MTN Uganda ordered to pay over Shs11b in unfair competition legal dispute

MTN Uganda has been ordered to pay over Shs11.3b to a company engaged in providing value-added services to telecommunication companies.

Justice Stephen Mubiru, the head of the Commercial Division of the High Court, in his April 21 judgment, found MTN Uganda in breach of contract and unfair competition against VAS Garage Ltd.

This is after the giant telecommunication company expired/ deleted its subscription database under the guise of implementing a directive from the Uganda Communications Commission (UCC) to stop sending unsolicited messages to its customers under an arrangement dubbed “Do-Not-Disturb” solution.

“The defendant’s (MTN Uganda) unlawful expiry of the plaintiff’s (VAS Garage) Databases and Service Keywords prevented the plaintiff from providing services to their subscribed customers and earning revenue as provided for under the contract. The defendant (MTN Uganda) also provides Value-Added Services to its customers. These are the services that the plaintiff was providing to its customers therefore, the defendant viewed the plaintiff as a competitor to justify its unlawful actions,” ruled Justice Mubiru.

Adding: “The defendant’s (MTN Uganda) actions of expiring/deleting the plaintiff’s keywords and databases and its failure to bill the plaintiff’s customers were not authorised by UCC. Instead, the defendant’s unlawful actions were intended to unfairly prevent, restrict, and distort competition in relation to the plaintiff’s business.”

Court documents show that VAS Garage in 2012 approached MTN Uganda with a proposal for entering into a “Content Provision Agreement” to provide telecom Value Added Services (VAS) to its subscribers.

Having been given a go-ahead, VAS Garage thus developed and deployed unique content services by investing in advertising through numerous radio and television stations, thereby profiling MTN Uganda’s customers to consume the said unique content.

But in due course, MTN Uganda sent an email to VAS Garage, claiming UCC had commenced a drive to ensure that its customers did not receive unsolicited SMS.

The telecommunication company added that if the customers did, they should be able to block such SMS from being delivered to them in the future.

So, in order to meet that directive, MTN Uganda was required to implement an SMS, Do-Not-Disturb solution, at their own expense, allowing customers to block unsolicited SMS by registering in its database 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,” the court documents stated in part.

Mr Patrick Kizito Mubiru, one of the staff at VAS Garage, testified in court about how they had invested in various marketing and promotions campaigns to grow their business with a four-year return on investment strategy through the recruitment of subscribers and retaining them.

“The plaintiff deliberately invested in partnerships to influence subscribers to join its services, such as television stations, radio stations, media personalities, sports experts in the media, pastors of big congregation churches, property companies that provided merchandise for winning by its subscribers,” court documents stated.

VAS Garage further claims that MTN Uganda went on to illegally and unfairly deny them the opportunity to earn a living when it terminated the contract they had, thereby ending their revenue-sharing relationship they had.

Further, it asserted that while Mtn Uganda expired its profiled subscription databases, the telecom company did not expire its own parallel Play services managed by its international VAS Partner IMI Mobile.

The termination of the contract was immediately after the telecom company had complained to UCC.

“The plaintiff contended that the defendant had selectively implemented the UCC directive to its advantage to kill off competing third parties so as to boost its internal revenue,” VAS Garage stated.

As the regulator, the UCC on 27th March, 2018 delivered its ruling where it observed that whereas it intended to standardise the broadcasting of SMS and the implementation of the “Do-Not-Disturb” directive, it was not true that the Commission (through the directive), required the profiled databases of the subscribers to be deleted/expired like how MTN Uganda had handled matters with VAS Garage.

“To camouflage the breach, the defendant (MTN Uganda) wrongfully used the pretext of implementing the UCC directive to implement a Universal Opt-Out Method on Short Code 196 and operation of the “Do-Not-Disturb register for SMS and MMS, to cancel the plaintiff’s (VAS Garage) digital assets in form of the subscription databases and service keywords without notice, and cause, contrary to Clause 6.2 of the Content Provision Agreement,” UCC ruled in its decision.

It’s upon this background that Justice Mubiru of the Commercial Court ruled in favour of VAS Garage, stating that: “ For a contract that had run for only a couple of years or so, the lost income claimed in the instant case is not speculative since it is based on the optimum revenue for the month of May, 2015 of Shs288m. The court, therefore, finds that the plaintiff (VAS Garage) has proved its claim for the recovery of Shs8.3b being lost income for the 29 months of the contract.”

The judge also went ahead to award Shs300m as monies spent on business promotions by VAS Garage, Shs1.3b as general damages for conversion and unfair competition, Shs1.2b as accrued interest on the outstanding payment of invoices and certificate of costs for two counsel, bringing the total compensatory award to over Shs11.3b that MTN Uganda has to pay.

VAS Garage was also awarded interest on the above compensation at a rate of 19 percent per annum from the date of the judgment until payment in full, plus the costs of the lawsuit.

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