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Kraft loses appeal in Starbucks distribution dispute

By Caroline Scott-Thomas , 28-Feb-2011

A US Court of Appeals has upheld a previous court decision denying Kraft’s request for a preliminary injunction against Starbucks, paving the way for the coffee giant to end a distribution deal on March 1.

Kraft has distributed Starbucks packaged coffee since 1998, and says the agreement provides it with about $500m a year in revenues. Starbucks said it told Kraft in October of its intention to end the deal on March 1, 2011, and claims that Kraft had breached its contract, causing losses of about $100m in potential sales. Meanwhile, Kraft claimed that Starbucks tried to buy out of the agreement in August last year with an offer of $750m, but Kraft rejected the offer as inadequate.

Friday’s Appeals Court decision upholds a lower court's ruling in late January that rejected Kraft’s assertion that it would be irreparably harmed if Starbucks were allowed to end the agreement.

The appeals judges said: “We conclude that Kraft has failed to show that it faces an actual and imminent risk of injury that cannot be compensated by money damages.”

It is still uncertain whether the coffee firm will have to pay a fee to Kraft in order to terminate the deal – a matter that will be dealt with separately by an arbitration panel in Chicago.

Following the ruling, executive vice president, Corporate and Legal Affairs and General Counsel for Kraft, Marc Firestone, said: “While disappointed in the outcome, we respect the US Court of Appeals' decision.

“The Second Circuit did not rule on the fundamental issue of whether Starbucks can exit our contract without paying the fair market value, plus a premium. That question will be decided in arbitration. Having now seen Starbucks inability to substantiate its claims of material breach, we certainly intend to press our case aggressively and look forward to a favorable decision.”

The two companies have been sparring publicly since November, when Starbucks announced that it wanted to end the deal.

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