Who Owns The Code: Lessons For Employers In Canada From Nexus Solutions Inc. v Krougly

The Ontario Court of Appeal's decision in Nexus Solutions Inc. v Krougly, 2026 ONCA 199, provides helpful insights into the application of section 13(3) of the Copyright Act  (the Act). The decision specifically underscores the importance for organizations to clearly define the roles of employees who are developing material intellectual property on behalf of their organizations if they wish to rely on section 13 of the Act to claim ownership over copyrighted works created by their employees. The decision also highlights the need for organizations to ensure that their standard form of employment agreements contain robust provisions regarding the ownership of employee-developed intellectual property.

The Facts

Nexus Solutions Inc. (Nexus) developed and marketed a continuous emissions monitoring system (CEMS) software product called CEMView. Vladimir Krougly was a senior software developer at Nexus responsible for writing source code for CEMView.

While still employed by Nexus, Krougly secretly developed a competing CEMS product called Limedas. After resigning from employment with Nexus, he attempted to market it to Nexus's own customers.

Nexus brought an action claiming copyright ownership of Limedas under section 13(3) of the Act, which vests copyright ownership in an employer when the works are created “in the course of” employment.

The Court's Analysis

The Court of Appeal upheld the dismissal of Nexus's copyright ownership claim, finding that the software had not been created "in the course of" the employee's employment within the meaning of section 13(3) of the Act. To succeed under section 13(3), an employer must show that (i) the creator was an employee; (ii) the work was created “in the course of” employment; and (iii) there was no agreement to the contrary. Since Krougly's employment status was undisputed and no written agreement addressed copyright, the central issue was whether Limedas was developed in the course of Krougly’s employment.

Several findings weighed against Nexus. Most critically, there was ample evidence that Krougly's role was limited to the development of CEMView and that he had not been directed to create other software. The Court of Appeal noted the trial judge’s findings that, notwithstanding certain similarities in function, there were substantial differences between CEMView and Limedas, including the fact that their source codes were different and the trial judge’s conclusion that Krougly did not copy any substantial portion of CEMView in creating Limedas.

The Court also noted that Krougly developed Limedas largely outside business hours without using Nexus's property or resources, and that Nexus had assumed none of the financial risk associated with its development. Further, there was no written employment contract or agreement restricting outside work or allocating intellectual property ownership.

Nexus argued that because it could have directed Krougly to develop software like Limedas, the work should be treated as having been made in the course of his employment. The Court rejected this argument, holding that the fact that an organization “could” require an employee to carry out a particular task is not a sufficient condition for that task to fall within the employee's course of employment. What is necessary, according to the Court, is that the employee's actual responsibilities include creating the work. On the facts, Krougly's responsibilities did not extend beyond the development of CEMView.

Key Takeaways

• The Scope of Section 13(3) Is Circumscribed. Employers should not expect that work created by an employee that is related to the current or anticipated business of the employer will be covered by section 13(3). Only work that is plausibly tied to the employee’s actual work responsibilities is likely to fall within the scope of that section.
• Mitigate Risk with a Written Intellectual Property Assignment. A well-drafted intellectual property assignment clause (typically included in an employment agreement) will assign ownership of work to the employer in reasonably broad terms and avoid the need to rely on the section 13(3) test under the Act to determine whether an employer owns copyrighted works developed by its employees.
• Adopt Comprehensive Restrictive Covenants. Employers should implement confidentiality agreements, invention disclosure obligations, non-competition covenants (where permissible) and non-solicitation covenants. These protections could have prevented Krougly from creating and marketing a competing product and from soliciting Nexus’s customers.
• Document the Employee’s Role. Employers should ensure that the roles, responsibilities and expectations of employees who have been hired to contribute to the development of material intellectual property, particularly those who will be involved in developing innovative products and services, are clearly described in writing.

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.