Executive Summary: Key Legal and Evidentiary Issues

• Scope of employer copyright under s. 13(3) of the Copyright Act where an employee secretly develops competing software while still employed
• Characterization of the employee’s actual job responsibilities and whether creating the new software fell “in the course of” employment or was a separate side venture
• Significance of where, when, and with what resources the software was developed (employer’s time/equipment vs. employee’s own time/equipment) in determining copyright ownership
• Weight given to the employer’s lack of direction or authorization for the new product, and whether potential duties differ from actually assigned duties
• Relevance of the employer’s failure to bargain for, or expend resources on, the disputed software in assessing who should receive the “just reward” under copyright policy
• Appellate deference to the trial judge’s mixed findings of fact and law on the employee’s role, responsibilities, and the nature of the development work

Factual background and relationship between the parties
Nexus Solutions Inc. is a Canadian software development company based in London, Ontario, specializing in continuous emissions monitoring system (CEMS) software used by heavy industry to monitor and report smokestack emissions. Its key product is “CEMView,” a software system that collects, stores, displays, and reports emissions data from analyzers installed in smokestacks. Vladimir Krougly was involved with Nexus from its early days. He began as an original minority shareholder, officer, and director, and initially worked as an independent contractor before becoming an employee in 2006. In 2008, he sold his shares and resigned as an officer and director but remained a full-time employee. His primary role was that of a senior software developer responsible for writing source code for CEMView. While he had a technical development function, the trial judge later found that his mandate was focused on maintaining and enhancing Nexus’s existing CEMView product rather than conceiving or launching new products.
Creation of the competing Limedas software
Around late 2008 or early 2009, while still employed full-time by Nexus, Krougly began surreptitiously developing his own CEMS software product, later called “Limedas” (Live Measurement Data Acquisition System). Limedas, like CEMView, was designed to collect, store, display, and report emissions monitoring data and used similar communication protocols to communicate with field analyzers. However, the evidence showed notable technical differences: the source code was different, the algorithms and the data handling were dissimilar, and Limedas explored a new architecture, including the possible integration of the more advanced OPC UA communications protocol. The trial judge found that Krougly did not copy any substantial portion of CEMView in creating Limedas. The great bulk of the Limedas development work was done outside normal business hours, on Krougly’s own time, and using his own equipment. Nexus’s property and infrastructure were not significantly implicated.
Employment duties, authorization, and side-venture characterization
Within Nexus, Krougly’s defined job was to develop and improve CEMView, the company’s existing emissions monitoring product. He was not authorized to create new software products for Nexus unless he obtained prior approval. Management’s evidence was that, had Nexus been aware he was building an independent competing CEMS product, his employment would have been terminated. There was no written employment contract and no express written clause dealing with ownership of inventions, side projects, or intellectual property created by him either during or outside Nexus’s working hours. There was also no contractual prohibition, in writing, on working on personal projects on his own time, although he had been clearly instructed not to engage in unauthorized software development for Nexus itself. Against this backdrop, the trial judge concluded that Krougly’s work on Limedas, although closely related in subject matter to his work on CEMView, was a side venture conducted independently of his assigned responsibilities. He was paid the same salary as before and did not receive any extra remuneration earmarked for Limedas or any next-generation product.
Discovery of Limedas and commencement of litigation
After Krougly resigned from Nexus effective January 4, 2011, he attempted to commercially market Limedas, including to customers and prospects within the same industrial space and, in some instances, to Nexus’s own or potential clients. Shortly thereafter, Nexus discovered that Limedas had been developed during his period of employment. Nexus commenced proceedings against Krougly and associated entities and individuals (including Limesoft Inc., Daria Krougly, and others). Among various causes of action, a key claim—bifurcated for trial—was that Nexus owned the copyright in Limedas under s. 13(3) of the Copyright Act because it had been created in the course of Krougly’s employment. Nexus sought a declaration of copyright ownership and related relief for copyright infringement. Other pleaded claims, including allegations about breach of duty of loyalty and similar obligations, were not adjudicated in the first phase of the trial and were not before the Court of Appeal in this decision.
Copyright framework and absence of policy terms or contractual clauses
The case turns on statutory copyright principles rather than on policy wording or negotiated IP-ownership clauses. Section 13(1) of the Copyright Act establishes that the author of a work is generally the first owner of copyright. Section 13(3) creates an exception for works made by an employee “in the course of his employment,” in which case the employer is the first owner in the absence of any agreement to the contrary. There was no written employment contract between Nexus and Krougly that reallocated copyright ownership or imposed specific intellectual property assignment obligations beyond the statutory framework. Nor did the court discuss any insurance or commercial policy terms or specific contractual clauses; the analysis was driven entirely by the statutory phrase “in the course of his employment” and by general employment and copyright principles. The appellate court accepted the trial judge’s use of academic commentary emphasizing that s. 13(3) is justified where the employer funds the development and assumes the major financial, organizational, and associative risks, such that the “just reward” of copyright should belong to the employer rather than the individual author. This rationale framed the inquiry into whether Limedas was, in substance, created as part of Krougly’s job for Nexus or as his own independent project.
