Trade Mark News & Information

Trademark Lawyer Sydney – Full Federal Court Appeal – Kraft v Bega

Kraft Foods Group Brands LLC v Bega Cheese Limited [2020] FCAFC 65 (14 April 2020)

Unsuccessful appeal by Kraft against a decision by the trial judge, O’Callaghan J reported here

Bega’s cross-appeal was also dismissed.

The case primarily involved a dispute as to ownership of a trade mark comprising the trade dress or get-up of peanut butter packaging described as “a jar with a yellow lid and a yellow label with a blue or red peanut device, with the jar having a brown appearance when filled”.

Trademark-Lawyer-Peanut-Butter-Trade-Dress

Background

Kraft Foods Limited was the Australian subsidiary of Kraft Foods Inc. This Australian subsidiary changed its name to Mondelez Australia (Foods) Limited in 2012 following a restructuring where Kraft Foods Inc split itself into a global snacks business and a North American grocery business. There was also an intellectual property and holding company for the North American grocery business called Kraft Foods Global Brands LLC.

Kraft Foods Group Brands LLC is a Delaware corporation and has, since July 2015, been a subsidiary of the Kraft Heinz Company. H.J Heinz Company Australia Limited is the Australian subsidiary of the Kraft Heinz Company.

In July 2017, Bega acquired the peanut butter business and the assets and goodwill of Mondelez Australia (Foods) Ltd and subsequently commenced selling Bega branded peanut butter with the disputed trade dress as shown below from late 2017.

Trademark-Lawyer-Peanut-Butter -Bega

H.J Heinz Company Australia Limited has been manufacturing and selling Kraft Branded peanut butter including the disputed trade dress, in relatively limited quantities, since about April 2018.

At the time of the trial, only Bega’s peanut butter was available at major Australian supermarkets which accounts for about 80% of the total nationwide annual sales of peanut putter. These major supermarkets declined to stock the new Kraft peanut butter manufactured by H.J Heinz Company Australia Limited due to the risk of consumer confusion. However, both peanut butter products were still available at smaller, independent supermarkets.

Kraft’s position was that Bega never acquired rights to the trade dress when it purchased the peanut butter business from Mondelez. This was because Kraft Foods Limited (and subsequently, Mondelez) were mere licensees of the trade dress which was owned by Kraft Foods Global Brands LLC. Hence the rights to the trade dress were not something Mondelez could sell to Bega. Rather, Bega only acquired the licence to use the trade dress which ceased on 31 December 2017. Further, Kraft contended that the goodwill of the peanut butter manufacturing business which Bega acquired is a separate concept from the trade dress which is a diagnostic cue for only the Kraft brand.

Bega’s position was that the trade dress is an unregistered common law trade mark which was an inseparable part of the peanut butter business of Kraft Foods Limited (and subsequently Mondelez) which could not be assigned or transferred to Kraft Foods Inc or Kraft Foods Global Brands LLC separately and apart from the whole of the relevant peanut butter business. Accordingly, at all times before the sale to Bega, the Australian entities Kraft Foods Limited and Mondelez owned all the rights to the trade dress. Further, the evidence relied upon by Kraft as to purported licensing of the trade dress to Kraft Foods Limited and Mondelez was insufficient. Hence, Bega contended that it owns all rights in the trade dress because it acquired those rights as part of its acquisition of the peanut butter business from Mondelez in 2017.

Trial judgment

O’Callaghan J found that Bega owned the trade dress and that Kraft engaged in misleading or deceptive conduct by using this trade dress on its newly launched product. It was unnecessary for his Honour to decide Bega’s copyright cross claim relating to use of the trade dress on labelling for Kraft Heinz new 2018 labels.

His Honour also found a misrepresentation in a television advertisement by Bega which stated that Bega peanut butter is “now Australian owned and made” and reasonably conveyed the  message that peanut butter previously sold under the Kraft brand is not, or was not, Australian made, which was incorrect.

However, O’Callaghan J upheld a cross claim by Bega that Kraft and Heinz also breached the Australian Consumer Law by issuing a press release in October 2017 foreshadowing that Kraft peanut butter will be back on Australian supermarket shelves in early 2018. This misleadingly represented that it would be the same product as previously sold through Mondelez. It was not something which Kraft could bring “back”. Rather, the Kraft product could only be a product with a similar sensory profile as the product that is now the Bega peanut butter. A corollary of this statement was a further representation which misled consumers who wanted to buy the same product they had previously purchased into believing that they should purchase the Kraft product once launched and not the Bega product.

His Honour also found that use of the slogan “loved since 1935” by Kraft and Heinz conveyed a misrepresentation that the new product being supplied by Kraft Heinz was the same product as that which had been supplied prior to July 2017 by reference to the Kraft trade mark.

