Kraft v Bega: Australian appeal court decision reaffirms the perils of relying on unregistered trade mark rights

In the case Kraft Foods Group Brands LLC v Bega Cheese Limited [2020] FCAFC 65, the Full Court of the Federal Court of Australia has dismissed Kraft’s appeal of a decision entitling Bega to exclusive use of the iconic yellow lid and yellow label with a blue or red peanut device on its peanut butter jars.

To read our previous article about the Federal Court’s 2019 decision, click here.

The Full Court dismissed Kraft’s appeal and restrained it from continuing to sell peanut butter products in Australia using the yellow trade dress.
In its decision made on 14 April 2020, the Full Court clarified that:

• ‘goodwill’ is property in the sense of the right or privilege to use the assets of the business, as a business, to produce income;
• where a business operates in distinct places or with distinct business activities, there may be several discrete businesses each having a goodwill of its own;
• a registered or unregistered trade mark can be an important source of the overall goodwill of a business;
• the only way to assign an unregistered trade mark in Australia is to assign the goodwill of the underlying business in respect of which the trade mark was used; and
• where a company carries on several discrete businesses, the above principles should apply to each separate business, such that an unregistered trade mark may be assigned together with the goodwill of the associated business, rather than the business as a whole.

However, the Full Court declined to express a settled view on the requirements of licensing an unregistered trade mark.

This decision underscores the importance of seeking registration of important trade marks in Australia, particularly branding indicia that are commercially valuable but not immediately thought of requiring registration, such as product getup, marketing slogans and colour combinations.

Parties contemplating the purchase or sale of IP assets should seriously consider whether the seller needs to file applications for registration of any unregistered trade marks prior to completion.

Similarly, corporate groups considering internal IP ownership and licensing restructures (such as incorporating a designated IP holding company) should ensure that trade mark registration is sought prior to making such arrangements.

The potential consequences for not seeking registration include:

• any purported transfer of trade mark rights will be subsequently found invalid; and
• if the acquirer of an unregistered trade mark later obtains registration of the trade mark, that registration could be invalidated by competitors or would-be infringers on the basis that the applicant was not the true owner of the mark at the time of filing.

Conversely once a trade mark application is filed by the rightful owner of the mark, rights in the mark crystallise under the Trade Marks Act 1995 (Cth) and the applicant may then deal with the trade mark as it sees fit, with or without the associated goodwill or other IP rights relating to the same underlying business.

By Gregory Pieris and Bianca D’Angelo