South Africa: Does Innovation Pay?

Last Updated: 3 April 2017
Article by Andre van der Merwe

When a person or business creates a new technical concept or innovation that is implemented, the world generally benefits. Examples of this abound, for example, Thomas Edison's incandescent light bulb, Henry Ford's mass production of motor cars, Bill Gates and his MICROSOFT software, and of course the development of the ubiquitous cell-phone and cell-phone telephony.

Not only do individual members of the public and the world at large benefit from these technology developments but also, generally speaking, the innovator and the manufacturer. These benefits do not always result in monetary terms but sometimes in terms of reputation and/or honour, for example, Alexander Flemming's discovery of penicillin, and Professor Chris Barnard's pioneering heart transplants during the late 1960's.

This is generally considered to be the spur and reward that drives innovation of whatever kind. This is also the basis for the world's Intellectual Property (IP) legal systems including the protection of innovation by way of the Patents Act and the Designs Act, and the protection of creative works by the Copyright Act, as well as the protection of innovation, know-how and confidential information in terms of the common law.

Unfortunately, on occasion, the innovator has to struggle to obtain recognition and reward – and even has to turn to the Courts for assistance. A dispute of this kind came before our Courts some years ago and was finally decided recently by our Constitutional Court on 26 April, 2016, namely, Mr Kenneth Nkosana Makate v Vodacom (Pty) Limited.

Mr Makate ('Makate") was employed by Vodacom as a trainee accountant in 2000, when he developed the concept of allowing a cellphone user who has no airtime to be able to send a request to another cellphone user who has airtime to call the first party. Makate set this out in a memorandum that he sent to his supervisor and copied to Vodacom's CEO, and other senior executives, including Vodacom's Director of Product Development and Management ("DPD").  

After about a month, and 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 that was to be determined in due course. Based on Makate's concept, Vodacom quite rapidly developed and launched a new product called PLEASE CALL ME or CALL ME, as a world first, on about 10 February 2001, and this was an instant success making millions of Rands per year for Vodacom. 

Makate was hailed in Vodacom's internal newsletter and in internal correspondence as the innovator and a role model to other employees. However, thereafter 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 e-mail.

Makate then instituted action before the Johannesburg High Court in 2005 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 directing Vodacom to enter into good faith negotiations with him, to determine a reasonable remuneration payable to him.

Vodacom, as expected, 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 prescribed by that time. The authority of the Vodacom executives to enter into the agreement was denied.

The Johannesburg (trial) Court found:

  1. that, on the facts and evidence given, Makate was the originator of the concept. In this regard, the main evidence of Vodacom was rejected because of what was well documented in Vodacom's records;
  2. that a valid contract had been concluded between Makate and Vodacom, and that its terms were enforceable; and
  3. that Makate's claim for compensation had 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 above findings a) and b) and reversed the above finding c) because it found that there was no "debt" involved between the parties (yet) but a contract which had not prescribed.

Makate was fully vindicated in his claims and after the parties have negotiated in good faith and determined a reasonable compensation for him, Vodacom has to pay him for his innovation.

So, after all, it appears that innovation does pay!

Originally published 1 June 2016

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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