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Background
Nexus Solutions Inc. ("Nexus") develops CEMView, an emissions monitoring system ("CEMS") software used by heavy industry1. Vladimir Krougly joined Nexus as a software developer in 2006 with the primary responsibility of writing source code for CEMView. While still employed by Nexus, Krougly secretly developed, and later marketed, a competing CEMS product called "Limedas"2.
Nexus commenced an action claiming that it owned the copyright in Limedas by operation of s. 13(3) of the Copyright Act which provides that:
(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 trial judge dismissed the copyright claim, finding that Limedas was not developed "in the course of" Krougly's employment3. Key reasons for that finding included that: (1) Krougly’s Limedas software was substantially different to CEMView – their source code, algorithms and data were all dissimilar, (2) the bulk of the work on developing Limedas was done outside normal business hours without the use of Nexus property, and (3) there was no contract prohibiting Krougly from working on his own projects in his own time.4
Nexus appealed.
Decision
Writing for a unanimous panel, Monahan J.A. dismissed the appeal on all three grounds.
Ground 1: Determining ownership under s. 13(3) of the Copyright Act remains a fact driven exercise. Nexus argued that copyright attaches under s. 13(3) whenever a work falls within the general class of work the employer could have directed the employee to perform. The Court of Appeal rejected this interpretation. The employer ought to hold copyright over works that were made by the employee as part of their responsibilities to the employer.5
What matters is whether the employee's actual responsibilities, not their potential responsibilities6.
Because Krougly's role was expressly limited to developing CEMView, and he had been told that unauthorized software development was prohibited, creating a new CEMS product like Limedas fell outside the scope of his assigned duties7. The Court concluded that while Nexus may have remedies available in contract, the purpose of copyright law is not to punish bad actors and denied Nexus ownership under s. 13(3)8.
Ground 2: Resource expenditure is a relevant factor. Nexus argued the trial judge improperly required it to have "bargained for" or "expended resources" on Limedas as a precondition to claiming copyright9. The Court of Appeal disagreed, holding that the trial judge treated resource expenditure as one of several relevant factors, not a freestanding requirement. The fact Krougly received no additional compensation for Limedas, worked on it almost entirely on his own time, and used his own equipment, supported the finding that Nexus did not hold copyrights in Limedas10.
Ground 3: No palpable and overriding error. Nexus argued in the alternative that the trial judge erred in finding it had not directed Krougly to develop new software pointing to internal emails discussing a possible future next-generation CEMView product. The court found no merit in this argument. The emails showed only a future aspiration, not a decision, to proceed or a direction to Krougly11.
Key Takeaways
- Actual responsibilities govern over potential responsibilities. Key to whether copyright vests in the employer under s. 13(3) is whether the work falls within the employee's actual assigned responsibilities — not merely the class of work the employer could have assigned. The Court will assess whether the employee was asked or expected, expressly or implicitly, to create the work as part of their employment responsibilities.
- Copyright law in employment context not for punishing bad actors. Copyright law's purpose is not to punish employees who breach their duties to their employers. Employers may instead have remedies available in contract. The court was very clear that other contractual remedies may be available to Nexus, given Krougly’s surreptitious development of a competing product.
- The fact that Krougly’s software worked differently and did not copy any substantial portion of CEMView is surprising and significant. Were that not the case, Limedas software might have been a “derivative work” – giving Nexus certain rights as the owner of the underlying work (CEMView). This is also an important fact with respect to common law remedies (such as misuse of confidential information)
- Section 13(3) is only a default rule. An employer and an employee can agree to different arrangements with respect to copyright in an employment contract, and prudent employers may be well advised to do so in light of this decision.
Footnotes
1. Nexus Solutions Inc. v. Krougly, 2026 ONCA 199 at para 5.
2. Ibid at para 7.
3. Ibid at para 13.
4. Ibid at para 11 – in addition to four other key factors
5. Ibid at para 27.
6. Ibid at para 33 and 34.
7. Ibid at para 41.
8. Ibid at para 13.
9. Ibid at para 3.
10. Ibid at para 48.
11. Ibid at para 51 and 52.
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