Parties go nuts over trade dress
The lid has been lifted on intellectual property rights associated with peanut butter trade dress and branding. This interesting trade dress case sees Kraft all dressed up with no place to go, other than an appeal to the High Court. Unless successful on appeal to the High Court (if leave to appeal is granted), this nutty dispute will see Kraft losing one of its valuable branding rights.
The recent Full Federal Court of Australia in Kraft Foods Group Brands LLC v Bega Cheese Limited  FCAFC 65 (the Kraft Case) upheld the earlier decision of the single judge that Kraft’s peanut butter trade dress now belongs to Bega Cheese Limited.
The Full Federal Court held that, in 2017, Bega Cheese Limited acquired title to the peanut butter trade dress, which was not registered as a trade mark, following its purchase of the peanut butter business of Kraft Foods.
Kraft’s position had been that the peanut butter trade dress was not transferred to Bega under the business sale, since the relevant Australian Kraft entity did not own those rights, with trade marks being owned by and licensed from an international Kraft IP holding company.
This case has important implications for the ownership, licensing and assignment of unregistered trade marks. It also highlights the importance of securing rights in any registrable elements of a brand, including any distinctive trade dress.
Trade mark v trade dress in Australia
Trade marks may be registered or unregistered in Australia. An unregistered trade mark sounds like an oxymoron. The difference is worth quickly clarifying, as it is an important element of the Kraft Case.
A registered trade mark is a brand which has been registered with the Trade Marks Office and to which rights arise under the Trade Marks Act 1995 (Cth) (the Act). An unregistered trade mark relies on rights which accrue at common law through use of the relevant brand.
The purpose of a trade mark is to operate as a “badge of origin” to signify the source of the relevant goods or services. Likewise, the purpose of trade dress is to signify the source of goods through the distinctive visual appearance of a product or product packaging.
Section 17 of the Act provides that a trade mark is a sign used, or intended to be used, to distinguish goods or services dealt with, or provided in the course of trade by a person from goods or services; so dealt with or provided by any other person. Section 6 of the Act provides that a sign includes any letter, word, name, signature, numeral, device, brand, heading, label, ticket, aspect of packaging, shape, colour, sound or scent.
Although any type of “sign”, including an aspect of packaging, can be registered as a trade mark in Australia, section 41 of the Act provides that to be registrable, a trade mark must be sufficiently adapted to distinguish. Some aspects of packaging are distinctive and adapted to distinguish. These are generally registrable. Other types of trade dress, such as the colour of a lid for example, may not by itself be sufficiently adapted to distinguish, so not necessarily registrable. In these circumstances, the owner of trade dress may rely on common law rights, and claim rights in these brands as an unregistered trade mark. These common law rights prevent, for example, one trader passing off the goods or services associated an unregistered trade mark as being those of another trader.
Section 106 of the Act provides that ownership of registered trade marks (or trade mark applications) may be transferred / assigned to other persons.
A key issue in the Kraft Case was the circumstances under which unregistered trade marks can be transferred / assigned to other persons.
Smooth corporate structure contributed to crunchy result
The Kraft Case involved a complex corporate structure and trading history of Kraft in Australia in relation to its peanut butter business. Although a “smooth” corporate structure, this is ultimately what resulted in a “crunchy” result for Kraft.
An understanding of the Kraft Case requires consideration of the history of the Kraft peanut butter business in Australia, especially as it relates to the sale to Bega.
Kraft Walker Cheese Company Proprietary Limited was first incorporated in Australia in 1926. That company was renamed Kraft Foods Limited (KFL) in 1951. “Kraft Peanut Butter” has been available for purchase in Australia since 1935. The word “Kraft” has been registered as a trade mark in Australia for peanut butter products since October 1959. KFL owned the Kraft trade marks in Australia.
In the early 1990’s, Kraft peanut butter first became available in Australia in a jar with a yellow lid. From around 1997, the packaging of Kraft branded peanut butter involved the use of a clear jar with a yellow lid with the Kraft hexagon logo presented centrally on its label.
