First Reference company logo

Inside Internal Controls

News and discussion on implementing risk management

machine cogs image

Intellectual property belongs to employer despite contract dispute

intellectual-property-law-bill-c31
 
When an employment relationship involves intellectual property created by an employee, the employer must take special care in the employment contract to consider who owns the IP.

The owners of Canasonics Inc. made sure their contract with inventor William Emil Groves was clear when they went into business with a tool for “improving production of oil, gas, water or injection wells through the use of sonic technology and sonic tools utilizing either coil tubing or jointed tubing.” Alberta’s Court of Queen’s Bench agreed the contract was sound and Canasonics was the owner of the intellectual property in question.

Clear contract, secure intellectual property

The contract stated:

The Company shall own any and all Copyright and Intellectual Property created in the course of Employment. Further, in the event there is a period when the Employee might be considered an independent contractor, all Copyright created and any Intellectual Property created shall be owned by the Company.

Groves invented a number of tools while working for Canasonics and assigned them to the company, “In consideration of One Dollar and other good and valuable consideration, of which I acknowledge receipt.”

When the relationship deteriorated, however, Canasonics terminated Groves and Groves sued Canasonics for ownership of his inventions, arguing that he had invented them prior to joining Canasonics and that Canasonics had effectively rescinded his contract by failing to pay him what he was due.

Rescission’ and ‘repudiation’ of a contract

The Court denied both of these claims. Groves was an unreliable witness and contracted himself, others’ testimony and various legal documents.

The Court found it was apparent that Groves had either invented the tools while in the employ of Canasonics or assigned the tools to Canasonics when he joined the company.

As for whether the employer rescinded the contract, the Court clarified the distinction between rescinding and repudiating a contract:

Rescission” may occur when parties enter a contract on the basis of fraud or essential error. When a contract is rescinded, the parties are restored “to the position in which they stood before the contract was entered into.”

Repudiation of a contract occurs when one party demonstrates “an intention not to be bound by the contract”—even if that party believes it is following the contract. In this case, the contract continues to have effect, and the parties may sue each other for damages.

Had Groves’s contract been rescinded, the ownership of the IP would have returned to him. But that is not what happened, the Court found. Groves argued that Canasonics had never paid him his full salary, which was part of the consideration for transferring the IP to Canasonics. The Court found that if that was the case, then Canasonics had repudiated the contract, not rescinded it.

The parties did not enter into the contract based on fraud or error, and therefore there was no basis for rescission, and the inventions remained the rightful property of Canasonics. If Groves wanted to pursue an action to recover unpaid earnings, he would have to sue the employer for damages based on repudiation of the contract. But that was not for this Court to decide.

Takeaways

It is crucial that employers consider intellectual property and copyright in contracts for employees that create products or content. The contract should clearly state who owns the IP or copyright for works created while employed, and the consideration, if any, for that IP or copyright.

Read the case of Groves v Canasonics Inc, 2015 ABQB 314 on CanLII.org.

Follow me

Adam Gorley

Editor at First Reference
Adam Gorley, B.A. (Phil.), is a researcher, content provider and editor. He contributes regularly to First Reference Talks and Internal Control blogs, HRinfodesk and other First Reference publications. His areas of focus include broad human resources issues, corporate social responsibility, corporate governance and government policies, information technology and labour market trends.Read more
Follow me

, , , , , , , , , , ,

Comments are currently closed.