Introduction
Intellectual Property (IP) is often one of a company's most valuable assets, yet it is often misunderstood as being limited to patents and trademarks. Many of the most critical assets of a company exist in less formal but equally important forms: confidential information, trade secrets, customer relationships and institutional know-how (see our previous publication on this topic, X.AI Corp. v. OpenAI—Why Every Business (and Start-Up) Needs an Employee Governance Policy for Managing Confidential Business Information and IP Risk).
The Alberta Court of King's Bench decision SHAC Solutions Inc v Guenther, 2024 ABKB 145, provides an instructive example of how courts recognize and protect these forms of IP, and why comprehensive IP protections are essential for all businesses.
Background
The applicant, SHAC Solutions Inc (SHAC) manufactured humic acid, a compound used in agricultural, resource extraction and environmental applications. SHAC's commercial success relied on a specific manufacturing process that had been developed over decades, which consisted of experience-based knowledge of timing and sequencing of chemical reactions.
The individual respondents had learned this process while working at SHAC either as employees or directors. Following disagreements about the company's internal governance, the respondents left to begin their own competing humic acid manufacturing company, called Envirotech Humics Inc. (EHI). Within weeks of incorporation, EHI was manufacturing and selling humic acid using a process strikingly similar to SHAC's, employing individuals who worked at SHAC, and targeting many of SHAC's existing customers.
SHAC sued the Respondents for breach of contractual obligations under various confidentiality and employment agreements, and other related causes of action. At the same time, SHAC applied for an interlocutory injunction to restrict the respondents from manufacturing humic acid pending trial.
The Alberta Court of Appeal granted SHAC the injunction application after applying the RJR-MacDonald test.The Court found that SHAC had demonstrated a likelihood of success at trial; that SHAC would suffer irreparable harm if the injunction were not granted; and that the balance of convenience favored maintaining the injunction until trial.
Discussion
IP is Broader than Patents and Trademarks
At the heart of the Court's decision to grant the injunction application was whether SHAC's manufacturing process was truly confidential in nature. The respondents argued that the manufacturing process itself was not proprietary to SHAC as it was available in the public domain, pointing to the patent originally held by SHAC which had expired in 1992.
However, the Court rejected this argument. The Court found that although the ingredients used in SHAC’s manufacturing process were publicly available, the specific methods and sequencing, including the timing and interpretation of chemical reactions, remained proprietary to SHAC. This knowledge was not disclosed in the expired patent or described in any public literature. As a result, the Court concluded that SHAC’s manufacturing process was confidential.
Confidentiality Agreements are Powerful
The Court placed considerable weight on the confidentiality agreements signed by the respondents. Unlike non-competition clauses, the confidentiality agreements were not viewed as restraints on trade. The Court recognized these agreements as protecting legitimate interests rather than unfairly impeding competition.
In this case, the respondents did not challenge the enforceability of the confidentiality agreements themselves. Rather, they argued that the information at issue was not confidential. Once the Court rejected that premise, the breach of contract analysis followed naturally. The confidentiality agreements explicitly covered processes, methods, customer information and institutional know-how, all of which were used by the respondents in EHI.
Loss of Trade Secrets Can Lead to Irreparable Harm
A central reason the injunction application was granted was the Court’s finding that SHAC would suffer irreparable harm. The Court accepted evidence showing that SHAC had already lost customers and employees. The respondents’ rapid entry into the market, enabled by knowledge gained at SHAC, placed the company in a vulnerable position from which it may never recover. The Court emphasized the unique vulnerability of trade secrets: once a confidential process is disclosed or used by a competitor, it cannot be made secret again. This loss cannot be adequately quantified with monetary damages, making injunctive relief necessary to protect SHAC’s position until trial.
Key Takeaways
The decision in SHAC Solutions Inc v Guenther provides a powerful reminder of the importance of IP protections. It reminds us that IP extends beyond registered protection, and includes confidential processes and experimental know-how. It illustrates the effectiveness of confidentiality agreements when properly implemented, and affirms that courts are sympathetic to the harm caused by the misuse of trade secrets.
For businesses, the message is clear: identify your proprietary information, protect it through contracts and internal controls, and act quickly when it becomes threatened. For employees and directors, the decision serves as a warning that leaving a company does not grant the right to take its confidential knowledge. Courts will protect a company's proprietary information when it is respected, and enforce consequences when it is not.
If your organization needs assistance with protecting its proprietary information, please contact one of the authors of this blog post.
Bennett Jones