McDonald's Corporation v Joburgers Drive-Inn Restaurant (Pty) Ltd and Another; McDonald's Corporation v Dax Prop CC and Another; McDonald's Corporation v Joburgers Drive-Inn Restaurant (Pty) Ltd and Dax Prop CC

• Jurisdiction: South Africa
• Judge: E M Grosskopf JA, Corbett CJ, E M Grosskopf JA, Nestadt JA, Schutz JA, Plewman AJA
• Judgment Date: 27 August 1996
• Counsel: C E Puckrin SC (with him A B S Franklin and M M Jansen) for the appellant. J W Louw SC (with him A J Bester) for the respondents.
• Docket Number: 547/95
• Court: Appellate Division

E M Grosskopf JA:

This is a dispute about the use and continued registration of the appellant's trade marks. The appellant, to which I shall refer as McDonald's, is a corporation incorporated in the state of Delaware in the United States of America. It is one J of the largest franchisers of fast food restaurants in the world, if not the largest. It first

E M Grosskopf JA

A commenced business in the United States of America in 1955 and has carried on business internationally since 1971. It operates its own restaurants and also franchises others to do so. It sells hamburgers and other fast foods. The McDonald's trade mark is widely used in relation to restaurants owned by McDonald's as well as those that are franchised.

B McDonald's obtained registration of its trade marks in South Africa in 1968, 1974, 1979, 1980, 1984 and 1985. It is now the registered proprietor of 52 marks. Of these, 27 consist of or incorporate the word McDonald or McDonald's. Also used is the letter 'M' in the form of so-called golden arches, with or without the word McDonald's. Others consist of the C words Big Mac, Egg McMuffin and McMuffin. There are also two clown devices. The trade marks are registered in respect of goods, mainly in classes 29 and 30, and for services in class 42.

When the present proceedings commenced, McDonald's had not traded in South Africa nor, we may assume for present purposes, had it used any of its trade marks here.

D Joburgers Drive-Inn Restaurant (Pty) Ltd ('Joburgers') is a South African company with its principal place of business in Johannesburg. Its managing director is Mr George Sombonos. Mr Sombonos has been engaged in the fast food industry since 1968. In 1979 he registered a company called Golden Fried Chicken (Pty) Ltd ('Chicken Licken'). He holds 90% of the E shares in the company and is its managing director. In 1979 Chicken Licken applied for the registration of a number of trade marks, including Chicken Licken. Since then it has franchised the Chicken Licken business so that today there are more than 177 stores throughout South Africa. Mr Sombonos says that Chicken Licken is the biggest fried chicken F fast food franchise chain in the world not having its origins in the United States of America.

During 1992 Mr Sombonos on behalf of Joburgers decided to establish fast food outlets and restaurants using the trade marks McDonald's, Big Mac and the golden arches design. In 1993 Mr Sombonos applied for the registration of these and some other McDonald's marks. G At the same time he applied to the Registrar of Trade Marks in terms of s 36(1)(a) and (b) of the Trade Marks Act 62 of 1963 ('the old Act') for the expungement of the trade marks which are held by McDonald's. McDonald's opposed these applications and filed its counter-statements in the expungement applications during August 1993. During the same H period McDonald's applied again for the registration of all the trade marks in its name.

On 29 August 1993 there appeared an article in the Sunday Times newspaper, reading inter alia as follows:

'Big Macs may soon be eaten all over South Africa, but not because American I hamburger giant McDonald's is entering the market. Nor will they be on sale before judgment in which could be SA's biggest trade mark battle.

Chicken Licken franchise owner George Sombonos plans to start his own national McDonald's hamburger chain. Sites have been chosen and an advertising campaign is being prepared.

Mr Sombonos's lawyer, Shaun Ryan of Ryans Attorneys, says the first restaurant will J open in Johannesburg "as soon as physically possible".

E M Grosskopf JA

A The chain will serve McMuffins and Big Mac burgers. Restaurants will also be decorated with a large M device similar to two joined arches.'

In response to this article McDonald's wrote through its attorneys to Joburgers' attorney, inter alia, as follows:

'We are instructed that the intended use of McDonald's trade marks (which were B listed in an annexure to the letter) constitutes an infringement of our client's trade mark rights. Your client has unequivocally expressed a clear intention to use such trade marks.

We have been instructed to demand as we hereby do that your client unequivocally undertake that it will not use our client's registered trade marks or any other marks C which are deceptively or confusingly similar to our client's registered trade marks.'

