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Food giant Kraft Foods Group Brands LLC (Kraft) has lost its appeal before the Full Court of the Federal Court (Full Court) against Bega Cheese Limited (Bega) in a lengthy dispute over the use of its distinctive peanut butter packaging.

background

Last year, the Federal Court awarded Bega the exclusive rights to use the distinctive yellow, red and blue packaging to market its peanut butter. This came after Bega acquired the peanut butter business and the assets and goodwill of Mondelez Australia (Foods) Ltd (Mondelez) in 2017. The acquisition included the recipes for Vegemite and Kraft’s “never oily, never dry” smooth and crunchy peanut butter.

After the acquisition, Bega started selling Bega branded peanut butter products using the Peanut Butter Trade Dress (PBTD), shown below, being “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”.

That same year, Kraft begun selling a similar peanut butter product with the PBTD, under the brand “The Good Nut”.

Bega argued that in addition to purchasing the recipes during the acquisition, it also purchased the right to use the PBTD in conjunction with the peanut butter it manufactured following the acquisition of Mondelez. Kraft alleged that the PBTD was never Mondelez’s to sell and that under the terms of the acquisition, Bega was only entitled to use Kraft’s branding for a limited time under licence.

The crux of each party’s position was that the other’s use of the PBTD constituted misleading and deceptive conduct. Other matters in the dispute included breach of copyright, Bega’s wrongful use of Kraft cardboard boxes, and breach of contract.

The main issue for the court to determine was whether Kraft was able to assign the trade dress, being an unregistered trade mark, without also assigning the relevant business.  The Federal Court found at first instance that because the PBTD was inseparable from the goodwill of the peanut butter business, it couldn’t be assigned without the rest of the peanut butter business also being assigned.

the appeal

Kraft appealed, contending that on the construction of restructure documents dividing the Kraft business before the acquisition, the rights to the PBTD were assigned to a separate entity. Kraft also contended that Bega was bound by that allocation in the sale and purchase agreement (SPA), as it agreed to assume certain obligations under those restructure documents.

The Full Court rejected Kraft’s grounds for appeal, as well as a cross-appeal from Bega. The Full Court did not accept that the restructure document allocated the PBTD to a separate entity. Rather, the PBTD was allocated to the global snacks business, which was later sold during the acquisition.

Kraft argued that when the primary judge was applying the decision in Federal Commissioner of Taxation v Murry (1998) 193 CLR 605, his Honour should have considered all assets that were acquired from the sale of Mondelez, not just the peanut butter business. The Full Court determined that it was open to the primary judge to do so. In particular, the Full Court noted that the principle of unregistered trade marks only being assignable with the goodwill of the business should apply to each separate business within a larger entity, rather than those businesses as a whole.

key takeaways

Although the appeal largely confirmed the primary judge’s decision, there are a few key lessons that come out of the Full Court’s judgement:

1. Proper documentation of a transaction is imperative to ensure all registered and unregistered intellectual property is accounted for.
2. The principle of unregistered trade marks only being assignable with the goodwill of a business applies to relevant business streams rather than the business as a whole. Selling one business stream but retaining its unregistered trade marks under the larger business is contrary to Australian law.
3. Registration of intellectual property rights, including trade dress, is imperative to ensure the rights can be separated from a business during a transaction.

Our Intellectual Property team is experienced in assisting Australian businesses to protect their IP, through both registration and enforcement.

The information contained in this article is general in nature and cannot be relied on as legal advice nor does it create an engagement. Please contact one of our lawyers listed above for advice about your specific situation.