Legal Insights

Result more crunchy than smooth for Kraft’s peanut butter appeal

By Shaun Temby & Melanie Lang

• 09 June 2020 • 9 min read

Sometimes in the hard knuckle world of business when close competitors face off against each other lines can be crossed – especially when you think your business is in the right. That is what appears to have happened to Kraft who undertook a series of marketing campaigns concerning its iconic peanut butter product and the new Australian owner, Bega.

Earlier this year, the Federal Court upheld on appeal the original findings of the trial Judge that Bega was the lawful owner of the well-known look and feel of the classic Australian peanut butter brand and that Kraft’s marketing in 2018 was misleading and deceptive. The case provides important guidance on how even seemingly well-intentioned marketing strategies can result in breaches of the Australian Consumer Law (ACL).

Kraft’s concerns with Bega’s conduct

Bega began producing peanut butter in 2017 after acquiring the Australian peanut butter business from Kraft in 2016. In doing so, it embarked on a marketing campaign to promote its newly acquired business and to make the most of its new intellectual property – the recipe for Kraft peanut butter and the iconic Australian peanut butter ‘Trade Dress’ (being the classic rounded edge clear jar with a bright yellow lid and label on which was affixed a stylised image of a peanut coloured either blue to designate smooth or red to showcase crunchy). As part of Bega’s advertising campaigns, Bega ran television and radio advertisements claiming that (collectively, the Bega claims):

  • “Australia’s favourite peanut butter has changed its name, Kraft peanut butter is now Bega peanut butter. Never oily, never dry, with the same taste you’ve always loved, and now is Aussie-owned by Bega.”
  • “Australia’s favourite peanut butter has changed its name to Bega peanut butter.”.

Kraft took issue with the Bega claims asserting that, as Bega had not actually bought the Australian rights to the Trade Dress, the Bega claims were misleading and deceptive in breach of the ACL. Kraft argued both before the trial Judge and on appeal that in making those Bega claims, Bega engaged in misleading or deceptive conduct by falsely representing that:

  • “Kraft peanut butter is now Bega peanut butter”
  • “Kraft peanut butter is being replaced by Bega peanut butter”
  • “Peanut butter with Kraft brand is no longer available or will cease to be available for purchase”
  • “Kraft brand has ceased to exist or is ceasing to exist in relation to peanut butter”.

Following the trial, the Court found that the first two representations were true (as Bega was the new owner of the old peanut butter business) and was not prepared to accept that the third and fourth representations had been made. On appeal Kraft maintained its argument that Bega didn’t own the Trade Dress and so the first two representations were false and further argued the following:

  1. The trial Judge’s approach failed to take into account the possibility that advertisements can convey multiple messages and that he should have found that the Bega claims gave rise to representations concerning more than Bega’s ownership of the composition of the peanut butter and conveyed that Kraft had permanently left the Australian peanut butter market.
  2. If the Court accepted that the Bega claims impliedly represented Kraft’s permanent exit from the market, they were false, as Kraft’s absence from the market was temporary, likening it to the situation where a business temporarily runs out of stock of a product.

On appeal, the Full Court again rejected Kraft’s arguments in relation to all of the above representations finding that the first two representations were true (and therefore not misleading or deceptive), as the product that consumers knew as Kraft peanut butter had become Bega peanut butter. The Full Court further held that, if Bega had impliedly represented that Kraft peanut butter was unavailable, no longer available or would cease to be available, that statement was correct at the time that it was made. In so finding, the Full Court rejected Kraft’s assertion that the Bega claims conveyed a permanent state of affairs and so the fact that Kraft later re-entered the peanut butter marker, did not make the Bega claims untrue. This is finding is particularly noteworthy considering that the time between the Bega claims and Kraft re-entering the market was only six months.

Bega’s concerns with Kraft’s conduct

In 2018, believing that it owned the Australian rights to the iconic Trade Dress, Kraft attempted to re-enter the Australian peanut butter market with an apparently similarly tasting product utilising packaging styled using the key Trade Dress elements. The competing Bega and Kraft products were so similar that the major supermarkets refused to stock the Kraft product in case consumers were confused by it. To support its new peanut butter range, in early 2018 Kraft published a press release that included several statements (Kraft Press Release):

  • “Kraft…is set to appear on Australian supermarket shelves again with the planned return of two locally-manufactured traditional favourites, cheese and peanut butter.”
  • “We are thrilled to be bringing back Kraft to Australian supermarket shelves.”
  • “Kraft Peanut Butter will also be back on Australian supermarket shelves in early 2018.”

