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26 April 2021
Employees are the source of some of their employer's most valuable intangible assets – namely, IP assets. For this reason, it is usually in a business's best interest to ensure its ownership of IP assets generated by employees. The rules that apply to employer-employee relationships vary greatly between copyright, patents and industrial designs. Any business with employees should be aware of these unique rules and, to avoid any uncertainty, implement contracts which include appropriate clauses that address the transfer of IP rights.
While copyright is often mistakenly perceived as being limited to 'artistic' works (eg, paintings, music and films), copyright protection can extend to a much broader scope of works which can be extremely valuable for businesses, including:
The general rule is that the author is the first owner of the copyright in their work. However, Section 13(3) of the Copyright Act provides for an important exception: if the work is created in the course of employment under a contract of service, absent any agreement to the contrary, the employer will be the owner of the copyright in the work without the need for a formal assignment. Businesses should therefore be mindful of the three conditions that must be met in order to trigger this exception.
Employment relationship must exist as contract of services and not contract for services
A more traditional employer-employee relationship will usually indicate that the author is bound by a contract of services as required by Section 13(3) of the Copyright Act. Conversely, the courts will find that there is a contract for services, which does not meet the requirement of Section 13(3), where the author's status is more akin to that of an independent consultant. Factors that may be considered in determining whether the author of a work is an employee or an independent contractor include:
Author must have created work during employment
This is relatively straightforward to assess and while the courts will consider various factors, the central question is whether the work was created:
Even if a work is created during the author's free time and at their own initiative, ownership of copyright in the work could still vest in the employer if it was part of the employee's duties to use their creative skills to create that type of work for the benefit of their employer.
No agreement can provide that employee retains ownership of copyright
Unlike assignments, which – under Canadian copyright law – must be in writing, such an 'agreement to the contrary' need not be in writing and in certain circumstances could even be presumed, such as in the academic context where professors will usually retain ownership of the copyright in their work despite their employment relationship.
A final concern relates to the author's moral rights, which is an important yet somewhat unique consideration in copyright law. Moral rights are granted exclusively to the author and include the author's right to maintain the integrity of the work and the right to be cited as its author. Since moral rights cannot be assigned, even if the employer is to be the owner of the copyright in its employee's work pursuant to the employment exception or by contract, it is important for an employment contract to provide for a waiver of the author's moral rights.
Unlike the Copyright Act, the Patent Act includes no specific provisions addressing the ownership of patent rights in inventions made during the course of employment. The applicable principles were therefore developed by the courts and the general rule is essentially the opposite of that applicable to copyright. As a general rule, employees will retain ownership of the patent rights in their inventions. Employers can nevertheless benefit from two exceptions to that rule – namely, they will be entitled to the patent rights in the invention of an employee if:
In order to determine if an employee was 'hired to invent', the Federal Court(1) will consider whether:
On the other hand, the provincial courts, which also have jurisdiction over patent ownership cases, will not always apply the above factors and will instead follow the more general approach of determining what the employee was hired to do and whether the invention was created while performing that task, in which case the patent rights in the invention will belong to the employer.
Given the uncertainty that is inherent to applying these different and evolving factors arising from case law, there is a strong incentive for employers to enter into a formal agreement with their employees providing that all of their inventions will belong to the employer, regardless of whether they were hired to invent. This approach not only clarifies the situation of employees directly or indirectly working in research and development, but also ensures that the employer owns the rights in inventions that could eventually, and sometimes unexpectedly, originate from other employees.
Much like the Copyright Act, Section 12(1) of the Industrial Design Act provides that the first owner of a design is its author, unless the design was executed for another person in exchange for good and valuable consideration, in which case that person becomes the first owner. Unlike the Copyright Act, the Industrial Design Act does not specifically require an employment relationship for this exception to apply.
Given that few industrial design cases are litigated in court, there is only limited case law on this issue. Nonetheless, jurisprudence suggests that an employee's salary will qualify as good and valuable consideration such that industrial designs developed in the course of employment will be owned by the employer. It remains unclear whether the creation of industrial designs must be part of the employee's duties for this rule to apply (ie, whether the salary must be linked to the creation of the design for it to qualify as good and valuable consideration). This rule applies equally to employees and freelancers, but as with other types of intellectual property, a formal agreement that industrial designs developed by the employee are owned by the employer is recommended to avoid uncertainty.
Considering that the rules vary greatly depending on the type of IP right involved, the fact that the tests are often imprecise and can give rise to protracted debates (eg, around the meaning of 'hired to invent' and where the course of employment begins and ends), and that in some fields the same employees can create different types of IP asset, it is strongly in the interest of businesses in Canada to have a formal written agreement with their employees.
The exact content and form of such an agreement will depend on the specific circumstances of each case. However, it will usually provide that:
For further information on this topic please contact Jean-Sébastien Dupont or Guillaume Lavoie Ste-Marie at Smart & Biggar by telephone (+1 514 954 1500) or email (firstname.lastname@example.org or email@example.com). The Smart & Biggar website can be accessed at www.smartbiggar.ca.
Skylar (Hansol) Yoo, articling student, assisted in the preparation of this article.
The materials contained on this website are for general information purposes only and are subject to the disclaimer.
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