Food Law Update | Australia 29 May 2019 The Federal Court crunches down on Kraft's claim against Bega Cheese

What you need to know

• Kraft Foods Group Brands LLC (Kraft) and H.J Heinz Company Australia Limited (Heinz) took Bega Cheese Limited (Bega) to the Federal Court alleging that Bega breached the Australian Consumer Law (ACL) and engaged in passing off, trade mark infringement and breach of contract.
• Kraft and Heinz's claims primarily related to Bega's use of what was called the peanut butter trade dress which was described as "a jar with a yellow lid and yellow label with a blue or red peanut device, with the jar having brown appearance when filled". The claims arose from Bega advertisements for its new peanut butter products in 2017.
• On 1 May 2019 the Federal Court ruled in favour of Bega finding that it had the right to use peanut butter trade dress as a result of its acquisition of part of the Kraft business in 2016.

What you need to do

• Intergroup licensing plays a vital role in the control of intellectual property rights within a group of companies. It is important that there are proper licensing arrangements and control provisions in place so there is no doubt about which entity owns the intellectual property rights and the scope of the rights granted to other entities.
• If a business is sold, thought should be given to exactly which intellectual property rights are to be sold with that business. This is particularly the case with intellectual property rights which arise through use, such as rights in get-up or trade dress.

Background

Since 1935 Kraft has manufactured and sold peanut butter in Australia. In 2012, following a restructure of the Kraft businesses, Mondelez Australia (Foods) Ltd (Mondelez) (which was formerly known as Kraft Foods Limited) was the entity which manufactured and sold Kraft peanut butter in Australia using the trade dress described above. In mid-2017, Bega acquired the peanut butter business of Mondelez. Bega subsequently commenced selling branded peanut butter products using the trade dress as depicted below.

Bega also broadcast a number of advertisements on television and radio about its new peanut butter products.

Kraft commenced proceedings in the Federal Court of Australia against Bega alleging that Bega had engaged in misleading and deceptive conduct in breach of the ACL, passing off, had infringed Kraft's trade mark registration and breached contract.

The Federal Court held that Bega had validly obtained the rights to use the peanut butter trade dress in Australia when it acquired Mondelez. However, Bega was found to have breached the ACL and to have engaged in trade mark infringement.

What is a trade dress?

Trade dress is a term used in United States trade mark law to refer to the appearance of product packaging. It refers generally to the total image, design and appearance of a product and may include features such as size, shape, colour, colour combinations, texture or graphics. In Australia, the term "get up" is used. However, the term "trade dress" was used in this case.

The trade dress in dispute was described as a "jar with a yellow lid and yellow label with a blue or red peanut device, with the jar having brown appearance when filled" (the trade dress). The parties also agreed that the trade dress operated as an unregistered trade mark.

What arguments did Kraft craft against Bega?

Ownership of the trade dress

Kraft's primary argument against Bega was that it did not acquire the rights to the trade dress when it acquired Mondelez in 2017 as a result of the terms and conditions in the Master Agreement (the original licence agreement between Kraft and Mondelez). Kraft argued that Mondelez was given a licence by Kraft Foods Inc to use the trade dress which meant that it was never entitled to assign the rights to the trade dress to Bega. Kraft also argued that Mondelez never owned the goodwill generated by use of the trade dress because it was a mere licensee.

The Court disagreed with these claims and found that the Master Agreement and associated licence agreements entered into between Kraft and Mondelez did not establish that Mondelez used the trade dress or Kraft trade marks as a licensee. This is because the agreements did not explicitly refer to the trade dress or Kraft trade mark. The Court also found that the goodwill arising from use of the trade dress inured to Mondelez after the restructure because it was the party using the trade dress. Accordingly, the Court concluded that the rights to use the trade dress were transferred to Bega as part of the goodwill in the business it acquired when it purchased the assets of Mondelez.

Claims under Australian Consumer Law and for passing off

Kraft also made claims against Bega for misleading and deceptive conduct under section 18 of the ACL and for passing off. Kraft alleged that Bega made eight representations in television advertisements and over radio. The representations included that: Kraft peanut butter was now Bega peanut butter; Kraft peanut butter was being replaced by Bega peanut butter; the Kraft brand ceased to exist; and that peanut butter sold under the Kraft brand was not Australian made and under Bega it would be.

The Federal Court found that only the last representation contravened the ACL because Kraft peanut butter was originally manufactured in Victoria, Australia. The other representations were found to be factually accurate, given the finding that Bega owned the rights in the trade dress.

Claims in relation to the Kraft "shippers"

Kraft also made a claim against Bega for wrongful use of Kraft "shippers" (cardboard boxes in which peanut butter products are shipped, and placed on the shelves of supermarkets) featuring the Kraft hexagon logo. The Federal Court found that this conduct constituted trade mark infringement, but was not a breach of contract or of the ACL, or passing off.

Bega's cross claims?

Bega made a cross-claim against Kraft for breach of the ACL in relation to a press release published in October 2017 which used the slogan 'Loved since 1935'. Bega claimed the press release represented that the Kraft peanut butter products (depicted below) would be re-launching in early 2018 using the trade dress and would be the same products it sold before the acquisition.

The Federal Court found Kraft had engaged in misleading and deceptive conduct and passing off because the peanut butter now produced by Kraft was not the same as it produced when it owned Mondelez. 

Bega also made a cross-claim against Kraft for breach of copyright for reproducing the two labels depicted above which were also assigned to Bega when it acquired Mondelez. However, the Federal Court determined there was no utility in deciding on this claim as Kraft was enjoined from using the trade dress.

Authors:  Joanna Lawrence, Counsel; and Dario Aloe, Lawyer.