Whose (Copy)Rights Are They, Anyway?

Intellectual property (“IP”) refers to creations of the mind: inventions, artistic and literary works, symbols, designs, names, and images. IP rights are the rights given to persons over these creations. Copyrights and patents are two types of IP rights designed to give owners of those rights the control of the use of the IP by third parties. But who owns the IP rights to works created in the course of employment or contracting?

Copyright

Copyright protection can apply to a broad scope of works, including paintings, logos, software source code, architectural works, and music. In Canada, copyright is a creature of statute, specifically the Copyright Act.1 Copyright attaches automatically to a work, as soon as it is “fixed”. The general rule under the Copyright Act is that the author of a work is the first owner of the copyright in the work.2 But there is an exception: where a work is made in the course of employment under a contract of service, then the author of the work is deemed to be the employer.3 That means that if an employee creates a work as part of their employment, the employer will generally own the copyright in that work.

Three conditions are necessary for an employer to own the copyright of an employee-created work:

1. An employment relationship must exist in the form of a contract of services (as opposed to a contract for services), essentially, the difference between and employee and an independent contractor. Unlike employees, independent contractors are, by default, considered to be the owners of copyright in works that they create.
2. The author must have created the work during the course of their employment. The central consideration is whether the work was created under the employer’s instructions and using its resources, or during the author’s own free time using their own resources. Importantly, even if a work was created during the author’s free time and at their own initiative, the copyright could still belong to the employer if it was part of the employee’s duties to use their creativity to make that type of work for the benefit of their employer.
3. There must be no agreement providing that the employee retains ownership of copyright in the works they create during their employment. Such agreement does not need to be in writing, and in certain cases is presumed.

These considerations apply to directors, officers, and key employees who create works for the benefit of the corporation.

Where these criteria are met, the employer will be the owner of the copyright, without the need for a formal assignment from the employee. If any of the criteria are not met, the employee will be the owner of the copyright, and a written assignment agreement will be required to transfer ownership to the employer.

The rules of ownership differ between employees and independent contractors. Unless there is an express provision to the contrary in the contractor’s agreement, copyrights will be owned by the independent contractor, rather than the company. Factors that may be considered in determining whether the author of a work is an employee or an independent contractor include the level of control the employer has over the author’s activities, whether the author hires their own helpers, whether the author works solely for the employer or also for other parties, and the degree of financial risk taken by the author.

An additional concern in copyright law is the author’s moral rights. Moral rights are granted exclusively to the author and cannot be divested from them (e.g., sold, given away, or otherwise assigned). They include the author’s rights to maintain the integrity of the work, to be cited as its author, and to remain anonymous if they so choose. Moral rights can be used by the author to prevent use of the work that is prejudicial to the reputation or honour of the author.

Patents

Unlike copyright, which attaches automatically, patent rights must be applied for. Patents are government grants that give an inventor the exclusive right to make, use, license, or sell their invention in the country that issues the patent. In order to be patentable in Canada, an invention must:

• Be patentable subject matter;
• Have utility;
• Be novel;
• Not have been previously disclosed;
• Have inventive ingenuity; and
• Not be obvious to a person having ordinary skill in the relevant art.

The right to a patent goes to the first inventor to file a patent application with the Canadian Intellectual Property Office.

The Patent Act4 does not include specific provisions addressing ownership of patent rights for inventions made during the course of employment. The general rule, developed by jurisprudence, is that the employee will generally retain ownership of the patent rights to their inventions – which is the opposite default position from copyright. This means that the mere existence of an employment relationship does not disqualify employees from patenting for themselves inventions made during the course of their employment, even if the invention relates to an aspect of the employer’s business; the employee used the employer’s time and materials to compete the invention; and/or the employee has allowed the employer to use the invention during the employee’s employment.5 There are two notable exceptions to this general rule: (i) the employer will be entitled to the patent rights in an employee’s invention if the employer has an express agreement to that effect with the employee, or (ii) if the employee was “hired to invent” (i.e., if the production of patentable works is the direct purpose of their employment and not incidental to it).

In Canada, both federal and provincial courts have jurisdiction over patent ownership. They apply different procedures when determining whether an employee was “hired to invent”.

Federal courts will consider eight factors:6

1. The employee was hired expressly for the purpose of inventing;
2. The employee had previously made inventions;
3. The employer put in place incentive plans to encourage inventions;
4. The conduct of the employee following the invention’s creation suggests that the employer is the owner;
5. The invention is the product of the employee being instructed to solve a specific problem;
6. The employee sought help from the employer in the making of the invention;
7. The employee was dealing with confidential information; and
8. It was a term of the employee’s employment that the employee could not use ideas she developed to her own advantage.

Provincial courts, meanwhile, will not always apply these factors. Instead, they will often follow a more general or holistic approach to determine what the employee was hired to do and whether the invention as created as part of performing that task. In this analysis, where the invention was created while performing a task that the employee was hired to do, patent rights will be found to belong to the employer.

The general rule is that independent contractors will own their own inventions, absent a written agreement to the contrary.

Best Practices for Businesses

It is strongly in the interest of businesses to in Canada to have a formal written agreement with their employees regarding the ownership or licensing of IP (whichever is appropriate for the context). If an employer wishes to own the copyright or patent rights in their employees’ works, the employment agreement should explicitly provide language that says so. Such agreement should provide that, among other things, the business, as employer, owns the rights in any work, invention, or design created by its Canadian employees; that the employees will cooperate with their employer to protect and/or register those rights, as applicable; and that the employees waive their moral rights in their works.

For independent contractors who have been engaged to create works that are then used by the employer in their business, the lines of ownership can be even blurrier. Independent contractors should have a clear agreement in place with regard to copyright ownership or licencing, as the situation dictates. Such agreement should specify who will own which rights in the work: whether it will be retained by the contractor, or assigned to the employer, and what rights if any that either party will retain or acquire. If ownership is to remain with the employee or contractor, then the terms of any license to the employer should be clearly stated in an agreement as well.

IP ownership can be a complex issue when dealing with employees and independent contractors. But a well-crafted employment or contracting agreement can go a long way when it comes to helping to avoid ownership disputes and ensuring that all parties are aware of and on the same page regarding their creative rights.

We will delve further into the distinction between employees and independent contractors in a future article.

If you have any questions about the ownership of copyright, patent, or other IP rights by your business, or about the assignment or licencing of IP, please contact Mark D. Hazlett at Mhazlett@sorbaralaw.com or 365-509-2029 x 101.

[1]RSC 1985, c C-42.

[2]Ibid at s13(1).

[3]Ibid at s13(3).

[4]RSC 1985, c P-4.

[5]Techform Products Ltd v Wolda, 2000 CanLII 22597 (ON SC) at 12.

[6] Comstock Canada v Elected Ltd, [1991] FCJ No 987 at 79.

Related Team

Mark D. Hazlett

mhazlett@sorbaralaw.com

365.509.2029 ext. 101