Federal Court crunches down on peanut butter trade dress, preferring Bega’s smooth arguments

WHO SHOULD READ THIS

• IP owners and licencees.

THINGS YOU NEED TO KNOW

• It is important to register all commercially valuable brand identifiers, because licensing of unregistered trade marks may now be ineffective if the underlying goodwill is not assigned. 

WHAT YOU NEED TO DO

• Ensure that you register design elements as trade marks, and implement comprehensive licensing agreements that clearly establish IP ownership.

Australian brand, Bega, has won the right to use the iconic yellow lid, clear jar and red and blue labelling on its peanut butter jars, ending an extensive legal battle with American food giant Kraft. 

The Federal Court in Kraft Foods Group Brands LLC v Bega Cheese Limited (No 8) [2019] FCA 593 found that Bega had the exclusive rights to use the distinctive peanut butter trade dress (Trade Dress) following its 2017 acquisition of Kraft’s Australian and New Zealand operations, under the name Mondelez.

The decision highlights that IP licensing arrangements, even between related companies, should explicitly address whether any subsequent sale of the business will effect a transfer of intellectual property rights.

Nutting out the issues

Earlier this year we published an article on the background to the matter.  The focus of the Federal Court decision was who owned the right in the Trade Dress, which was not registered as a trade mark.

Kraft argued that:

• Bega did not acquire the Trade Dress when it purchased the peanut butter business from Mondelez;
• Mondelez could not sell the Trade Dress, as Mondelez was only using the Trade Dress and the KRAFT registered trade mark (Trade Mark) as a licensee under a master agreement; and
• Kraft Australia did not own the goodwill generated by the use of the peanut butter Trade Dress or the Trade Mark as a mere licencee.

In response, Bega argued that:

• Bega took ownership of the Trade Dress in the course of its 2017 purchase;
• Kraft could not assign the Trade Dress as it was an unregistered trade mark that could not be separated from the goodwill of the Kraft Australia business; and
• as a result, Bega owned the rights in the Trade Dress as an unregistered trade mark.

In support of this position, Bega filed submissions that the goodwill generated by the Trade Dress, as an unregistered trade mark, arose solely from the Trade Dress being used in the course of the Mondelez Australian peanut butter business.  As the operator of that business, Mondelez owned all goodwill generated by the Trade Dress used in that business.  Mondelez retained its goodwill in the Trade Dress until it transferred its business to Bega in 2017.

Other issues raised included:

• Claims by Bega and Kraft for misleading and deceptive conduct and passing off;
• Claim by Bega against Kraft for breach of copyright; and
• Claim by Kraft against Bega for wrongful use of Kraft ‘shippers’ (cardboard boxes that peanut butter products are shipped in) and for breach of contract.

Court processes the facts

The Federal Court found in favour of Bega, holding that the peanut butter Trade Dress was an unregistered trade mark, and therefore assignment was not possible without also assigning the underlying goodwill of the business.  While the licence agreement purported to assign the goodwill associated with the Trade Dress, this was ineffective under Australian law as unregistered trade marks cannot be assigned separately to the goodwill in the underlying business.

The relevant goodwill arising from use of the Trade Dress inured to Mondelez after the restructure because Mondelez had used and applied the Trade Dress.  Accordingly, Justice O’Callaghan found that the rights to use the Trade Dress transferred to Bega, as part of the goodwill in the business, when Bega purchased Mondelez’s peanut butter business.

As a result, Bega was entitled to take action to protect its goodwill in its peanut butter business by preventing Kraft’s use of the Trade Dress.  The Federal Court found that Kraft had engaged in misleading and deceptive conduct and passing off by using the Trade Dress because Bega owned that IP. 

Kraft still salty

Unsurprisingly, Kraft has appealed the Federal Court decision, and is now seeking a stay of the same restraining Bega from using the Trade Dress to promote and sell its peanut butter.  We will provide updates on the appeal in due course.

Hungry for more information?

The Federal Court’s decision highlights the danger of relying on unregistered trade marks (such as trade dress) and reiterates the importance of registering recognised brand identifiers as trade marks in Australia to protect your business.

For further information on any of the issues raised in this alert, or advice on brand protection, please contact below Authors.

This publication covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. It is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.