Forensic inspector to search WestJet files
Will look for documents related to rival Air Canada's claim of corporate espionage
By PAUL WALDIE
Friday, July 9, 2004 - Page B3
Executives at WestJet Airlines Ltd. are likely sitting on a pile of documents obtained through corporate espionage that should be turned over to a court as soon as possible, a lawyer for Air Canada told a court hearing yesterday.
Earl Cherniak, a Toronto lawyer representing Air Canada, said his client may seek more court orders prohibiting use of the alleged material once it has been released.
His comments came as an Ontario Superior Court judge finalized an injunction compelling Calgary-based WestJet to preserve all documents related to a lawsuit launched by Air Canada over the alleged spying. The judge also agreed to appoint a forensic inspector to sift through WestJet's internal e-mails and other documents to determine which are relevant to the case.
Air Canada is suing its rival along with two WestJet employees claiming they illegally accessed a confidential website that had information about the number of seats sold on flights at Air Canada and its subsidiary Zip.
During yesterday's hearing, Mr. Cherniak said investigators hired by Air Canada have pieced together shredded documents obtained from the garbage of Mark Hill, a WestJet executive and co-founder who is named in the suit.
Those documents "indicate that the defendants were making use on a considerable scale of the Air Canada information," Mr. Cherniak told the court. "We only have the tip of the iceberg."
WestJet has acknowledged its employees accessed the website, but it has insisted the information did not provide any competitive advantage.
Yesterday, David McDonald, a Calgary lawyer representing the airline, said WestJet is "more than happy to preserve all our records and allow for court-appointed inspection and allow production to the other side of anything relevant in this lawsuit."
However, he warned the court that sorting through thousands of e-mails won't be easy. "A company with over 4,000 employees has a large volume of e-mail," he said after the hearing. "It may be that we are just looking for a few needles in a haystack but you've got to look at the haystack in order to figure out what's in there."
One analyst warned investors that the information obtained by WestJet was potentially useful and the airline could suffer financially now that it has stopped accessing the Air Canada site.
"Based on our experience with the airline industry, we believe the information obtained by WestJet was potentially very valuable and could have allowed the company to better manage its seat inventory, thereby obtaining higher prices than it would have been able to otherwise," Claude Proulx, an analyst with BMO Nesbitt Burns, said in a report yesterday.
"Furthermore, we also believe that this information could have allowed WestJet to better plan its expansion and potentially deprive Air Canada of revenues by selectively lowering prices on some routes where Air Canada had difficulty selling its inventories."
Mr. Proulx noted that Air Canada's domestic traffic figures have improved substantially since WestJet stopped accessing the site last March while WestJet's have deteriorated significantly. That could be due to other factors, he said, but "investors should keep in mind that WestJet's profitability may have been artificially boosted in recent quarters, which could make coming quarters very challenging."
He lowered his second-quarter earnings forecast for WestJet based on other operational issues, including less than stellar passenger levels. And, he added: "Though it is difficult to quantify, we believe investors should keep a cautious stance toward WestJet in light of the lawsuit and the fact that past earnings may have been helped by confidential information to which it no longer has access."
As the lawsuit continued in court, Air Canada told its shareholders that their stock will be virtually worthless under its plan of reorganization. Chief executive officer Robert Milton said existing shareholders will receive "approximately 0.001 per cent of the fully diluted equity of [the new company]."
(c) Globe and Mail
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