Burger King Legal Issues - Cases of Note - Burger King Corporation V. Hungry Jack's Pty Limited

Burger King Corporation V. Hungry Jack's Pty Limited

When Burger King moved to expand its operations into Australia in the early 1970s, its business name was already trademarked by a takeaway food shop in Adelaide. As a result, Burger King provided the Australian franchisee, Jack Cowin, with a list of possible alternative names derived from pre-existing trademarks already registered by Burger King and its then corporate parent Pillsbury that could be used to name the Australian restaurants. Cowin selected the Hungry Jack brand name, one of Pillsbury's US pancake mixture products, and slightly changed the name to the possessive form, Hungry Jack's. The first Australian franchise of Burger King Corporation was established in Perth in 1971, under the auspices of Cowin's new company Hungry Jack's Pty, Limited.

In 1990, Hungry Jack's renewed its franchise agreement with then BK parent Burger King Corporation, which allowed Hungry Jack's to license third party franchisee. One of the terms and conditions of the renewed agreement required Hungry Jack's to open a minimum number of new locations each year for the duration of the contract. Shortly after the Australian trademark on the Burger King name lapsed in 1996, Burger King requested that Cowin rebrand the Hungry Jack's locations to Burger King, which Cowin declined. Burger King Corporation accused Hungry Jack's of violating the conditions of the renewed franchise agreement by failing to expand the chain at the rate defined and sought to terminate the agreement. Under the aegis of this claim, Burger King Corporation, in partnership with Royal Dutch Shell's Australian division Shell Company of Australia Ltd., began to open its own stores in 1997 beginning in Sydney and extending throughout the regions of New South Wales, Australian Capital Territory and Victoria. In addition, BK sought to limit HJ's ability to open new locations in the country, whether they were corporate locations or third-party licensees.

As a result of Burger King's actions, Hungry Jack's owner Jack Cowin and his private holding company Competitive Foods Australia began legal proceedings in 2001 against Burger King's parent Burger King Corporation with a counter-claim that the company had violated the conditions of the master franchising agreement and was in breach of the contract. In a decision handed down by the Supreme Court of New South Wales that affirmed Cowin's claims, Burger King was determined to have violated the terms of the contract and as a result was required to pay Cowin and Hungry Jack's a A$46.9 million (US$41.6 million 2001) award. The court's decision was one of the first major cases in Australia that implied that the American legal concept of good faith negotiations existed with the framework of the Australian legal system, which until that verdict, had rarely been seen in the country's courts. In its decision, the Court stated that Burger King had failed to act in good faith during contract negotiations by seeking to include standards and clauses that would engineer a default of the franchise agreement, allowing the company to limit the number of new Hungry Jack’s branded restaurants and ultimately claim the Australian market as its own, a purpose that was extraneous to the agreement.

After Burger King Corporation lost the case, it decided to terminate its operations in the country, and in July 2002, the company transferred its assets to its New Zealand franchise group, Trans-Pacific Foods (TPF). The terms of the sale had TPF assume oversight of the Burger King franchises in the region as the Burger King brand's master franchisee. Trans-Pacific Foods administered the chain's 81 locations until September 2003 when the new management team of Burger King Corporation reached an agreement with Hungry Jack's Pty Ltd to re-brand the existing Burger King locations to Hungry Jack's and make HJP the sole master franchisee of both brands. An additional part of the agreement required Burger King Corporation to provide administrative and advertising support as to insure a common marketing scheme for the company and its products. Trans-Pacific Foods transferred its control of the Burger King franchises to Hungry Jack's Pty Ltd, which subsequently renamed the remaining Burger King locations as Hungry Jack's.