(Bloomberg) — The Canadian government is appealing a ruling that it owes the original investors in cellphone startup Mobilicity hundreds of millions of dollars in damages after reversing a key policy in the wireless sector.

Lawyers for the Attorney General of Canada filed a notice of appeal with Ontario’s top court on Friday, arguing the trial judge erred in assessing the law and facts in the decade-long court battle. 

In a decision last month, Justice Peter Osborne of the Ontario Superior Court of Justice found the federal government was negligent in the way it treated the initial backers of Mobilicity and awarded damages that the plaintiffs estimate total C$555 million ($401 million) plus pre-judgment interest.

Osborne found the government breached the plaintiffs’ rights by changing the terms of mobile spectrum licenses the investors bought to launch their company. The ruling also concludes the government interfered in the regulatory process to frustrate a sale of Mobilicity to Telus Corp. 

In its notice of appeal, the government said the judge was wrong to conclude that a public authority owed the Mobilicity investors a duty of care, a central requirement for establishing negligence. The government lawyers said the judge was also wrong in not finding that public policy considerations would negate any duty of care. 

The notice also said Osborne made mistakes in evaluating certain evidence and didn’t properly calculate the damages. 

A spokesperson for the department of Innovation, Science and Economic Development, which manages telecom policy, was unable to immediately comment on Friday afternoon.  

‘Unfortunate Message’

By appealing, the government is sending an “unfortunate message to domestic and foreign investors” by suggesting it has the right to ask people to invest in Canada and then “unilaterally change the rules governing their investment at any time and for any reason,” according to Michael Huber, managing principal of Quadrangle Group LLC, a New York private equity firm and one of the plaintiffs. 

“At a time when Canada needs foreign investment and wants to counter the erratic and bullying behavior of the US, this is a highly counterproductive message to send to the business community,” Huber said by email. He said the plaintiffs will cross appeal, arguing that the damages awarded should have been more than C$200 million higher. 

Quadrangle, along with the other plaintiff, Toronto businessman John Bitove’s investment company Obelysk Media Inc., argued the government initially encouraged them to buy the spectrum — the airwaves used to carry wireless signals — as it sought to make the sector more competitive in the early 2000s. 

If their business failed, the government said they would be able to sell the licenses to one of the country’s Big Three telecom operators — Telus, BCE Inc. or Rogers Communications Inc. — after five years.  

But by 2013, the government reversed that policy and said instead it wouldn’t allow spectrum transfers that reduced wireless competition. After that, political staffers frustrated Mobilicity’s efforts to sell itself through the insolvency process, the judge ruled. 

The company eventually sold to Rogers when the government made an exception based on it handing certain spectrum licenses over to another small player, Wind Mobile. The government said in its notice of appeal that circumstances had changed by then — more spectrum had become available, alleviating some concerns about competition.

Stewart Lyons, former president of Mobilicity, said the government made ample proceeds when it first sold the spectrum licenses almost 20 years ago, and it should return some of those funds rather than appealing. 

“Instead of doubling down on this misconduct, I’m sure Canadians would prefer the government send the right message to foreign and domestic investors by righting a wrong,” Lyons said. 

More stories like this are available on bloomberg.com