Kraft v Bega – Key intellectual property and contractual takeaways for transactions

Since our coverage of the Kraft vs. Bega battle in our September 2019 edition of FMCG Express, the battle between food giants Bega and Kraft made it all the way to the High Court of Australia!

The High Court recently refused special leave to appeal by Kraft, ultimately ruling in favour of Bega and upholding the decision of the Full Federal Court of Australia.

This reinforces some important intellectual property concepts. Below, we summarise the key takeaways for your business, as a result of this case.

A quick recap of the trade dress dispute  

The central dispute between the parties related to who owned and was entitled to use the iconic peanut butter trade dress (PBTD) (i.e. the appearance of the product’s packaging), recognised by many Australians as synonymous with peanut butter. The trade dress here was a clear 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.

Mondelez Australia Foods Ltd (previously known as Kraft Foods Limited) sold its grocery business to Bega (which included the peanut butter business) in July 2017. Bega manufactured and sold peanut butter using the PBTD which it understood was sold to it as part of the goodwill of the grocery business. The problem arose when Kraft started manufacturing and selling its own peanut butter also using the PBTD. Among other factors, Kraft argued that Mondelez could not have sold the PBTD as it was only licensed to Mondelez under a licence that expired 31 December 2017.

For more information on the background of the dispute, please see our article in the September 2019 Edition of FMCG Express here.

Key takeaways for your business

(1) Unregistered trade marks are only assigned with the underlying goodwill of the business

The PBTD was an unregistered trade mark. As noted by the Full Federal Court at paragraph 117 of its decision, “[u]nregistered trade marks or product ‘get-up’, such as the [PBTD], are not recognised under Australian common law as a species of property; rather, the business goodwill or reputation generated by the use of unregistered trade marks can be protected by an action for passing off or statutory misleading and deceptive conduct”.

The judgment confirms that unregistered trade marks are only assigned when you assign the underlying goodwill of a business. This does not mean that the underlying goodwill must relate to an entity’s entire business, it can relate to discrete operations of a business that are being transferred. Consequently, the High Court dismissed Kraft’s argument that Bega did not purchase the PBTD as it was only licensed to Mondelez.

(2) Register your trade dress as a trade mark if you wish to retain exclusive ownership of it

The dispute would have ended much differently had Kraft registered key aspects of the PBTD as trade marks. Registered trade marks are business assets which can be assigned separately from the goodwill of a business.

Businesses often focus on registering their word marks or logos, while neglecting others aspects of the brand, such as trade dress or ‘get-up’. FMCG companies, particularly in the food and beverage industries, should consider registering their trade dress as trade marks.

(3) Don’t underestimate the importance of your trade dress

Bega’s use of the PBTD allowed it to obtain almost the whole of Kraft’s peanut butter market share, which was more than $60 million in annual sales. The PBTD proved more valuable to Kraft than the Kraft brand itself!

(4) Contracts should reflect the intention of the parties

One thing that is clear from this dispute is that both parties had very different views on who owned and was entitled to use the PBTD. When selling or acquiring a business, it is critical to understand what is included and excluded from the sale and to ensure the contract, as drafted, clearly reflects the intention of the parties on this to avoid disputes later down the track.

If you have any queries regarding issues raised in this article, please contact us.

Authored by:

Hazel McDwyer, Partner
Aya Lewih, Lawyer