On January 19, 2009, Madam Justice Hoy of the Ontario Superior Court of Justice released the reasons for her decision in Certicom Corp. v. Research In Motion Limited, et. al. Certicom successfully obtained an injunction preventing RIM from advancing its hostile bid for Certicom on the basis of RIM's use of confidential information that had previously been provided.
RIM and Certicom, which have a business relationship dating back to 2000, had entered into two key non-disclosure agreements. The first was intended to facilitate the exchange of information in the context of a potential business combination and included a 12-month standstill period during which the parties agreed that RIM would not make an unsolicited approach to obtain control of Certicom. The second was entered into in the ordinary course of the parties' commercial relationship and not in contemplation of an acquisition, although eventually information was disclosed under that agreement in connection with merger discussions. The second non-disclosure agreement did not contain a standstill.
Several months following the expiry of the standstill period, RIM launched an unsolicited bid for Certicom. Certicom's injunction application was based on RIM's improper use of confidential information, rather than a breach of the standstill.
The court found that RIM had considered the confidential information provided by Certicom under the two non-disclosure agreements in assessing the desirability of launching its take-over bid and that the non-disclosure agreements did not permit the information to be used for that purpose. Of note is the fact that the first non-disclosure agreement did allow confidential information to be used to assess a "business combination between the parties". The Court found that although a take-over bid is a business combination, unless the bid is made on a friendly basis it is not "between the parties" and therefore confidential information could not be used in connection with a hostile bid.
On the basis that the limitations on use of confidential information are tantamount to negative covenants, the Court determined that it was unnecessary for Certicom to establish irreparable harm in order to obtain the requested injunction. The Court also cited a public policy interest in enforcing confidentiality agreements in determining to exercise its discretion and order an injunction. In addition to enjoining RIM's then current bid for Certicom, the Court indicated that it is difficult to imagine how RIM could launch another unsolicited bid in the circumstances, effectively requiring RIM to either pursue a friendly transaction or abandon any near-term acquisition of Certicom.
This decision could have important ramifications to both bidders and target companies in launching and defending against unsolicited take-over bids. Bidders will need to carefully consider the implications of this decision if they have received information from the target company under a confidentiality agreement that remains in effect at the time of the proposed bid. Bidders cannot presume they are free to initiate a change of control transaction after any standstill period agreed with the target company has expired. Target companies may find this decision at the forefront of their defensive arsenal in the event that they have a pre-existing confidentiality agreement or commitment with a third party that elects to proceed with a change of control transaction on a hostile basis.
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