Vodacom loses South Africa IP case

A South African appellate court has found the high-profile company liable to compensate the inventor of a technical communications solution.

Vodacom, the South African subsidiary of mobile telephony giant Vodafone, has lost an appeal in a long-running dispute concerning the Please Call Me (PCM) communications service.

A five-judge panel in the South African Supreme Court of Appeal (SCA) rendered a majority verdict on 6 February, holding that former Vodacom employee Kenneth Nkosana Makate is entitled to between 5% and 7.5% of the total revenue derived from the PCM product over an 18-year period, starting from March 2001.

The roots of the dispute date back to Makate’s employment as a trainee accountant at Vodacom in 2000, when he pitched an idea to allow a pre-paid mobile network user with no remaining credit to send a free-of-charge SMS request to another user on the same network who does have credit, to call back the no-credit user.

Originally badged simply as Call Me, PCM turned into a highly successful product in 2001 which earned Makate a credit in the company’s internal publication for his key role in inventing it; sadly for Makate, this recognition did not translate into any financial compensation as Vodacom declined to pay him anything at all, leading to his launch of a 2008 High Court claim and a first appeal to the SCA for breach of oral contract and issuing a demand for share of revenue, all of which were unsuccessful.

Makate then took his case to the Constitutional Court which found a contract existed and upheld his appeal in 2016, and directed the parties to negotiate an appropriate settlement. He rejected a ZAR 10 million (USD 531,000) offer and, in asserting that he should be treated as a reasonable third-party supplier to Vodacom, proposed a figure between ZAR 28 billion and ZAR 110 billion (USD 1.48 billion to USD 5.83 billion). Shameel Joosub, Vodacom’s CEO made a further offer of ZAR 47 million (USD 2.5 million) which was also rejected, leading ultimately back to the SCA.

Justice Baratang Mocumie authored the majority opinion, with which Judge Selewe Mothle and Acting Judge Zamani Nhlangulela agreed, citing four-decade-old case law of Bekker v RSA Factors where a valuer is held to the standard of a reasonable person, otherwise it would lead to a “patently inequitable result”. It found that the CEO had taken steps which seemed unreasonable and irregular, including omitting mobile termination rate (interchange) charges, reducing the offer by 70% without good reason and deviating from a previously agreed 5% compensation figure, and found the ZAR 47 million offer “manifestly inequitable”.

The dissenting opinion came from Acting Judge Ashton Schippers, with Acting Supreme Court Judge Kathree-Setiloane who concurred, opining that Makate had failed to prove beyond reasonable doubt that much of the CEO’s conduct was irrational, but with a single important exception: that of the CEO’s unilateral action to cap the compensation at a notional five-year agreement, which underpinned the ZAR 47 million offer. “This irregularity renders the CEO’s determination unreasonable and patently inequitable.”

Vodacom signalled its intention to appeal the latest judgment in a statement: “Vodacom is surprised and disappointed with the judgment and will bring an application for leave to appeal before the Constitutional Court of South Africa, within the prescribed period.”

In the Supreme Court of Appeal case of Vodacom [appellant] v Makate and Another [respondents], Leslie Cohen & Associates and Lovius Block Attorneys acted for Vodacom, instructing Wim Trengrove SC of Thulamela Chambers. Kenneth Makate was represented by Cedric Puckrin SC of Circle Chambers, who was instructed by Stemela & Lubbe and Webbers Attorneys.

In December last year, the South African National Assembly passed the Public Procurement Bill, defining the remit of supply of goods and services to national, provincial and municipal government bodies.