Victoria’s Supreme Court will settle a dispute between two of the dairy industry’s biggest players, Fonterra and Bega Cheese, after a long-standing agreement between them turned sour in 2017.
The trial, which opened in Melbourne on Monday, will run for five weeks, with a further two weeks of hearings in February.
New Zealand cooperative Fonterra is a global dairy giant with a strong presence in Australia, selling Mainland Cheese, Perfect Italiano cheese and Western Star butter.
In 2002 it made a deal to become the licensee of the Bega Cheese brand, including blocks and slices of cheese and Stringers, until 2026.
The agreement was going well until Bega Cheese announced in 2017 that it would buy a suite of Kraft products from Mondelez international, which it started replacing with the Bega brand.
This saw the Kraft name replaced with Bega on products like peanut butter, Vegemite, cheese and cream cheese spread.
A core disagreement between the parties is whether Bega Cheese is using the Bega trademark it licensed to Fonterra on the new products, or whether it’s using a «stylised Bega mark similar to some of the trademarks» in the deal.
‘Diluting the brand’
The move to expand the range of products carrying the Bega logo raised concern at Fonterra.
Court documents, seen by the ABC, show Fonterra sent an email in July 2017, asking for confirmation that «Bega will not begin using any of the Bega trademarks or any similar trademark, including the word Bega, to market products in Australia without Fonterra’s consent».
Bega responded the following month, saying it «expressly rejects any wide-reaching, unqualified and without legal precedent claims by Fonterra that suggest Bega should not use Bega trademarks or any similar trademark in Australia without Fonterra’s consent».
Fonterra alleges the use of the Bega brand on new products has eroded the commercial value of the brand it licenced in 2002 by «diluting the distinctiveness of the brand».
Fonterra also said the alleged breaches «unless restrained, cause significant damage to the existing reputation of the Bega trademarks for representing natural cheese sourced from Australia».
In a statement to the ABC, Fonterra said «we’ve nurtured and built the Bega brand, and supported the Bega company to grow and provide good returns back to its farmers, shareholders and community».
«Unfortunately, we’re in a legal dispute over the use of the Bega brand on peanut butter and other products,» it said.
«As a partner, who has worked together with Bega for so long to create Australia’s most popular brand of cheese, we look forward to this dispute being resolved.»
Bega hits back
Bega Cheese filed a counterclaim in March this year, alleging Fonterra had made a number of breaches of their agreement.
When the licensing deal was struck, Fonterra agreed to «promote and develop sales» of the products.
Bega alleges that not only has Fonterra failed to adequately do that, it has also further breached the deal by promoting and innovating its own product suite more than Bega-branded products.
Specifically, it cites the amount spent on advertising and promoting Bega products by Fonterra declining from $660,000 in 2011 to $15,000 in 2017.
«Other than in 2015, Fonterra has spent substantially higher sums on advertising and promotion of its own brands, Mainland and Perfect Italiano,» the counterclaim said.
Bega also took umbrage at the fact that Fonterra only developed one TV advertising campaign — 2009’s Real Town, Real Cheese — which it re-ran in 2015.
It said that aside from 2015, Mainland and Perfect Italiano received much more of the marketing spend.
Along with a long list of other alleged breaches, including «excessive discounting» of Bega-branded products, Bega alleges Fonterra has damaged the goodwill of the brand.