The trial decision: Limedas not created in the course of employment
In phase one of the bifurcated trial, the judge focused narrowly on whether Limedas was created “in the course of” Krougly’s employment, and thus whether Nexus could rely on s. 13(3) to claim first ownership of the copyright. The judge accepted that developing CEMS software—CEMView—was squarely within Krougly’s assigned duties. However, he found that Limedas was not developed at the direction or under the control of anyone at Nexus. Instead, it was conceived and executed as a side project. The judge applied a set of contextual factors, including those articulated by the English Intellectual Property Enterprise Court in Penhallurick v. MD5 Ltd., such as the terms of employment, place and time of creation, use of employer resources, level of direction, the ability to refuse the work, and whether the work was integral to the employer’s business. While Limedas was clearly related to Nexus’s business, several key points weighed against Nexus: the work was largely done off-hours and off-site; it used Krougly’s own equipment; Nexus did not direct or authorize the project; Nexus did not bargain for Limedas or allocate resources toward its development; and Nexus did not assume the risks associated with its creation or commercialization. Importantly, the judge distinguished this situation from Corso v. Nebs Business Products Limited, where the employee’s responsibilities expressly included ideation and development of new products, such that surreptitiously created software fell within his employment remit. By contrast, Nexus had deliberately limited Krougly’s responsibilities to enhancing CEMView and had explicitly told him not to develop new products without authorization. With “considerable reluctance,” the trial judge concluded that, despite the apparent disloyalty in developing a competing product in secret, copyright law did not grant Nexus a proprietary remedy. Limedas had not been created in the course of Krougly’s employment, so Krougly, as author, retained copyright. The copyright claim was dismissed, though the judge noted that Nexus might have other contractual or fiduciary remedies outside copyright.
Appeal issues before the Court of Appeal
Nexus appealed, arguing that the trial judge made three principal errors in law and in application of law to fact. First, Nexus said the judge improperly treated as “critical” the fact that Nexus had not specifically directed Krougly to develop Limedas. On Nexus’s theory, what matters is whether the work falls within the general class of works the employer could require the employee to produce, not whether this precise project was expressly assigned. Second, Nexus argued the judge wrongly took into account an allegedly irrelevant factor: whether Nexus had “bargained for” or expended resources in connection with Limedas. Nexus contended that it could not have bargained or paid for work that was hidden from it. Third, in the alternative, Nexus said that if direction and assignment were relevant, the judge made a palpable and overriding error in finding that Nexus had not directed or assigned Krougly to develop a next-generation product akin to Limedas, particularly in light of internal discussions about incorporating the OPC UA protocol and emails contemplating future evolution of CEMView. The Court of Appeal reviewed the statutory interpretation questions on a correctness standard and the factual/mixed findings on a palpable and overriding error standard.
The Court of Appeal’s interpretation of “in the course of his employment”
The appellate court undertook a modern statutory interpretation of s. 13(3), considering the text, context, and purpose of the Copyright Act read alongside s. 13(1). The court emphasized that s. 13(1) allocates first ownership to the author to reward creation and encourage dissemination of works, while s. 13(3) is an exception justified where the employer has effectively caused the work to be created by paying for and directing it, and by assuming the associated risks. From that perspective, “in the course of … employment” is tied to what the employee is actually asked or expected to do as part of their job, not merely what they could hypothetically have been asked to do. The court agreed that the proper inquiry is whether the making of the disputed work formed part of the employee’s actual responsibilities—expressly or by necessary implication—rather than whether the work fell within a broad class of tasks that the employer might have assigned. In a key passage, the court explained that an employer’s ability to require an employee to perform a kind of work is a necessary but not sufficient condition; the decisive question is whether the employer in fact assigned that type of work as part of the role. A hypothetical example—an employee hired to code “Game A” who secretly develops a different game, “Game B,” on their own time—illustrated that an employer does not acquire copyright in every work within the employee’s skill set, only in works the employee was actually engaged and paid to create.
Rejection of Nexus’s legal arguments on direction and resources
On the first ground of appeal, the Court of Appeal held that the trial judge did not impose an impossible requirement of “specific direction” to develop Limedas as such. The judge had recognized that direction could be specific or implied, and had found that, for Limedas, there was neither: Krougly had been expressly directed to work on CEMView and expressly warned not to undertake unauthorized software development. The appellate court endorsed the focus on “actual (as opposed to potential) responsibilities” and accepted that Limedas lay outside those responsibilities. On the second ground, the court clarified that the trial judge did not treat expenditure of resources or “bargaining” as a formal legal precondition to employer ownership. Instead, those factors were properly considered in assessing whether Nexus had, in substance, funded and assumed the risks of the project. The fact that Krougly received no additional compensation for Limedas, worked almost entirely off-hours, and used his own equipment strongly supported the conclusion that Nexus had not caused Limedas to be created in the way contemplated by s. 13(3). The appellate court therefore found no error in principle in the trial judge’s reliance on those contextual facts.
No palpable and overriding error in assessing evidence on OPC UA and future products
On the third ground, Nexus argued that internal communications about a potential next-generation product and the possible adoption of OPC UA showed that development of such a product was within Krougly’s assigned role. The Court of Appeal rejected this contention. In its view, the evidence showed only that Nexus contemplated at some point investigating or moving toward an upgraded product, not that there was a firm decision or that Krougly had been tasked with implementing it. This was underlined by the fact that, even some 13 years after his departure, OPC UA still had not been integrated into CEMView. The appellate court concluded that there was ample evidence to support the finding that Krougly’s responsibilities were confined to CEMView and did not include developing a separate, new CEMS product like Limedas. Nexus’s arguments were characterized as an impermissible attempt to reweigh evidence rather than to demonstrate a palpable and overriding error.
Overall outcome and monetary orders
The Court of Appeal upheld the trial decision in full on the copyright phase. It confirmed that Nexus did not acquire copyright in Limedas under s. 13(3) because Limedas was not created in the course of Krougly’s employment but rather as his independent side project. As a result, Nexus’s copyright claim failed, and the appeal was dismissed. The successful party on appeal was Vladimir Krougly (together with the other respondents). The Court of Appeal ordered that Krougly is entitled to costs of the appeal in the agreed amount of $25,000 inclusive of taxes and disbursements in his favour. The decision does not specify any additional damages or monetary awards from the underlying trial, so the only determinable monetary amount ordered in favour of the successful party in this appellate decision is $25,000 in costs.