Kraft seeks preliminary injuction against Starbucks

Kraft seeks preliminary injuction against Starbucks

2010-12-07 01:40:01 GMT+7 (ICT)

NORTHFIELD, ILLINOIS (BNO NEW) — Kraft Foods Inc. on Monday announced that it is seeking a preliminary injunction against Starbucks Coffee Company for violating terms of the roast and ground coffee agreement.

Kraft says Starbucks is attempting to unilaterally end the strategic partnership that provides company with the exclusive rights for the sales, marketing and distribution of Starbucks roast and ground coffee in grocery and other retail outlets.  

As a result, Kraft is seeking the injunction in the U.S. District Court for the Southern District of New York to stop Starbucks from proceeding as if the agreement has been terminated, when, in fact, the contract is still in force.

"Starbucks is proceeding with flagrant indifference to the terms of the contract and customary business practices," said Marc Firestone, Executive Vice President, Corporate and Legal Affairs and General Counsel.  

"Instead of executing its rights under the contract to buy back the business, Starbucks has chosen a remarkably aggressive strategy that publicly disparages our achievements, interferes with our customer relations and threatens to harm Kraft."

According to Kraft Foods, the company has grown the annual revenues of its Starbucks CPG partnership tenfold, from a base of approximately $50 million in 1998 to approximately $500 million.

The contract between Kraft and Starbucks renews automatically for successive 10-year periods and has no expiration date. The only way the contract will not renew is if there is a valid termination.

Notably, the companies agreed to a straightforward basis under which Starbucks could take over the business in order to pursue a different arrangement. 

Under the agreement, there needs to be sufficient time for Kraft to execute an orderly transition and Starbucks must compensate Kraft for the fair market value of the business plus, under most circumstances, a premium of up to 35 percent of that value.

"The extreme nature of Starbucks actions supports our seeking an injunction," said Firestone. "Starbucks has essentially ignored our attempts to get them to honor the contract terms and is demonstrating indifference to the potential harm to Kraft. Our logical next step is therefore to go to court to protect the interests of Kraft and its shareholders."  

Kraft explains that Starbucks has simply declared termination as a fait accompli as they have begun to implement a "transition plan" that includes arranging for a new partner and meeting with Kraft's own customers in anticipation of their March 1 target date.  

Starbucks conduct violates Kraft's rights under the agreement and prejudges the outcome of an arbitration in which they will face compelling facts against them, the company said.

"Frankly, after a successful 12-year partnership, it's difficult to understand Starbucks overt hostility and sudden change of view toward Kraft's performance," said Firestone.

"Their latest allegation is that Kraft is not assisting in the 'transition plan' that they launched on their own. Of course, we would cooperate in a transition, if there were a valid termination. But that's the point; there hasn't been. For them to complain about this makes no sense."

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