Last weekend I watched “The Founder” (2016) which was being suggested by Netflix as UK’s No. 2 that day. If you have ever questioned why it’s important to protect your intellectual property, watch this film.
Based on a true story, the movie relates the adventures of struggling American businessman Ray Kroc in the 50s. Perhaps naively, I first thought this would show how Kroc invented the McDonald's operation and brand. To my biggest surprise, it actually tells the story of how Kroc met the McDonald brothers who were already running a fast-food restaurant, works his way into their business and takes their franchising efforts to the next level. Ultimately, he pushes the brothers out of the McDonald's company. Was I the only person not to know this?!
Ray Kroc was the one who saw the potential in this innovative fast-food business and worked out how to create a successful empire (albeit with the non-negligible assistance of Harry Sonneborn, as mentioned below). Whilst it is difficult to deny that Kroc must have had incredible business skills, I struggle to get past the fact that he did not come up with anything original, and acted rather aggressively.
Indeed, I cannot help but feel bad for the McDonald brothers who let someone manoeuvre themselves into the operation and engineer a position from which they were able to hold them to ransom and effectively take over the whole business. Ray Kroc also would not have been as successful if he had not met Sonneborn (who then became McDonald’s first CEO), who explained that he would only make money if he transformed the company into a real-estate business. McDonald’s Corporation was then opened as a real estate company, through which he bought the land and leased it to the franchisees. The franchisees would pay an annual rent for the land or a percentage of their sales, whichever was higher. This enabled Kroc to control the franchisees, and the brothers.
Not only had the brothers invented a new service model, which they called “the speedy system” with a focus on four products, they also chose the brand name (their family name) and designed the golden arches logo and restaurant “getup”.
I need to quote one of Ray Kroc’s lines in the film, speaking to Dick McDonald, which just beautifully illustrates the power of a brand:
“It's not just the system, Dick. It's the name. That glorious name, McDonald's. It could be, anything you want it to be... it's limitless, it's wide open... it sounds, uh... it sounds like... it sounds like America. […] McDonald's, oh boy. That's a beauty. A guy named McDonald? He's never gonna get pushed around in life. I remember the first time I saw that name stretched across your stand out there. It was love at first sight. I knew right then and there... I had to have it.”
Ironic, isn’t it? Also worth noting that the surname is actually an Anglicised form of the Scottish and Irish Gaelic MacDhòmhnaill or Dòmhnallach. It means “son of Dòmhnall”, Dòmhnall being composed of domno, “world” and val, “rule”. In other words, McDonald means “world ruler”…
At the end of the film, the McDonald brothers had to change the name of their own restaurant and Kroc opened up a McDonald's franchise across the road. The brothers astonishingly agreed to a “handshake” deal whereby they would receive royalties of 1% of the revenues Kroc would make, in perpetuity. Unsurprisingly, this handshake deal was never honoured and the brothers were not able to prove it. If this makes the trade mark attorney in me shed a few tears, it is a good lesson on the importance of trade mark protection and the value of IP.
Kroc was not going to make the same errors as the brothers and proceeded to file a series of US trade mark applications for “MCDONALD'S” and “MC DONALD'S HAMBURGERS” when he acquired the business in 1961.
The moral of the story here is that you may well have an idea that can transform a whole industry and get paid out with a $2.7 million lump sum payment (≈ $27 million today), if you don’t protect your IP appropriately you and your heirs could well be later missing out on a business valued $200 billion, or royalties of $100 million a year…
This film also prompts an interesting reflection on what “founder” means. Whether it is the person who conceives an innovative idea and finds ways to implement it, or the person who expands on such idea and turns it into a global venture, both will in any case need to think carefully about getting trade mark protection, and a pretty tight one!
As a final note, in the movie Ray Kroc states:
“Nothing in this world can take the place of good old persistence. Talent won't. Nothing's more common than unsuccessful men with talent. Genius won't. Unrecognized genius is practically a cliché. Education won't. Why the world is full of educated fools. Persistence and determination alone are all powerful.”
My response to this would be that talent and genius, if accorded the right legal protection, can at least prevent others’ persistence and determination from freeriding on your ideas!!! Lack of action can cost you Big, Mac…
