February 1, 2012 by Bradley Freedman and Chris Eagles
Construction contracts often include obligations related to the ownership of the intellectual property in work product (designs and other project documents) created in connection with the project. To fulfill those obligations, businesses often include intellectual property provisions in their agreements with employees and independent contractors who actually create the work product. However, in 2011, the B.C. Supreme Court concluded that those kinds of agreements do not assign legal ownership of copyright in works created after the agreements are signed. Ownership of copyright in a work can only be assigned by an agreement that is signed after the work is created. As a result, before agreeing to transfer ownership of intellectual property rights to a third party, you should ensure that you have obtained, the necessary rights from the persons who create the relevant works.
The Century 21 case
Century 21 Canada Ltd. Partnership vs. Rogers Communications Inc. were involved in a dispute over the unauthorized copying of property descriptions and photos from Century 21’s website for use on a real estate listings website operated by Rogers’ subsidiary, Zoocasa. Century 21 and its co-plaintiffs (a brokerage business and two real estate brokers who created some of the copied property descriptions and photos) asserted various claims against Rogers and Zoocasa, including infringement of copyright in the property descriptions and photos. Century 21 claimed a right to sue for copyright infringement based upon license and assignment agreements signed by the coplaintiffs before the property descriptions and photos were created. The Court ruled that Century 21 could not maintain the copyright infringement claims, because the license and assignment agreements did not give Century 21 ownership of copyright in the property descriptions and photos or an exclusive license to use them. In coming to its decision, the Court followed the reasoning in an old English case, which applied basic property law principles to rule that an agreement cannot effectively assign legal ownership of copyright in a work that has not yet been created. Instead, an agreement assigning copyright in a future work only gives the assignee an equitable interest in the copyright once the work has been created and a right to require the copyright owner to execute a proper assignment after the work has been created. Applying those principles, the Court held that only the co-plaintiffs, who had created the property descriptions and taken the photos, had legal ownership of copyright and therefore the right to sue for infringement.
Analysis and recommendations
The ruling in the Century 21 case has potentially broad implications. The fundamental underlying principle-the common law does not recognize an assignment of property that does not exist when the agreement is signed-could apply to all kinds of intellectual property rights and thereby limit the effectiveness of agreements signed when an employee or independent contractor is first engaged. It is important to note the Canadian Copyright Act provides that in most situations copyright in works created by employees in the course of their employment is owned by the employer without a formal assignment agreement. However, that statutory rule does not apply to other kinds of intellectual property rights (such as patentable inventions) created by employees or to any intellectual property created by non-employees, such as independent contractors.
To avoid this problem, businesses should ensure newly-hired employees and independent contractors sign an agreement that properly assigns all intellectual property they create during their employment or engagement (and waives non-assignable rights) AND requires that they agree to execute additional agreements confirming the assignments and waivers after future works are created. For employees and independent contractors who have already been hired, businesses should consider requiring them to sign a supplemental agreement (supported by valid consideration) to address these issues.
Where a construction contract provides for the transfer of ownership of intellectual property rights in project-related work product, the contracting parties should consider implementing practices to ensure that the transfer of rights is confirmed after the work product is created (for example, as part of the design review process, during final project closeout or as a condition of final payment) by appropriate agreements signed by the parties and the workers who created the work product.
This column is provided for general information only and may not be relied upon as legal advice. Send comments to firstname.lastname@example.org.