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Kraft seeks court injunction in Starbucks distribution dispute

By Caroline Scott-Thomas , 06-Dec-2010

Kraft Foods said on Monday it is seeking a court injunction against Starbucks in an effort to stop the coffee giant from “attempting to unilaterally end” a distribution deal between the two companies.

Kraft has been distributing Starbucks packaged coffee to retail outlets since 1998, but Starbucks said it told Kraft in early October that it intended to end the distribution agreement. Kraft has objected, claiming that the contract remains in effect indefinitely – unless there is sufficient time for Kraft to execute an orderly transition, and compensation is paid to Kraft for the business, plus a premium in certain circumstances.

In its announcement that it is seeking a preliminary injunction in the US District Court for the Southern District of New York on Monday, Kraft said that Starbucks is “proceeding as if the agreement has been terminated, when, in fact, the contract is still in force.”

The company claimed that Starbucks made an offer in August to buy Kraft out of the agreement, but Kraft rejected the offer as inadequate. Starbucks then sent a letter alleging breach of contract in October, Kraft said, a claim that Kraft denies.

Executive vice president, corporate and legal affairs and general counsel for Kraft Foods Marc Firestone said: "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."

A Starbucks spokesperson told FoodNavigator-USA.com in an emailed statement: “Starbucks has repeatedly said that we have terminated our agreement with Kraft and we continue to look forward to assuming full responsibility for the sales and distribution of our packaged coffee products as of March 1, 2011. We have both the capabilities and experience to make this a seamless transition for our customers… Starbucks will vigorously oppose any action on Kraft's part that would prevent Starbucks from rightfully assuming full control of our brand and business, and look forward to presenting our case through the pending arbitration process.”

Starbucks issued a statement last week claiming that the initial contractual term was set to expire in 2014, and its actions to end the distribution agreement are within the terms of the agreement.

Kraft said the distribution deal provides it with about $500m in revenues each year.

The injunction papers are separate from arbitration proceedings that Kraft initiated last week, and that those proceedings will continue in parallel, the company said.