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07 July 2014
Employees are the source of some of their employer's most valuable intangible assets, including its IP assets. In this context, it is paramount for businesses to ensure that they own the IP assets generated by their employees. In Canada, the rules that apply to employer-employee relationships vary greatly between copyright, patents and industrial designs. Any business with employees in Canada should be aware of these unique rules and, to avoid any uncertainty, ensure that contracts include appropriate clauses pertaining to the transfer of IP rights.
While copyright is often mistakenly perceived as being limited to artistic works such as paintings, music and film, copyright protection can extend to a much broader body of works which can be extremely valuable for businesses, including logos, catalogues, software source code, website content, graphic user interfaces and architectural works.
In Canada, the general rule is that the author is the first owner of copyright in his or her work. However, Section 13(3) of the Copyright Act provides an important exception – if the work is created in the course of employment under a contract of service, and absent any agreement to the contrary, the employer is considered to be the owner of the copyright in the work created by the employee without the need for a formal assignment. Businesses should therefore be mindful of the three conditions that must be met in order to trigger that exception.
First, there must be an employment relationship in the form of a 'contract of service' (as opposed to a 'contract for service') between the employer and author. A more traditional employer-employee relationship with the author will usually indicate that the latter is bound by a contract of services required by Section 13(3). On the other hand, courts will conclude the existence of 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.
Second, the author must have created the work during the course of his or her employment. This is relatively straightforward to assess and, while the courts will consider various factors, one must essentially determine whether the work was created under the employer's instructions and using its resources (eg, equipment, confidential information) or during the author's own free time by using his or her own resources. Even if a work is created during the author's free time and on his or her 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 his or her creative skills to create that type of work for the benefit of his employer.
Third, there must be no agreement providing that the employee retains ownership of copyright in the work created in the course of his or her employment. 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 consideration in Canada. Moral rights include the author's right to maintain the integrity of the work and the right to be cited as its author. 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, the author's moral rights in his or her work cannot be assigned and would not automatically be waived such that it is preferable for an employment contract to provide for such a waiver.
Unlike the Copyright Act, the Patent Act does not address 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. The employee will, as a general rule, retain ownership of the patent rights in his or her inventions. The employer can nevertheless benefit from two exceptions to that rule: the employer will be entitled to the patent rights in an employee's invention if it has an express agreement to that effect with the employee or if the employee was hired to invent.
In order to determine whether an employee was hired to invent, the Federal Court will consider whether:
On the other hand, 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 in applying these different and evolving factors arising from case law, employers should enter into formal agreements with their employees which provide that all inventions will belong to the employer, regardless of whether its employees were hired to invent. This approach not only clarifies the situation where employees work directly or indirectly in research and development, but will also ensure 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 Canada's Industrial Design Act specifically provides that the first owner of a design is its author, unless the design was executed for another 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 Canada, there is limited case law on this issue and the few relevant cases are somewhat dated. Nevertheless, 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 these rules vary greatly based on the type of IP rights involved, the fact that the tests are often imprecise and can give rise to protracted debates (eg, 'hired to invent' what exactly? Where does the course of employment begin and end?) and that in some fields of activity the same employees can create different types of IP assets, it is in the interests of businesses with employees in Canada to conclude 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, but will usually provide that:
For further information on this topic please contact Jean-Sébastien Dupont or Guillaume Lavoie Ste-Marie at Smart & Biggar/Fetherstonhaugh's Montreal office by telephone (+1 514 954 1500), fax (+1 514 954 1396) or email (firstname.lastname@example.org or email@example.com). The Smart & Biggar/Fetherstonhaugh website can be accessed at www.smart-biggar.ca.
The materials contained on this website are for general information purposes only and are subject to the disclaimer.
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