You say License, I say Restraint of Trade!

 7868073 Canada Ltd. v. 1841978 Ontario Inc., 2024 ONCA 371

In Ontario, non-competes have been banned from employment contracts. In other contracts, a term that would prevent a party from "carrying on [their] trade freely" can be nullified on public policy grounds as a restraint of trade.

Is a global, perpetual, and exclusive license for the commercial exploitation of a employee's knowledge, expertise, and experience ("know-how") an unconscionable restraint of trade?

For now, the ONCA is saying "no."

In this case, the restraint of trade argument failed because the courts found that while the license itself was perpetual, the licensor-employee had termination rights :

However, in the end, I need not resolve the issue whether restraint of trade principles apply. Even assuming that they could apply while the License Agreement was in force, I am satisfied that the restriction on [the Licensor's] use of the Licensed Rights was reasonable between the parties and reasonable in the public interest for the same reasons that I consider restraint of trade principles may not apply. Notwithstanding its broad geographic scope and the limits it placed on selling, distributing and putting to use the Licensed Rights, the License Agreement was temporally limited in the sense that it was subject to cancellation and termination by the Licensor, and restricted [him] from competing with [the Licensee] only during its currency. It did not purport to restrain him from using the Licensed Rights after its termination and went no further than necessary to protect the legitimate interests of [the Licensee], the party in whose favour it was granted: see MEDIchair LP v. DME Medequip Inc., 2016 ONCA 168, 129 O.R. (3d) 161, at para. 38.

However, looking at the contract itself as quoted in the trial decision, termination was limited to the licensee's insolvency or winding-up. That seems to create an exploitable loop-hole, where employers could insert an exclusive "know-how" license into every employee's contract.

That might seem particularly attractive to employers that view themselves as investing significantly in staff training:

"Dear former associate, as a reminder on your departure, when you joined the firm you granted us an exclusive license to commercially exploit all your legal experience and knowledge as a lawyer. Therefore, any work you do as a lawyer outside of the firm that in any why relies on said knowledge or experience would be a breach of that license." A quibble that would make Shakespeare or Gilbert and Sullivan proud.

Employment lawyers might start thinking about "substance versus form", and preserving legislative intent, but IP lawyers (or those who were made to read Hohfeld) are likely to have a different reaction: know-how is knowledge and pure knowledge can't be owned or licensed!

Interestingly enough, in this case the defendants almost made that argument, but instead argued that know-how cannot be licensed in perpetuity, as that would be 'draconian. That argument was rejected at trial. When the broader challenge was raised before it, the ONCA said that an "appeal is not the forum for parties to raise issues not raised in the court below," and declined to address the question.

While the reasons for not allowing new arguments on appeal are many and sound, courts shouldn't ignore fundamental legal principles, cases, authorities, and arguments simply because the parties fail to raise them.

Jura novit curia: the court knows the law. The law is always before the court, and does not need to be pleaded or proven. Nor can an agreement by the parties about that the law means or requires override the court's own view.

If two parties get into a dispute over a contract for, say, the sale of a slave, and neither side raises that contract's illegality, the court has to.

A purported license to personal knowledge and experience is less vile (by orders of magnitude) than a slave contract, but it is equally unrecognized by the law -- and for the same reason.

The law doesn't recognize proprietary interests in a living human being. Nor does it recognize ownership of 'knowledge' or 'experience'.

And where there is no underlying property right, there can be no license.

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