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More AC vs AC Espionage Claims


Kip Powick

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New exhibits fuel airline espionage case

By BRENT JANG

TRANSPORTATION REPORTER

Monday, November 8, 2004 - Page B1

Air Canada alleges that WestJet Airlines Ltd. changed its scheduling and fares to gain an unfair edge in Western Canada after spying on a special Air Canada website to obtain sensitive data, according to new court exhibits filed in the espionage case gripping the industry.

The Montreal-based airline alleges that after WestJet methodically collected information on Air Canada routes that were popular with consumers, WestJet scheduled new flights last year on its Calgary-Victoria and Vancouver-Edmonton routes, and also lowered Calgary-Vancouver fares.

Air Canada's new exhibits include five e-mails written by WestJet co-founder Mark Hill, who copied them to airline chief executive officer Clive Beddoe and other WestJet brass. The amended statement of claim by Air Canada added Mr. Beddoe and four other Calgarians -- three WestJet managers and one former vice-president -- to its list of defendants. Mr. Hill, previously named as a defendant, resigned as vice-president of strategic planning in July.

In total, Air Canada lawyer Brian Radnoff attached eight exhibits to his affidavit filed Friday in the Ontario Superior Court to support Air Canada's $220-million lawsuit that accuses Calgary-based WestJet of engaging in corporate espionage.

Late Friday, WestJet denied any wrongdoing, saying it "fully supports those named in this amended statement of claim and will defend these claims vigorously on their behalf." The discount carrier also countered that Air Canada, which emerged from 18 months of bankruptcy protection on Sept. 30, deserves to blame itself for "mismanagement of its business."

The five e-mails came to light after a court-appointed forensic auditor gained access to WestJet's files and computer hard drives, and WestJet also turned over some evidence. Last March and April, Air Canada discovered some of its internal documents shredded in Mr. Hill's trash in the Victoria suburb of Oak Bay.

Air Canada alleges that Mr. Hill's e-mails are evidence of WestJet's changes to scheduling and ticket pricing after it systematically snooped for nearly one year, making at least 243,000 hits to Air Canada's special reservations website for employees and retirees.

In one e-mail dated April 8, 2003, Mr. Hill wrote about how Air Canada's Zip Air Inc. subsidiary often beat WestJet in its own back yard. Air Canada shut down Zip two months ago, just two years after starting what it had hoped would be a strong western-based regional rival to WestJet.

Mr. Hill refers to the airport codes of Calgary (YYC), Vancouver (YVR) and Victoria (YYJ), after outlining Air Canada's load factors, or the proportion of available seats filled.

He alludes to recovering "l/f" from "our source" -- which Air Canada alleges is a reference to load factors contained in the confidential reservations website.

"I strongly believe we should reallocate some mid-day YYC-YVR-YYC capacity to YYC-YYJ, and this should be done ASAP," that is "for flights beginning in 3-4 weeks," Mr. Hill wrote. Mr. Radnoff's affidavit said that after Mr. Hill compared Air Canada's load factor with WestJet's, he "concludes that WestJet should reschedule some of its flights to shift capacity to the Calgary-Victoria route in order to better compete with Zip."

Mr. Radnoff said Mr. Hill's e-mail "provides a review of Zip Air Inc.'s passenger load factor performance on Calgary-Victoria flights at noon and 2:05 p.m."

Air Canada alleges that besides gaining an edge in Western Canada, WestJet also used confidential data to make a decision to refrain from adding a Toronto-Thunder Bay flight to its schedule. The route "is full of peaks and troughs -- it's a bit of a minefield," Mr. Hill said in a June 6, 2003, e-mail.

Within Western Canadian routes, Mr. Hill sent an e-mail early on April 22, 2003, that "breaks down and analyzes Air Canada passenger load factors for 31 specific routes on April 22, 2003," Mr. Radnoff said in his affidavit. "On its face, this is not information that could be obtained by counting passengers boarding an aircraft."

In an e-mail June 10, 2003, Mr. Hill discusses how Air Canada operated a successful 3:55 p.m. Zip flight from Vancouver to Edmonton. Mr. Hill noted WestJet didn't have a competing flight scheduled around that time, but suggests 4:15 p.m. would be a suitable time for a new rival flight.

Referring to the airport codes of Vancouver (YVR) and Edmonton (YEG), he envisages having "non-stop YVR-YEG at about 16:15 or so. It'll be a winner."

In an e-mail June 13, 2003, Mr. Hill noted two Air Canada flights with strong bookings between Calgary and Vancouver, and wrote: "We might want to loosen up the buckets" on two competing WestJet flights. Air Canada alleges that "loosen up the buckets" is industry lingo, in this case, for WestJet reducing its fares to lure customers away from Air Canada.