O’Callaghan J upheld Kraft’s trade mark infringement claim arising from Bega sending its peanut butter with “The Good Nut” branding to supermarkets in ‘shippers’ (being a form of shelf ready packaging) which included Kraft’ s registered Hexagon Logo, but his Honour did not form any view regarding Kraft’s allegations this conduct also constituted denigration or tarnishment of that registered mark. His Honour considered there was insufficient evidence to decide whether Bega’s conduct also constituted misleading or deceptive conduct and/or passing off.

Appeal judgment

The appeal was heard by Foster, Moshinsky and O’Bryan JJ.

The Full Court agreed with the trial judge that, on a true construction of the documents reflecting the 2012 restructure of Kraft Foods Inc, the disputed trade dress was allocated to the global snacks business and not to the North American grocery business.

Their Honours noted the trade dress was an unregistered mark and, as a matter of Australian law, rights in relation to an unregistered trade mark can only be assigned by way of an assignment of the goodwill of the underlying business. Immediately before the 2012 restructure, the rights relating to this trade dress were held by the Australian company, Kraft Foods Limited. At the time of the 2017 sale to Bega, Mondelez Australia (Foods) Limited (formerly Kraft Foods Limited) held these rights.

It was open for the trial judge to treat the peanut butter business as a separate goodwill of the entire business of Kraft Foods Limited. Where a company carries on several discrete businesses, an unregistered trade mark may be assigned together with the goodwill of the related business.

The Full Court did not find any error in the finding of the trial judge rejecting Kraft’s contention that the trade dress was a diagnostic cue only to the Kraft brand.

Their Honours referred to the High Court judgment in Mount Bruce Mining Pty Ltd v Wright prospecting Pty Ltd [2015] HCA 37 for relevant principles in construing a commercial contract.

It was not in dispute that Kraft Foods Limited and the physical assets and facilities it owned in Australia in the conduct of the peanut butter business (and other businesses) became part of the global snacks business in the restructure. There was also no dispute that the Kraft trade mark was assigned to the North American grocery business, with a licence back to the global snacks business for a limited period. The dispute between the parties related to Kraft’s submission that the peanut butter trade dress was also assigned to the North American grocery business as part of the Kraft peanut butter product line that was allocated to that grocery business, even though the Australian peanut butter business and operations conducted by Kraft Foods Limited were allocated to the global snacks business.

The Full Court rejected Kraft’s submission. The restructure resulted in Kraft Foods Inc’s global business being divided into two mutually exclusive businesses, termed the “SnackCo Business” and the “GroceryCo Business”. Despite using the names “SnackCo” and “GroceryCo”, the Separation and Distribution Agreement (SDA) divided Kraft Foods Inc’s businesses using a division between snack and grocery products in the North American geographical area, but outside North America it allocated all businesses and operations (both snack and grocery) to SnackCo, the global snacks business. Given this, the Full Court did not accept Kraft’s contention that the restructure was designed to divide the existing Kraft Foods Inc group into two groups based on branded product lines.

The Full Court then considered the Master Trademark Agreement (MTA) between Kraft Foods Global Brands LLC (SnackCo IPCo) and Kraft Foods Group Brands LLC (GroceryCo IPCo) and found the MTA did not allocate the rights in relation to the peanut butter trade dress to the North American grocery business of Kraft Foods Group Brands LLC (GroceryCo IPCo).

Kraft’s first submission was that the parties allocated and licensed any and all trade dress to follow the allocation and licensing of the primary brand which the trade dress accompanies. Bega’s position was that the peanut butter trade dress itself fell within the definition of “Trademarks” which was defined as including unregistered trademarks. The Full Court considered Kraft’s construction did not accord with the grammatical structure of the definition of GroceryCo Marks and inverts the logic of the definition. The peanut butter trade dress was not primarily related to or primarily used in the GroceryCo Business. Rather, this trade dress fell within the description of a trademark that primarily related to or was primarily used in the SnackCo Business and therefore fell within the corresponding definition of SnackCo Marks. Further, the allocation of the “Never Oily, Never Dry” trade mark (which was used with the peanut butter trade dress) to SnackCo was counter to Kraft’s submission.

The Full Court’s construction better reflects the commercial purpose or objects of the SDA and MTA, namely to allocate trademarks, service marks, trade names and other indications of origin that were not specifically considered and allocated by the parties as a Primary Brand, or included in the GroceryCo Mark Binders or the SnackCo Mark Binders, to the business (SnackCo/GroceryCo) to which the trademark primarily related or in which the trademark was primarily used.

