McDonald's -- Happy Meal suit could boost ad costs

Fri Jul 15, 2011 1:27pm EDT

* McDonald's faces lawsuit over Happy Meal advertising

* Suit would force change in ad buys-McDonald's lawyer

SAN FRANCISCO, July 15 (Reuters) - Advertising costs for McDonald's Corp would be heightened if a California lawsuit over its Happy Meal toy promotions proved successful, a lawyer for the company said in court.

McDonald's (MCD.N) is accused of unfairly using toys to lure children into its restaurants, and a proposed class action lawsuit seeks to stop the company from advertising toys in connection with Happy Meals in California.

The Happy Meal, which packages children's meals with toys, has been a huge hit for McDonald's -- making the company one of the world's largest toy distributors and spawning me-too offerings at most other fast-food chains.

McDonald's use of Happy Meal toys has come under fire from public health officials, parents and lawmakers who are frustrated with rising childhood obesity rates and weak anti-obesity efforts from restaurant operators, which are largely self-regulated.

At a hearing on Friday in a San Francisco federal court, McDonald's attorney Scott Elder said an injunction against advertising Happy Meal toys in California would make the chain unable to purchase ads on a national basis.

Buying ads nationally is "a lot cheaper," Elder said.

McDonald's is asking that the case be litigated in the federal courts, which are generally viewed by corporate defendants as friendlier than state courts. In order to succeed, McDonald's has to prove the lawsuit involves potential costs of over $5 million.

An attorney for the plaintiff, Stephen Gardner, argued that food chains frequently change marketing practices, and that the case should be returned to a California state court.

U.S. District Judge Maxine Chesney did not say whether she would grant the McDonald's request.

The proposed class action lawsuit in U.S. District Court, Northern District of California, is Parham v. McDonald's Corporation et al, 11-511. (Reporting by Dan Levine, editing by Gerald E. McCormick)