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Lessons for the long-term
Ira Nishisato and Isabella Massimi
As any purchasing manager knows, the use of long-term supply contracts has become a vital aspect of supply chain management. But these deals aren't without risk, and buyers must know how to protect their rights when the contracts come to an end.
Intellectual property exchanged throughout the duration of the contract is often the lifeblood of a purchasing organization. Yet there's often the risk of the information being compromised or exploited by a nefarious supplier at the end of a contract, especially if the supplier knows the contract won't be renewed.
It's crucial to have an effective legal strategy to protect your organization, before sharing competitive details with new suppliers. If not, your intellectual property could be held, used or distributed by a supplier for improper or illegal purposes.
The first line of defence is the long-term contract itself. As a preventative strategy, long-term supply contracts should contain non-disclosure or confidentiality clauses designed to protect against disclosure and dissemination of proprietary information during, and at the end of the contract.
Even when the contract is well-drafted, you may still face the situation where a recalcitrant supplier is wrongfully holding or using the purchasing organization's intellectual property. In this case, litigation may be necessary to protect and enforce your rights.
One well-known form of court order is called an injunction, which can restrain others from using or disclosing your intellectual property. A less common remedy known as an Anton Piller order not only provides an efficient means of safeguarding proprietary information, but also allows for the recovery of the information in question.
What is an Anton Piller Order?
An Anton Piller order ("APO"), was named after a plaintiff in a case back in 1976. It's a civil court order, which requires one party (the defendant) to allow the other party (the plaintiff) to enter the defendant's premises to search for and inspect, remove or make copies of documents or other items, which might be used as incriminating evidence in an action against the defendant.
The primary purpose of an APO is to prevent an unscrupulous defendant from destroying relevant evidence. The usefulness of an APO is especially important in today's business environment, which is heavily dependent on computer technology. Documents are easily deleted, moved or destroyed.
While the preservation of evidence is its primary purpose, an APO is also a very powerful practical tool when intellectual property rights are being violated or confidential information has been stolen, since it can be used to recover the plaintiff's property in a relatively expedient manner.
In order to ensure the defendant doesn't destroy evidence, an APO is obtained by bringing a motion to the court, without notice to the defendant. The element of surprise is fundamental to the success of an APO. The primary purpose of the order will only be satisfied if the defendant is unaware of its existence until the plaintiff and its representatives turn up at the supplier's premises to serve the order and conduct the search and seizure.
It's important to recognize, however, that an APO still requires the defendant's consent before the search and seizure of the evidence can begin. Accordingly, the defendant's refusal to comply with the APO by refusing to let the plaintiff's representatives enter and search the premises can result in the defendant being found in contempt of the APO, which may result in a fine or even imprisonment.
Obtaining an APO
The Supreme Court of Canada recently articulated the test for granting an APO. In order to succeed on a motion for an APO, a plaintiff must:
• demonstrate a strong prima facie (at first glance) case;
• show the defendant's alleged misconduct will cause actual or potential damage to the plaintiff which is very serious;
• put forward convincing evidence that the defendant has in its possession incriminating documents or things;
• show there is a real possibility that the defendant may destroy such material before the discovery process can do its work.
Where intellectual property in concerned, the first two parts of the test are often satisfied by demonstrating the plaintiff's title to the proprietary information. The plaintiff will also provide concrete evidence that intellectual property rights have been violated.
It's more difficult to demonstrate the possibility of the defendant destroying incriminating evidence. Given this difficulty, the courts have been willing to infer the risk of destruction from a defendant's dishonest conduct.
Therefore, if the plaintiff can clearly establish the supplier engaged in a nefarious activity (demonstrating that the defendant is untrustworthy) the court will infer from the evidence the supplier's likeliness to destroy incriminating evidence if they're given advance notice of the proceedings.
The courts have also accepted evidence showing the ease with which the infringing articles (and vital evidence) can be removed or disposed of. This is especially the case in the context of intellectual property, where evidence of the infringement, such as computer records, computer programs, and portable electronic circuitry, are highly mobile and can easily be erased, destroyed, or hidden.
The advantages of an APO
APOs, especially in matters involving intellectual property, are becoming more common, largely because of their effectiveness. One of the most important features of the APO is the element of surprise. The plaintiff is likely to recover evidence against the defendant, which would not have otherwise been obtained. Furthermore, the evidence obtained isn't limited to what is found at the target premises. An APO can include provisions that require the defendant to disclose:
• the names and addresses of all persons with which the intellectual property may have been exchanged;
• all records of purchases, sales, dealings in or distribution of the intellectual property;
• the whereabouts of all relevant evidence relating to the intellectual property, whether under the possession, custody or control of the defendant or any third party.
An APO is therefore an extremely powerful tool. Not only is incriminating evidence preserved, but the plaintiff is able to recover proprietary information which has been wrongfully obtained or used by the defendant, to prevent further dissemination of it.
Once the evidence has been obtained, a plaintiff may be able to quickly determine the extent to which the proprietary information has been offered, sold, distributed, used or otherwise exposed. This is particularly useful to the plaintiff in determining what steps must be taken to prevent further dissemination and harm.
Finally, once the intellectual property is recovered and the incriminating evidence preserved, it may lead to the avoidance of costly litigation. The defendant is put in a difficult position of having to defend itself in a proceeding, in the face of incriminating evidence which was found in its possession. This creates an incentive for the defendant to settle.
The plaintiff might therefore be able to save the expense of drawn-out litigation, and settle on terms that may include a permanent injunction in relation to the use, dissemination or disclosure of the proprietary information.
With long-term contracts becoming more common these days, purchasers should be aware—and ready to use—the powerful tool called APOs.
Ira Nishisato is a partner with Toronto-based law firm Borden Ladner Gervais LLP. Isabella Massimi is an associate with Borden Ladner Gervais LLP.
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