Staying arbitration: Kraft, Bega, Warner Bros and Mad Max

In the face of misleading and deceptive conduct litigation in Australia, O’Callaghan J has granted injunctions restraining Kraft from pursuing its arbitration claims in New York against Bega’s sale and promotion of Bega Peanut Butter in what Kraft alleges is misleading or deceptive get-up.

Kraft had been selling peanut butter in Australia under the Kraft brand for over 50 years. It had about 65% of the peanut butter market in Australia valued at over Australian $110 million per year.

In 2012, however, Kraft restructured its operations globally into a grocery business and a snack food business. The snack food business was operated by Mondelez.

Mondelez was given a licence to use the Kraft brand on, amongst other things, peanut butter which included the right to use the get-up Kraft had been using. The licence was due to expire at the end of December 2017.

Before the licence expired, Mondelez sold its Australian and NZ business to Bega. Bega began marketing its peanut butter in the get-up shown below:

 

Kraft peanut butter
Bega peanut butter

 

 

 

 

 

 

 

 

Kraft’s licence to Mondelez included a dispute resolution clause that all disputes arising under, or in relation to, the licence should go through the familiar three-tiered resolution process of consultation, mediation and, if not resolved, binding arbitration in New York:

Step Process: Any controversy or claim arising out of or relating to this Agreement, or the breach thereof (a “Dispute”), shall be resolved: (a) first, by negotiation and then by mediation as provided in Section 7.2; and (b) then, if negotiation and mediation fail, by binding arbitration as provided in Section 7.3. Each party agrees on behalf of itself and each member of its prospective Group that the procedures set forth in this Article VII shall be the exclusive means for resolution of any Dispute. The initiation of mediation or arbitration hereunder will toll the applicable statute of limitations for the duration of any such proceedings.

Kraft sought to initiate the dispute resolution process with Bega. Amongst other things, Kraft contends in the arbitration that Bega’s use of the Bega Trade Dress is in breach of the licence from Kraft to use the Kraft Peanut Butter Trade Dress. Kraft goes on to allege:

  1. Bega’s use of virtually identical trade dress on its peanut butter is likely to cause and is causing confusion, mistake or deception as to Kraft’s sponsorship and/or endorsement of Bega’s peanut butter product.

Considering that Bega was not complying with the process, Kraft launched proceedings in the Federal Court for the Southern District of New York to compel Bega to mediation. Bega, while reserving the right to claim it was not subject to the arbitration agreement, told the New York court it would participate in the mediation process.

In parallel with these developments, however, Kraft also commenced proceedings in Australia against Bega alleging that the promotion of the Bega peanut butter in the Bega get-up in Australia contravened the prohibitions on misleading or deceptive conduct in the Australian Consumer Law. According to Kraft, Bega’s advertisements and use of the Bega get-up misrepresented that Kraft peanut butter is now Bega peanut butter or is being replaced by Bega peanut butter and the Kraft brand has changed to Bega.

In the Australian proceedings, Bega cross-claimed and also sought injunctions ordering Kraft not to prosecute the arbitration proceedings. After careful consideration of the principles for ordering a party not to engage in arbitration, O’Callaghan J has granted that anti-arbitration injunction.

O’Callaghan J considered that the question of the ownership of the packaging and get-up was the central issue raised in both Kraft’s notice of arbitration and the proceeding under s 18 of the Australian Consumer Law.

If the question in the arbitration proceeding had simply been that the licence had expired and Bega had no right to use the get-up, there may not have been an overlap. As noted above, however, Kraft’s notice of arbitration went much further with allegations of false representations.

Kraft argued that its claims under s 18 of the ACL do not arise under or in relation to the contract, but are independent statutory causes of action. O’Callaghan J pointed out at [91] that whether the statutory cause of action was independent of, or in relation to, the contract depended on whether there was a nexus or connection between the contract and the contraventions which gave rise to the misleading or deceptive conduct claim.

In this case, there was such a connection as whether or not Bega’s conduct was misleading turned on the operation of the licence agreement. At [95], his Honour pointed out the alleged misrepresentations could only be false or misleading by virtue of the operation and effect of the terms of the licence agreement. Accordingly at [96]:

Kraft’s pleaded case in this proceeding is one in which it seeks to agitate a dispute which is properly to be characterised as being “in relation to” the master agreement. For that reason, in my view, Kraft should have invoked the dispute resolution provisions of the master agreement with respect to the claims made in this proceeding. It was not, as it contended, bound to bring the proceeding in this court.

Having found that the court proceeding and the arbitration addressed the same or at least overlapping subject matter, his Honour went on to find that it was appropriate to grant an injunction against pursuing the arbitration while the consumer law proceeding was on foot.