The Full Court also addressed Kraft’s copyright submission, but considered the preferable construction is that the definition of “GroceryCo Brand-Related Copyrights” does not address product packaging that is operating as an indication of origin and hence constitutes Trade Dress and a Trademark under the MTA.

Kraft’s second contention relied upon the operation of section 2.1(a)(iii) of the MTA which provided that all Trade Dress used for GroceryCo Products and adopted by SnackCo IPCo or any of its Affiliates prior to the Distribution Date with respect to any of the GroceryCo Marks licensed under the MTA is owned by GroceryCo IPCo and to be included in the GroceryCo Marks licensed to SnackCo IPCo under the MTA. However, the Full Court again considered this contention inverts the structure and logic of the definitions used in the MTA. The Australian peanut butter business was not a GroceryCo Business.

The Full Court concluded that the trial judge was correct to find that, as a matter of Australian law, an unregistered trade mark may only be assigned with an assignment of the goodwill of the business. Their Honours also concluded that, on the proper construction of the MTA, the agreement did not allocate the rights in relation to the peanut butter trade dress to the North American grocery business of Kraft Foods Group Brands LLC (GroceryCo IPCo). Hence, it necessarily followed that the rights in relation to this trade dress remained with Mondelez (formerly Kraft Foods Limited) following the restructure in October 2012 and until the closing of the Sale and Purchase Agreement (SPA) with Bega in July 2017. Hence the rights to the peanut butter trade dress (comprised in the relevant goodwill) were assigned to Bega. The fact that Bega acquired only part of the various businesses conducted by Mondelez did not make the part that was transferred any less of a business in itself (or a number of businesses).

In the appeal, Kraft also submitted that Bega had breached certain obligations in the MTA of which it had notice at the time of the Mondelez acquisition. However, given the Full Court’s findings that, on the true construction of the MTA, the agreement did not allocate the rights in relation to the peanut butter trade dress to the North American grocery business ( GroceryCo IPCo) and did not grant a licence to use this trade dress to the global snacks business ( SnackCo IPCo), it necessarily followed that Bega did not breach the MTA by continuing to use the peanut butter trade dress following the expiry of the licence (assuming that it was effectively bound by those obligations). It was therefore unnecessary for the Full Court to examine the issue of whether or not Bega was effectively bound by those obligations in the MTA.

Kraft also submitted that it could succeed in an action for misleading or deceptive conduct under the Australian Consumer Law without establishing ownership of goodwill generated by the peanut butter trade dress because this trade dress conveyed an association with the Kraft brand. However, the Full Court found no error in the trial judge’s finding against this. In circumstances where the Kraft brand has been removed from the peanut butter product and replaced by the Bega brand, the Full Court considered the most likely assumption that would be formed by consumers is that Bega had taken over the peanut butter business formerly conducted by Kraft and that assumption was correct. Even if there were a possibility that some reasonable consumers would be confused about the change in brands, conduct that merely causes confusion is not misleading or deceptive. Further, the only association that Bega, by its conduct, conveyed was the correct one, namely it had acquired the peanut butter business. Bega’s conduct could not be regarded as the cause of any erroneous assumption, even if a reasonable consumer were likely to form such an assumption. The cause of any such assumption would be attributable to the fact that Mondelez (formerly Kraft Foods Limited) had traded for a long time under the Kraft brand and consumers making an assumption based on certain preconceptions, rather than Bega’s conduct.

The Full Court found no error in the trial judge’s rejection of Kraft’s submissions that Bega had engaged in misleading or deceptive conduct in relation to its television and radio advertising ( other than the television advertisement by Bega which stated that Bega peanut butter is “now Australian owned and made”).

The Full Court also found no error in the trial judge’s findings that (i) the press release in October 2017 foreshadowing that Kraft peanut butter will be back on Australian supermarket shelves in early 2018 misleadingly represented that it would be the same product as previously sold through Mondelez and (ii)  use of the slogan “loved since 1935” by Kraft and Heinz conveyed a misrepresentation that the new product being supplied by Kraft Heinz was the same product as that which had been supplied prior to July 2017 by reference to the Kraft trade mark.

Finally, the Full Court considered Bega’s cross-appeal against the trial judge’s finding of trade mark infringement arising from Bega sending its peanut butter with “The Good Nut” branding to supermarkets in ‘shippers’ (being a form of shelf ready packaging) which included Kraft’ s registered Hexagon Logo. Their Honours found no error by the trial judge. The MTA permitted selling of ‘finished goods’ bearing this trade mark which was not the case here. Bega applied the Hexagon Logo to the shippers which functioned as a badge of origin to the supermarkets receiving those goods.

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