Ontario Court of Appeal clarifies scope of employer copyright ownership

The Ontario Court of Appeal in Nexus Solutions Inc. v. Krougly, recently considered and provided important guidance on what constitutes “in the course of employment” for the purposes of clarifying the circumstances in which employers own the copyright in works made by employees. In this article, we examine the key takeaways for employers, including the importance of understanding the limits of employers’ rights under the Copyright Act and the role written employment contracts play in clarifying expectations for employees and safeguarding employer interests.

Why is this issue in dispute?

In Canada, the author or creator of a work is generally the first owner of the copyright in that work. However, there is an exception in the employment context: section 13(3) of the Copyright Act provides that the employer is the first owner of the copyright in a work created by an employee "in the course of" their employment, absent any agreement to the contrary. 

Background and trial decision

Nexus Solutions Inc. is a software development company that develops and markets CEMView, a continuous emissions monitoring system software. Vladimir Krougly  was employed by Nexus as a senior software developer, primarily responsible for writing CEMView’s source code. While employed at Nexus, Krougly surreptitiously developed Limedas, a continuous emissions monitoring system software that performs similar functions to CEMView. Krougly continued developing Limedas until he resigned from Nexus, after which he attempted to market it commercially, including to some of Nexus's customers.

Nexus commenced an action seeking, among other things, a declaration that it owned the copyright in the Limedas software, and that Krougly and the other defendants infringed that copyright.

The trial judge held that Krougly had not developed Limedas “in the course of his employment” with Nexus. The trial judge found that:

• Krougly worked on Limedas outside normal business hours and without using Nexus property;
  
  
• Krougly's primary role was to develop the existing CEMView software, and Nexus did not ask or direct him to develop Limedas;
  
  
• Krougly did not have a written employment contract and there was no written agreement that prohibited him from working on his own projects on his own time;
  
  
• Nexus did not bargain for or expend resources on the development of Limedas; and
  
  
• Nexus did not assume any financial, organizational, or other risks associated with developing Limedas.

The Court of Appeal

Nexus appealed the decision to the Ontario Court of Appeal, which dismissed the appeal. 

On appeal, Nexus put forward three main arguments, all of which were rejected by the Court of Appeal as follows:

1. First, Nexus argued that the proper question under section 13(3) is whether the work falls within the "general class or kinds of works" that the employer could direct the employee to make, and that the trial judge erred by emphasizing that Krougly had not been specifically directed to develop software akin to Limedas. The Ontario Court of Appeal rejected this interpretation of section 13(3), holding that what matters is whether the employer has actually assigned responsibility to the employee to carry out the task. The fact that an employer could require an employee to carry out a task is not a sufficient condition for that task to fall within the employee's course of employment.

    

2. Second, Nexus argued that it was an error for the trial judge to require Nexus to have “expended resources” or “bargained for” the right to acquire the copyright in Limedas. Because Krougly developed Limedas surreptitiously without Nexus’s knowledge, Nexus argued it could not have satisfied this requirement. The Ontario Court of Appeal held that Nexus, having “expended resources” or “bargained for” the right to acquire the copyright in Limedas, was not a precondition for Nexus’s success on the copyright claims. The trial judge was entitled to take that factor into account, along with other relevant considerations, in determining that the development of software akin to Limedas fell outside of Krougly’s responsibilities as an employee. 
   
   

3. Finally, Nexus argued it had directed Krougly to develop a program akin to Limedas because Krougly developed Limedas using the “OPC UA” communication protocol, which Nexus intended to incorporate into CEMView. Krougly was aware of that intention and had attended OPC UA workshops while working at Nexus. The Court of Appeal found little merit in this argument because Nexus did not prove it decided to move forward with incorporating OPC UA into CEMView. Further, OPC UA had still not been integrated into CEMView 13 years after Krougly's resignation.

Practical implications for Canadian employers

This decision provides some practical implications for Canadian employers.

First, the “in the course of employment” inquiry focuses on an employee's actual assigned responsibilities, not the theoretical range of tasks the employer could have assigned. It would be prudent for employers to define job responsibilities broadly to encompass new product development, innovation, and related creative work, where appropriate.
 
Second, section 13(3) only applies “in the absence of any agreement to the contrary”. Employment agreements that clearly outline and define ownership of intellectual property can provide greater certainty to employers and employees. Additionally, employment agreements that prohibit employees from outside work or engagement, particularly work that is competitive with the business of the employer, can also provide increased protection for the employer’s business interests. 

If you have questions or need assistance with intellectual property ownership or drafting employment agreements in Canada, please contact DLA Piper’s Intellectual Property & Technology or Employment & Labour practice group.