When reviewing the “chain of title” for an entertainment product (borrowing from Gordon Firemark, “chain of title” is “the paper trail that establishes a person or company’s right to take proposed action with respect to a piece of property”), questions may arise regarding the ownership status of copyrighted works which were created by individuals who are shareholders, officers and/or directors of a corporation and who did not sign an agreement with the corporation which expressly granted to the corporation copyright in the works which they created in their capacity as officers and/or directors. This can often arise in situations where a “closely-held” corporation (owned by, say, one, two or three individuals) is used as the business vehicle for an individual – the most straight-forward example would be the so-called “loan-out” or “personal services” corporation which might be used by a key creative (such as a writer, director, performer, designer, etc.), but could also apply where one or more people render their services “through” a corporation (such as a team of designers).
Canadian courts have been generally consistent in holding that works created by officers and directors of closely-held corporations will be owned by the corporation, even if there is no written agreement expressly setting forth that arrangement. For the most recent court pronouncement to this effect, see Harmony Consulting Ltd. v. G.A. Foss Transport Ltd. (2011 FC 340).
A bit of background: the Copyright Act (Canada) stipulates that the author of a work is the first owner of copyright in that work, unless (a) the author was (i) in the employment of some other person (ii) under a contract of service or apprenticeship, and (b) the work “was made in the course of his employment by that person” – if both of those criteria are met, then the employer of the author will be the first owner of copyright in the work. When it comes to “closely-held” corporations – let’s use the example of a screenwriter who uses a loan-out corporation, of which the screenwriter is the sole shareholder, director and officer – it’s not always obvious that those criteria have been met. Is an officer/director of a loan-out corporation properly considered an “employee”? Have they entered into a “contract of service”? It is not always the case that the individual has memorialized their relationship with the corporation into a written document (of course, a contract need not be in writing to exist). Rather than get mired in analytical gymnastics, Canadian courts have adopted the following approach (from Harmony Consulting Ltd. v. G.A. Foss Transport Ltd.):
This principle [i.e., the “work made in the course of employment mechanism] is also generally applicable to officers, directors, and key employees who create a work for the benefit of the corporation. Ownership normally vests in the corporation in the absence of an agreement to the contrary; see Dubois v. Systèmes de Gestion et d’Aanalyse de Données Media, (1991), 41 C.P.R. (3d) 92 (Que. S.C.), Setym International inc. c. Belout, [2001] J.Q. no 3819 (Que. S.C.) (Q.L.) and B & S Publications Inc. v. Max-Contacts Inc., [2001] 287 A.R. 201 (Q.B.).
The court went on to quote from David Vaver’s 2000 Copyright Law text (at page 85 – I’m going to quote an additional sentence that the court did not):
Problems of copyright ownership also arise in cases involving senior officers of corporations especially presidents or chief executives of closely-held companies. These officers sometimes do not reduce to writing their status or obligations to the corporation which they often regard as their alter ego or instrument. The officer will also usually be an employee of the company whether or not a written contract of service exists. Copyright in most work produced for the company’s benefit will therefore be owned by the company as is also true for comparable work done by lower-level employees. Thus the copyright in design and art work produced for the business in the course of running a one-person corporation is typically owned outright by the corporation.
It is worth noting that Vaver’s 2011 Intellectual Property Law text uses somewhat different language to treat the same matter (from page 127):
… one would expect that copyright in work produced on the job by the president or sole shareholder of a one-person corporation, who treats the company virtually as her alter ego, would belong to the corporation; and so it usually does. The president or sole shareholder may sometimes qualify as an employee [citation omitted] but would in any event usually hold the copyright in trust for the company in order to fulfil the duty of good faith owed to the company. [citation omitted] [emphasis added]
I’ve added the emphasis in that passage because I think it worth highlighting that, on Vaver’s account, at least, it may not be required that the shareholder/officer/director satisfy, strictly speaking, any test of “employment” since they will functionally be held to hold the copyright in trust for the corporation – which should suffice for chain of title analysis purposes. Ideally, of course, one would obtain a written instrument signed by the shareholder/officer/director which confirmed that copyright in the work had been assigned to the corporation – but in situations where that isn’t possible, the foregoing analysis offered by the courts (with an able assist from Professor Vaver) might be relied upon.
