McDonald's Corporation has lost the right to call restaurants currently under construction “McDonald's” in a court ruling that could significantly hinder American companies planning to expand into South Africa.
On Friday, a state court in Pretoria ruled that the company had abandoned the trademark by not using it since it was first registered in South Africa in 1968. It also closes off two possible avenues for U.S. companies to fight trademarks. The court ruled that the argument that the restaurant was not opened here because of apartheid sanctions meant nothing, and that McDonald's being a well-known name in America did not matter because it was unknown here. I put it down.
The International Trademark Association said the decision could be interpreted as turning South Africa into a “safe haven for trademark infringers”.
McDonald's plans to appeal to the High Court. It is also hopeful that the Trademark Registry may reject the application by the South African man who won last week's case. The man owns the local Chicken Ricken chain and a burger stand in Durban that has operated under the McDonald's name since 1978.
South Africa's new government is even more unsettled. They are very keen to attract US investment and get off the US government's “watch list” of countries that do not adequately protect their intellectual property.
Trade and Information Minister Trevor Manuel said he would ask the Ministry of Justice to expedite the appeal. “It is the government's firm belief that foreign companies are entitled to adequate intellectual property protection,” he said.
The U.S. Embassy expressed “surprise, regret, and concern” at the decision.
If Mr. Samboros wins, other American companies may become even more hesitant to invest or franchise in South Africa.
South Africans love American prestige, and the country is full of logos that look familiar but are somehow different. There's a Toys R Us chain with the R reversed, but its mascot is a blue elephant rather than Jeffrey the giraffe. Sandton City, an upscale shopping mall north of Johannesburg, is home to Spago's, a restaurant that sells salads by weight, Ghirardelli's, which doesn't sell chocolate, and Trump's, which Donald probably doesn't have a license for.
For now, George Samboros is the closest to owning South Africa's rights to Ronald McDonald, the Big Mac, and even the Golden Arches themselves. He plans to use the profits from the chicken franchise to open a McDonald's chain here.
“We'll wait until we become the registered owner, and then if a U.S. company opens a restaurant called McDonald's, we'll sue for trademark infringement,” said Sean Ryan, Mr. Samboros' attorney. He estimates that if he wins, customers will be entitled to about 5% of the store's total sales.
Despite the legal battle, McDonald's still plans to open its first two stores under its name in Johannesburg and Cape Town on November 16.
There is no reason to think that politics or anti-American bias was behind this decision. South Africa has long had an independent judiciary, often reversing attempts by the apartheid-era government to illegally imprison or ban dissidents. In this case, the court appears to be following the letter of the law.
McDonald's registered trademarks here in 1968, 1974, 1979, 1980, 1985 and 1993. However, under South African law, similar to American and British law, a company must use a trademark within five years in order to retain it.
McDonald's had never opened a restaurant or obtained a franchise license, and there were no serious plans to do so until Mr. Samboros asked the trademark office to give it the McDonald's name in early 1993. It seems so.
McDonald's sued to stop him, arguing that the law does not require well-known companies to use their trademarks domestically to protect them.