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Bitter air carrier dogfight heads to court Add to ...

In a case involving electronic snooping and purloined trash, each of Canada's biggest airlines accuses the other of stealing business secrets and otherwise behaving badly. How much harm Air Canada and WestJet Airlines Ltd. actually suffered is hard to judge, and it may take many courtroom sessions like the one scheduled in Toronto today to settle the matter.

What is clear is that (1) Air Canada left a virtual window open into a reservation database it says contains priceless competitive information, (2) WestJet co-founder Mark Hill, a self-described information junkie, spent a lot of time looking in, and (3) private detectives hired by Air Canada snatched and digitally reconstituted documents he had shredded and put out for recycling at his Victoria home. Air Canada says it was gathering evidence of Mr. Hill's snooping; WestJet claims the stolen trash included sensitive WestJet business and financial information.

Mr. Hill, who is WestJet's vice-president of strategic planning, got to the data through an internal Air Canada website used by thousands of employees, former employees and retirees seeking flights with empty seats in which they can fly on company passes. He used an access code Air Canada had given Jeffrey Lafond, a WestJet financial analyst previously laid off by Canadian Airlines International Ltd., which Air Canada absorbed in 2000.

The fundamental thing in dispute is the importance of the information on the website and whether WestJet, an upstart that had already grabbed large chunks of business from Air Canada, could have used it to pick routes, flight times and price patterns that would give it a further edge over the big airline.

Documents filed by both sides in Ontario Superior Court in the past week outline their positions and the arguments they plan to make today, when Mr. Justice Ian Nordheimer is to consider questions involving case scheduling and the preservation and disclosure of evidence.

Among other things, WestJet accuses Air Canada and its Zip Air subsidiary (which is likewise suing WestJet) of filing "gratuitous and unnecessary legal arguments" about alleged data piracy in order to plant "selected evidence and speculation in the national press" and "attack WestJet publicly, under the guise of judicial process."

It suggests that when Air Canada learned of Mr. Hill's snooping, it saw a chance to "get" the smaller airline. In a proposed countersuit, WestJet seeks punitive damages of $5-million for the trash-napping.

Air Canada, now emerging from 15 months of protection under the Companies' Creditors Arrangement Act, casts itself as a victim of "corporate espionage on a massive scale." It stresses in its filing the pains it believes Mr. Hill and/or other WestJet officials took to gather data from its website. Mr. Lafond's access code was used more than 240,000 times over 10 months to check as many as 20 flights at a time, it says.

"Hill, according to his own evidence, accessed the site manually for, on average, 90 minutes per night, seven days a week, from April, 2003, to September, 2003," it says, adding that when the executive tired of this he had a WestJet employee write a "screen scraper" program to harvest the data automatically.

While offering no specific evidence, it asks the court to conclude that "all the senior management of WestJet," including chief executive officer Clive Beddoe, took part in sharing and misusing confidential Air Canada data.

WestJet, for its part, argues that the website was not labelled confidential and contained nothing of value that Mr. Hill could not have got by other means.

"The information on the website was of interest to Hill, but of no use to and not used by WestJet," it says. "The information enabled Hill to compare WestJet loads with estimated Air Canada or Zip loads. . . . This comparison served the limited purpose of satisfying Hill's interest and curiosity regarding the plaintiffs' loads without the necessity of counting passengers or accessing the information from other sources."

WestJet also argues that Air Canada showed little fear of competitive harm when it began to suspect that WestJet had access to its data. It quotes testimony from WestJet employee Michael Rodyniuk, who previously worked for Zip Air, about a conversation with Zip president Steve Smith.

A. "Steve mentioned to me at the onset of this that this was [Air Canada president]Robert Milton's top priority, so yes they were very serious about it."

Q. "They were very concerned about it?"

A. "Mr. Milton saw it as a very significant event."

Q. "The reason for that was that they were very concerned that their confidential internal reservation information and load factor information was somehow being accessed by WestJet?"

A. "No. Steve's words to me were something to the effect, 'We think we got WestJet.' "

The filings highlight many points yet to be settled in court, including the question of where Mr. Hill's trash was taken.

According to an affidavit he swore on June 30, he works about three days a week at his second home on a private cul-de-sac in Victoria's exclusive Oak Bay neighbourhood. "If I print WestJet business documents off my computer, I consistently shred them," he said.

On March 22, he said, two men in a white pickup truck made off with the contents of his garbage and recycling bins after telling an inquisitive neighbour they were municipal employees, and much the same thing happened on April 5.

"At approximately 8 a.m., I witnessed three individuals in a white pickup truck drive into my cul-de-sac and back up to my driveway. Two men got out of the truck and walked onto my driveway and wheeled away my recycling and garbage bins to their truck. They emptied the contents of the bins into the back of their truck. The men then put the bins back onto my private property.

"I stood on the front porch of my Oak Bay home and watched these men take my garbage and recycling. I immediately asked what they were doing. They did not respond.

"I took pictures of these individuals as they dumped my garbage and recycling into the back of their truck and drove away."

In a separate affidavit, Vancouver private detective Jasper Smith said his firm grabbed the trash on behalf of Air Canada's lawyers, but denied trespassing.

Carriers on collision course

Air Canada and WestJet accuse each other of stealing business secrets and other nefarious behaviour in allegations filed with Ontario Superior Court:

AIR CANADA

Espionage: This litigation involves corporate espionage on a massive scale. [WestJet has]admitted surreptitiously accessing Air Canada's employee travel website...on a massive scale over a ten month period. It was done through a secret offsite project that operated out of the home of a WestJet Airlines Ltd....employee who downloaded [Air Canada's]confidential data and sent it to WestJet co-founder and senior Vice-President, Mark Hill...through a private website.

Confidentiality: The flight load and load factor information contained on the employee website is highly commercially sensitive and is not publicly available. The plaintiffs strictly maintain the confidentiality of this information.

Advantage: With the complete and accurate real time market information WestJet obtained through its improper access to the employee website, WestJet was able to easily determine not only [Air Canada's]most profitable flying times on any particular route, but also the times when market demand appears to be strongest...WestJet had and has the ability to use this information to schedule or reschedule its flights to the most profitable times and/or to target [Air Canada's]most profitable routes.

WESTJET

Espionage: On 2 occasions in March and April 2004, and at other times known only to Air Canada, private investigators retained by Air Canada, disguised as Oak Bay municipal employees, unlawfully and surreptitiously entered onto Hill's property at his second home in Oak Bay, [B.C]..and seized documents and other material Hill had intended to recycle. This material included confidential WestJet financial documents that Hill had shredded and placed in a recycling container.

Confidentiality: Air Canada does not provide persons given access to the website any terms or conditions stating the information on the website is confidential...Air Canada is aware that many of these persons work for competing airlines.

Advantage: [Air Canada's]loss revenue, profits and goodwill has been caused by the mismanagement of their businesses, their decisions to persist in selling seats on flights for less than their cost to attempt to preserve market share and harm competitors, their high cost structure and the poor treatment of their customers.

Report on Business Company Snapshots are available for:
AIR CANADA WESTJET AIRLINES LTD.
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