Under section 13(3) of the Canadian Copyright Act, in what circumstances will an employer own the copyright in a work created by an employee during the term of employment? In a recent decision, the Ontario Court of Appeal provided much-needed clarification on how courts should approach this seldom-litigated copyright issue. According to the Court of Appeal, the answer depends on the degree of closeness between the work and the employee’s actual duties.

What People Need to Know

Elements of a Claim under Section 13(3): A claim under section 13(3) requires three elements: the author of the work must legally be an employee; the work must have been created "in the course of employment"; and there must be no agreement to the contrary.

Scope of Section 13(3): Section 13(3) is intended to ensure that employers obtain copyright in circumstances where they have paid for the development of the work and assumed the risk. Therefore, a claim based on section 13(3) can only succeed if the employee created the work in the course of performing a part of their duties toward their employer (for example, under the employer's instructions and using the employer's resources). A guiding question here is: was the creation of the work something the employee was expressly or impliedly required or expected to do as part of their employment duties? Absent an agreement to the contrary, if the creation of the work falls outside the scope of the employee's actual job duties and was completed on the employee's own time using their own resources, the employer will struggle to succeed under section 13(3).

Avoiding the Application of Section 13(3): The clearest way to avoid the application of section 13(3) is to enter into an intellectual property agreement with the relevant employee that stipulates the ownership of copyright. In the absence of such an agreement, employers can maximize their chances of success under section 13(3) by ensuring that the employee's actual roles and duties (including any expectations of creation or innovation) are clearly defined and reflected in how work is assigned and performed.

Background

Parties and Dispute

Nexus Solutions Inc. ("Nexus") is an Ontario-based software development company that develops and sells products for monitoring chimney emissions. Vladimir Krougly was a full-time employee responsible for writing source code for the product. While working at Nexus, Krougly developed a competing software product. Eventually, Krougly resigned from Nexus and attempted to market this new product. Upon learning of Krougly's actions, one of the remedies sought by Nexus was a declaration that, pursuant to section 13(3) of the Copyright Act, they owned the copyright in the product developed by Krougly because it was created during his employment with Nexus.

Trial Judge Rejects Nexus's Copyright Claim under Section 13(3)

In the first phase of a bifurcated trial, the trial judge rejected Nexus's copyright claim. Despite finding that Krougly secretly developed the competing product while working at Nexus, the trial judge did not consider the product to have been created "in the course of employment." Specifically, the trial judge noted that Nexus did not instruct Krougly to develop the software in question (i.e., developing new software was not part of Krougly's actual job duties), nor did Nexus invest any significant resources or assume significant risk for the creation of the product. Krougly's work was essentially done outside of normal working hours, did not involve the use of Nexus property, and was not under the control of any Nexus personnel. Consequently, the judge ruled that Nexus did not own the copyright to the work under section 13(3).

Nexus appealed this ruling, arguing that the trial judge misinterpreted section 13(3) and misapplied the evidence.

The Court of Appeal Affirms the Original Judgment

The Court of Appeal dismissed the appeal filed by Nexus, finding that the factors considered by the trial judge were all relevant and were not given undue weight.

In its preliminary observations, the Court explicitly articulated the requirements for a successful claim under section 13(3): the author of the work must legally be an employee; the work must have been created "in the course of employment"; and there must be no agreement to the contrary. Furthermore, the Court clarified the purpose of section 13(3): to ensure that copyright vests in the employer when the employer has paid for the development of the work and assumed the associated risks.

Based on this purpose, the Court inferred that a successful claim under section 13(3) is only possible if the employee created the work in the course of performing a part of their duties to the employer. Therefore, the guiding question regarding a section 13(3) claim is: was the work created something the employee was required or expected to do as part of their employment, whether expressly or by necessary implication. When an employee creates a work on their own time, using their own equipment, and not as part of their assigned duties, the work likely falls outside the scope of section 13(3), unless an agreement to the contrary exists between the employer and the employee. In cases that are less clear, the closeness of the connection between the creation of the work and the employee’s professional duties will be decisive.

Applying these principles to the present case, the Court held that the trial judge did not err in considering whether Nexus had instructed Mr. Krougly to create the software. Nexus argued that they could not have instructed Mr. Krougly to develop a program they were unaware of. However, the Court held that an employer does not need to instruct the creation of a specific work. All that is required is that the employee’s job duties include the creation of that type of work. Since Mr. Krougly’s duties were limited to developing Nexus's software system, creating a different system fell outside the scope of his actual duties. The Court contrasted this situation with another case where an employee’s duties explicitly included using creative skills to innovate and conceive new concepts beneficial to the employer. The fact that Nexus did not invest resources in the development of the competing product was also a relevant consideration favoring Mr. Krougly.

Tips to Avoid Falling Outside the Scope of Section 13(3)

The decision of the Court of Appeal in Nexus Solutions Inc. v. Krougly provides practical guidance for employers seeking to protect their ownership of copyright in works created by their employees.

Opting Out via Agreement to the Contrary: The framework of section 13(3) only applies in the absence of an agreement to the contrary. Employers seeking greater certainty regarding the ownership of works created by employees should explicitly stipulate copyright ownership in agreements with the relevant employees. While this is typically done at the outset of the working relationship (e.g., in an employment agreement), such agreements can also be entered into later, provided there is valid consideration. Relevant workplace policies involving innovation or the creation of works by employees can also reinforce expectations regarding ownership and the handling of creative output.

Clearly Defining and Implementing Employee Creative Duties: A successful claim under section 13(3) requires that the work falls within the scope of the employee's actual job duties. Courts will examine the definition of the position and how it is performed in practice, including whether the employee is expected (whether as part of ongoing work or related to a specific project) to create works as part of their duties. If innovation and creative output are inherent to a position, employers may wish to ensure that job descriptions accurately reflect the scope of that position’s duties. If specific works or projects are assigned on an ad hoc basis for a particular project, documenting the expectation that "the employee is required to create the work as part of their duties" may be helpful.

Maintaining Visibility of Creative Work and Integrating It into the Business: Courts may consider whether the work created by the employee was developed using the company's tools, systems, and processes, and with organizational-level awareness. Encouraging development work to be conducted through the employer’s platforms and workflows helps reinforce that the work is part of the employee's duties.