Australia: Its NUT yours, its mine: Kraft Foods v Bega Cheese and the importance of intellectual property due diligence

Last Updated: 17 May 2019
Article by Rebecca Brenikov and Frances Drummond

It's the peanut butter packaging debate that has recently captured the hearts and minds of the Australian public. Whether you were confused or not, the Court's decision (found here) highlights the need for thorough IP due diligence whether you are purchasing or selling a company, and reiterates the importance of understanding the assets being dealt with.

Introductory 'spread' of the facts

Kraft first started making and selling peanut butter in Australia in 1935. Since the 1990s, Kraft sold its peanut butter with a yellow lid, and since the mid 2000's sold its peanut butter with a yellow lid and either a blue or red peanut device. This distinctive peanut butter packaging or trade dress (PBTD) became widely recognised across Australia.

(Kraft packaging pre-sale)

Kraft sold its Australian peanut butter business and various assets to Bega in 2017 (note it was not a share sale). As part of that transaction, Kraft granted Bega a licence to use various Kraft trade marks until December 2017 including, so Kraft thought, the unregistered rights in the PBTD.

When Bega continued to use the distinctive peanut butter packaging after that licence expired, Kraft sued Bega for breach of contract, contravening Australian Consumer Law and engaging in passing off.

(Bega packaging)

The main 'crunch' of it

An Australian Kraft entity called Kraft Foods Limited (KFL) operated the Kraft peanut butter business in Australia for many years. Kraft had thought, due to various assignments and licences that it had entered into pre-Bega-sale, that a Kraft global entity* owned the unregistered rights in the PBTD, and not KFL. Kraft put forward numerous submissions arguing that Kraft had purported to assign, license or otherwise shift the rights in the PBTD from KFL to an upstream company in the Kraft global group in 2012, pre-sale. A significant proportion of Kraft's submissions centred on establishing the beneficial interests and legal ownership in the PBTD.

In his decision, O'Callaghan J confirmed the common law position that an unregistered trade mark cannot be assigned except with the goodwill of the business in respect of which it is used. The crunch of it therefore came down to whether, when Kraft attempted to assign the unregistered rights in the PBTD, they had also assigned the peanut butter business or the goodwill to the Kraft global entity. Unfortunately for Kraft, not only were the terms of the assignment (and the licences) too vague to clearly ascertain what trade mark rights had been assigned or licensed but, even if the wording had been sufficiently clear, Kraft could not have assigned the rights in the PBTD because Kraft hadn't assigned the peanut butter business or the goodwill. As Kraft hadn't assigned the unregistered rights or the goodwill of the peanut butter business to any other Kraft group entity, the unregistered rights remained with KFL.

As a result, when Kraft sold KFL's peanut butter business and various assets to Bega in 2017, Kraft sold the unregistered trade mark rights including the PBTD to Bega. Indeed, the very definition of 'Transferred Assets' in the KFL Sale and Purchase Agreement included the goodwill and 'any unregistered rights in get-up, trade dress, advertising and promotional materials or manufacturing processes'. Bega acquired all rights to the PBTD under the terms of the Sale and Purchase Agreement and, as the owner of the PBTD, Bega was entitled to continue to use the PBTD on its peanut butter packaging.

[*please note that to avoid this blog becoming difficult to digest we have referred to 'Kraft global entity' rather than going into the detail of Kraft's group structure]

'Smooth' operators – the ACL claims

In relation to the ACL claims, as Bega owned the unregistered rights in the PBTD, O'Callaghan J held that Bega's use of the PBTD on packaging and in advertising (even those detailing 'Kraft was now Bega') could not mislead or deceive consumers. The only ACL claim that did stick was in relation to Bega's advertisement which claimed the peanut butter was "Now Australian Owned and Made". Such a statement was held to be misleading because it conveyed that Kraft's peanut butter was not made in Australia, when it was.

In amongst Kraft's claims, Bega made various counter-claims against Kraft. One such claim was in relation to Kraft's manufacturing and selling of a new peanut butter product in April 2018 which used remarkably familiar packaging and the phrase "Loved since 1935" (see below).

The new Kraft peanut butter, whilst similar, was not the same peanut butter product which it had sold to Bega. It was held that this new product was not Kraft's to bring 'back' and, as it was a new product, it could not have been 'loved since 1935' – such conduct was held to be misleading and deceptive and contravened Australian Consumer Law. Another of Bega's claims was that Kraft's use of the PBTD on its new peanut butter amounted to misleading and deceptive conduct. O'Callaghan made quick work of concluding that, as Bega owned unregistered rights in the PBTD, Kraft's use of the PBTD equated to passing off and misleading and deceptive conduct.

Peanuts on the side

Other important takeaways from the decision include;

  • Definitions too vague: One of Kraft's arguments was that the licence in place between the Kraft global entity and KFL in respect of "Subject Trade Marks" was evidence that KFL was not the beneficial owner of the rights in the PBTD. In other words, why would there be a licence in place if KFL owned the rights in the PBTD? The details of the registered or unregistered trade marks were not scheduled to the licence and, unfortunately for Kraft, the definition of "Subject Trade Marks" was so vague as to be unclear. The definition included 'all trade marks used in the Territory by the Licensee at present or in the future under the control of the Licensor as to the character and quality of the goods and/or services connected with such trade marks'. The licence agreement, with no details of the actual trade marks being licensed, was not sufficient for O'Callaghan J to infer ownership rested with anyone other than KFL [212] [223];
  • Cross-jurisdictional issues – don't assume: O'Callaghan accepted that Kraft had tried to assign the rights in the PBTD to a Kraft global entity. However, as the business and the associated goodwill was not assigned, the purported assignment was ineffective as a matter of Australian law. It was acknowledged that the drafters of the assignment document had contemplated that unregistered rights might be separately assignable. However, such an assumption was incorrect and ultimately led to such rights being sold (seemingly unwittingly) to Bega [322][323];
  • Control by a parent does not necessarily mean that goodwill inures to the parent: There was much discussion as to whether, because a Kraft global entity had control over the manufacturing, labelling, promotion and sales of the peanut butter, the goodwill generated by the Australian business inured to a Kraft global entity. It was held that, despite any parental control, as KFL was manufacturing, selling and promoting the peanut butter business and any goodwill ultimately inured to the Australian business, KFL;
  • Acknowledgement or confirmation clauses do not evidence ownership: Another argument run by Kraft was that the existence of acknowledgement or confirmation clauses in other agreements evidenced where the beneficial interests resided. Kraft purported that such clauses in licence agreements indicated that parties acknowledged that a Kraft global entity held a beneficial interest in trade marks legally owned by KFL. Perhaps unsurprisingly, it was held that such clauses are not evidence of the fact of the beneficial interest itself [243][244];
  • Governing law: The governing law of the critical assignment was New York State law, however, it was common ground that Australian law governs the question of whether the assignment was effective in assigning the goodwill in the PBTD because the question whether an intellectual property right is assignable at all and if so, in what conditions, is governed by the law of the country under which the right is created [281].

All in all, this decision provides a useful reminder of the important role for due diligence when considering intellectual property assets, and also highlights that the treatment of intellectual property can vary from jurisdiction to jurisdiction. Understanding these principles is critical when heading into a transaction.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions