Alberta Court grants injunction to prevent former CEO from launching a competing AI-enhanced product

MLT Aikins was recently successful in obtaining an interlocutory injunction in the Court of King’s Bench of Alberta restraining an education software company’s former chief executive officer and his new company from launching an AI-enabled education software application that was found to be directly competitive with his former company’s existing product.

The decision underscores two common themes in the Court’s consideration of such applications, particularly in an employment context:

1. Courts will scrutinize a senior executive’s conduct through the lens of fiduciary obligations, particularly duties of candour, avoidance of conflicts of interest, devotion of time to the corporation and preservation of corporate opportunities
2. Well‑drafted restrictive covenants negotiated within a business acquisition are a powerful tool for protecting a corporation at the interlocutory stage where they clearly define the scope of activities captured and to whom they apply

Background

In April 2020, ILP acquired the assets of Intellimedia Inc., an Alberta-based education software business, pursuant to an asset purchase agreement (APA) for approximately $5.1 million, plus assumption of defined liabilities. Within its product line, Intellimedia Inc. had developed a product called Dossier, which is an education analytics tool operating in the K–12 space. Also as part of the transaction, Ahmad Jawad, an original co‑founder of Intellimedia Inc., entered into an employment agreement to serve as ILP’s CEO.

The employment agreement included express acknowledgements and obligations consistent with senior executive fiduciary duties, including commitments to act in ILP’s best interests, devote his time to ILP’s business and maintain confidentiality. The APA also included restrictive covenants, including a non‑compete and a non‑solicitation clause, which the Court found were inextricably linked to the acquisition and intended to protect the goodwill purchased by ILP.

ILP brought the injunction application in relation to the defendants’ work on AI‑enabled products targeted to the K–12 education sector, including an application (the DAI App) that DOCEOAI Analytics Inc. (a company formed by Mr. Jawad after the acquisition) had planned to launch in May 2026.

The appropriate injunction threshold

Interlocutory injunctions are generally assessed under the familiar three‑part test:

1. Serious issue to be tried
2. Irreparable harm
3. Balance of convenience

ILP argued that the “serious issue” threshold should apply, largely due to the restrictive covenants existing within the context of a business acquisition. The defendants argued for the higher “strong prima facie case” threshold due to the practical effect of the injunction being to effectively end the action. The Court acknowledged that the lower “serious issue” threshold would have ordinarily applied, but in these circumstances, the higher threshold was more appropriate since an injunction against the defendants at this stage would effectively end the action from the defendants’ point of view.

Fiduciary duties and diversion of a corporate opportunity

Mr. Jawad acknowledged he was a fiduciary of ILP. The Court found a strong prima facie case that he breached contractual and common law fiduciary duties by failing to advance the best interests of ILP, failing to devote his time to ILP’s business and affairs, breaching his duty of candour and full disclosure, breaching his duty of loyalty, breaching his duty to avoid conflicts of interest and diverting a corporate opportunity to develop an AI‑enhanced K–12 software product to enhance educational decision-making.

In reaching that conclusion, the Court considered, among other things, evidence that steps were taken during Mr. Jawad’s employment to pursue AI‑related development and marketing through DOCEOAI Analytics Inc., a separate entity, which included the obtaining of grants, use of contractors and other resource-related conduct, without disclosure sufficient to allow ILP to assess the nature and implications of the activity. The Court also rejected the proposition that AI in education was merely an abstract idea incapable of constituting a corporate opportunity, instead treating the opportunity as sufficiently connected to ILP’s business and Mr. Jawad’s role and knowledge to engage fiduciary constraints.

Enforceability of the Restrictive Covenant

The Court concluded there was a strong prima facie case that the APA’s non‑compete clause was unambiguous, reasonable and enforceable. Notably, the Court interpreted the clause’s reference to the “creation” of competing software as capturing development activity (not only licensing or sales) and found a strong prima facie case that the DAI App would be directly competitive with Dossier once launched. On the competition analysis, the Court acknowledged differences between the two products, particularly in the DAI App’s use of an AI-driven chat-based interface. However, the Court emphasized that both products sit between K–12 data and education decision‑makers and competition was particularly evident for prospective customers evaluating options to better leverage their student data, where the products would ultimately be “fighting for the same dollars.”

Irreparable harm recognized for an anticipated product

Because the DAI App had not yet launched, being anticipated to launch in May 2026, the defendants argued the application was effectively quia timet (often defined as “feared future harm”) and required proof of a high probability of imminent harm, which is a higher evidentiary threshold. The Court found that ILP met the irreparable harm requirement, emphasizing the niche nature of the K–12 market, the imminent planned launch of the DAI App and the difficulty of quantifying losses in goodwill, reputation and market opportunity, and, particularly, the inability to measure lost opportunities involving customers that ILP may never acquire.

Granting of the injunction

The Court granted an injunction pending trial which:

• Restrained the defendants from engaging in the creation or licensing of AI‑enabled software products in the K–12 sector that are directly competitive with ILP’s Dossier software in the regions where ILP did Dossier business as of August 2024
• Specifically enforced the APA’s non‑compete clause

The Court declined to grant the broader solicitation-related relief sought at this early stage and directed a further process if needed to determine whether another DOCEOAI Analytics Inc. product, an application called Clario, fell within the scope of this injunction.

Key takeaways

The Court remains willing to intervene in situations where it is sufficiently clear that fiduciary obligations are owed and have been breached. In such cases, there may be less emphasis on demonstrable proof of irreparable harm and the balance of convenience will tend to favour the applicant.

Artificial intelligence enhancements, on their own, are not sufficient to render a new product non-competitive with an existing product. Instead, the Court will focus on the positioning of that product within the market and customer base that the prior product is operating in to assess whether the products are competitive.

It is not necessary that a corporate opportunity be fully acted upon to be subject to fiduciary constraints. Where the corporation has indicated its intention to pursue certain enhancements to a product, even where that enhancement has not yet been pursued or researched, that may be sufficient.

Solicitors should draft restrictive covenants with injunction readiness in mind. Specific and clear language defining the scope of activities restricted, including the cohort to whom they apply, development activities, geographical scope and duration, are key to effective enforcement.

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