Jetsgo Corp. of Montreal is also suing WestJet for alleged spying. None of the allegations have been proved in court.

Air Canada launched its lawsuit in April, and WestJet and Mr. Hill filed statements of defence in the summer, saying they uncovered data about Air Canada by counting passengers at airports and other legitimate techniques, and not through electronic spying.

In its Friday news release, WestJet said it isn't impressed with Air Canada's latest court motions, alleging the airline's losses stem from "selling seats on flights for less than cost, its high-cost structure and the poor treatment of its customers."

But Air Canada asserts in new court filings that Mr. Hill manually gathered website information with the help of a spreadsheet for six months starting in March, 2003. WestJet and Mr. Hill then allegedly helped create a computer program to electronically "scrape" the special website to automatically obtain sensitive data, beginning in September, 2003, and lasting until March, 2004.

Other defendants listed Friday were: Scott Butler, WestJet director of strategic planning; WestJet co-chief operating officer Donald Bell; Bill Lamberton, WestJet vice-president of marketing until he left the airline in November, 2003; and Brenda Trockstad, WestJet director of commercial and schedule planning.

Jeffrey Lafond, a WestJet financial analyst who went on a paid leave of absence in April, was named as a defendant when Air Canada launched its lawsuit in April. Mr. Lafond, a former Air Canada employee who had access to the website, reported to Mr. Butler, who in turn reported Mr. Hill.

For one year, "WestJet, Hill, Beddoe, Butler, Lamberton and Trockstad regularly used and analyzed the plaintiffs' confidential information, compared it to WestJet's performance and used the plaintiff's confidential information to WestJet's competitive advantage," Air Canada said in its latest court filing.

Air Canada also alleges that during a WestJet executive meeting on April 7, 2003, Mr. Beddoe was in attendance when Mr. Hill presented a compact disc containing confidential load factors to Mr. Lamberton.

WestJet's alleged improper accessing of Air Canada's website stopped on March 19, 2004, days before private investigators hired by Air Canada began searching Mr. Hill's trash.

Friday's court filing also includes excerpts of transcripts of cross-examination by an Air Canada lawyer of Mr. Hill, who said he deleted some of his computer files after "illegal trespass on the property by some thugs" going through his garbage.

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So once again there's nothing new here?

This case is for maximum public embarassment only, I'll bet in another month and half or so 4 or 5 more e-mails will surface. Pretty crappy but I suppose that's the point, hmm??

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All these "new exhibits" mention emails and that dreaded load factor word, but where is the evidence to support the fact that Westjet (Hill) accessed the reservation website (which we know) but also used booking trends and ticket pricing to plan strategy?

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Guest directlaw

Nothing new? I am not a lawyer but this looks like the smoking gun to me.

The five emails show that WJ's upper management all knew about what was going on. They also show the WJ made strategic changes based on the information they illegally obtained. So WJ would have benefited financially as well as anyone who owned stock.

Wow

For anyone who knows? The court-appointed forensic auditor- how would he or she go about retrieving this kind of information? I am assuming WJ would not have just handed over those emails on a nice piece of paper. Is it as simple as someone not emptying their deleted items folder?

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Maverick... Forgive me, I may be blinded by some red coloured sunglasses that someone might have slid over my eyeballs while I wasn't looking.... but I can't seem to understand why it is that you and others are becoming so insistent that "the point" is about anything other than seeking restitution for a wrong committed against AC that our side believes actually did cost us money?

That a wrong has been committed has been acknowledged... why is it apparently so hard to accept the notion that the wrong benefited your team and cost ours? Evidently, some amount of energy was expended in the committing of the deed... Are we to believe it was all for fun? Creating a program to download and dissect our data couldn't have been a 5 minute task... was the energy expended by Hill (and who knows who else?) on this matter, all just to tickle someones fancy?

I find that very hard to believe. It's also getting pretty hard to believe that some of you would really buy into the notion that this lawsuit is only about tarnishing your image. Don't you think any company would go after anyone who's illegal actions against them they believed had cost them money?

Are you sure you're not expressing some anger in the wrong direction?

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Maverick... Forgive me, I may be blinded by some red coloured sunglasses that someone might have slid over my eyeballs while I wasn't looking.... but I can't seem to understand why it is that you and others are becoming so insistent that "the point" is about anything other than seeking restitution for a wrong committed against AC that our side believes actually did cost us money?

That a wrong has been committed has been acknowledged... why is it apparently so hard to accept the notion that the wrong benefited your team and cost ours? Evidently, some amount of energy was expended in the committing of the deed... Are we to believe it was all for fun? Creating a program to download and dissect our data couldn't have been a 5 minute task... was the energy expended by Hill (and who knows who else?) on this matter, all just to tickle someones fancy?

