The Court of Appeal for British Columbia in GEA Refrigeration Canada Inc. v. Chang, 2020 BCCA 361 recently affirmed a significant award (over $10 million) in a breach of confidence case relating to industrial freezer designs. This case illustrates that an action for breach of confidence can be a powerful tool in defending one’s intellectual property.  

The plaintiff in the case was a manufacturer of industrial freezers for the food industry. During a period spanning 2009 and 2010, a group of its employees, including several engineers, left the plaintiff to start a new company, which within a year or so started making and selling competing freezers. Shortly after, the plaintiff sued the new company and the former employees, alleging breach of confidence in using the plaintiff’s engineering drawings to design the defendants’ freezers. The plaintiff won at trial, and the defendant company and five of the nine individual defendants appealed.

The test in Canada for a breach of confidence is as follows: (i) the information conveyed must be confidential; (ii) the information must have been communicated in confidence, and (iii) the information must have been used for an improper purpose. The trial judge found, and the Court of Appeal affirmed, that all elements of the test were met.

While much of the case involved determining the extent to which the defendant employees used the plaintiff’s confidential drawings in designing their freezers, the Court of Appeal noted that it was the information contained in the drawings, and not the drawings themselves, that mattered: it would have been enough had the defendants relied only on their memories in appropriating the confidential designs. Nonetheless, the Court of Appeal affirmed the trial judge findings that indeed the defendants made extensive use of the plaintiff’s drawings. To be clear, the defendants did not make exact replicas of the plaintiff’s freezers; what mattered was that they used the plaintiff’s drawings to design their freezers and saved years of research and development costs in the process.

This last point brings up the issue of remedies. Courts have a wide range of options from which to fashion a remedy in breach of confidence cases, and this one was interesting. Against the defendant company, the trial judge awarded a disgorgement of profits made during a period of four years on the sale of the competing freezers. But, against the individual appellant former employees of the plaintiffs, the judge awarded the plaintiff’s damages caused by the loss of sales to the defendant company. However, in order to avoid overcompensating the plaintiff, the Court ordered that the plaintiff could collect from the individual appellants only to the extent that it could not collect the full profits award from the defendant company. In effect, that aspect of the award was capped at the profits award. The trial judge also awarded punitive damages against two individual appellants.   

The disgorgement of profits was based on a period of four years from the time when the defendants started marketing the offending freezers. This was an application of the springboard doctrine. As there were no patents covering the freezers, subject to the applicable non-compete clauses the defendants were free to manufacture their own freezers. It was just that they were not allowed to wrongfully use the plaintiff’s designs, or in other words, to use the plaintiff’s designs as a springboard, to come up with their own freezers.

As for the start of the springboard period, the Court of Appeal took the authorities to mean that the period starts (at least in cases not involving fiduciaries) when the wrongdoer breaches a confidence by misusing information in a way that is capable of causing damage to the victim of the breach. Here, that was when the defendants started marketing their freezers.

As for the length of the springboard period, which was probably the most important factor in the calculation of the quantum of the award, the parties somehow left the trial judge with little concrete evidence on how long it would have taken engineers to design a competitive freezer without the benefit of the plaintiff’s drawings. No matter, as the Court of Appeal noted, the trial judge had to do the best she could with the limited evidence. An award of four years was not an error.

Finally, the quantum: the trial judge awarded $7,131,087 in profits against the defendant company, $3,650,000 in damages against the individual appellant defendants to be jointly and severally liable with the company, and $75,000 in punitive damages against each of two appellant individual defendants. The Court of Appeal upheld all amounts.