Intellectual Property (IP) rights are potentially very valuable and need to be treated accordingly. This is illustrated in the recent legal battle between Vodacom and Mr Kenneth N Makate which has escalated all the way to the Constitutional Court. Mr Makate alleged that Vodacom had entered into an oral agreement with him regarding compensation for his idea which later became known as the Vodacom “please call me” service and which has generated billions of rands of revenue for Vodacom. Vodacom denied entering into an agreement with Mr Makate. Mr Makate was unsuccessful with a claim against Vodacom in the High Court. Both the High Court and the Supreme Court of Appeal refused him leave to appeal. Accordingly, Mr Makate appealed to the Constitutional Court. The Constitutional Court held that Vodacom was bound by the agreement and ordered Vodacom to commence negotiations in good faith with Mr Makate for determining a reasonable compensation payable to him in terms of the agreement.

At the time when Mr Makate conceived of his idea, Mr Makate was a trainee accountant at Vodacom. As such, the idea was not conceived of during the course and scope of his employment with Vodacom. Accordingly, the ownership in the idea vested in Mr Makate. However, were Mr Makate a product developer or engineer in the employment of Vodacom, the ownership in the same idea might well have vested in his employer Vodacom. Hence, in this case, Mr Makate was in the same position in relation to his employer, Vodacom, as any independent third party who might generate an idea which may be of interest to Vodacom or a similar entity.

Mr Makate approached Vodacom with his idea and wanted to negotiate a business proposal. In retrospect, Mr Makate would have been well advised to have sought registrable IP protection for his idea, if available, before he approached Vodacom. Furthermore, both Mr Makate and Vodacom would have been well advised to enter into a written agreement with provisions aimed at preserving Mr Makate’s interests whilst giving Vodacom a reasonable opportunity to investigate the merits and viability of the idea, before taking negotiations with Mr Makate further. 

Although in practice, the provisions of such an agreement will be negotiated at the time between the disclosing party and the receiving party, the agreement should typically include an obligation on the disclosing party to disclose to the receiving party full available details of the idea (which must be carefully defined in the agreement) and for the receiving party to have the (preferably exclusive) right for a limited, yet reasonable period of time, to be able to investigate the merits of the idea. The receiving party should undertake not to disclose, use (other than as provided for in the agreement), or reverse engineer the idea. Investigations into the merits could include whether the disclosing party is the true owner of the idea, whether the idea is really new or original, whether the idea is viable in practice and whether the receiving party would have the freedom to operate with the idea or whether exploitation of the idea might infringe on the IP rights of other parties. Upon completion of these investigations, the parties should be in a much better position to negotiate further agreements relating to the future exploitation of the idea and possible IP protection for the idea.

As the facts in the case above indicate, parties generating ideas and potential corporate recipients of ideas must not shy away from such a structured approach and a written agreement of the kind referred to. The intention of the agreement is to ensure that the rights of both parties are protected and that negotiations and investigations are conducted fairly and in the interest of both parties. Furthermore, corporate entities should perhaps adopt a standard procedure or protocol on how to deal with situations wherein they are approached by owners of ideas and inventions which may be of benefit to the entity.

Written by Martin Vermeulen, KISCH IP