The Full Federal Court has recently issued a decision in Kraft
Foods Group Brands LLC v Bega Cheese Limited 1 , an appeal
regarding ownership of an unregistered trade mark. The mark
in question is the appearance of a peanut butter jar, or, as it is
referred to in the decision, the ‘Peanut Butter Trade Dress’.

Inspire June 2020
Many Australians will be familiar
with Kraft peanut butter, a product
that was first sold here in 1935.

Over the years, a number of different
marks have been developed and
used on the packaging of Kraft
peanut butter. As well as the
KRAFT name, a logo (shown below)
10 featuring a hexagon surrounding
the word KRAFT was registered
for peanut butter products in 1963,
and in the 1980’s the slogan “Never
Oily, Never Dry” (the Slogan) was
developed and used extensively in
television commercials, becoming
registered as a trade mark in 2001.

In the early 1990’s Kraft peanut
butter was sold in a jar with
a yellow lid, and by 2007 the
Peanut Butter Trade Dress (the
Trade Dress) had been developed
and was used by the Australian
company, Kraft Foods Limited.

This involved “a jar with a yellow lid
and a yellow label with
a blue or red peanut device, the jar
having a brown appearance when
filled”. The peanut-shaped device
was overlayed with the words
“Peanut Butter” and the Slogan.

The words “Crunchy” or “Smooth”
also appeared on the label, in
the same colour as the peanut-
shaped element (blue for smooth
and red for crunchy), and the Kraft
hexagon logo appeared above the
peanut-shaped element (Figure 1).

In 2012, the US parent company
of Kraft Foods Limited underwent
a restructure, ultimately splitting
into two companies: Mondelez
International, Inc, which controlled
the global snacks business, and
Kraft Foods Group, Inc, which
controlled the North American
grocery business. Shortly prior
to the restructure, Kraft Foods
Limited assigned the KRAFT word
mark and the Kraft hexagon logo
to the IP holding company of the
US parent, but then continued to
Kraft Foods Group Brands LLC v Bega Cheese Limited [2020] FCAFC 65
1
use those marks under licence.

Significantly, the assignment did
not include the Slogan, and did
not mention the Trade Dress.

Around the time of the restructure,
the Australian company Kraft Foods
Limited was renamed Mondelez
Australia (Foods) Ltd (MAFL). After
the restructure, MAFL continued
selling peanut butter in Australia,
using the Trade Dress, the Slogan
and the Kraft hexagon logo (now
under licence from the IP holding
company of Kraft Foods Group, Inc).

This situation continued until June
2017, when MAFL began to sell
peanut butter under the brand
“The Good Nut”, rather than “Kraft”.

This was in preparation for the sale
of the business to Bega Cheese
Limited, which occurred in July
2017. Bega initially added their BEGA
mark to “The Good Nut” label, but in
late 2017 they dropped “The Good
Nut” and just used BEGA, along
with the Trade Dress (Figure 2).

In doing so, Bega acquired
substantially all of the 60%
market share for peanut butter
Crunch time
for Kraft –
Smooth sailing
for Bega



Figure 1
Figure 2
formerly held by MAFL.

In 2018 the North American
Grocery business started selling
peanut butter under the KRAFT
brand through an Australian
subsidiary, H.J. Heinz Company
Australia Limited. This product
retained the Trade Dress, but was
relatively unsuccessful as major
supermarket chains declined to
stock the Kraft product due to the
likelihood of confusion with the
existing Bega product. Kraft and
Heinz commenced proceedings in
the Federal Court to prevent Bega
from continuing to use the Trade
Dress and Bega counter-claimed,
alleging misleading and deceptive
conduct. Kraft Heinz contended
that Kraft Foods Limited had only
used the KRAFT mark and the Trade
Dress under licence from the US
parent’s IP holding company, and
that ownership of the goodwill in
the Trade Dress had been assigned
to the US Kraft company under
the restructure. Accordingly, it
was argued, Bega had no right to
continue using it once a licence to
MAFL expired at the end of 2017.

The judge at first instance accepted
Bega’s argument that assignment
or licensing of an unregistered
trade mark is not possible without
the assignment of the underlying
goodwill of the business. This
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. Thus, although the
restructure agreement purported
to assign the rights in the Trade
Dress to Kraft Foods Group Inc,
it could not do so without also
assigning the peanut butter
business, and it was clear that it
had not done so. Accordingly, since
Bega had acquired the goodwill in
the business when it bought MAFL,
Bega owned the Trade Dress, and
use of that trade dress by Kraft
Heinz constituted misleading and
deceptive conduct and passing off.

On appeal to the Full Federal Court,
their Honours found that goodwill in
a business may come from multiple
sources and may be associated with
a particular product line (Product
Goodwill) and that Product Goodwill
may be assigned separately from the
goodwill of the business as a whole.

As at 2007, Kraft Foods Limited held
the necessary goodwill in the Trade
Dress, along with the registrations
of the KRAFT word mark, the Kraft
hexagon logo and the Slogan. Whilst
the KRAFT word mark and Kraft
hexagon logo were later assigned,
the Slogan and the goodwill in the
Trade Dress were not.

The take home
message from this
convoluted case
is do your due
diligence! Although the US parent had control
of Kraft Foods Limited, this alone
was not sufficient to indicate that
the US parent owned the Trade
Dress, which was created and
used solely by Kraft Foods Limited
and not by any other member
of the Kraft group. The control
exercised by the US parent was
consistent with the licencing of
the Kraft hexagon logo, and did
not pertain to the Trade Dress.

The Full Court agreed with the trial
judge that the Trade Dress, being
an unregistered mark, could only
be assigned with the goodwill of the
associated business. While the Kraft
marks had been assigned to Kraft
Foods Group Inc – the US grocery
business – as part of the 2012
restructure, Kraft Foods Limited,
later MAFL, had remained part of
Mondelez International – the global
Inspire July 2020
snack foods business – although it
continued to make and sell peanut
butter in Australia. This meant that
the goodwill associated with MAFL’s
business was not transferred to Kraft
Foods Group Inc and consequently,
neither was the Trade Dress. The
Full Court differed from the trial
judge in finding that the restructure
agreements did not even purport
to transfer the Trade Dress to Kraft
Foods Group Inc. While those
documents did refer to trade dress,
only trade dress that “primarily
relates to or is primarily used in the
[Kraft Foods Group Inc] Business”
were transferred to Kraft Foods
Group Inc, and the Peanut Butter
Trade Dress related to Mondelez
and the global snack foods business.

As a result of the Full Court’s
findings, the purchase by Bega of
MAFL’s business of developing,
manufacturing, marketing, selling
and distributing spreads including
peanut butter included the
business’ contracts, intellectual
property rights, factory, plant,
property, and importantly, the
goodwill associated with that
business. As such the purchase
also included the Trade Dress.

The Full Court dismissed the
appeal, but note that Kraft Heinz
has sought leave to appeal the
decision to the High Court,
so the position is not final.

Until then, the take home message
from this convoluted case is do your
due diligence! When transferring
business goodwill, make sure that
any product goodwill – which may
include unregistered trade marks
and trade dress associated with
particular products – that you
wish to retain is excluded from the
transfer. Conversely, when buying
a business, make sure that the
goodwill you are acquiring includes
the goodwill in any unregistered
marks and trade dress that may
be essential to successfully
continuing the business.

11 Russell Waters | Partner
BSc LLB FIPTA
russell.waters@pof.com.au