From 2007, the packaging of Kraft branded peanut butter involved a jar with a yellow lid and a yellow label with a blue or red peanut device, the word “CRUNCHY” or “SMOOTH” depending on the style of peanut butter, and the jar having a brown appearance when filled (the Peanut Butter Trade Dress). An example of the Peanut Butter Trade Dress is below.
The Peanut Butter Trade Dress was used by KFL from 2007. At that time, KFL was making, promoting and selling peanut butter products in Australia applying four trade marks (three registered and one unregistered), being:
- the registered trade mark of the word “Kraft” (registered in the name of KFL);
- the registered trade mark of the Kraft hexagon logo (registered in the name of KFL);
- the registered trade mark of the words “Never Oily, Never Dry” (registered in the name of KFL); and
- the (unregistered) Peanut Butter Trade Dress.
In October 2012, Kraft Foods Inc. changed its name to Mondelez International Inc.. Following this and an international company restructure, KFL, which remained a subsidiary of Mondelez International Inc., was renamed Mondelez Australia (Foods) Ltd. (MAFL).
MAFL continued its business of making, promoting and selling peanut butter products in Australia, using the Peanut Butter Trade Dress (as an unregistered trade mark) and other three Kraft registered trade marks.
During the international company restructure, Kraft assigned, or purported to assign all of its trade marks (registered and unregistered) to its intellectual property holding company in the USA (Kraft Foods Global Brands LLC). Accordingly, MAFL was using all registered and unregistered trade marks in Australia under the terms of a trade mark licence (being the Master Trademark Licence).
In January 2017, Mondelez Global LLC, MAFL, and Bega entered into a sale and purchase agreement in relation to all of the business and assets of MAFL.
In July 2017, following completion of Bega’s acquisition of the business and assets of MAFL, Bega commenced manufacturing and selling peanut butter products under the Bega brand (and “The Good Nut brand) in conjunction with the Peanut Butter Trade Dress (the unregistered trade mark used by MAFL prior to the sale of business). The registered Kraft trade marks remained with MAFL under the Master Trademark Licence.
With the purchase of the peanut butter business from MAFL, Bega was able to capture almost the entire peanut butter market in Australia which was worth more than $60 million in annual sales. From mid-2017, KRAFT peanut butter started to disappear from Australian supermarket shelves as it was replaced by peanut butter manufactured and distributed by Bega.
Meanwhile, Kraft was preparing to sell KRAFT peanut butter in Australia via its subsidiary (HJ Heinz Australia Ltd). HJ Heinz Australia issued a press release stating: “Kraft, a brand steeped in the life, culture and history of Australia since 1926, is set to appear on Australian supermarket shelves again…. Kraft peanut butter will… be back on Australian supermarket shelves in early 2018”.
When Kraft’s peanut butter was launched in early 2018, it featured the Peanut Butter Trade Dress. It also featured a tag line that read “Loved Since 1935”.
Kraft’s re-introduction to the peanut butter market resulted in both Kraft and Bega using the same Peanut Butter Trade Dress in conjunction with other trade marks on their products.
From trade dress to boxing gloves
With Bega and Kraft now both using the Peanut Butter Trade Dress, it was “crunch time”. Not surprisingly, a dispute arose over who owned the rights in the Peanut Butter Trade Dress.
The Peanut Butter Trade Dress was not registered as a trade mark in Australia, although Kraft attempted to register it in January 2017.
Kraft’s position was that any rights that Bega had to the Peanut Butter Trade Dress were granted pursuant to the Master Trademark Licence, which expired on 31 December 2017. Kraft argued that Bega did not acquire ownership of any unregistered trade marks relating to the Peanut Butter Trade Dress, since these rights were owned by a different international IP holding company, and not the Australian business that Bega purchased.
