In 7868073 Canada Ltd v 1841978 Ontario Inc, 2024 ONCA 371, the Ontario Court of Appeal recently assessed the legal effects of engaging in competing business ventures and the importance of honoring fiduciary duties stemming from license agreements following a parties departure from a former corporation.
Robert Langlois (“Langlois”), alongside two partners, launched a powder-coating business, whereby Langlois granted a perpetual license (the “License”) for his industry “knowledge” to 7868073 Ontario Inc. (“786”), a company which the three parties formed and held equal shares in. In turn, 786 owned shares in two other companies (collectively referred to as “ACS”), which Langlois worked with. When Langlois left ACS to start another business without informing his former partners, ACS alleged that Langlois breached the License.
The Court of Appeal affirmed the trial judge’s findings, rejecting the argument that the License was void ab initio due to its unreasonable worldwide scope and restrictions on trade. The Court highlighted the temporal limitations of the License in so far that it did not prevent Langlois from using the licensed rights following the termination of the License and that it went no further than necessary to protect ACS’ legitimate interests. Notably, the Court emphasized that the Licenses’ terms were freely negotiated and given the circumstances surrounding its formation, the restrictions within the License were reasonable.
Despite Langlois’ claim that he had no fiduciary responsibilities to ACS, the Court noted ACS’ success relied heavily on Langlois’ “expertise” conferred in the License. The Court opined that Langlois breached both the License and his fiduciary duties, “all of which [breaches] were intertwined”, by leaving ACS and taking with him the licensed rights he had granted. The Court opined that Langlois’ fiduciary duties continued even after his departure from ACS, since there was no evidence of the License’s termination and Langlois “continued to pursue the same customers and opportunities” as ACS using those licensed rights.
Additionally, the Court of Appeal held that Langlois “breached his contractual and fiduciary obligations” by “misappropriating corporate opportunities that belonged to ACS” when he ceased working for same.
Parties may wish to seek legal advice to consider the restraints and implications of granting licenses for “know how” involving their industry expertise, since these may establish enduring fiduciary duties to licensees and former businesses.
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