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Gugulethu entrepreneurs claim Nedbank stole their patented card blocking system

With shades of Kenneth Makate’s ‘Please call me’ case against Vodacom.

Two Gugulethu entrepreneurs applied on Tuesday (June 18) to the Court of the Commissioner of Patents in Pretoria for an interdict to stop Nedbank from using a card blocking system they say was stolen from them.

Nedbank denies stealing their patented IT system that allows customers to block bank cards that are suspected of being used for fraud, and says it will apply to have the patent revoked on the grounds that “the claimed inventions are not new” and therefore “not patentable”.

Read: Please Call Me inventor back in court, this time to face litigation funders

The software, under the brand name Instablock, was developed in 2015 by two award-winning IT developers from Gugulethu in the Western Cape, Thandile Jwambi and Tatolo Kutumane. They are demanding more than R280 million in damages. This figure is based on the estimated royalties they say they would have received had Nedbank acquired the software legally. In 2015, Nedbank made R9.3 billion in bank card service fees.

The case has been taken on and funded by SA Litigation Funding Company (Salfco).

The two entrepreneurs developed the Instablock system after realising that none of the banks offered a system allowing customers to cancel their cards remotely across multiple platforms, such as smartphones, tablets and ATMs, once alerted to the fact that fraud transactions were taking place on their accounts. Previously, customers had to contact the bank by phone to cancel their cards. A provisional patent on the product was secured in 2015.

Presentation

Several banks immediately reportedly showed interest in Instablock, and in September 2015 Jwambi and Kutumane were asked to give a presentation to Nedbank officials at the MyBusiness Expo being held at the Cape Town International Convention Centre.

Nedbank asked for details of the system to be emailed to the bank’s digital department, but the two entrepreneurs insisted on proceeding only once an agreement on royalties had been concluded.

Some months later the two entrepreneurs won a “pitching” competition hosted by LaunchLab in Stellenbosch. One of the main sponsors of this competition was Nedbank. In papers before the court, Jwambi says one of the LaunchLab judges, Waseem Hassim, was from Nedbank. At the LaunchLab premises, Hassim confirmed to the entrepreneurs that the bank did not have this kind of technology and that he was keen to take the idea back with him to the bank’s Johannesburg head office after Jwambi and Kutumane handed over to him the full details of the patent.

Suspicious

Jwambi became suspicious when asked by one of the LaunchLab employees what he would do if a bank stole their concept. Jwambi replied that the product was protected by a provisional patent. A patent search had apparently confirmed that no other developer had come up with such a system in South Africa. The final patent was researched and later registered by patent attorney firm Adams & Adams.

In November 2015, two LaunchLab employees, Jonathan Smit and Brandon Paschal, suggested the entrepreneurs sell their system to Nedbank for R1 million. The offer was declined, as the entrepreneurs wanted a royalty agreement with the bank. Smit apparently then replied that the two entrepreneurs were “just guys from the township” and did not have the money to fight Nedbank in court if they decided to take the system. Insulted by this attitude, Jwambi and Kutumane say they decided to end the meeting.

The two entrepreneurs were further puzzled that it took nearly six months before they were paid their R20 000 prize money from the LaunchLab competition – which, they had publicly announced, they intended to use to further secure their intellectual property by way of a full national patent.

Jwambi says he was dissuaded by Paschal from applying for a South African patent on the grounds that these were not a particularly strong way of protecting one’s rights.

The two entrepreneurs had to take LaunchLab to the small claims court to secure their prize money.

This further confirmed their suspicions that Nedbank and LaunchLab were attempting to frustrate their efforts to secure their patent rights. The court found in favour of the entrepreneurs, and LaunchLab then released the prize money, which was immediately used to secure a full national patent.

The two entrepreneurs then started recording all conversations with the bank. Nedbank’s Hassin phoned Jwambi on November 5, 2015, saying he had presented the Instablock system to the bank’s business development department and promised to arrange a meeting within the next two weeks with other colleagues to discuss potential business arrangements. No further word was heard from Hassin or the bank.

