TOYS "R' US _ AND THEM, TOO _ IN S. AFRICA TRADEMARK BATTLE

TOYS "R' US _ AND THEM, TOO _ IN S. AFRICA TRADEMARK BATTLE

As U.S. protests against South Africa's apartheid regime gained momentum in the mid-1980s, bewildered senior executives at the New Jersey headquarters of Toys "R" Us Inc. came under attack.

''Investor and minority groups would call up and say we are going to dump your stock because you are flouting U.S. sanctions against South Africa," recalled Larry Bouts, president of the toy store's international division.What confused Toys "R" Us executives was this: They didn't have any operations in the republic.

''Here we were being good boys and staying out, and people were threatening us with all kinds of stuff," Mr. Bouts said. "We said: 'Wait a minute; what's going on here?' "

An investigation ensued and it wasn't long before Toys "R" Us solved the puzzle: A South African company had launched a series of copycat outlets across the country.

''There were stores with exact duplicates of our logo and, in some cases, close copies of our (stores' physical) layout. It's been going on for some time," Mr. Bouts said.

The problem of copycat retailers, while not unique to South Africa, is another obstacle to luring foreign investment to a country that can ill afford such hurdles, analysts say.

Under legislation that has since been overhauled, South Africans were able to lay claim to registered trademarks that hadn't been used in the country for five years or more.

The law provided a lucrative opportunity for many, including South African entrepreneur George Sombonos, who registered the trademarks of McDonald's and Burger King, a unit of the United Kingdom's Grand Metropolitan PLC.

In a closely monitored case, McDonald's, which plans to open two franchises in Johannesburg and Cape Town by the end of the year, has taken Mr. Sombonos to court in an effort to win back its trademark, arguing that special circumstances - the passage of anti-apartheid sanctions by U.S. government - prevented it from operating in South Africa.

A ruling is expected within weeks, and the future of many similarly placed U.S. companies in South Africa - one is Victoria's Secret, the women's clothing retailer owned by Limited Inc. - hangs in the balance.

''Clearly, companies are going to have to weigh the cost of buying a place in the market if indeed it means having to pay someone who has rightly or wrongly seized their trademark," said U.S. Commerce Department official Millard Arnold from his Johannesburg office.

''I don't think the defendant in the McDonald's suit will win but I think he feels he has nothing to lose and everything to gain."

South Africa is not the only haven for copycats. Companies in nations like Thailand, Brazil and even Australia are notorious for taking foreign trademarks and other intellectual property and claiming them as their own.

Not everyone in South Africa is sympathetic to the U.S. case.

''There is a sentiment here that the United States is bullying and trying to override local laws," said Nicko Czypionka, chief economist at Standard Bank, South Africa's second largest. "It's a very touchy thing."

''This is now a legal battle within which the United States has no good legal ground to stand on, but is now appealing via the government on moral grounds that those trademarks could not be used for political reasons and, for that reason, South African law should be over-written." As for Toys "R" Us, the company is in talks to resolve the matter with Redgewoods, a private Transvaal province-based concern that has just opened another South African Toys "R" Us in Durban with plans for a fourth outlet in Cape Town later this year.

James Bell, Redgewoods' managing director, defends his company's use of the Toys "R" Us logo.

''It's quite a complex issue," Mr. Bell said. "Retailers get ideas

from other retailers all around the world and that happens every single day."