Vodacom suffers blow in Please Call Me case

Vodacom suffered a blow in its Please Call Me case against ex-employee Kenneth Makate when the Supreme Court of Appeal (SCA) declared its R47 million offer invalid and said he is entitled to 5% to 7.5% of the product’s revenue.

The SCA dismissed an appeal from Vodacom against the ruling of the Gauteng High Court in Pretoria earlier today. The High Court ordered Vodacom CEO Shameel Joosub to recalculate the R47 million offer made to Makate.

The order of the High Court was set aside and substituted with a decision that Makate is entitled to be paid 5% to 7.5% of the total revenue of the Please Call Me product. The time value of money must be calculated at 5% for each year. 

Vodacom’s CEO, Shameel Joosub, was ordered to finalise a suitable offer to Makate within one month of the SCA’s order.

The prolonged battle between Makate and Vodacom started in 2005 when he demanded compensation for his idea.

Makate first pitched his idea to “buzz” someone else’s phone without airtime to a superior on 21 November 2000, according to internal Vodacom emails. 

The idea was ultimately developed into Please Call Me, which was launched in January 2001. Crucially, a manager promised him compensation despite not being authorised to.

The legal battle between Vodacom and Makate began in 2007 when he sent his first letter of demand and then launched legal action against the company the following year.

The parties have been embroiled in a legal battle ever since. 

In April last year, Judge Wendy Hughes ruled in the Gauteng High Court that Vodacom could appeal her order against the R47 million the company had offered Makate in compensation.

Hughes had originally ruled that Vodacom CEO Shameel Joosub used the wrong model to determine the compensation and ordered that he recalculate it.

This was after the Constitutional Court had ordered Vodacom and Makate to negotiate in good faith to determine a fair amount to pay for the idea.

It also ordered that if the negotiations deadlock – which they did – Vodacom’s CEO would act as the tie-breaker and must come up with a “reasonable compensation” amount.

Vodacom explained that Joosub considered four different models that could have been used to determine Makate’s compensation. These models yielded the following figures:

• R51.5 million
• R21.8 million
• R42.2 million
• R38.1 million

The R47 million offer is the average of the two most favourable outcomes for Makate.

Makate has previously claimed he is entitled to anything from 5% to 15% of the revenue Vodacom generated from Please Call Me, which has been reported as anything from R9 billion to R110 billion.

To put this claim in context, Vodacom’s entire market cap is just below R200 billion, and the company spends over R10 billion maintaining its network in South Africa alone each year. 

However, there is a dispute about whether Makate came up with the idea in the first place, as MTN says it was first to market with its “Call Me” product on 23 January 2001.

MyBroadband reported that MTN claimed Vodacom launched a carbon copy of its service on 15 March 2001, also naming it “Call Me”. Vodacom only changed the name to “Please Call Me” later.

Call Me patent holder Ari Kahn said he came up with the idea in November 2000 and briefed attorneys to prepare a patent application for filing.

The patent was filed on 22 January 2001, and MTN launched its product a day later.

When Vodacom launched its product, MTN immediately notified Vodacom that it infringed on its Call Me patent, which had been filed a few weeks earlier.

While there were a few heated exchanges between the two companies, MTN curiously decided not to enforce its patent rights.