The world often benefits when a person or business creates a new technical concept or innovation – for example, Thomas Edison's incandescent light bulb, Henry Ford's mass production of motor cars or Bill Gates' Microsoft software. The innovator and manufacturer also benefit too – sometimes not in monetary terms, but rather in terms of reputation (eg, Alexander Fleming's discovery of penicillin or Chris Barnard's pioneering heart transplants).
In addition to driving innovation, reputation forms the basis for IP legal systems. In South Africa, the system protects:
- innovation through the Patents Act and the Designs Act;
- creative works through the Copyright Act; and
- innovation, know-how and confidential information under common law.
Unfortunately, on occasion an innovator struggles to obtain recognition and reward, and must turn to the courts for assistance. On April 26 2016 the Constitutional Court ruled in such a dispute in Nkosana Makate v Vodacom (Pty) Limited.
In 2000 Mr Makate was employed by Vodacom as a trainee accountant. He developed the concept of allowing a cellphone user who has no airtime to send a request to another cellphone user with airtime to call the first party. Makate set this out in a memorandum that he sent to his supervisor and copied to Vodacom's chief executive officer (CEO) and other senior executives, including Vodacom's director of product development and management (DPD).
One month later, when the concept had been proven to be technically feasible, Makate negotiated with the DPD as to Vodacom implementing this concept, including the broad issue of remuneration to Makate, which was to be determined in due course. Based on Makate's concept, Vodacom developed a new product called 'Please Call Me' or 'Call Me', which was launched as a world first, on February 10 2001. The product was an instant success, making millions of rands per year for Vodacom.
Makate was hailed in Vodacom's internal newsletter and internal correspondence as the innovator and a role model to other employees. However, when Makate raised the subject of his remuneration with the DPD, the CEO and the DPD created what the court later called "a false narrative" in which they credited the CEO with creating the original concept. This was perpetuated in the CEO's autobiography. When the media queried the correctness of this version, the CEO obtained confirmation thereof from the DPD by email.
In 2005 Makate brought an action before the Johannesburg High Court to enforce his agreement with Vodacom, leading to a hearing with oral evidence. In his action he sought an order directing Vodacom to comply with its obligations under the agreement and to enter into good-faith negotiations to determine reasonable remuneration.
Vodacom raised various defences to Makate's claims, including:
- disputing that Makate was the originator of the concept;
- disputing the existence of an agreement; and
- alleging that Makate's claim for compensation had been prescribed by that time.
The court denied the authority of the Vodacom executives to enter into the agreement.
The trial court held that:
- on the facts and evidence given, Makate was the originator of the concept. In this regard, Vodacom's main evidence was rejected because of what was well documented in Vodacom's records;
- a valid contract had been concluded between Makate and Vodacom, and its terms were enforceable; and
- Makate's claim for compensation had been prescribed – the trial court upheld this defence by Vodacom, and did not consider it necessary to consider any other issues.
Makate was denied leave to appeal to the Supreme Court of Appeal. He therefore applied for leave to appeal to the Constitutional Court, which confirmed the first two findings above. The court also reversed the finding that Makate's claim had been prescribed: it held that as yet, there was no 'debt' involved between the parties, but a contract which had not been prescribed.
Thus, Makate's claims were fully upheld. The parties have negotiated in good faith and determined reasonable remuneration. It appears that innovation does pay, eventually.
This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.