Internet and web-browsing: the importance of copyright assignments and potential vicarious liability for employers 

publication 

March 2012

Employment and Labour Bulletin

A recent decision from the British Columbia Supreme Court1, discussed widely for its application of internet and intellectual property law, also contains some legal implications that Canadian employers should be aware of.

Century 21 sued an internet-service-provider for the actions of its subsidiary, who accessed and used Century 21's publically-available website and its contents for commercial use. Although much of the Court's discussion revolved around public access to copyrighted material on the internet and the related contractual implications, the issue of ownership in and use of copyrighted material touched on the employer-employee relationship as well.

Century 21 based their claim for copyright infringement on property descriptions and photographs (the "Works") on the Century 21 website. However copyright in the Works were with various real estate agents who licenced to Century 21 "use of the Works to promote the business of Century 21 Canada, including, without limitation, use on the Century 21 Canada's Website". In addition the agents assigned their right of action for copyright infringement to Century 21.

ownership of copyright and copyright licence

In order for Century 21 to bring an action for copyright infringement with respect to the Works, it was required to establish who owned the copyright, whether the copyright had been validly assigned, and the effective date of such assignment.

The validity of the assignment was challenged by the defendant on the following grounds:

  1. Century 21 had not defined the works with any specificity, so the description of the subject-matter was not sufficient to validly assign copyright;
  2. Century 21 had not indicated who specifically owned the copyrighted works until late in the day, and even then advanced several alternate possibilities;
  3. there was no apparent provision for future-created works; and
  4. there was no fixed term of the agreement.

The Court held that the specificity of and ownership in the Works was a matter of evidence, finding that the copyright over the subject-matter claimed to have been infringed was in fact the same subject-matter referred to in the assignment agreement. This was because the evidence was sufficiently specific to identify the subject-matter of the assignment.

With respect to the "future work", the Court held that when future work is assigned, the promisee becomes the equitable assignee and the beneficial owner of the copyright, and the promissor is the equitable assignor with a bare legal title. As a result, the assignment of future-created Works was still valid in equity provided it was made for valuable consideration. Employers should note that as soon as such assigned "future" works are created, the copyright is validly assigned to the assignee. Employers should consider having counsel review assignment agreements prior to the commencement of work when independent contractors are engaged. As a precaution, employers should also get follow up assignments once the "future works" are created to ensure that they have an assignment of the copyright that is valid at common law, not just in equity.  

property descriptions by an employee

The Court discussed in detail the situation of one particular Century 21 agent, whose assignment agreement was challenged due to the fact that the agent himself did not create the Works in issue – rather the Works were written by his employee. This argument failed and the Court applied section 13(3) of the Copyright Act which generally provides that, for works created by an employee in the course of his or her employment, the employer shall, in the absence of any agreement to the contrary, be the first owner of the copyright.

The employee only had a written contract of employment with the real estate agent until January 1, 2009, the date the agent incorporated a company. Although the agent had incorporated the company with the intention of running his real estate business through his corporation, as is often the case, he did not formalize this change in relation to his own employment agreement nor the employment agreement with the employee. Further, the evidence did not indicate if the corporation paid the employee from a corporate bank account, though this was what the agent had intended.

However since the existing employment agreement had not yet been cancelled or varied and the agent remained the employer, the Court was satisfied that the agent had retained copyright in the employee's work only after the agent-employer adduced evidence that her continued employment, now through the corporation, was intended.

It was this finding that the Court said would normally result in the conclusion as well that the assignment of copyright made by the agent to Century 21 remained validly assigned.

photographs by hired photographers

With respect to the photographs, the agent (not the corporation) hired the photographers – though the corporation did pay them. The agent operated on the basis that his accountant at the end of the year would determine what was corporate and what was personal. There was no written agreement produced respecting the photographs nor was there evidence that the agent informed those photographers that they were now dealing with his company, not him.

The Court concluded on the balance of probabilities that the agent personally continued to contract with the photographers and that this arrangement did not change.

On the basis of the Court's conclusion respecting employment status and the agent's practice with respect to hiring photographers, it found that after the agent incorporated, the copyright in the property descriptions (created by the employee) and the copyright in the photographs (that the agent hired to be taken), remained that of the agent. As such, the agent corporation had no copyright to assign.

copyright licence

In considering the copyright licence agreements that purported to assign interest in copyright to Century 21, an issue arose between the purported licence to use the Works and the effect of the assignment of the right of action for copyright infringement. Because the terms licence and assignment are frequently used indiscriminately, the Court looked to the substance of the transaction, not its form.2

The Court held that, in this instance, the terms of the licence simply granted Century 21 the non-exclusive use of the Works, with the copyright holder clearly retaining the copyright including any other use or derivative use of the Works. The Court was of the view that what the agent and the agent corporation purported to grant as an assignment was in fact a licence.

Further, because the licence was not exclusive, it simply granted a right of use to Century 21 who did not possess a proprietary interest or the grant of an interest in the infringed works. As a result, Century 21 could only enforce licensing, not copyright infringement to the limited extent granted to it by the licence. In this case, that was the right to use the Works.

The claims for copyright infringement therefore were held to lie with the agents, not Century 21 and the claim of Century 21 for copyright infringement was dismissed (this is why the real estate agents who did have the appropriate rights were also plaintiffs in the lawsuit and were awarded $32,000 in damages).

The take away employers should note is to ensure sufficient rights are assigned from their employees or contractors (so that reliance on the author's right to sue is not necessary).

vicarious liability for an employer or parent company

One final warning which this case provides is that employers should be aware of what employees are permitted to do on third party websites. Although this was in the context of a parent-subsidiary relationship, the Court's analysis would likely be analogous in an employer-employee situation as well.

Century 21 claimed that the defendant parent company was liable for authorizing the breach of copyright pursuant to s. 27(1) of the Copyright Act and for inducing the subsidiary's breach of contract arising under the Century 21 website's terms of use. Century 21 alleged that the parent had gone beyond the role of shareholder and investor and had directly supported and promoted the subsidiary. In particular, employees of the parent company, acting in their capacity as such, had developed the idea for and actively promoted the subsidiary, and the subsidiary's three directors were all officers of the parent. When employees of the subsidiary met with Century 21, they even presented themselves with their parent's business cards.

The Court looked at whether the parent exercised control over its subsidiary since this recognition would pierce the corporate veil and held that the evidence did not establish that the subsidiary was "under the complete control" of its parent so that it had "no independent functioning of its own." As a result, Century 21 failed to rebut the presumption that the parent only authorized the subsidiary to use its website in accordance with the law. Additionally the Court was unable to find that the requisite intent was present for the parent company to have "induced" the breach of contract, even though the parent received 4 cease and desist letters.

Although evidence was lacking in this case for the Court to establish that the parent intentionally turned "a blind eye" to the subsidiary's conduct, employers should be aware that a parallel could be drawn to the employer-employee relationship. If it can be shown that on a balance of probabilities the employer both controlled the employee or demonstrated the requisite intent to have induced the employee's breach, a court could find an employer liable for an employee's copyright infringement or breach of contract of a third-party website's terms of use.

by George Waggott and Alison Kim, Articling Student

1 Century 21 Canada Limited Partnership v Rogers Communications Inc, 2011 BCSC 1196.

2 John McKeown, Fox Canadian Law of Copyright, 3d ed. (Carswell: Scarborough, Ont., 2000) [Fox Canadian Law of Copyright] at 380.

a cautionary note

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2012