The facts of the 2019 Federal Court decision in Kraft Foods Group Brands LLC v Bega Cheese Limited were far from simple.  The case centred around a battle between Kraft and Bega, involving considerations of ownership and divestment of rights in trade dress and goodwill and internal and external trade mark licensing structures.

Ultimately, the battle came down to Bega’s use of certain trade dress elements on peanut butter products – a yellow lid and either a blue or red peanut device.  Kraft claimed that such use was only permitted under a licence from Kraft which had expired, while Bega contended that certain unregistered trade mark rights, including the peanut butter packaging or trade dress (the Trade Dress), had been sold to Bega as part of the 2017 sale of Kraft’s peanut butter business. The Federal Court ruled in favour of Bega, holding that the rights to the Trade Dress were sold to Bega in July 2017 and that Bega was entitled to use the Trade Dress and take action to protect its goodwill.  Ultimately, Kraft’s continued use of the Trade Dress was held to equate to passing off and misleading and deceptive conduct.

A full report on the case is available in our May 2019 update here.  As was the case in that update, we have referred to ‘Kraft’ generally in this report, rather than going into the detail of Kraft’s group structure

Kraft appealed part of the Federal Court decision, primarily arguing that the rights to the Trade Dress were allocated to its North American grocery business and Bega was bound by that allocation, as it assumed obligations under the same documentation. Bega also cross appealed the primary judge’s decision that its use of various Kraft trade marks on ‘shippers’ (being the boxes often used to display certain goods on supermarket shelves) between September 2017 and late March 2018 amounted to infringement of Kraft’s rights.

The Judgment

The crux of the issue in dispute was that both parties asserted legal right to the exclusive use of the Trade Dress.  The parties’ arguments accordingly depended heavily on differing constructions of an earlier restructure of Kraft’s business.  

The primary judge concluded that goodwill is inseparable from the business to which it adds value and cannot be dealt with except in conjunction with the sale of that business.  Despite the primary judge’s findings, in the appeal, Kraft contended that prior to the sale to Bega, the Trade Dress was assigned to Kraft’s North American grocery operations, even though the Australian peanut butter business and operations were allocated to the separate global snacks business operations.

The Full Federal Court ultimately agreed with the primary judge’s reasoning.  Without delving into the full detail of the transaction documentation, the Full Federal Court held that “on the true construction of the documents, viewed in their commercial context, the Peanut Butter Trade Dress was allocated to the global snacks business”.  The Full Federal Court upheld the primary judge’s reasoning, confirming that any attempt to carve out the goodwill from the rest of the business, by seeking to assign the goodwill separately from the underlying business, would be contrary to Australian law.  Ultimately, Bega was found to have validly purchased the goodwill in Kraft’s peanut butter business, thereby obtaining the rights to the exclusive use of the Trade Dress. 

Kraft’s appeal was dismissed, as was Bega’s cross appeal.

The Lesson

The complexity of the facts of this case highlight the importance for companies to determine which assets, including any unregistered intellectual property rights, are to be included in a specific transaction. In particular, purchasers must be clear in terms of the assets and legal and moral rights they consider to be a part of any purchase, and ensure that such an intention is explicitly expressed in any transaction documents.  Equally important however is the need to specifically consider the allocation of goodwill, noting that this cannot be separated from the business to which it adds value.

A full summary of takeaway lessons can be viewed in our May 2019 update here.