Bega’s position was that it purchased rights in the Peanut Butter Trade Dress since it purchased all assets and goodwill of the Kraft Australian peanut butter business, and that Australian law provided that unregistered trade marks are an inseparable part of goodwill, so can only be transferred if the business is transferred / assigned as a whole.
Kraft initiated the proceedings, claiming Bega breached the Master Trademark Licence, and use of the Peanut Butter Trade Dress amounted to misleading or deceptive conduct (under Australian Consumer Law) or passing off. Bega filed a cross-claim to allege that it had acquired rights to the Peanut Butter Trade Dress when it purchased KFL’s peanut butter business, and that Kraft’s use of the Peanut Butter Trade Dress was likely to mislead consumers. Bega further alleged that Kraft’s promotion of their product with the tag line “the brand loved since 1935” was likely to mislead consumers because they conveyed that Kraft’s peanut butter was the “same product” that consumers had previously purchased by reference to the KRAFT brand, when in fact Kraft’s peanut butter was to be made by a different entity in a different factory.
Judgement in the first instance
In May 2019, the Federal Court of Australia delivered its first judgment. The primary judge agreed with Bega that they had acquired the rights to the Peanut Butter Trade Dress as part of the sale, for reasons which included that:
- The Peanut Butter Trade Dress was recognised as an unregistered trademark.
- An unregistered trade mark is inseparable from the goodwill of the business, and Bega had purchased the goodwill of the business.
- The assignment of goodwill for unregistered trade mark rights in the Peanut Butter Trade Dress (in this instance from KFL to the international IP holding company as part of the global restructure), was ineffective without an assignment of the goodwill in the business.
- The licensing of unregistered trade marks (pursuant to the Master Trademark Licence) was ineffective without an assignment of the goodwill in the business.
Kraft appealed the decision of the primary judge. In April 2020, the Full Federal Court dismissed the appeal.
Judgment of the Full Federal Court
The Full Federal Court considered which Kraft entity owned unregistered trade mark rights in the Peanut Butter Trade Dress before and after the Kraft global restructure. The Full Federal Court held that at all times these rights were held by KFL (and they were not transferred to the global IP holding company as part of the restructure). Accordingly, the Peanut Butter Trade Dress formed part of the goodwill which Bega purchased when it bought the Kraft Australian peanut butter business from MAFL.
In dismissing Kraft’s appeal, the Full Federal Court confirmed the primary judge’s assessment that, according to Australian law, unregistered trade marks cannot be assigned without the underlying goodwill of the business in which the trade mark is being exploited.
What does this mean from a legal, commercial and practical perspective?
The Kraft Case clarifies the position at Australian law that unregistered trade marks and associated goodwill can only be transferred / assigned to other persons when the whole of the underlying business is transferred / assigned under a sale arrangement. That is, a registered trade mark can be assigned on a stand-alone basis in Australia, but an unregistered trade mark cannot.
This distinction between registered and unregistered trade marks is particularly important in the context of a sale if business arrangements involve a complex corporate structure. It is not unusual for an IP holding company to own all intellectual property rights and licence these rights to a trading company. As a result of the Kraft Case, extra due diligence will be required when a business is purchased which includes unregistered trade marks.
The Kraft Case also highlights the importance of registering all commercially valuable unregistered marks including registrable trade dress, get-up, taglines, logos, labelling or packaging and not relying on common law trade mark rights. Once registered, a trade mark is a valuable asset providing monopoly and proprietary rights, including a right to use, license or sell the trade mark. Not all of these rights attach to unregistered trade marks.
If Kraft had filed trade mark applications for the Peanut Butter Trade Dress before the global restructure, they may have sought to rely on section 106 of the Act as evidence of a valid assignment. Since they did not seek to register these important trade mark rights by that time, Kraft must now be considering that the cost of registering a trade mark is peanuts compared to the cost of trying to recover rights that have slipped away.
This memo presents an overview and commentary of the subject matter. It is not provided in the context of a solicitor-client relationship and no duty of care is assumed or accepted. It does not constitute legal advice.
© Moulis Legal 2020