Three (Very Expensive) Words: Federal Court finds Kraft liable for misleading and deceptive conduct

In many Australian households, nestled somewhere in the pantry between the Vegemite and the Nescafé, there will be an unmistakable jar of semi-liquid gold: Kraft Peanut Butter. Or at least, it was Kraft Peanut Butter. The more observant among us may have noticed that two years ago the Kraft logo at the top of the iconic yellow label was quietly replaced by that of Bega, the Australian dairy powerhouse.

In 2017, Mondelez-the company managing Kraft’s Australian operations-sold its market-dominating peanut butter product to Bega for $460 million, including its Port Melbourne production facility, the recipe, and the associated assets and goodwill.

Despite a voluntary changing of the guard, an ugly legal battle between the food giants soon erupted when Kraft (perhaps realising that it had given up on a good thing) attempted to re-enter the Australian market by pairing up with Sanitarium to develop a peanut butter product with the same taste and feel as the product now made by Bega, clothed in virtually indistinguishable packaging.

On 1 May 2019, the Federal Court handed down its judgment, finding that all rights in the ‘peanut butter trade dress’-comprising the distinctive visual elements of the jar, lid and label-had passed to Bega for their exclusive use when they purchased the iconic product.

In his damning judgment, Justice David O’Callaghan found that Kraft’s new product had misled consumers with three little words.

“Loved since 1935”

Although in relatively fine print under the main logo, the emblazoning of that phrase on the labels of Kraft’s peanut butter proved fatal for the US monolith. Justice O’Callaghan found that this, as well as a press release stating that “Kraft Peanut Butter will … be back on Australian supermarket shelves in 2018”, was designed to mislead consumers.

He agreed with the submissions of Bega that this conduct constituted an “obvious attempt by Kraft to create an association to the product which had been produced by the business owned, first, by Kraft Foods Limited, and then by Bega continuously since 1935” and that, in doing so, they were “seeking to attach themselves to a product that they had never produced and give the impression as though they had”.[1]

Justice O’Callaghan held that the suggestion that Kraft would be bringing its peanut butter “back” also constituted misleading and deceptive conduct under the Australian Consumer Law as “[t]hat peanut butter is surely the very peanut butter product that Bega acquired, along with all the other assets. It was thus not [Kraft’s] to bring “back”.”[2]

While the orders flowing from the Court’s findings have yet to be handed down, Kraft is unlikely to escape lightly given the scope of the wrongdoing identified by Justice O’Callaghan in his 182-page judgment. This case serves as a useful reminder of the immense value in intangible assets in the sale of business, including unregistered trademarks, as well as the need to tread carefully when attempt to piggy-back off the goodwill of popular products.

If you have questions about navigating the ins-and-outs of the Australian Consumer Law and/or peanut butter choices, please feel free to get in touch with the Business team at BAL Lawyers.

[1] Kraft Foods Group Brands LLC v Bega Cheese Limited (No 8) [2019] FCA 593, [461].

[2] Kraft Foods Group Brands LLC v Bega Cheese Limited (No 8) [2019] FCA 593, [468].