The business relationship between MTN Uganda and VAS Garage Limited kicked off inconspicuously. One late afternoon in 2012, VAS Garage, a mid-sized content creator and developer, was approached by MTN.
For some time, MTN had been impressed by the firm’s creativity in content development and wanted the two to partner and make some money.
In terms of revenue and net worth, MTN was equivalent to the biblical Goliath while VAS Garage was David.
In 2013, the two signed a one-year “Content Provision Agreement” (CPA) with the only condition from MTN being that the content created by VAS Garage had to generate a minimum Shs 82 million per month in gross revenue. The agreement was renewed in 2014 and thereafter remained in force for an indeterminate time.
During this time, VAS Garage developed and deployed unique content services by investing in advertising through numerous radio and television stations, thereby profiling the defendant’s customers to consume the unique content.
MTN customers who are old enough will remember the daily barrage of unsolicited messages (SMSes) touching on a wide range of subjects that often busied their phones. From inspirational quotes to biblical verses to health tips, VAS Garage and MTN rocked.
However, at some point, some customers became bothered by these messages and reported the matter to the Uganda Communications Commission (UCC). UCC directed MTN to block the messages before they reached the customers.
To meet that directive, MTN was required to implement an SMS Do-Not-disturb (ONO) solution, at their own expense, allowing customers to block unsolicited SMS via USSD, SMS, or customer care service. That way, the customers would be able to block all unsolicited messages from content providers or block sender IDs.
Under the new arrangement, VAS Garage was required to hand over its profiled database of subscribers to MTN, and in turn, MTN would be responsible for the maintenance, management, and updating of VAS Garage’s subscription database.
Secondly, MTN told VAS Garage that it would charge it a fee of Shs 5 million per month in respect of Bulk SMS services and Shs 12 per SMS.
VAS Garage grudgingly accepted this arrangement, although it felt it was lopsided. To make matters worse, when VAS Garage started billing MTN for the services, MTN’s billing services were often off.
The content provider protested this new arrangement, arguing it had invested substantial amounts in developing content, its database, and the various digital platforms. It said it has incurred promotional expenses of over Shs. 300 million, and built a subscription database of MTN users who had opted to receive its services.
In 2015, the relationship soured when MTN unilaterally deleted VAS Garage’s profiled database, citing the UCC directive.
Legal action
After several meetings without agreement, VAS Garage sought legal action. The case was fixed in the commercial division of the High Court before Justice Stephen Mubiru.
The lawyers of MTN and VAS Garage put forward arguments in defence of their clients. With all said and done, last week, Mubiru delivered his verdict in favour of VAS Garage.
Mubiru found that the deletion of the VAS Garage database was not authorized by UCC and violated the terms of the CPA.
“MTN Uganda Limited wrongfully ‘expired’ VAS Garage’s subscription databases,” he ruled.
He also rejected MTN’s claim that the affected database belonged solely to the telecom operator, holding that the VAS Garage had a legitimate proprietary interest based on its commercial investments in building and managing the database.
The court further faulted MTN for what it termed unfair competition, noting that while the telecom expelled third-party providers from its billing ecosystem, it continued to operate its own VAS platform, MTN Play, under more favorable terms.
“MTN misused its dominant position as the custodian of VAS Garage’s keywords and databases to unfairly drive the VAS Garage out of business,” Justice Mubiru ruled.
He issued the following orders: MTN pays Shs 1.2 billion as accrued interest on the outstanding payment on
invoices; the telecom firm pays Shs. 300,000,000 spent on a business promotion by VAS Garage undertaken in September 2014 and Shs 8.8 billion as loss of income for 29 months of the contract.
Mubiru also ordered that VAS Garage be paid Shs 1.3 billion as general damages for conversion and unfair competition.
In total, MTN was ordered to pay VAS Garage Shs 11.3 billion, one of the highest court awards in recent history.