First, O’Callaghan J rejected any argument that it was necessary to show, in cases where parties had set up an arbitration process, an exceptional case or that the power to grant an injunction should be viewed through a “different prism”.

Secondly, his Honour acknowledged the tension between courts’ desire to hold parties to their bargains (i.e. respect the arbitration clause) and “deep and strong antipathy” to situations which could give rise to inconsistent verdicts.

Here, Kraft was the author of its own predicament. It could have (and should have) included its misleading and deceptive conduct claims in its arbitration notice, but instead had chosen to bring separate and additional proceedings in Australia. At [109]:

Kraft ought to have included the claims made in this proceeding under the Australian Consumer Law in its notice of arbitration because those claims, contrary to Kraft’s submission, do fall within the ambit of the arbitration clause in the master agreement. Instead, Kraft chose to initiate this proceeding, and then to prosecute it, including by filing a statement of claim and a reply to Bega’s defence, participating in procedural directions, seeking discovery, filing a notice to produce, consenting to the filing by Bega of a counterclaim (in which the issue of ownership of the trade dress issue is squarely raised) and then filing a defence to that counterclaim. As Bega submitted, Kraft is the party responsible for the bringing of both proceedings. It alone is the author of the possibility or probability of duplicated litigation and inconsistent findings. Each of those considerations also weighs significantly in favour of restraining the arbitration, at least until this proceeding is determined.

O’Callaghan J then went on to consider whether there were any equitable considerations that weighed against granting an injunction.

Finally, O’Callaghan J rejected Kraft’s argument that, instead of seeking an injunction against the arbitration proceedings, Bega should have applied under s 7(2) of the International Arbitration Act 1974 (Cth) for orders to stay the Australian proceeding. At [166]:

I reject that submission. First, Bega had no obligation to seek a stay under s 7 of the International Arbitration Act 1974 (Cth) or otherwise. Secondly, if the stay application was bound to have succeeded on those grounds, one would have thought it rather suggests that Kraft should not have brought the proceeding in this court in the first place.

After a subsequent hearing, O’Callaghan J rejected Kraft’s contention that the injunction against progressing the arbitration proceeding should only apply so long as Kraft’s application in the Australian proceeding was on foot. Kraft argued that Bega’s cross-claim was “a matter for Bega” and should not bear on the injunction. As his Honour noted, Kraft openly admitted the point here was that it may well discontinue its claim in Australia.

O’Callaghan J pointed out that the assessment of inconsistency was not made just on Kraft’s claim, but the pleadings as a whole. At [69], O’Callaghan J explained:

In assessing whether, and if so, to what extent, the issues in the two proceedings overlap, the scope of the relevant issues necessarily includes all the issues raised by the parties, including by Bega in its defence and counterclaim, and by Kraft in its statement of claim, reply and defence to counterclaim. That is so because when a foreign party brings a proceeding in an Australian court, it submits not only to its jurisdiction in respect of its own action, but also in respect of any cross-claim that a respondent brings: ….

Bega’s cross-claim and Kraft’s defence to it raised essentially the same central question as raised in Kraft’s claim and the arbitration proceeding: the ownership and rights to use the get-up in dispute.

A more conventional outcome is illustrated by Warner Bros Feature Productions Pty Ltd v Kennedy Miller Mitchell Films Pty Ltd, in which the NSW Court of Appeal ordered a stay of the court proceedings in favour of arbitration.

In Warner, George Miller and Doug Mitchell are in dispute with the Warner group over payments for their roles in producing and directing Mad Max: Fury Road. The Court of Appeal dealt with a construction fight whether the arbitration clause formed part of the contract or not. Finding it did, on Warner’s application the Court ordered a stay of the NSW proceedings.

In this case, unlike Kraft v Bega, the party seeking to enforce the arbitration clause, Warner, had not brought the potentially inconsistent proceedings – Miller and Mitchell did.

Kraft Foods Group Brands LLC v Bega Cheese Limited [2018] FCA 549

Kraft Foods Group Brands LLC v Bega Cheese Limited (No 2) [2018] FCA 615

Abilify interlocutory injunction continues pending appeal

Last month, Yates J found that Otsuka’s patent for aripiprazole was invalid.[1] As a consequence, his Honour ordered that the interlocutory injunction preventing Generic Health from listing its product on the PBS and selling it be dissolved. Otsuka has appealed and now Nicholas J has granted a stay to preserve the interlocutory injunction pending the appeal.

While not being prepared to characterise Otsuka’s prospects on the appeal as higher than arguable, Nicholas J considered the balance of convenience favoured continuation of the interlocutory injunction.

Otsuka relied principally on the fact that there would be an automatic reduction of 16% the price payable under the PBS for Abilify[2] once Generic Health’s product was listed. It contended that it would not be possible to recover that price drop if its appeal were successful.

