and passing off arising out of a dispute between the principals of a software company. Ark Innovation Technology Inc. v. Matidor Technologies Inc. 2021 FC 1336.


The Facts

The individual defendant (the “Defendant”) is a founder and former executive of Ark Platforms Inc (“Ark”). Ark developed and marketed map-based project management software under the name “Arkit.”


The software is offered as a Software as a Service (SaaS) platform. Arkit allows clients with multiple projects in different geographic locations to visualize those locations on a map and manage the projects through the use of filterable geospatial data, participant collaboration, task and budget tracking, document collection, and in-app messaging. Clients pay annual subscription and license fees to access Arkit via a web browser. Arkit has been primarily marketed to the oil and gas, environmental, and energy services sectors.


The Defendant managed the software development during his tenure with Ark including authoring the Arkit code with others. It appears the development work was done within the course of their employment. The Arkit software was developed over time and continues to be developed and modified.


The Arkit software has a “front end,” which manages the user interface and a “back end,” that organizes and manipulates project data, controls the functionality of the program, and cannot be accessed by a user. Within these general categories, the software is organized through numerous folders and files, totalling hundreds of thousands of lines of code.


After a falling out with other executives at Ark the Defendant retained copies of his work done there including a copy of the Arkit source code as of August 2017, and various Ark marketing materials. The Defendant has asserted claims relating to the falling out and subsequent actions in an action in the Supreme Court of British Columbia.


At the end of 2018, Defendant developed the Matidor software, using the copy of the Arkit source code as a starting point given his belief that Ark was in “sun-setting mode.” In December of 2018, the defendant had a version of the Matidor software that was effectively the August 2017 version of the Arkit software, but with the names of Ark and Arkit changed to Matidor. The Defendant and his new company, Matidor Technologies Inc, marketed and licensed map-based project management software under the name “Matidor.”


Between December 2018 and December 2019, Matidor contacted numerous prospective clients. During this period Matidor prepared marketing materials for the Matidor software that were copies of Arkit promotional materials with the name and logo of Arkit replaced by the name and logo of Matidor.


On December 23, 2019, counsel for Ark wrote to the Defendant asserting copyright in the Arkit software and promotional material, alleging copyright infringement and passing off, and demanding the immediate discontinuance of the infringement. The defendants did not respond to the demand letter. However, they removed the promotional material from Matador’s website and “accelerated” their development of the Matidor software. The lack of satisfactory response led to an action in the Federal Court in January 2020. However, the matters in issue in the action in the Supreme Court of British Columbia were not relevant in the Federal Court action.


The Federal Court action proceeded, and the plaintiff brought a motion for summary trial. The Judge was satisfied there was sufficient evidence for adjudication on this basis.


Copyright

The parties agreed that the Arkit software was a single “computer program” and “literary work” under the Copyright Act. The defendant also admitted that the December 2019 Version and the June 2020 Version of the Matidor software infringed copyright in the Arkit software. Their position was that subsequent versions of the software did not infringe since numerous changes had been made. Unfortunately, they filed no evidence to support this position.


The Judge said that the onus was on the plaintiffs to prove infringement on a balance of probabilities. This included an onus to prove infringement for each version of the software in issue. The defendant did not have to disprove infringement; the plaintiff must prove infringement.


In dealing with the later versions of the Matidor software the judge said absent evidence these versions did not infringe, he inferred that the Matidor software continued to infringe after the June 2020 Version. If the defendants wished to limit its responsibility for infringement to the December 2019 and June 2020 Versions, they could have filed evidence to show the software was changed enough that the court could no longer infer it infringed based on the admission and earlier evidence.


Based on these conclusions all of the versions of the software were infringing.


Passing Off

To establish passing off under the Trademarks Act, a plaintiff must establish (1) the existence of goodwill; (2) a deception of the public due to a misrepresentation; and (3) actual or potential damage to the plaintiff. In addition, a plaintiff must prove possession of a valid and enforceable registered or unregistered trademark.


The Judge was satisfied that the plaintiff had established goodwill in the “Arkit” name. This was confirmed by the defendant’s actions which created the impression that their business was associated with the plaintiff.


The misrepresentations consisted of the defendant’s use of the Arkit marketing materials with the ARKIT trademark and logo replaced by the Matidor name and logo; their use of Ark Platforms’ Twitter account, which displayed the ARKIT trademark; and oral and written statements to the effect that the Matidor name and software was a “rebrand” of Arkit.


The Judge concluded these actions caused loss of control over reputation, image or goodwill sufficient to satisfy the third element of the test for passing off.

Damages

The plaintiff sought damages for copyright infringement and passing off together although most of their claim related to copyright. The Copyright Act provides where a person infringes copyright, they are liable to pay the damages the copyright owner has suffered due to the infringement and, in addition to those damages, such part of the profits that the infringer has made from the infringement and that were not considered in calculating the damages, as the court considers just.


In this case, the Judge was satisfied that the plaintiff established damages from copyright infringement and passing off for $111,000, consisting of $91,000 for lost sales, $15,000 for a competitive price reduction required by the Defendant’s actions and $5,000 in harm to reputation and goodwill.


A separate award was made for the profits that the Defendant had made which the Judge determined were $166,400.


The defendants were enjoined from further infringement and passing off. Strangely nothing was said about ordering destruction or delivery up of the infringing software


Comment

The judge’s finding of infringement concerning the later versions of the Matidor software is interesting, but it is hard to imagine that the Defendant could show those versions were not infringing given his continuing access to the Arkit software and the existing evidence of substantial similarity between the respective programs.


It is unfortunate that the Defendant did not more carefully consider his decision to copy the Arkit software and promotional material and seek legal advice before following this course of action.


If you have questions, please contact me at mckeown@gsnh.com.


John McKeown

Goldman Sloan Nash & Haber LLP

480 University Avenue, Suite 1600

Toronto, Ontario M5G 1V2

Direct Line: (416) 597-3371

Fax: (416) 597-3370


These comments are of a general nature and not intended to provide legal advice as individual situations will differ and should be discussed with a lawyer.


A version of this article originally appeared in the Lawyer’s Daily published by LexisNexis Canada Inc.


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