Failing an undertaking as demanded in this letter, McDonald's threatened legal proceedings.

Joburgers' reply was uncompromising. It read, inter alia:

'We are aware that your client is the registrant for the trade marks listed in the annexure to your letter. Your client is not the proprietor of these trade marks. The D true proprietor of the subject-matter of these registrations is Joburgers Drive-Inn Restaurant (Pty) Ltd. You may take it that it is our client's intention to both use and register its trade marks in the Republic of South Africa..... Your client is invited to take legal proceedings as threatened.'

On 23 September 1993 McDonald's launched an urgent application against Joburgers in the E Transvaal Provincial Division for relief on the grounds of infringement of its trade marks, passing-off and unlawful competition. I shall refer to this application as the Joburgers application. On 28 September 1993 Swart J granted an order by agreement, the relevant part of which read as follows:

F 'The respondent undertakes, pending the determination of this application and the proposed counter-application, not to infringe the applicant's registered trade marks . . . which undertaking is made an order of Court.'

It came to Joburgers' notice that there was a fast food outlet in Durban trading under the name (or names) Asian Dawn and MacDonalds. MacDonalds, it is pointed out in passing, G is spelt differently from MacDonald's. On 15 October 1993 Mrs A T Pead, a director of Joburgers, and Mr S F Ryan, Joburgers' attorney, travelled to Durban from Johannesburg to buy the outlet. It is not quite clear from the papers who exactly owned the business, but the interested parties were a close corporation called Asian Dawn Investments CC, its sole H member, Miss Sajee Bibi Farid Khan, and her brother, Mr Rafique Khan. According to an affidavit by Mrs Pead, she approached Mr Rafique Khan in the shop and offered to buy it as a going concern. She said she wanted it for her son to encourage him not to leave the country. (In fact she was acting for Joburgers and wanted to secure the trade mark for use in the present proceedings.) Mr Khan was prepared to sell if the price was right, but first I wanted to speak to his sister as, he said, they were joint owners. Later he informed Mrs Pead that he had spoken to his sister and that they were willing to sell the business as a going concern for R250 000. The Joburgers contingent were not happy with the price, but asked for an option to give them time to think about it. The parties then executed and signed J a written option at a price of R250 000. Some days later, after

E M Grosskopf JA

A further negotiations, the parties agreed telephonically on a price of R225 000. The Khans' attorney was to draw up a written contract.

The contract was not forthcoming. Mrs Pead phoned Mr Khan to find out what was happening. He told her that he had been approached by attorneys acting for McDonald's and that the price he had agreed with Mrs Pead was made to look 'not only like peanuts but B dried peanuts'. He now wanted offers that were 'telephone figures'. No amount of persuasion could change his attitude, and Joburgers brought an urgent application to restrain Mr and Miss Khan and her close corporation from selling, alienating or otherwise disposing of the business. An order to this effect was granted. Ultimately, on 22 November C 1993, the parties entered into a new contract of sale at a price of R350 000.

In the meantime the proceedings between McDonald's and Joburgers were continuing. On 15 November 1993 Joburgers served answering affidavits and a counter-application. The main relief sought in the counter - application was the expungement of the McDonald's trade D marks in terms of s 36(1)(a) and (b) of the old Act, on the grounds, broadly stated, that the marks were registered without any bona fide intention on the part of McDonald's that they should be used and that they had in fact not been used for the periods required by the section.

Early in 1994 McDonald's became aware that Joburgers was conducting the business in E Durban under the name MacDonalds. McDonald's immediately launched proceedings for relief on the grounds that Joburgers was in contempt of Court - it was contravening the order granted by consent on 28 September 1993 in terms of which Joburgers undertook (and was ordered) not to infringe the registered McDonald's trade marks. The matter came F before Nugent J. On 15 March 1994 he declared that Joburgers was in contempt of the earlier order and that all proceedings in respect of its counter-application to expunge the McDonald's trade marks be stayed until it had purged its contempt.

On the very next day Joburgers' attorney wrote to the attorneys for McDonald's to say that Joburgers had disposed of the business. Requests by McDonald's for further information G about the disposal proved fruitless.

In May 1994 it came to the notice of McDonald's that the MacDonald's business in Durban was being conducted by Dax Prop CC ('Dax'). The sole member of Dax is Mr George Charalambous. He has worked as a baker and hotelier. In 1988 he gave up his employment H to commence his own business as a franchisee of Chicken Licken. He is now the sole director and shareholder of a company which has six Chicken...