A few months after the LaunchLab competition Jwambi happened to go to a Nedbank ATM and discovered the bank was using the very card and chequebook blocking system it had apparently shown interest in acquiring. Jwambi then went to Nedbank’s website and noticed that the system was apparently being offered there too.

Nedbank executive had ‘no mandate’

In response to questions from Moneyweb, Nedbank’s patent attorney Theo Doubell replied in March that Hassin had only joined the bank two weeks earlier as a small business relationship manager, and therefore had little knowledge of its technology portfolio and knowledge, nor did he have a mandate to contract with outside parties to acquire technology. He added that Nedbank did not make an offer to buy the Instablock technology.

Doubell says the type of card blocking technology claimed as unique by Jwambi and Kutumane is known as a Risk Avoiding System for Financial Institutions (Rasfii). “Messrs Jwambi and Kutumane, as far as Nedbank is aware, did not develop a working model or prototype of the Rasfii system and/or method, making an objective, technical comparison between Rasfii and Nedbank’s products and services difficult.”

This is rejected by the entrepreneurs, who point to an SABC interview from February 2016 showing a demonstration of a working prototype of the software.

Some time after the LaunchLab competition, Jwambi and Kutumane wrote to Nedbank CEO Mike Brown to find out if the bank had a patent or license agreement to use their system. Sean de Necker, executive service support consultant for the bank, replied by email that the bank “did not have a registered patent with regards to our patent (patent no: 2016/05259) and furthermore, refused to engage on a business transaction with us”, according to Jwambi.

Evidence of patent violation

Salfco CEO Edward de la Pierre says there is prima facie evidence of violation of the Instablock patent. “Nedbank certainly did not have or use such a system prior to being introduced thereto by Jwambi and Kutumane at the MyBusiness Expo and then again at the LaunchLab events. Nedbank’s own employees confirmed this at various instances. It is now a matter that the Commissioner of Patents will have to decide on.”

Doubell says once notified of the alleged patent infringements, Nedbank immediately authorised a technical and legal assessment and concluded that the patent acquired by Jwambi and Kutumane lacked novelty and inventiveness and was of a non-patentable subject matter. This was based on a local and international patent search. It further points to a 2014 article on Techcentral.co.za about a card block technology being used by Old Mutual.

Doubell adds that most if not all technical details and functionality of the Rasfii system were well known in the SA banking industry prior to learning of Instablock, and that Nedbank had been engaged in research and development to curb card fraud from as early as 2012. The Nedbank App Suite was launched in about 2012, and the Money App – allowing card blocking – was introduced in 2017.

“We initially thought that Old Mutual had also infringed our patent,” says Jwambi, “but when we had a closer look we realised that it had not. It was using legacy technology that allows anyone to basically flick a switch and deactivate or activate a card. Our technology is different in that a person activating or deactivating a card must go through layers of security checks. Our technology also allows a card holder to activate and deactivate a card using a stranger’s phone, because of the fact that you have to go through our layers of security checks.

“The card can also be activated or deactivated at an ATM, making it the first cardless card blocking system in the world.

“We relied on the expertise of Adam & Adams, known as the best patent attorneys in Africa, to research our design internationally and thereafter to attend to the final and legal registration.”

“This case has several similarities to the Makate case,” says de la Pierre, referring to the famous Kenneth Makate versus Vodacom legal battle, which was decided in Makate’s favour by the Constitutional Court in 2016. To date, Makate has apparently not received any compensation for his ‘Please Call Me’ concept – which allows Vodacom users to send SMSs to other Vodacom users requesting a call back. Justice Chris Jafta ordered Vodacom to commence compensation negotiations with Makate, who is expected to receive billions of rands in payment for his idea.

