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U.S. Giant Kraft loses to Australian food brand Bega

A LESSON IN PROTECTING TRADE DRESS

On 1 May 2019, Federal Court of Australia Judge, O’Callaghan J, handed down his decision in the Kraft Foods Group Brands LLC v Bega Cheese Limited (No. 8)[2019] FCA 593 case.

The case centred around who owned the “peanut butter trade dress” between two rival food companies, Kraft and Bega, in respect of their peanut butter products sold in Australia. Trade dress refers to the appearance of product packaging and includes features such as size, shape, colour, colour combinations, texture and graphics – what we often refer to as “get-up”.

This is Kraft’s peanut butter as it was sold in Australia until late 2016.

This is Kraft’s peanut butter as it was sold in Australia until late 2016.

Here is a picture of Bega’s peanut butters.

Here is a picture of Bega’s peanut butters.

Bega acquired the Australian division of Kraft Foods (known as Mondelez Australia), including the assets and goodwill of the business. After the purchase, Bega ran a series of advertisements letting Australian consumers know that Kraft peanut butter is now Bega peanut butter: “Same recipe, same great taste. Now Aussie owned by Bega”.

Bega claims they purchased the trade dress of the peanut butter product as part of the acquisition. Kraft says they did not. 

Using Kraft’s recipe and get-up, but not the KRAFT name, Bega was able to capture Kraft’s peanut butter market share worth over $60m.

Trying to re-capture some of its lost market share after the sale to Bega, Krafts introduced a new Australian peanut butter product using the same yellow lid, with a red or blue paint device and a transparent jar that has a brown appearance when filled.

Trying to re-capture some of its lost market share after the sale to Bega, Krafts introduced a new Australian peanut butter product using the same yellow lid, with a red or blue paint device and a transparent jar that has a brown appearance when filled.

Since Kraft sold the registered trademark “NEVER OILY, NEVER DRY” to Bega, Kraft were no longer allowed to use this slogan on their new product. Instead, Kraft added the slogan “Loved Since 1935”.

Bega then claimed that Kraft was in breach of consumer laws for misleading and deceptive conduct, and passing-off for use of its peanut butter trade dress. 

Kraft argued that Bega did not own the trade dress. Kraft claimed that they had only granted Mondelez a licence to use the KRAFT brand and packaging on its peanut butter product. Since Mondelez did not own the trade mark rights in the packaging, Mondelez could not sell the packaging rights to Bega.

Bega responded that packaging and trade dress are unregistered trade mark rights, which are inseparable from the goodwill of the business. Therefore, the unregistered trade mark rights in the packaging inured to Mondelez. Since Bega purchased all the assets and goodwill of Mondelez, Bega had also purchased Mondelez’s unregistered trade mark rights, including the get-up of the peanut butter packaging. 

The court agreed with Bega. The Australian legal position is that goodwill is inseparable from the business. It is not possible to assign an unregistered trade mark without assigning the underlying goodwill of the business. 

1.    Trade dress is an unregistered trade mark. It acts as a source identifier for the products to which it is applied.

 2.    Goodwill in an unregistered trade mark arises when a business uses the unregistered trade mark. The assignment of an unregistered trade mark is not possible without the assignment of the underlying goodwill in the business.

3.    In order to know who owns the goodwill and therefore the rights in an unregistered trade mark, you have to ask who put the product into the marketplace and therefore gained the reputation.

Whether the mark is licensed by a parent company or not is irrelevant as to the ownership of goodwill. Since the Australian division of Kraft (Mondelez) put the peanut butter product into the market, the goodwill inures to Mondelez.

 Since Mondelez sold its business to Bega, Bega now owns the goodwill which includes the get-up of the peanut butter.

4.    And finally, the court said that Kraft could not use the phrase “Loved Since 1935” on its new peanut butter product. Since Bega purchased the recipe in 2017 when it purchased the Australian Kraft business, this is a legacy to the product that Kraft no longer has.

Kraft now finds itself in trouble for misleading and deceptive conduct and passing-off by using Bega’s trade dress and the slogan “Loved since 1935”.

Key takeaways

1.    You cannot assign unregistered trade marks in Australia unless you also sell the goodwill in the business. You can only transfer registered trade marks without goodwill.

2.    Even if you have a licence agreement in place, goodwill in an unregistered trade mark will not extend to the licensor. Ultimately, unregistered trade mark rights inure to the business that is putting the product into the market.

3.    Color, shape, lids, jars and get-up is an important part of a brand. Take steps to protect your get-up by securing important features as registered trade marks.

 

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Please contact me if you would like a full copy of the decision or have any questions about protecting IP in Australia.