Peanut butter battle leaves Kraft in a jam

Bega has won the right to keep on selling peanut butter under its historic branding.

Bega executive chairman Barry Irvin.

It was a 178-page judgment that was peppered with pictures of peanut butter jars, cuddly smiling bears and a forensic legal appraisal of the words “never oily, never dry’’, but ultimately victory was handed to dairy group Bega Cheese — which can now exclusively use the branding, colours and style of the classic jar of Kraft Peanut Butter.

In a comprehensive victory against Kraft, that cited cases such as Cadbury Schweppes V Darrell Lea Chocolate Shops and Vermont Teddy Bear V 538 Madison Realty Co, Bega won the right to keep on selling peanut butter under its historic branding that includes the classic yellow lid, clear jar to show the peanut butter inside and yellow labelling.

It was a prolonged court battle that pitted the plucky Australian food group Bega against the giant US multinational Kraft and was triggered when Bega bought the Mondelez Grocery business in 2017 for $460 million, to deliver to it powerhouse peanut butter and Vegemite brands, bringing both brands home under Australian ownership.

WEB bega share price graph

Yesterday judge David O’Callaghan of the Federal Court rejected a string of Kraft’s claims it had the right to the branding and dressing associated with the classic spread, handing a comprehensive victory to Bega.

It means Bega is now to free to sell the peanut butter brand under the design and will secure its position as the leading player in the $110 million Australian peanut butter market, where it has a market share of around 60 per cent. Kraft will be unable to sell its own peanut butter using the same branding, which most leading retailers had declined to stock because of the confusion it could cause shoppers.

The importance of the case to control of the peanut butter market was even recognised by Justice O’Callaghan, who wrote in his judgment: “The stakes are high, because it is common ground that upon Bega entering the market using the Peanut Butter Trade Dress, it obtained the whole, or almost the whole, of Kraft’s peanut butter market share, which is worth more than $60 million in annual sales.”

The case saw jars of peanut butter brought into the court and court documents filled with images of the peanut butter brand including pictures of a smiling cuddly bear, the yellow lid and other branding elements.

The Federal Court also ruled in its judgment that Kraft was misleading customers by selling its similar-looking peanut butter spread to smaller retailers.

Shares in Bega shot higher following the ruling, trading 7.5 per cent higher during mid-morning trade. They closed up 27c, or 5.33 per cent, at $5.33.

“For us at the end of the day we were always clear on what we purchased and we knew that those colours were important in the purchase and I suppose what the judgment has said is that all belongs to the business and was part of the goodwill of the business and that has now been confirmed as ours,’’ Bega executive chairman Barry Irvin told The Australian.

In 2012, five years before Bega appeared on the scene, Kraft split off its international food spreads and other assets into a new company called Mondelez which later sold the peanut butter brands to Bega in 2017. Kraft came back for its brands, eager to sell the peanut butter product with its well-known look, and attempted to wrestle back control of the branding.

Kraft claimed it had ownership of the legal rights in the peanut butter trade dress (visual appearance) associated with the product packaging, comprising the jar with a yellow lid and a yellow label with a blue or red peanut butter decal. It sought to prevent Bega Cheese from using the packaging trade dress, despite it signing the deal to buy the brands and others from Mondelez.

The court rejected most of Kraft’s arguments and found that it does not own any of the goodwill in Australia generated in respect of the sale of peanut butter products since 2012.

Kraft is considering its legal options.