Leggo My Logo! : Battles Rage Over U.S. Trademarks in South Africa

The huge sign out front says Toys R Us, and the long aisles inside are crammed with customers amid a children’s wonderland of toys, books, games and clothes.

There’s only one problem. The $7.9-billion New Jersey-based toy retailer, with operations in 12 countries worldwide, has no legal ties to this store--or the two other busy “Toys R Us” outlets in South Africa.

A local businessman simply copied the well-known logo in 1978 and opened shops almost identical to the American originals. Ironically, that led to protests against Toys R Us in the United States by misinformed activists who thought the company was violating anti-apartheid sanctions imposed on South Africa.

Today, a growing legal battle over the use and abuse of U.S. trademarks here threatens to slow much-needed investment in the new post-apartheid society. Ask fast-food giants McDonald’s and Burger King.

Both corporations deliberately avoided South Africa during the sanctions period, which ended in 1993. Now both say they are being penalized for honoring calls by liberation leaders in South Africa and also a web of U.S. laws aimed at ending the racist policies of the former regime.

Unlike Toys R Us, both companies registered their trademarks in South Africa in the 1970s, and no one pirated their operations. But George Sombonos, a local businessman who owns a chain of fast-food shops called Chicken Licken, has sued to stop the multinationals from using their trademarks, saying they forfeited their rights under a “use it or lose it” rule in South African law.

The case, which is expected to be tried in Supreme Court in Johannesburg next month, is being closely watched by U.S. officials and corporations. Both companies plan major investments here if they win--McDonald’s alone is talking about opening 200 outlets.

“If we lose the case, it would keep McDonald’s and Burger King out,” one official said. “And most foreign companies would probably steer clear.”

The dispute has growing political ramifications: In April, South Africa was put on a U.S. “watch” list of countries deemed unfriendly to intellectual property rights. A formal review is scheduled for Sept. 15, and the issue will undoubtedly come up when Vice President Al Gore visits in October.

Millard Arnold, who represents the U.S. Commerce Department here, minces no words about the trademark dispute: “It’s stealing. That’s what they’re doing.” “South Africa is a country where plagiarism is the norm,” Arnold said. Everything from the Olympics logo of intertwined circles to Midas auto parts shops to the Hard Rock Cafe has been appropriated in apparent violation of international law, he said.

The rhetoric is equally hot from the South African side. Pretoria’s ambassador to Washington, Franklin Sonn, made headlines here Wednesday when he lashed out at a U.S. trade policy that he said “signals intolerance” and is “akin to a kind of imperialism and aggression.”

Officials at the U.S. Embassy in Pretoria declined to comment on Sonn’s view. But privately, U.S. officials and businessmen say they were shocked at Sonn’s tone and at the apparent lack of concern by South African leaders.

“It’s certainly an issue that comes up in discussion at every briefing,” said Bill Mallory, president of the American Chamber of Commerce.

For now, Mallory said, U.S. investment continues to stream in: The Chamber now counts more than 350 U.S. companies with direct investment or involvement in South Africa, compared to 154 during sanctions. New arrivals have come at a rate of one a week this year.

Not everyone here is happy with that, said J. Michael Judin, a prominent South African corporate lawyer who has advised numerous U.S. companies.

“There’s some very vested interests here who are not going to be very happy about these American and European companies coming in,” Judin said. “They had a very cozy position during apartheid and sanctions. They had no competition. . . . There’s an undercurrent of ‘Why do we need a McDonald’s or Burger King?’ ”

U.S. officials say Sombonos, the man who has sued to stop McDonald’s and Burger King, wants to sell the names back for millions of dollars, rather than use them himself. “It’s a form of extortion,” one official said. Sombonos did not respond to repeated telephone calls to his office.

Toys R Us has not sued Redgwood Holdings Ltd., the South African company that bought the local toy outlets from the original owners in 1990. “I’m communicating with them,” said James Bell, a managing director of Redgwood. “We hope for a compromise sometime in the future.”

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A Growing Presence

After a steady decline beginning in the early 1980s, U.S. direct investment in South Africa has been climbing since 1991, when a ban on new U.S. investments ended.

U.S. Direct Investment in South Africa, in billions of dollars: 1994: 1.044

U.S. Companies in South Africa, by Sector: Wholesale and retail trade: 10% Computers: 11% Manufacturing: 51% Other: 12%

Top 10 U.S. asset holders in South Africa:

Company / Assets (millions): Ford Motor Co.: $156.39 IBM Corp.: 140.92 CPC International: 104.31 Eli Lily and Co.: 86.99 Harnischfeger Industries Inc.: 76.00 Colgate-Palmolive: 74.98 CBI Industries Inc.: 30.00 Deere & Co.: 24.60United Technologies Corp.: 24.00 Ingersoll-Rand Co.: 21.90

Sources: Investor Responsibility Research Center, Commerce Department. Researched by DAVID NEIMAN / Los Angeles Times