“Mr Jwambi and Mr Kutumane approached us because they did not have the funds to take on the banks,” adds de la Pierre. “In the Makate case, it was just an idea with no patent. Here we have a patent. That’s the difference. We looked at their evidence given us by Jwambi and Kutumane and, after discussing it with our legal team, took a decision to back them.”

The summons against the banks includes a patent and technical report claiming the Instablock system is unique.

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So it’s somewhere between underhanded corporate bullies and charlatans out to cash in.

It should be interesting.

I would be quite thrilled if the bank has to cough up. The man on the street has too little recourse against big business in SA anyway.

You value your invention at R 1 million and when they don’t buy it the value goes to R 280 million.

That makes a lot of sense.

Yup I fail to really see the value in their so-called invention. I can simply use my online banking to cancel my card, or phone the bank’s fraud line. How does letting all banks know make the situation better? Once the card is cancelled, it’s unusable at all ATMs and merchants. A quarter of a billion rand? Nah.

What you will realize if you read properly is that the system they refer to has those capabilities ( referring to your comment on canceling your card online). They are implying that Nedbank used their card cancellation system which is structured differently to that of other banks, although there are similarities.

@TanaseIT

Perhaps you need to learn to read with comprehension:

“realising that none of the banks offered a system allowing customers to cancel their cards remotely across multiple platforms”

Uhm…..so what? Who cares? I cancel my lost card, then it can’t be used at any ATM already?

Of course you won’t see value, it is way above your head. Let those in the know discuss it.

@Shaokan – I used to be a hard-core Java developer who worked for a major bank in Sandton, so you’re the one talking through your hat here.

Let me enlighten you: there has a system for yonks that links all ATMs and card machines to the various banks’ servers. Before you can actually withdraw the money from an ATM, or pay using your card using a speedpoint machine, a request is sent to your bank’s server that checks the available funds and the validity of your card. This happens in realtime – a merchan’ts speedpoint gets an answer back in a few seconds through e.g. the Postilion network (there are several of these payment networks such as Postilion.)

When you report your card as stolen, your card is placed on a blacklist and your transaction (the realtime validation above) will fail. So even if you steal a card and PIN which belongs to Bank A, and go to an ATM belonging to Banks C and D, if your stolen card is blacklisted, Bank A’s server will return a failure when it is polled to ask for authorization. The only time a criminal can steal from you, is if you haven’t reported – blacklisted – your card yet by the time he draws the money.

All SA banks work like this, including Nedbank. In 2016, a guy tried to buy stuff on my Nedbank card from a furniture store in London. Fortunately my balance was too low and the transaction was declined, but I immediately cancelled the card and that was that.

My point? The “invention” above is pointless. In practice, because of the authorization mechamism, the world of cards and banking already works like this. It is most certainly not worth a quarter of a billion rand.

I think if you read the article correctly you will see that it states a LaunchLab employee suggested that they sell the concept/application to Nedbank for R1 million, not that they valued it at R1 million.

Please read again.. Nedbank offered R1mil and they rejected offer because they also wanted royalties

Lot of explaining and allegations but no documents.

@LuluAlert they have a patent researched and confirmed by a patenting law firm. What are you on about?

Nedbank should just give them each R5m and be done with it.

Elon Musk sold paypal for a few hundred millions so too did Shuttleworth sell thawte for R3bil. These guy’s invention is worth far far more than the R5mil. They can basically sell it globally and make billions except the SA is run by people like you who think blacks deserve nothing more than the bare minimum.

The concept is obvious, and expecting a margin instead of a once-off payment or fixed rate is just naive greed.

The real problem lies with people being able to patent software, and the associated shift in power from technicians to lawyers.

If you create a situation where people get to argue over who owns which half of a intangible rent-seeking device, then this is what you get.

Does anybody have access to the patent? I would love to have a look.

And Nedbank doesn’t look like a real bank to me.
Maybe looks like a bunch of litigators.

Uhm.. I don’t see how the patent was issued and would love to know what makes it patentable.. sounds like a case where patent awarding will be challenged tbh.

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