What McDonald’s & Russia can teach us about IP

June 8, 2022

On January 31, 1990, the world bore witness to the remarkable power that can be found in a simple logo.

It began on a wintry night – 4am on a Wednesday – when Russians gathered at Pushkin Square in Moscow. By morning a line had formed, running for hundreds of meters, barely held in order by hastily arranged metal barricades and police tape.

At the very front a big, red ribbon was cut, then the crowd began piling into Russia’s first McDonald’s.

Lenin rolled over in his grave. Thirty thousand Russians ordered burgers, fries, and shakes on that first day alone, paying through the nose (six or seven rubles) for the opportunity.

Dozens of cashiers nearly tripped over one another running back and forth behind the counter, kids took off their ushankas to put on little cardboard visors with the “M” logo on it, and camera crews fought for real estate just to get a good angle to film it all.

Of course, in the end, it was just McDonald’s. As one teenager told reporters, soda in hand: “It’s very beautiful, but I expected more.”

The quality of McDonald’s food was not what drew the crowd that day. McDonald’s Moscow was a case study in the power of brand. The golden arches on the marquee represented something so powerful that food quality was almost beside the point. It was so powerful that the yellow “M” has maintained its cultural significance until just a few weeks ago.

On March 8 – 32 years and 36 days after the Pushkin Square opening – McDonald’s announced it would be pulling out of Russia in response to the invasion of Ukraine. The Pushkin location, as well as all 846 others in the country, went dark. In May, it announced the retreat was permanent. It was a dramatic move that made global headlines, but what happened as a result was far more interesting.

You see, the day prior, Russia had effectively legalised intellectual property theft. No longer would Russian companies have to provide compensation for their use of patents, designs and other such assets originating from “unfriendly” nations. It was an unprecedented decision with massive implications for global markets. At the same time, it revealed something much deeper about where value derives in our global economy.

We tend to think of value as something we earn in return for an act: a company creates an innovative technology, then they make a profit from it. In reality, the act of creating the assets is only part of the story.

Assets, after they’re created, must be protected in some way or another, lest a malicious actor attempt to steal them.

The process of protection can take many forms: a company might protect its assets by keeping them secret – for example, by maintaining the recipe for Big Mac sauce hidden behind layers of security. We’ll call this a “soft” right in that it doesn’t rely on enforcement of a legal process to be effective.

On the other hand, some assets are public by nature and can’t be kept secret. McDonald’s can’t technically on its own prevent someone from replicating the golden arches. Instead, it relies on legal protections enforced through the courts and ultimately government power to protect those assets.

These are registered as “hard” rights, such as patents and trademarks. They exist as a social contract: the firm abides by certain rules the government lays down and in return the government promises to provide legal protection. Think of it as a very specialised protection racket.

What happens, then, if a government reneges on the deal by refusing to enforce that protection?

One prospective burger chain called Uncle Vanya has kindly begun this experiment for us. On March 12, it filed a trademark application with Russia’s Federal Service for Intellectual Property, seeking exclusive rights to a new logo: a yellow McDonald’s “M” against a red background, flipped on its side and made into a “B” (a reference to the “V” in “Vanya”). It’s a blatant knock-off without any attempt at subtlety.

Far from treating it as illegal infringement, the Russian government has actively promoted this copycat. The speaker of Russia’s State Duma (parliament) proclaimed that Uncle Vanya should take over all 847 closed McDonald’s restaurants in the country. Later, a video began circulating on social media of a former McDonald’s restaurant already opening its doors again, this time with the new Uncle Vanya logo on the marquee.

In all likelihood, though, the whole affair is of no consequence.

First, the facts. The entity behind the trademark was a Moscow-based IP lawyer, likely representing a client that hopes to flip the IP later, rather than a bona fide restaurant chain ready to build with it. And the video of the Uncle Vanya opening was created by a 3D artist.

“I had no intention to create fake news,” he told India Today. “Some media took my work without permission and shared it as [if it were] a real incident.”

Further, McDonald’s (the real one) is now in discussions to sell its Russian stores to Alexander Govor, the Russian owner of (former) McDonald’s franchises.

But even if Uncle Vanya was a real restaurant chain, and it really did open a knockoff McDonald’s, would it matter? Russia is a case study in how much of the value in our economy now lies in intangible assets such as brands and confidential information.

Only the real McDonald’s could’ve attracted 30,000 customers the day it opened all those years ago and spawned 846 other branches thereafter. No copycat – no matter the likeness, no matter the government support it might receive – can steal something so intangible as what it means to be McDonald’s.

The bottom line is this:

Anything governments can give (patents, trademarks, regulatory approvals etc – the hard rights), they can also take away. If the protection critical to an asset can be arbitrarily suspended, what are the implications for the value of that asset?

The value of any American company’s patent in Russia right now has collapsed – any residual value lies only in the hope the Russian government will reverse its decision at some point in the future. If it doesn’t, that value is zero.

Conversely, soft rights, such as confidential information and data, are not reliant on the state to enforce those rights. The Russian government could make it legal for Russian companies to steal trade secrets, but if those companies are unable to gain access to their competitors’ trade secrets (because they are well hidden), then the Western company is unaffected. And so, incidentally, is the value of the soft right asset.

Interestingly, this reveals one other important distinction that even very astute intellectual property experts frequently fail to understand: the difference between the power of a trademark and a brand.

A trademark is a hard right and requires the state to enforce it. However, a brand has value (at least in the short to medium term) regardless of whether the trademark is enforced.

Witness Uncle Vanya – the company has not chosen to rip off the McDonald’s trademark accidentally, it wants to be associated with the McDonald’s brand (the soft right), even though the trademark (the hard right) notionally has no value.

Likewise, Govor has decided to shell out (a presumably large) amount of money for the former McDonald’s franchises precisely because he wants to be associated with the McDonald’s brand (and likely systems, processes recipes etc – all soft rights).

In short, while the value of the McDonald’s trademark has collapsed, the value of its brand in Russia right now is hardly diminished whatsoever. Few companies appreciate this critical difference in the strength and value of intangible assets.

Thus the moral of the story is twofold: first, as Vizzini from The Princess Bride states, “never get involved in a land war in Asia”, and second, the secret sauce in a Big Mac defies the strongest dictators in the world.

By Paul Adams, CEO, EverEdge.

As first published on Stuff.co.nz