Burger King Franchisees Sue McDonald’s Over Promotions

An association representing Burger King franchisees last week filed a lawsuit against rival McDonald’s Corp. seeking damages upwards of $500 million for unfair competition from McDonald’s Monopoly games and other promotions.

The lawsuit, filed Aug. 18 in U.S. District Court in Atlanta by The National Franchisee Association (NFA) and one Burger King franchisee, alleges that McDonald’s continued to run its popular promotional games even after learning that the games had been rigged in a scandal that ended in 2001 with McDonald’s offering make-good games and agreeing to a $16 million settlement with Simon Marketing, Inc., which administered the Monopoly game. The association serves some 1,250 Burger King franchisees representing more than 6,000 restaurants in the U.S. and Canada.

Court documents said that McDonald’s “diverted business away from Burger King franchisees and also obtained windfall profits that it would not otherwise have obtained.”

According to the lawsuit, Oak Brook, IL-based McDonald’s used “false, deceptive and/or misleading representations” concerning promotional games it used to attract customers and build its loyalty base from 1995 to August 2001; it further alleges that during that time an embezzlement ring stole $20 million worth of high-level game pieces. Those promotional games included “The Deluxe Monopoly Game at McDonald’s,” “Disney’s Masterpiece Collection Trivia Challenge at McDonald’s,” “Monopoly Game at McDonald’s, “Hatch, Match and Win,” “Who Wants To Be A Millionaire Game” and “Pick Your Prize Monopoly at McDonald’s,” court documents state.

Even after the QSR learned its games had been compromised before August 2001, “McDonald’s knowingly and deliberately continued to advertise…its promotional games as though the games were fair,” the lawsuit claims.

The lawsuit alleges that the “settlements, however, pale in comparison to the huge profits McDonald’s reaped for years from luring customers away from its competitors with offers of hollow chances to win fortunes.”

Since the scandal broke, McDonald’s “has never seen fit to compensate any of its competitors for the losses they suffered as a result of McDonald’s unfair competition,” the lawsuit states.

“In our industry, promotions are a serious business with serious consequences because they are intended to increase customer traffic for the game sponsor to the detriment of the competition,” an NFA spokesperson said in a statement. “When McDonald’s finally confessed to the public that its games had defrauded customers for years, even McDonald’s had to acknowledge ‘the duration of the alleged conspiracy, the lack of any meaningful oversight and the magnitude of the losses.’

“It is precisely for these reasons that the NFA has a duty to its members to pursue this case and remedy this wrong under the law,” the spokesperson added.

Miami-based Burger King Corp. is not party to the lawsuit. Company officials said Friday the QSR had learned of the lawsuit and could not comment on pending litigation.

The lawsuit does not specify damages, but the NFA is seeking more than $500 million, according to news reports.

McDonald’s on Friday refused to comment on the lawsuit because it hadn’t seen it. The chain, however, released a statement saying soon after the Monopoly plot came to light, “We immediately made it right with our customers by offering a second-chance opportunity to win millions of dollars of prizes, ultimately totaling $25 million. McDonald’s has since successfully returned Monopoly to our customers—’ve moved on and so have we.”

In August 2001, the FBI arrested eight people involved in fixing McDonald’s promotional games and stealing more than $20 million worth of game pieces. Jerome Jacobson, the scam’s ringleader who worked as the security director for Simon Marketing, Inc.— agency in charge of running the Monopoly promotion— guilty in 2002 and was sentenced to more than three years in prison. More than 50 people were charged in the case.

The lawsuit was filed under the Lanham Act, which prohibits the use of false or misleading descriptions in commercial advertising or promotions. The association’s goal is to improve, preserve and ensure the economic well-being of its members through advocacy, education, networking and member-focused benefits.