Competitors Kraft and Bega go nuts in misleading marketing campaigns
By Shaun Tembyand Melanie Lang• 24 June 2019 • 9 min read
Recent court case emphasises the caution required by businesses in their marketing strategies, especially in highly competitive markets.
It is trite to say businesses must exercise caution when developing and implementing marketing campaigns for products in highly competitive markets.
The dangers of being overly aggressive in marketing and media campaigns have recently been highlighted by the Federal Court of Australia in proceedings brought by Kraft Foods Group Brands LLC (Kraft) against Bega Cheese Limited (Bega).
In the proceedings, the Federal Court was asked to determine who owned the right to use and market the famous yellow lid, clear jar and labelling (Trade Dress) Kraft had developed over many years and, consequently, whether Bega or Kraft had misled the public in publishing a series of seemingly ‘tit for tat’ advertisements and marketing initiatives.
The background to the various licensing arrangements between Bega, Kraft and other related companies is complex, but it is sufficient to note:
- In 2016, Bega purchased Kraft’s Australian peanut butter business (Bega Purchase). As part of the Bega Purchase, Bega purchased the assets and goodwill of the business.
- The proceedings concerned the treatment of the goodwill associated with the Trade Dress. Both parties operated on the basis the Trade Dress constituted an unregistered trade mark, and the goodwill associated with it could only be protected under the Australian Consumer Law (ACL) and the law of passing off. There was no point of contention between the parties for registered trade marks i.e. “Never oily, never dry”, which was validly acquired by Bega as part of the Bega Purchase.
- After the Bega Purchase, both Kraft and Bega continued to use the Trade Dress under the assumption they each had the right to do so, as they each believed they owned (to the exclusion of the other) the Trade Dress and the goodwill associated with it.
- In addition to using the Trade Dress, both Kraft and Bega engaged in various promotional and advertising campaigns where they each made representations seeking to leverage the iconic reputation of peanut butter in the Australian market.
- After the Bega Purchase, Bega ran a series of television and radio commercials promoting its ‘new’ peanut butter product.
- In one radio advertisement, an announcer states:
“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 Radio Advertisement)
- In one television advertisement, which showed a jar of Kraft peanut butter, an announcer states:
“Australia’s favourite peanut butter has changed its name to Bega peanut butter.”
The Kraft label on the jar is then peeled off, revealing the Bega peanut butter label. The announcer continues:
“It’s never oily, never dry, with the same taste you’ve always loved, and now Australian owned and made. Bega peanut butter.”
6. Kraft later developed its own ‘new’ (and very similar) peanut butter recipe to the one it had sold to Bega and then started to promote and sell their new peanut butter product. In doing so, it made a number of claims with which Bega likewise took issue, including:
- The new Kraft peanut butter had been “Loved since 1935”.
- Kraft peanut butter is “returning to Australian Stores”.
7. Both parties claimed against the other for misleading or deceptive conduct under section 18 of the ACL in connection with their respective marketing efforts and made similar claims for promotion and use of the Trade Dress.
8. The key issues for the Court in determining whether either of the parties had breached the ACL and engaged in passing off were the validity of the various (complex) license arrangements and the ownership of the goodwill associated with the Trade Dress.
Ownership of the goodwill associated with the Trade Dress
Having purchased the peanut butter business at a significant cost, Bega assumed it owned the Trade Dress and used it in marketing their own peanut butter products. In doing so, Bega quickly acquired almost the whole of Kraft’s previously held market share in the Australian peanut butter business, which was worth more than $60 million in annual sales. Not long afterwards, Kraft contracted Sanitarium to develop its new peanut butter recipe with an almost identical sensory profile to its previous recipe (which it had sold to Bega). Both parties then used the distinctive peanut butter Trade Dress to sell their competing peanut butter products and asserted they were the true owner of the Trade Dress and the other should be restrained from its ongoing use.
Kraft asserted it owned the distinctive Trade Dress, relying on licensing agreements Kraft said had been part of the Bega Purchase, but had since expired. Bega defended Kraft’s claims on the basis under Australian law, the goodwill in the Trade Dress was transferred to it with the business and could not be the subject of a separate conveyance (in this case, the licensing agreement). In short, Bega claimed they owned the rights to the distinctive Trade Dress irrespective of the status of the licensing agreements. The Court agreed with Bega and found it was the rightful owner of the peanut butter Trade Dress having acquired the goodwill of the Kraft peanut butter business (including the Trade Dress) when it completed the Bega Purchase. This finding is now subject to appeal recently lodged by Kraft: the outcome of which could have a significant impact on the Judge’s other findings (as discussed further below).