In another marketing strategy, Kraft prominently displayed the slogan “Loved since 1935” on the front label of its newly launched peanut butter product (Kraft Slogan).

Bega alleged that the Kraft Press Release conveyed two false representations. Specifically, that:

  • Kraft’s new peanut butter product to be launched in 2018 would be the same product that had been previously been sold under the Kraft brand.
  • Bega’s peanut butter was not the same product that had, until 2017, been sold under the Kraft brand.

Kraft defended Bega’s claims of misleading conduct on the basis that:

  • Kraft’s new peanut butter would be indiscernible from the old Kraft peanut butter to the ordinary reasonable consumer.
  • The Kraft Press Release did not create or convey any association with Bega, but if it did, then Kraft was only representing the factual position – namely, that:
    • Kraft had created a peanut butter with the same sensory profile as the product Bega had acquired
    • there would be no discernible difference between the new Kraft peanut butter and the competing Bega product previously sold by Kraft as far as the consumer was concerned.

Having found that Bega owned the old Kraft recipe and the distinctive Trade Dress, the Kraft Press Release was likely to mislead or deceive consumers in representing that Kraft peanut butter would be back on shelves when that was the very peanut butter that Bega had acquired. The Full Court agreed with the trial Judge, noting that the Kraft Press Release conveyed that the peanut butter that Kraft would be launching in 2018 would be the same as it had previously sold, which was not the case. The Full Court also agreed that the Kraft Press Release falsely represented that Bega’s peanut butter products were not the same as the old Kraft peanut butter products.

With respect to the Kraft Slogan, at the original trial, Bega successfully argued that Kraft’s display of this slogan on a similar product to Bega’s would cause a not insignificant number of consumers to understand that the new Kraft peanut butter was the same as the old, when that was not the case, and this was therefore misleading or deceptive. On appeal, Kraft argued that:

  • The slogan conveyed, at most, a reference to the longevity of the Kraft brand, which had been used on peanut butter in Australia since 1935 and that the slogan simply tied the Kraft brand to the new peanut butter.
  • Consumers would not have concluded that the slogan indicated that the new Kraft peanut butter was the same as the old one.
  • Even if that was the case, Kraft was entitled to take the benefit of any legacy value in respect of the Kraft brand in circumstances where they owned the Kraft brand.

Despite Kraft’s arguments, the Full Court agreed with the trial Judge’s conclusions in relation to the Kraft Slogan. Although the Full Court acknowledged that some consumers may have read the slogan to mean that the Kraft brand had been loved since 1935 as opposed to product, for many consumers the Kraft Slogan was likely to mislead or deceive by creating a link between the Kraft brand and each jar’s contents to falsely convey that Kraft’s new peanut butter was the same as its old peanut butter.

"Australia’s favourite peanut butter has changed its name, Kraft peanut butter is now Bega peanut butter. Never oily, never dry, with the same taste you’ve always loved, and now is Aussie-owned by Bega."

Bega’s advertising campaigns

High Court appeal

Kraft has already filed an application in the High Court seeking special leave to appeal the judgment of the Full Court. A key focus of the appeal will no doubt be the complex arguments concerning ownership of the Trade Dress. However, we will hopefully also get some insights in the High Court’s thinking regarding the approach to implied representations and misleading and deceptive conduct.

Key takeaways for businesses

The appeal decision serves to highlight the following lessons for businesses:

  • The golden rule remains true - even if the express words are true, businesses need to understand how consumers will interpret and understand those words in the context in which they are being made and received.
  • The Full Court was prepared to limit representations about a particular matter to a specific point in time, meaning that as long as a representation is true when made it will not be misleading. Careful consideration will need to be given to the claim, however, to ensure that it is not expressly or implicitly forward looking.
  • Business should ensure marketing/advertising teams are well informed of the factual basis for any claims – particularly, where they are not clear cut or involve legal questions such as ownership of intellectual property.

Appeal - Kraft Foods Group Brands LLC v Bega Cheese Limited [2020] FCAFC 65
First instance - Kraft Foods Group Brands LLC v Bega Cheese Limited (No 8) [2019] FCA 593

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By Shaun Temby & Melanie Lang

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