I find that very hard to believe. It's also getting pretty hard to believe that some of you would really buy into the notion that this lawsuit is only about tarnishing your image. Don't you think any company would go after anyone who's illegal actions against them they believed had cost them money?

Are you sure you're not expressing some anger in the wrong direction?

Very well said, Mitch

If I were CEO of a company that was a victim of corporate espionage, and was able to prove it, I would endeavor to do so. I would want to make sure that the guilty party never engages in such actions again. It's a suit that makes a lot of Westjetters nervous, and with good reason. If WJ loses, even if the damage award is relatively small, shareholders who bought the stock at $30 may be inclined to sue the company, arguing that they believed WJ's success was wholly legitimate in every respect and that the actions of the management have caused the stock to be devalued. Not entirely because of the lawsuit, of course, but the legal fallout may not end when this case - and Jetsgo's - are done.

Air Canada's suit includes a claim of punitive as well as actual damages. I said months ago that it is unlikely that AC could expect to win anything like what they are claiming, but a smaller amount was probable, even likely. What these emails do is set out scenarios that will be the subject of testimony by those named in the suit. Defendants will be asked to interpret the emails and their significance, as well as the significance of other documents. Their stories will be compared by the court, and the judge will assess the plausibility of their testimony. We also don't know what else will come out in court, whether there are further amendments planned to the statement of claim. I understand how Westjetters would like to get this behind them and move on, since the actions that Beddoe et al engaged in were not instigated by the rank and file.

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Is it as simple as someone not emptying their deleted items folder?

Nothing is ever really deleted. It just goes into another really big trash can on a hard drive in the individuals computer on the company server. I think eventually it can be overwritten, but until then it is still accessible to forensic auditors.

cc

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Guest directlaw
If WJ loses, even if the damage award is relatively small, shareholders who bought the stock at $30 may be inclined to sue the company, arguing that they believed WJ's success was wholly legitimate in every respect and that the actions of the management have caused the stock to be devalued.

The old AC stock/debt holders and the AC unions are also watching with interest. If either of these groups feel they can prove that their loss/concession was widened due to WJ's actions.......

Which brings me to a question. If AC does get financial compensation for this who gets the money? The old AC shareholders/debt holders ( who were the ones hurt by this) or does it just go into ACE's pocket?

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Forgive me, I may be blinded by some red coloured sunglasses that someone might have slid over my eyeballs while I wasn't looking.... but I can't seem to understand why it is that you and others are becoming so insistent that "the point" is about anything other than seeking restitution for a wrong committed against AC that our side believes actually did cost us money?

Mitch, you answered your own question. Maybe you should take of your sunglasses.

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Guest directlaw

All these "new exhibits" mention emails and that dreaded load factor word, but where is the evidence to support the fact that Westjet (Hill) accessed the reservation website (which we know) but also used booking trends and ticket pricing to plan strategy?

IP addresses I suspect. Which point to a server or computer within WJ.

Then they use the emails to find out who disseminated from within WJ and who received that info within WJ. Basically they should be able to figure out who did what and who received that information.

Up until now all the proof AC has had is that a computer within WJ did this. The, who was involved, and was the info used for financial gain, has just been speculation. Not anymore.

Like I said this looks like the smoking gun.

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Maverick... Forgive me, I may be blinded by some red coloured sunglasses that someone might have slid over my eyeballs while I wasn't looking.... but I can't seem to understand why it is that you and others are becoming so insistent that "the point" is about anything other than seeking restitution for a wrong committed against AC that our side believes actually did cost us money?

That a wrong has been committed has been acknowledged... why is it apparently so hard to accept the notion that the wrong benefited your team and cost ours? Evidently, some amount of energy was expended in the committing of the deed... Are we to believe it was all for fun? Creating a program to download and dissect our data couldn't have been a 5 minute task... was the energy expended by Hill (and who knows who else?) on this matter, all just to tickle someones fancy?

I find that very hard to believe. It's also getting pretty hard to believe that some of you would really buy into the notion that this lawsuit is only about tarnishing your image. Don't you think any company would go after anyone who's illegal actions against them they believed had cost them money?

Are you sure you're not expressing some anger in the wrong direction?

Mitch, There has been a wrong, myself and pretty much every other WJ'er on here have never disputed that. I believe at this point that the evidence has been presented, so why the continuous slow release of information? It keeps it in the public eye is what I believe. I also believe that AC's amended claim that reduces the damages but widens the net (so to speak) may be the first crack in the armour of the case. If the judge throws this out because (for example) there is no way to prove an actual loss then AC is seriously exposed to a countersuit. I am sure that dagger will dispute this but I believe it's possible.

