Unregistered trade mark leads to peanut butter packaging problems

Kraft Foods Group Brands LLC v Bega Cheese Limited (No 8) [2019] FCA 593

Kraft recently ran into difficulties over the trade dress (the appearance of its product packaging) for its peanut butter because it was not a registered trade mark.

In 2017, Bega purchased Kraft’s peanut butter business together with the associated assets and goodwill from Mondelez Australia (Foods) Ltd. (a company within the Kraft Foods Group). “Kraft” in this article refers collectively to the first and second applicants in this case, namely, Kraft Foods Group Brands LLC and H.J. Heinz Company Australia Limited.

The “Peanut Butter Trade Dress” (the Trade Dress) in issue in this case is “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”. Kraft and Bega agreed that the Trade Dress operates as a trade mark.

The Trade Dress was originally used by Kraft for its peanut butter. Examples of the Trade Dress used by Kraft from 2015 until late 2016 are depicted below:

Examples of the Trade Dress used by Kraft from June 2017 are depicted below:

After Bega purchased the peanut butter business from Kraft in 2017, it began to use the following Trade Dress (in late 2017) for its peanut butter products branded “BEGA”:

Upon entering the peanut butter market using the Trade Dress, Bega obtained almost the whole of Kraft’s peanut butter market share, which is worth more than $60 million in annual sales. Kraft temporarily exited the Australian peanut butter market after the sale of the business in 2017, but re-entered the market in 2018 and wanted to use Trade Dress again for its peanut butter.

Examples of the Trade Dress used by Kraft when it re-entered the market in 2018 are below:

Kraft sued Bega because it claimed that Bega’s use of the Trade Dress constituted misleading or deceptive conduct under the Australian Consumer Law, passing off and breach of contract (among other claims). Kraft said that Bega did not acquire the Peanut Butter Trade Dress when it purchased the peanut butter business from Mondelez, because it did not belong to Mondelez to sell, as at that time both the Trade Dress and the registered trade mark KRAFT, were licensed from Kraft Foods Global Brands LLC (as the result of a company restructure but we will not go into the details of the relevant licences here). Bega countersued Kraft for misleading and deceptive conduct, passing off and breach of copyright.

Bega contended that when it purchased the peanut butter business from Kraft, it purchased the Trade Dress as part of the goodwill of the business because the Trade Dress was an unregistered trade mark. Bega said that because it owned the Trade Dress, its use of the Trade Dress did not constitute misleading or deceptive conduct, or passing off. Bega pointed out that the Trade Dress could not have formed part of any trade marks that were licensed to Kraft because it was an unregistered trade mark.

The Federal Court held that it is established law in Australia that the assignment or licensing of unregistered trade marks is not possible without the goodwill of the business in respect of which it is used. Justice O’Callaghan said, “the rationale for the common law position is that an unregistered trade mark cannot be assigned except with the goodwill of the business in respect of which it is used because to do otherwise would engender confusion or deception.” Therefore, it was not possible for Kraft to have licensed the Trade Dress from Kraft Foods Global Brands Ltd at the time that the peanut butter business was sold to Bega because the Trade Dress was an unregistered trade mark. The Court agreed with Bega that at the time of the sale of the peanut butter business, the Trade Dress formed part of the goodwill of the business that Bega acquired, and the specified “Transferred IP Rights,” in the Sale and Purchase Agreement between the parties. The Court held that Bega acquired all rights to the Trade Dress pursuant to the terms of the Sale and Purchase Agreement, and was therefore entitled to use the Trade Dress for its peanut butter. As a result, Bega’s cross claims against Kraft for misleading and deceptive conduct, and passing off in relation to its use of the Trade Dress (made subsequent to the sale of the peanut butter business to Bega) were successful.

It is important to note that the dispute between Kraft and Bega in relation to the Peanut Butter Trade Dress is likely to have been avoided if the Trade Dress was registered as a trade mark. If Kraft had registered the Trade Dress as a trade mark, the parties would not have needed to dispute the ownership of the Trade Dress in court.

Please contact us if you have any questions, or if you would like to discuss the registration of your trade mark.

By Erin Cassidy