The Federal Court of Canada's recent decision in Harmony Consulting Ltd. v. G.A. Foss Transport Ltd. 2011 FC 340 has provided valuable guidance on the acquisition and enforcement of copyright and contractual rights related to software.
In early 2000, Foss Transport wanted to update and modernize its dispatching and invoicing programs. The company entered into licensing agreements with Harmony Consulting Ltd. Under these license agreements, Foss Transport acquired rights to use certain software. Harmony was also retained to modify the software and to develop new applications. The individual who did the work for Harmony was Susil Chari.
The business relationship was initially positive and beneficial for everyone. By 2004 it had disintegrated. The business relationship terminated when Mr. Chari planted two "time bombs" in the software of the Foss Transport computer system.
After the business relationship with Harmony ended, Foss Transport made further modifications to the software. Harmony sued for copyright infringement in 2005. Foss Transport continued to use some of the software until 2007.
When the case went to trial, the issues for the Court to decide included who owned the copyright, what copyright subsisted in and whether any copyright had been infringed.
Ownership, Assignments and Registration
There was no dispute that Mr. Chari was the author of all of the software in issue. There was a significant dispute as to who was the owner of the various copyrighted works.
While an individual will own copyright in their creative works, under section 13(3) of the Copyright Act, where a work is created by an employee working in the course of their employment, absent an agreement to the contrary, the employer is the owner of the copyright.
Some of the software licensed to Foss Transport was based on an earlier program written by Mr. Chari for another customer (RCT) in 1998. At that time, Harmony did not exist; Mr. Chari was a shareholder of a small company called Atrimed Medical Supply Inc. The Court found that the 1998 business relationship was between Atrimed and RCT, and that Mr. Chari was acting as an employee of Atrimed when he wrote the relevant software. As such, Atrimed was the owner of copyright. Since Atrimed was not a plaintiff, there could be no infringement of its copyright.
To counter the risk that Atrimed may be found to be the owner of copyright, Mr. Chari signed what purported to be a retroactive assignment the week before the trial began. The Court was not impressed, finding that this was a self-serving attempt to resolve the contested ownership issues. The assignment was found to be inoperative and irrelevant.
The case demonstrates the importance of having documents in place evidencing the ownership of copyright before software is licensed or disputes arise. In the case of employees, employers are best served by having an employment agreement where the employee acknowledges and understands that any copyright is owned by the company. The presumption of ownership in section 13(3) does not apply to independent contractors. For independent contractors, it is essential to have an assignment, in writing, for all copyrighted works that are created during the retainer.
Registration of copyright is quick and easy. Unlike the United States, a sample of the work need not be filed with a Canadian application. The costs are modest. A copyright registration provides presumptions in litigation that the authorship and ownership set out in the registration are accurate. For software that is sold or licensed, a copyright registration has great value.
What is Protected by Copyright?
To qualify for copyright protection a work must have originated from the author, not be copied, and must be the product of the exercise of skill and judgment that is more than trivial.
It has long been recognized that computer software may be protected by copyright. The Harmony case provides a useful guide to the parameters of that protection.
In considering the boundaries of originality, the Court found that computer programming that is dictated by the operating system or reflects common programming practices is not original expression and will not receive copyright protection. Also, to the extent a user of software imports data into the program, the author of the software does not own copyright in the underlying data.
A significant issue in the Harmony case was ongoing modifications or fixes that were made over time. On the particular facts, the fixes were simple mechanical amendments that allowed the software to function in the manner originally intended. Many of the changes were dictated by the Microsoft Access program and functionality. As such, it was held that the fixes were not original and no copyright attached to them.
This underscores the need for a comprehensive license agreement. To the extent there are elements in a software package that cannot be protected by copyright, a license agreement can be used to restrain further use after the business relationship is concluded.
The Federal Court lacks jurisdiction to hear breach of contract matters. Given the Federal Court's inability to enforce contractual terms, it would not be surprising to see similar cases brought in the provincial courts, where copyright and contractual issues can be presented concurrently.
In brief, there is infringement where a defendant copies all or a substantial part of a copyrighted work. These rights can be separate from contractual rights in a license agreement. Harmony argued that because there was a breach of the license agreements, there must also be infringement of copyright. This argument was rejected. The court held that copyright infringement does not arise out of a breach of contract alone.
On the facts of this case, the computer equipment located at Foss Transport was a Citrix server. There was only one copy of the software on the server. Since continued use of the software did not require copies being made for individual terminals, use of the program, without more, on a Citrix server did not constitute copyright infringement. Similarly, exceeding the number of permitted users was not an infringement of copyright. This may have been a breach of the license, but that would only constitute a breach of contract.
The Court also found that opening a file, making modifications and then saving that file does not make a reproduction as defined in the Copyright Act, and was not an infringement. Decompiling was also considered. Using Microsoft Access was a means to allow a user or programmer to see the programming. The court held that there is no copyright infringement in looking at the programming.
To fully protect software and other copyrighted works, the importance of contemporaneous assignment documents cannot be understated. A copyright registration is a prudent step in many cases for software and other creative works that are commercialized. A well-drafted license should be used when commercializing software to create contractual rights, since copyright may not automatically apply to all software updates and uses.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.