The Ontario Superior Court has granted a sweeping interlocutory injunction against two former executives of Arc Compute, finding they breached their fiduciary and contractual obligations by retaining confidential source code, soliciting clients and employees, and diverting corporate opportunities to a competing business they created.
The defendants, M.B. and A.A., were senior leaders at Arc Compute — M.B. as Chief Technology Officer and director, and A.A. as Senior Vice President of Global Sales. The court found they acted in concert to build a competing entity, 3735928559 LLC doing business as Deadbeef, while still employed by Arc, and continued those efforts after their departures in late 2024 and early 2025.
“Both A.A. and M.B. are fiduciaries,” the court ruled. “They have retained confidential information of the plaintiff which must be returned immediately.”
The court further held that the new company, Deadbeef, was a seized corporate opportunity and ordered it shut down.
Software, source code and competitive edge
Arc Compute was founded in 2018 and operates in the artificial intelligence sector, with a particular focus on improving the efficiency of GPUs—graphic processing units—through proprietary software. The company’s flagship product, Nexus, had reached early commercial viability by late 2024 after $3 million in development costs.
M.B. was identified as the architect and “single most knowledgeable person” about the software. The court found that, in breach of his employment agreement, M.B. retained a copy of the Nexus source code after his dismissal.
While M.B. argued he needed the code for evidentiary purposes and had no intent to use or share it, the court rejected this, saying his contract required surrender of the code, not just a promise not to use it. “If there was a concern about needing the source code as evidence, that could have been addressed by having M.B. surrender his copies to counsel for the plaintiff or an independent escrow agent,” the court wrote.
The defence also claimed Nexus was not confidential because it relied on open-source software like GNU and SLURM. But the court found no credible evidence Nexus was merely a derivative of those systems. The confidentiality of Nexus was supported by its restricted access and internal treatment as a trade secret, the court noted.
Evidence of premeditated client poaching
A series of emails and text messages showed that M.B. and A.A. were planning and executing a client-diversion strategy while still employed by Arc. A.A. told an acquaintance on Dec. 27, 2024, that he had “already started to move accounts to a new company” and that “key accounts were notified in anticipation.”
Further communications showed they presented Deadbeef to clients as an R&D arm associated with Arc, despite its status as a separate and competitive entity. In one email to a Belgian client, A.A. directed them to hold off on contracting with Arc until Deadbeef was fully established. In another, he told an Arc customer that “all the engineers … will be moving to … Deadbeef.”
On Dec. 27, 2024—one day after his own dismissal—A.A. emailed another Arc client stating that research projects would now be handled by Deadbeef and that Arc would serve primarily as a hardware vendor. The court said this was “precisely what Nexus was designed to do,” and described the email as a clear attempt to solicit business in direct competition with Arc.
The court emphasized that many of these communications were made while the defendants were still employed, violating their common-law duty not to compete with their employer. It also found that their actions post-employment continued to breach the six-month non-solicitation clause in their contracts.
Use of confidential client information
In addition to retaining Nexus source code, the defendants were found to have retained and used customer contact information acquired through their employment. While the defendants argued that only “solely developed” Arc technology was protected, the court said this interpretation was inconsistent with the contractual language and “rendered provisions contradictory.”
“The court should strive to give all parts of a contract meaning,” the ruling noted. Customer lists and contact details were included in the definition of confidential information, even if not in the form of a formal list.
The defendants’ claim that they acquired Arc computers, and therefore had rights to all contents—including source code—was also dismissed. “The simple purchase of a computer does not mean that the plaintiffs are also purchasing the software code,” the court ruled.
Fiduciary obligations and springboarding
Although the defendants denied being fiduciaries, the court disagreed. M.B. had accepted a director role and acted as such for years, while both he and A.A. were considered “key employees” under common law, having significant discretion, client-facing responsibilities, and deep access to confidential information.
“The duties that a departing fiduciary owes to their employer continue after employment has ceased,” the court noted.
The ruling also invoked the legal doctrine of springboarding—using confidential information as a head start to compete unfairly. “This is precisely what the defendants are doing,” the court stated, referencing a boast from A.A. that M.B. could create a better version of Nexus “in 24 hours.”
The court found it implausible that M.B. could recreate the software in such a short time without using the existing source code as a base.
Injunction granted and new business shut down
The court granted an injunction requiring the defendants to immediately surrender all confidential information in their possession, including all copies of the Nexus code and access credentials. It also ordered them to shut down Deadbeef, finding it to be an illegitimate corporate opportunity seized from Arc.
The defendants are also restrained from:
- Competing with Arc worldwide for six months;
- Soliciting or interfering with Arc’s clients and employees for six months;
- Making false statements about Arc or its stakeholders;
- Hiring Arc employees for competing businesses during the same period.
This six-month non-compete period will start from the date of the ruling, not the date of their departures, to offset what the court described as “springboarding to which they were not entitled.”
The court dismissed the defence argument that Arc lacked financial capacity to exploit Nexus and therefore could not be harmed. “Even where a plaintiff employer has no hope of taking advantage of a business opportunity, its fiduciaries are still prohibited from obtaining the opportunity for themselves,” the ruling said.
Finally, the court ordered immediate document production under Rule 30.04(5) of the Rules of Civil Procedure.
For more information, see Arc Compute v. Anton Allen, Michael Buchel et al., 2025 ONSC 1745 (CanLII).