This is a huge distraction for the leaders of both companies and would be best served to be put behind us.

dagger, I agree that an investor lawsuit is entirely possible but who would be sued? Mark Hill has already fallen on his sword, metaphorically speaking. Unless a top level conspiracy can be proven beyond the shadow of a doubt then I'm not sure what would happen?

This whole thing sucks, that I know for sure.

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AC exposed to a countersuit? Rubbish. The suit includes a claim of punitive damages. Even if the judge agrees that it is hard to prove a dollar amount of business damages, he is almost compelled at this point to side with AC on the punitive damages. I believe AC is seeking $5 million in punitive damages plus costs. From what I have seen of the admissions by the various parties, no one is even arguing any longer that what Hill did was anything but an exercise in corporate espionage. Whether this violated the law, rather than merely violate corporate ethics and governance, is for the courts to the decide but the effort to defend one's intellectual property does not open oneself up to a countersuit. As for who is to be sued if shareholders feel aggrieved, Hill was an officer of the company, and his actions were known to other officers of the company because he asked for and got his screen scraper. So the shareholders would sue the company.

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Guest directlaw

Mav,

Civil suits do not have to be proved beyond reasonable doubt. Others will know more about this but I believe all that has to be demonstrated is that in all probability it did happen.

Criminal suits are different....the burden of proof is with accuser.

The OJ trial is the perfect example. Criminally - innocent

Civilly - guilty

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I read an article a while back about how the U.S. military had the ability to read the ones and zeroes off a hard drive using some kind of super microscope. Didn't matter if it had been formatted. They could read the evidence of where the ones and zeroes were before it was formatted. Scary stuff.

Would it not be a fairly simple exercise to look at the two campanies' load factors and yields on the routes in question before Mr. Hill's work was done and then extrapolate from that how much money each side would have made/lost if nothing had changed regarding WJ's schedule? Then you could compare how each side did after they implemented the changes Mr. Hill suggested. The difference in the two charts would indicate how much of a change in each sides' revenues was most likely caused by WJ acting on this information. If there is no tangible difference, WJ should have nothing to fear. If there is, look out.

They could also look at YYZ and compare what the numbers looked like at YHM pre-espionage and after the move, both with WJ and AC and I suppose Jetsgo too. The trick would be to convince a judge that these changes wouldn't have occurred naturally and that they only came into effect due to Mr. Hill's data scraping. It sounds to me like they've at least shown that what Mr. Hill did was not just for his own benefit as an information junkie, as they alleged at the start of all this. He shared his findings with the top brass and I'm sure it will be shown that they acted on this information.

And it looks like they are also trying to show that the defendants artificially boosted the stock price for their own personal benefit and could be subject to other charges as well. Interesting stuff, that's for sure.

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Lets not forget one VERY other important point.

Clive said he knew NOTHING about all this and made MH a very convenient scapegoat in the process.

Seems that this is not the case, and Clive has been less than truthful with the public, WestJet employees, WestJet shareholders and the WestJet BOD.

As Martha has found out the hard way, not telling the truth when given numerous opportunities to do so can be very detrimental to ones standing in the community.

Time to come clean Clive and save a little face.

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It just keeps getting worse and worse for Westjet. Contrary to Mr. Beddoe's claims it appears that he did know and sanction Hill's efforts. Watch now for for him to say, "Mark sent the emails but I didn't read them". Kinda like someone else saying, "Sure I smoked pot, but I didn't inhale". Like we're going to beleive that!

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You've got to keep all of this in context. One or two sound bites from AC doesn't prove anything either way.

Cheers

Hey FF: I'm still waiting for the judge to throw this out of court... I think the bet should be no access at all, not as you suggest - no posting. Remember...one month.

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You've got to keep all of this in context.  One or two sound bites from AC doesn't prove anything either way.

Cheers

Are you serious FF ???

These are affidavits filed in court by some forensic analysis.

Wake-up.

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...These are affidavits filed in court by some forensic analysis.

Wake-up.

Remember though that one affidavit filed by a WestJet executive claimed that she could find all of the same information on the internet with a simple Google search. biggrin.gif

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"Remember though that one affidavit filed by a WestJet executive claimed that she could find all of the same information on the internet with a simple Google search"

Then why didn't they do it that way rather than to sink to an all-time low in Canadian aviation?

biggrin.gif

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..Then why didn't they do it that way rather than to sink to an all-time low in Canadian aviation?

....

Because given a chance like WestJet had handed to them, 9 out of 10 people would have done the same thing.

However, you don't want to get caught.

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