Generic Health countered that it risked losing the benefits of first mover advantage if it were enjoined and other generic producers were not. Generic Health’s evidence was that pharmacists would usually only carry one generic brand of each drug and that was likely to be the first brand “in”. This would exacerbate the difficulties in calculating its losses. Nicholas J did not dismiss that argument, but Otsuka said it would be seeking interlocutory injunctions against any other generics who tried to enter the market pending the appeal. Nicholas J noted further that, if Otsuka failed in an injunction applications against a second or further generic, that would be a strong basis to terminate the stay.

The Commonwealth also sought a specific undertaking to pay damages from Otsuka as the price of the injunction. It argues it will suffer loss, in the form of the higher prices payable under the PBS, if Generic Health continues to be enjoined but the appeal ultimately fails.

Nicholas J noted that a case has been stated to the Full Court on whether the Commonwealth can indeed claim under the “usual undertaking as to damages”. Subject to the outcome of that case, his Honour considered the Commonwealth was sufficiently within the scope of the usual undertaking and so did not need a separate, specific undertaking.

Nicholas J increased the security for costs that Otsuka had to provide to Generic Health in the amount of an additional $8.7 million[3] and, in addition, required a security of $6 million separately to the Commonwealth. His Honour also noted that the Commonwealth could apply to extend that security if the appeal was not decied in the first half of 2016.[4]

Otsuka Pharmaceutical Co., Ltd v Generic Health Pty Ltd [2015] FCA 848


  1. Otsuka Pharmaceutical Co., Ltd v Generic Health Pty Ltd (No 4) [2015] FCA 634. Patentology looked at the ‘swiss claims’ aspects of his Honour’s decision.  ?
  2. The commercial name under which aripiprazole is marketed by Otsuka and its licensee.  ?
  3. Otsuka has already provided $6.5 million pursuant to the orders made by Yates J at first instance.  ?
  4. At [35], Nicholas J recored that the Commonwealth estimated its losses from the continuation of the interlocutory injunction would be $6 million over the next 12 months and $15 million over the next 18 months.  ?

How wide should injunctions be

Following on from his ruling that Idameneo’s use of its trade mark breached its contractual obligation not to use a trade mark capable of being confused with Symbion’s trade mark, Jessup J has granted an injunction:

The Respondent be permanently restrained, whether by itself or through its subsidiaries from using the Respondent’s Mark.

Three aspects for comment:

First, Symbion sought and his Honour refused to grant an injunction that Idameneo not use its trade mark or “any trade mark, device, brand or logo which is similar to or capable of being confused with” Symbion’s trade mark (i.e., reflecting the terms of the contractual obligation).

In support of that application, Jessup J was referred to a number of cases proclaiming that the usual form of order for infringement of an intellectual property right was an order restraining the respondent from infringing the applicant’s [intellectual property right]. His Honour pointed out, however, that none of those cases established that such an order should be made in the case of breach of contract as a matter of principle.

Jessup J accepted that such a wide injunction might be an appropriate exercise of discretion in a particular case. However, there was nothing in this case which warranted that course:

here is nothing in the facts – or in the dynamics – of the present case which would provide any basis for the suspicion that, if it were precluded from using its present mark, the respondent would devise some artful similarity of the applicant’s mark, or would “sail close to the wind” as it is occasionally said.  If the orders which I made on 13 May 2011 stand, the respondent will be obliged to rebrand its business, its sites and its stationery.  Nothing suggested by the applicant, and nothing which otherwise occurs to me, would give reason to suspect that the respondent would have the slightest interest in adopting a new logo or image which was confusingly similar to the applicant’s mark.  If, contrary to this expectation, the respondent were to do so, it is true that the applicant would be obliged to bring fresh proceedings, but I have little doubt but that the court would not then be readily forgiving of the respondent for failing to keep a sufficient distance between its own new mark and that by reference to which the applicant succeeded in this proceeding.

Secondly, despite the terms of the injunction, Jessup J supplemented it with a further order to:

remove and destroy all signage, corporate stationery, flyers, posters, leaflets, brochures and any other promotional, advertising and marketing materials (whether in hard copy or electronic format) and garments which bear the Respondent’s Mark and which are in the possession, power, custody or control of the Respondent or its subsidiaries

and to deliver up an affidavit confirming all that mayhem has taken place.

Finally, his Honour granted a stay of the injunction – for 6 months or, if Idameneo appealed, for 6 months from the date the appeal was concluded. There is no discussion of the reasons for the stay, so it appears to have been uncontroversial between the parties.

Symbion Pharmacy Services Pty Ltd v Idameneo (No 789) Limited (No 2) [2011] FCA 531

Thirdly,