Anonymised, illustrative composite. The business ran on software built by a contractor with no written assignment. Copyright Act s.13(3) vests first ownership in an employer only under a contract of service, and s.13(4) requires a signed writing — so $612,000 of invoices transferred nothing.
At a glance
The target was an Ontario logistics-software business selling a dispatch and route-planning platform to regional carriers on annual subscriptions. The buyer, a larger transport software group, agreed to acquire the shares for $8,900,000. Roughly 94% of revenue came through the platform; the rest was implementation and training.
The platform had been built between 2018 and 2021 by one developer. He had been engaged as an independent contractor, invoicing monthly through his own corporation, and was paid $612,000 over the period. There was a two-page services agreement with a confidentiality clause, a termination clause and no assignment of intellectual property. He left in 2022 and now works for a competitor.
The company did not own the copyright in its own core asset, and no amount of payment, invoicing history or holding-out fixed that. The disclosure schedule said the company owned all intellectual property used in the business, which the vendor believed and which was wrong. The buyer's lender required an unqualified ownership representation, so this was not a point that could be papered.
This is a different defect from a third-party licence sitting in the wrong name — see software licensed to a person, not the business, where the company had contracted for a licence and put the wrong party on the contract. Here the question is original authorship: who owned the copyright the moment the code was written.
$8,900,000 price. $612,000 paid to the contractor across four years. 94% of revenue running through the platform. One services agreement, two pages, no assignment. Zero written assignments of any kind on file. The eventual cure cost $185,000 plus a two-year consulting retainer at $4,000 a month — approximately $281,000 all in, or 3.2% of the purchase price, paid to a person who had already been paid $612,000 to build the thing.
First ownership is a rule about authorship. Copyright Act s.13(1), marginal note Ownership of copyright, provides that “Subject to this Act, the author of a work shall be the first owner of the copyright therein.” Payment is not mentioned, and neither is commissioning.
The employment exception, and what it requires. Subsection (3), Work made in the course of employment, is narrower than its usual paraphrase: “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”. Three conditions, all required. An independent contractor is engaged under a contract for services, so s.13(3) never engages.
The unit trap that costs an extra assignment. The contractor invoiced through his own corporation, and it is tempting to treat that corporation as the owner. It is not, automatically. The author is the human being who wrote the code; his corporation is first owner only if he was its employee under a contract of service and the work was made in the course of that employment — which a one-person company paying by dividend often cannot show. So the chain may need two assignments: author to his corporation, corporation to the target.
Why nothing short of writing works. Subsection (4), Assignments and licences, permits assignment in whole or in part and by licence, then closes with a formality that has no exceptions: “no assignment or grant is valid unless it is in writing signed by the owner of the right in respect of which the assignment or grant is made, or by the owner's duly authorized agent.” Invoices, a recital in a purchase order, four years of the company describing the platform as its own, and $612,000 of payment are not a signed writing.
What the company had instead. At best an implied licence. The Act does not supply one; its scope depends on what the parties did. A bare permission to use is not a grant of an interest in the copyright, so it need not be in writing — and for the same reason it gives the company little: not obviously exclusive, not obviously assignable on a change of control, and no support for enforcement against a third party.
The same code, a different answer. Had the developer been an employee, s.13(3) would have vested first ownership in the company by operation of law. The characterisation test is the one the misclassification files turn on — contractors who were employees in all but name — reaching a different asset. s.13(2) once reversed the default for commissioned engravings, photographs and portraits and was repealed by 2012, c. 20, s. 7, so for those the creation date decides.
The buyer would not close without ownership and the vendor had no leverage. The eventual deal was a written assignment executed by both the individual author and his corporation, covering all works created under the engagement, for $185,000 plus a two-year consulting retainer at $4,000 a month, borne by the vendor through a price reduction. Closing moved five weeks. The buyer also required assignments from the two smaller contractors who had worked on the mobile client.
The unfixable version is the one where the developer will not sign. He worked for a competitor and was under no obligation to help; had he refused, the buyer would have acquired a business whose core asset it could use on uncertain terms and could not enforce, defend or licence. Against that, $281,000 for a signature is cheap — available only because the gap was found before closing. See the systems and software the business runs on.
The tell is a services agreement short enough to read in two minutes: a contractor agreement without an intellectual property clause is a first-ownership problem waiting to be found. The second tell is on the payroll side — a core system built while the company had no engineering staff on payroll means the author was someone else. Ask for the assignment, not the invoices; payment is exactly what s.13 does not care about.
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