South Africa: software patents
In South Africa, patents are regulated by the Patents Act No. 57 of 1978. A much-publicised patent dispute has shone a spotlight on patents, and particularly the issue of software patent protection. In addition, the dispute has also drawn attention to other issues such as trade secrets, the misuse of confidential information and unlawful competition.
Two South African information technology (IT) entrepreneurs have sued a major bank, Nedbank, for infringing a South African patent that is entitled “Method of and system for activating or deactivating a financial transaction card / a card blocking system”. As the title suggests, the invention is directed to a system which allows customers to block bank cards that are suspected of being used for fraud. The entrepreneurs are demanding more than R280 million in damages, a figure that is based on the estimated royalties they say they would have received had Nedbank acquired the software legally. The bank is seeking to have the patent revoked on the grounds that the claimed invention lacks novelty and inventiveness, and is therefore not patentable.
The background to this case is interesting and, unfortunately, not that unusual. What allegedly happened here was that the two entrepreneurs developed their system after realising that the only way a bank customer could cancel a financial card that was being used fraudulently was by contacting the bank by phone. What concerned the entrepreneurs was that there was no system in place whereby a bank customer - on being alerted to the fact that fraudulent transactions were taking place on their account - could cancel their card remotely on multiple platforms, such as mobile phones and tablets.
After applying for patent protection the entrepreneurs submitted their idea to a competition that had been sponsored by the bank. One of the judges at that competition was in fact an employee of the bank, and he was very keen to learn more about it - he apparently promised the entrepreneurs that he would submit the invention to his bank for consideration. The bank was clearly interested because it made an offer to purchase the invention. The entrepreneurs however rejected the bank’s offer and the bank then subsequently developed its own card-cancelling system.
We will have to see how this case unfolds, but it is worth mentioning that the law in South Africa regarding software patents is a grey area, as it is in many other parts of the world. Although the South African Patents Act states that a computer programme is not patentable, this exclusion is confined only to a computer programme ‘as such’. At present, there is no case law in South Africa interpreting the meaning of this exclusion. The South African courts may follow a European-type approach requiring a software-related invention to have a "technical effect" or our courts may adopt a different, less formal approach as has been done in other countries. However, we suspect that our courts will almost certainly move away from a restrictive interpretation and effectively allow certain kinds of software to be patented.
There can, of course, also only be patent infringement if the activity of the defendant falls within the patent’s claims. It will therefore be necessary in this case for the entrepreneurs to establish that the bank’s method of, or system for, blocking a financial transaction falls within the scope of the claims of their patent.As mentioned earlier, the bank will be seeking revocation of the patent.
There is a further aspect to this case. It is claimed that when the entrepreneurs pointed out to the bank that it would be guilty of patent infringement and possibly other torts such as unlawful competition if it developed its own system, a bank official apparently said that they would not be able to take on a bank because they were ‘just guys from the township’ - townships are generally the poorest parts of South African cities.
This has led to comparisons with a case that attracted a great deal of publicity in South Africa, one that went all the way to the country’s highest court, the Constitutional Court. What happened in the case of Makate v Vodacom was that a fairly junior employee of the telecommunications company Vodacom came up with an idea for an innovative telecoms service that would go on to become a very successful Vodacom product. Although the employee’s superior promised the employee that he would be well rewarded for his ingenuity he never was, and he had to go through years of litigation in order to get a court order requiring the company to reward him. That case led to a great deal of bad publicity for Vodacom and, to a certain extent, ‘big businesses’ in general. It is possible that Nedbank will try to avoid a similar situation arising here.