Nexus Solutions Inc. v. Krougly, 2026 ONCA 199 is a recent decision from the Ontario Court of Appeal interpreting s. 13(3) of the Copyright Act, R.S.C. 1985, c. C-42 (the “Act”), about the circumstances in which an employer will be the first owner of the copyright in a work created by an employee.
The provisions of the Act being considered state:
Ownership of copyright
13(1) Subject to this Act, the author of a work shall be the first owner of the copyright therein.
…
Work made in the course of employment
13(3) Where the author of a work was in the employment of some other person under a contract of service or apprenticeship and the work was made in the course of his employment by that person, the person by whom the author was employed shall, in the absence of any agreement to the contrary, be the first owner of the copyright…
The Court of Appeal affirmed that in order for an employer to hold copyright in a work created by an employee pursuant to s. 13(3), three conditions must be satisfied:
(i) the creator of the work must be, in law, an employee;
(ii) the work must have been created “in the course of … employment”; and
(iii) there is no agreement to the contrary.
The Court of Appeal ultimately upheld the trial judge’s decision that in this case the employer did not own the copyright to software secretly developed by one of its employees that was competitive with the employer’s own software. While the first and third requirements were met, the software had not been created in the course of employment.
Legislation applicable to employees is usually different depending on the province.
Although this case hails from Ontario, it is persuasive authority in Alberta for a number of reasons, including: (1) It is an appellate decision, and (2) It interprets federal copyright legislation which applies in all provinces, including Alberta.
Facts
The employer, Nexus Solutions Inc. (“Nexus”) is a software development company that developed and marketed a software product called CEMView, which monitors and reports the compounds in smokestack emissions produced by heavy industry.
The employee, Mr. Krougly, was an original minority shareholder, officer, and director of the company at its incorporation in 1999. In 2008 he sold his shares and resigned as an officer and director, but remained a full time employee with the primary responsibility of writing source code for CEMView.
In late 2008 or early 2009, while still employed by Nexus, Mr. Krougly began secretly developing a competing software called “Limedas” that performed similar functions to CEMView. Mr. Krougly continued the development of Limedas until he resigned from Nexus effective January 4, 2011. Following his resignation Mr. Krougly attempted to commercially market Limedas, including to some of Nexus’ customers.
In 2011 Nexus discovered Mr. Krougly had created Limedas while working for Nexus and commenced an action seeking various forms of relief, including a declaration that it owned the copyright in the Limedas software on the basis that it had been created by Mr. Krougly in the course of his employment with Nexus.
Analysis/Conclusion
At trial, the court held that the purpose of s. 13(3) is that if the employer assumed the major financial, organizational, and associative risks involved in the creation, production, and distribution of the work then they should have full control over the exploitation of that work. In those circumstances the author receives compensation for their intellectual creation in the form of a salary or other form of agreed compensation and the employer receives exclusive economic rights in the work.
The trial judge went on to find that the following circumstances may be considered in determining whether a work has been created “in the course of” a person’s employment:
- the terms of the contract of employment;
- where the work was created;
- whether the work was created during normal office hours;
- who provided the materials for the work to be created;
- the level of direction provided to the author;
- whether the author can refuse to create the work; and
- whether the work is “integral” to the business.
Based on those factors, the trial judge was not persuaded on a balance of probabilities that the Limedas software was developed by Mr. Krougly “in the course of his employment.”
In particular:
1) there were substantial differences between CEMView and Limedas including different source code, algorithms used, and data acquired;
2) the bulk of Mr. Krougly’s work in developing Limedas was done outside normal business hours and did not involve the use of Nexus property;
3) Mr. Krougly’s primary role at Nexus was to develop the company’s existing CEMView software and he was not permitted to create any other software for Nexus without receiving prior authorization. Had Nexus become aware that Mr. Krougly was developing Limedas, his employment at Nexus would have been terminated;
4) Mr. Krougly did not have a written contract of employment and there was no written agreement that prohibited Krougly from working on his own projects on his own time, or allocated ownership of anything that he might create, whether during Nexus’s time or his own personal time;
5) Mr. Krougly was not asked or directed to develop software akin to that used by Limedas, and his work in creating it was not at the direction or within the control of anyone at Nexus. Mr. Krougly’s work on Limedas, although intimately related to the work he was doing at Nexus, was clearly a side venture;
6) Nexus did not bargain for, or expend resources for the development of Limedas; and
7) Nexus did not assume any major financial, organizational, or associative risks involved in the creation, production, and distribution of Limedas.
The trial judge concluded “[w]ith considerable reluctance” that Nexus was not entitled to a proprietary remedy under copyright law and dismissed Nexus’ claim.
The Court of Appeal agreed.
The fact that Nexus could have assigned Mr. Krougly to create other software was irrelevant – the important consideration is whether the employee’s actual responsibilities included making the work. In this case, Mr. Krougly was not asked or expected, either expressly or by necessary implication, to create Limedas as part of his employment responsibilities.
Similarly, Nexus did not expend resources to support the development of Limedas. Nexus did not fund the creation of Limedas by paying Mr. Krougly’s salary, or otherwise. Mr. Krougly undertook the work almost entirely on his own time and using his own equipment.
In the circumstances of this case, the Court of Appeal found that the exception at s. 13(3) of the Act did not apply because Mr. Krougly had not created Limedas in the course of his employment. The Court of Appeal dismissed Nexus’ and confirmed that the general rule in s. 13(1) of the Act would apply so that Mr. Krougly, as the creator of Limedas, held the copyright for the software.
My Take
This decision reinforces the fact that an employer acquiring copyright in something created by an employee is an exception to the general rule that copyright belongs to the creator. Unless the creation is part of the employee’s employment duties, or the employer’s resources were used for its creation, or there is an agreement to the contrary, there is no reason to deviate from that general rule.
On that point, the decision is favorable to employees. However, and unusually, in this case the court split the lawsuit brought by Nexus so the only issue being considered by the Court of Appeal was Nexus’ copyright claim. The Court expressly noted that Nexus may have other remedies available to it for breach of other duties owed by Mr. Krougly (such as the duty of loyalty owed to an employer), but according to the trial judge, “[t]he purpose of copyright law is not…to punish bad actors simply because their actions may run afoul of their duties towards their employers.”
Other claims that were advanced by Nexus will be allowed to proceed separately. Mr. Krougly may still be found financially liable to Nexus, even after the Court of Appeal has affirmed the company does not hold the copyright to his software.
