The recent decision of the Federal Court of Appeal in Harmony Consulting v. G.A. Foss Transport, 2012 FCA 226, once again underlines the importance of understanding—and properly recording—the ownership of copyright in software created by employees and independent contractors. 

This case began when Harmony Consulting started an action alleging that G.A. Foss and its two shareholders had infringed Harmony’s copyright by continuing to use licensed software after Harmony terminated the license.

From those basic facts, however, the case quickly became more complex. 

The first complication was that Harmony’s principal, Mr. Chari, had previously worked for another company—Atrimed—and had done some of the programming of the software for Atrimed before Harmony was incorporated.  That programming was a job that Atrimed was contracted to do for another client, Roy Curran Transport (RCT).

Secondly, three licence agreements existed between Foss and Harmony, each of which covered different elements of the software used by Foss.

Thirdly, while Foss had been granted a perpetual license to use the software under those licenses, it had also continued to pay an ongoing fee to Harmony for support and maintenance under a separate, fourth contract. 

The Trial Judge found that Mr. Chari had authored all of the programs, but that unfortunately was not enough to clear the muddy waters. 

At the time the key program, called Petro, was created, Mr. Chari was working for Atrimed under its contract with RCT.  Mr. Chari had later updated the program for Foss, but it was not clear if the new work was a separate work which would be protected by copyright, or part of a compilation which included the prior program. 

On top of the complications between Foss and Harmony, there was an agreement between Atrimed and RCT that stated that RCT owned the copyright in any programs created for its use, but that Atrimed would be permitted to sell licenses to that or those programs to any other interested parties. 

So who owned Petro, the key program, and who could use it?

In the end, the ownership of Petro was determined by the simple application of the principal that the copyright in new work is owned by an employer where it is created in the course of employment, applying s. 13(3) of the Copyright Act.  In this case, that meant that the copyright in the work belonged to Atrimed, as Mr. Chari’s employer when Petro was created.  The FCA upheld this conclusion.  The action that Harmony had commenced against Foss was dismissed by the trial judge, as was the appeal of that dismissal.

In coming to this finding, the Court rejected several arguments raised by Harmony to establish that it owned the copyright in the program:  that the software was intended to be held in trust for the incorporation of Harmony, prior to incorporation; that the transfer had in fact taken place between either Mr. Chari and Harmony, or Atrimed and Harmony, but had not been properly documented (a “nunc pro tunc” argument); and that Harmony was presumed to be the owner because its name appeared on the software pursuant to s. 34.1(2)(b) of the Copyright Act.

The trial judge also rejected Harmony’s argument that it was the owner of copyright in the improvements made to Petro by Mr. Chari, while he was working for Harmony under contract to Foss, or was the owner of the copyright in a compilation that included both Petro and those improvements as elements.  Instead he concluded that the improvements were not new works as they did not constitute an exercise in skill and judgment covered by the Copyright Act

Thus, Harmony failed to establish ownership in the copyright that it was alleging Foss had infringed.

However, even this conclusion was ultimately moot, as Foss was not found to have infringed any copyright as a result of its use of the programs.

Lessons Learned

The decision highlights the potentially fractured ownership of copyright that can arise in the employment relationship.  So much so that Harmony itself, the plaintiff in the action, was not certain of who owned copyright in the program it alleged had been infringed.

For companies such as Foss, this is a cautionary tale to be wary where contractors, or even employees, purport to sell new software.  In such cases, it is critical to ensure that they have the right to do so, rather than relying on the assurance of the individual who created the software.

Similarly, for companies whose business rests on software licensing, such as Harmony, it is equally critical to know—and properly document —the  ownership of any works created by employee programmers, even those who may also be officers or directors of the company.

Ultimately, copyright ownership arises easily and often without detailed records in the software context.  To avoid being left in the kind of doubt that engulfed Foss and Harmony, all employers would be well advised to consider and record where ownership of all software resides, including obtaining formal assignments of copyright from employees and independent contractors.