Alleged misleading or deceptive conduct
Bega’s claims as the new owner of Kraft peanut butter
Kraft complained about a number of Bega’s key messages on the basis they were misleading, including:
- Kraft peanut butter was now Bega peanut butter and the only difference between Kraft peanut butter and Bega peanut butter is the name
- Kraft branded peanut butter would no longer be available for purchase
- the Kraft Brand had ceased (or was ceasing) to exist in relation to peanut butter
- the Kraft Brand had changed (or was changing to) Bega in relation to peanut butter
Essentially, as the Court had found Bega owned the Trade Dress, it was satisfied the overall message conveyed by the Bega advertisements – that it was now the owner and producer of what was formerly called Kraft peanut butter, most of the above representations were held not to be misleading. The Court was also satisfied at the time the advertisements were published, Kraft had exited the peanut butter market and so Bega’s statements in that regards were also true.
'Australian Owned and Made'
Kraft asserted Bega’s television commercial conveyed a misleading representation that Kraft peanut butter had not been made in Australia, which was not the case as Kraft peanut butter had been made in Australian by an Australian company since 1962. The Court rejected Bega’s argument the phrase was technically correct instead finding Bega’s submission attributed ‘an overly elaborate meaning' to the phrase which was not the dominant message to consumers in the context of a short television advertisement. Consequently, the Court found Bega had engaged in misleading or deceptive conduct by including the phrase in its advertisement.
'Loved since 1935'
Bega contended this statement on the label for the new Kraft product was false as the new Kraft recipe was not the same as the old recipe (which Bega had acquired as part of the Bega Purchase). While Kraft had contracted Sanitarium to develop a new peanut butter similar to its old recipe, it was not the same product consumers had grown to love “since 1935”. Bega argued (and the Court agreed) that as a result of the representation, consumers would likely be induced into thinking the new Kraft peanut butter was the same recipe as the old one, which was not the case. Accordingly, the Court found Kraft's Label was also misleading or deceptive conduct.
'returning to Australian stores'
Bega argued this statement was misleading, as the peanut butter Kraft was referring to in its press release now belonged to Bega and Kraft’s new version of peanut butter was a different product with a different recipe. The Court agreed and found Kraft’s peanut butter could not in those circumstances be ‘returning to Australian stores’ and the representation was therefore misleading and deceptive in breach of the ACL.
Unsurprisingly, Kraft has appealed the ruling of Justice O’Callaghan that the rights in the Trade Dress belong to Bega. As part of the Appeal, Kraft is seeking a stay of the judgement restraining Bega from using the Trade Dress in the promotion and sale of its competitive peanut butter product. Given the success of Bega’s peanut butter businesses relies heavily on use of the Trade Dress, the appeal will no doubt be vigorously defended by it. We also don’t expect to see a repeat of the parties’ tit for tat advertising due to the Judge’s findings.
What does this mean for businesses?
Regardless of the outcome of the impending appeal, the nature of the claims made in these proceedings and the Court’s findings at first instance, emphasise the caution required by businesses in their marketing strategies, especially in highly competitive markets.
In-house legal and marketing teams need to have a deep understanding of the boundaries of a company’s IP rights and exercise significant caution when using any kind of comparative advertising to ensure businesses are not caught out making assertions which are not substantiated by the IP retained by the company.
In order to avoid engaging in misleading or deceptive conduct, when undertaking advertising/promotional campaigns and devising branding strategies, companies should:
- ensure marketing/advertising teams are well informed of the IP retained by the company and the parameters of those rights
- ensure the company maintains high awareness of close competitors and the scope of their IP rights and goodwill
- scope the market for direct competitors who may be using your company’s IP without authorisation, whether inadvertent or deliberate
- undertake analysis of what constitutes the company’s and its competitors’ goodwill and ensure there is no encroachment on the former in your company’s marketing/promotion and product development.
First instance - Kraft Foods Group Brands LLC v Bega Cheese Limited (No 8)  FCA 593
Appeal – H.J. Heinz Company Australia Limited & Anor v Bega Cheese Limited
Image source: https://www.judgments.fedcourt...
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