Kraft Foods Group Brands LLC v Bega Cheese Limited  FCAFC 65 (14 April 2020)
The Federal Court of Australia (FCA) overturned the lower court's decision and held that an unregistered mark could not be assigned separately from the goodwill of the business in which it is used. The court found that a licensee was the owner of unregistered trade dress despite the fact that the licensor had control over the quality of the goods.
In 2012, Kraft Food, Inc. was globally restructured into two independent public companies: (1) the global groceries group, owned by Kraft Foods Group Inc. ("Kraft"), and (2) the global snacks group, owned by an entity whose name was later changed to Mondelez International Inc. ("Mondelez").
As part of the restructuring, Kraft assumed ownership of the KRAFT marks. Kraft Foods Limited (KFL)-an Australian company that had manufactured peanut butter since 1962-was allocated to the Mondelez group. KFL owned a peanut butter factory in Port Melbourne and sold the peanut butter under the KRAFT marks. Kraft licensed its KRAFT marks to KFL as a part of a master trademark agreement with Mondelez (the "Master Agreement"). Thus, KFL continued selling peanut butter under the KRAFT marks and the yellow Peanut Butter Trade Dress ("PBTD").
In 2016, Mondelez sold KFL's peanut butter business to Bega Cheese Ltd. ("Bega"). The assignment included both KFL's peanut butter factory in Port Melbourne and Mondelez's license to use the KRAFT marks under the Master Agreement. However, while the parties were negotiating the sale of KFL's peanut butter business, Mondelez started selling the peanut butter with the PBTD under a different mark, THE GOOD NUT. Bega continued selling the peanut butter with the PBTD under THE GOOD NUT, later changed to BEGA.
In early 2018, Kraft planned to resume selling peanut butter featuring the PBTD, the KRAFT marks, and the slogan "Loved Since 1935." However, Bega continued to use the PBTD after KFL's license expired. Kraft sued Bega for breach of contract of the Master Agreement and argued that Bega's use of the PBTD could mislead consumers as to the source of the goods. Bega filed a counterclaim and alleged that rights in the PBTD were transferred to Bega when it bought KFL's peanut butter business. Moreover, Bega argued that Kraft's ads featuring the slogan "Loved Since 1935" were misleading consumers because Kraft's new peanut butter was manufactured by a different entity and factory.
The FCA held that unregistered trademarks are attached to the goodwill of the business in which they are used. Even though Kraft's parent company controlled KFL's operation, the court held that the PBTD belonged to KFL. The court explained that KFL was the owner because KFL developed the PBTD. Furthermore, KFL was the only entity in the whole corporate group that used the PBTD. Consequently, Bega acquired the PBTD when it bought KFL's peanut butter business because the PBTD was inseparable from KFL's goodwill.
This decision raises concerns for trademark licensors because Kraft controlled KFL's operations, including the production process, packaging, and labeling of its goods. More importantly, Kraft was the ultimate controller of the quality of the KRAFT peanut butter made by KLF. However, the FCA found that this control was not sufficient for the PBTD to be part of Kraft's goodwill. The FCA clarified that while the case law regarding the owner's control over the licensee was relevant to show validity of the mark, these cases did not address whether the exercise of quality control over goods or services in itself confers ownership of a mark.
Furthermore, the court held that Bega's use of the PBTD under the BEGA mark was not misleading or deceptive because (1) consumers were unlikely to think that Bega and Kraft were related because the sale of KFL's business to Bega was widely advertised and (2) ultimately, the assumption that "Bega took over Kraft's peanut butter business" was correct. However, the court held that Kraft's use of the slogan "Loved Since 1935" would mislead consumers as they could mistakenly assume that Kraft was selling the same peanut butter manufactured at KFL's factory.
This decision is surprising from a trademark perspective because trademarks are intended to assure consumers of the source and quality of the products. However, in this case, there was no evidence showing that consumers were aware of Kraft's control over the manufacturing of the goods or that they identified PBTB with Kraft more than they did with KFL's business or Bega's use. Furthermore, the court took into account that, before Bega's acquisition of KFL's business, Mondelez had commenced the use of the PBTB under a different mark. Therefore, Kraft's control over KFL and the quality of the peanut butter was not sufficient for it to claim ownership of the unregistered PBTD. Ultimately, this decision reminds us of the importance of registering all trademarks associated with a business.
The full decision is available via the link below.
Originally published June 3, 2020
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