The Past Can Come Back to Haunt You: The Danger of Backdated Copyright Assignments

Copyright assignments are often back-dated or retroactive. A Federal Court decision – Harmony Consulting Ltd. V. G.A. Foss Transport Ltd., 2011 FC 340, aff’d 2012 FCA 226 – demonstrates the dangers of such assignments, and two (2) questions anyone relying on such an assignment should ask.

Background

In Harmony Consulting, the plaintiff Harmony claimed ownership of copyright in certain computer software programs, and alleged that Foss Transport, Mr. Gordon Foss and Mr. Cristello infringed Harmony’s copyright in the programs. Mr. Foss was Foss Transport’s president and principal shareholder, while Mr. Cristello was Foss’ Vice-President and a minority shareholder. The programs were created by a Mr. Chari, a computer programmer who was Harmony’s sole shareholder and director. Mr. Chari was not a party to the Harmony Consulting litigation. His authorship of the programs was not in dispute.

In early 2000, Foss Transport considered modernizing the dispatching and invoicing programs of its petroleum transport business. Mr. Foss was introduced to Mr. Chari during this process. Subsequently, Foss Transport engaged Harmony to implement an electronic dispatch and invoicing system. Foss Transport continued to pay Harmony to modify the programs used to operate the system, and also paid Harmony to develop new applications.

While the relationship between Foss Transport and Mr. Chari, and subsequently Harmony, was initially cordial, the relationship subsequently disintegrated and was terminated after Mr. Chari planted two “time bombs” in the programs. The first time bomb in April 2004 prevented Foss Transport from invoicing its customers. The second time bomb in May 2004 prevented Foss Transport from dispatching orders to its customers. Both malfunctions negatively impacted Foss Transport’s ability to operate its business.

Foss Transport remedied the time bombs, and made other medications to the programs after the relationship with Harmony was terminated. Foss continued to use some of the programs created by Mr. Chari until 2007.

Harmony sued Foss Transport for copyright infringement in July, 2005, alleging that Foss Transport infringed Harmony’s copyright in the programs. Harmony also alleged that Mr. Foss and Mr. Cristello copied the programs onto their personal computers, and authorized Foss Transport to infringe Harmony’s copyright.

Did Harmony Own Copyright in the Programs? 

As part of their defence, the defendant’s challenged Harmony’s claim that it owned copyright in the programs. There were five (5) programs at issue in the litigation, one of which was called Petro Dispatch 2000. The retroactive assignment of the Petro Dispatch 2000 software, and the Court’s findings on that assignment, are the focus of this article.

Harmony was incorporated March 16, 2000, after the Petro Dispatch was created. The evidence included a retroactive assignment, in which Mr. Chari assigned copyright in Petro Dispatch 2000 to Harmony upon Harmony’s incorporation on March 16, 2000. The only evidence regarding this assignment came from Mr. Chari, whom the Court found was not a credible witness. Mr. Chari testified that upon Harmony’s incorporation he made a “mental assignment” of the copyright in Petro Dispatch to Harmony. Because Canada’s Copyright Act dictates that copyright assignments are only valid if they are in writing (Copyright Act, section 13(4)), the Court found that the mental assignment, and therefore the subsequent retroactive assignment, were both invalid.

Lessons to be Learned

Harmony Consulting is instructive on scrutinizing with retroactive or back-dated copyright assignments. Those reviewing such assignments – e.g. in the context of copyright litigation or due diligence – should ask whether there was ever a written assignment of copyright, and if so, why the retroactive/backdated assignment was necessary. The answers to those questions could reveal defects in the retroactive/backdated assignment that could be material for e.g. in a copyright dispute or acquisition.