• by Karlene Lukovitz  @KLmarketdaily, December 6, 2010

Kraft Foods is seeking a preliminary injunction in the U.S. District Court for the Southern District of New York against Starbucks Coffee Company. Kraft contends that Starbucks is violating the terms of the companies' 12-year-old agreement giving Kraft exclusive rights for sales, marketing and distribution of Starbucks roast and ground coffee in grocery and other retail outlets. 

The injunction filing is separate from and does not affect the continuation of arbitration proceedings now underway regarding  the dispute between the companies.

Starbucks, which wants to take control of the retail business as of next March 1, has maintained that it can legally terminate the contract because Kraft failed to live up to marketing obligations such as meeting minimum advertising budgets, thus negatively affecting Starbucks' brand equity.

Kraft says the contract is still in force, and the injunction seeks to stop Starbucks from "proceeding as if the agreement has been terminated," according to Kraft's release in announcing the injunction filing. Starbucks has been pursuing a "remarkably aggressive strategy that publicly disparages" that "threatens to harm" Kraft, in part through interfering with its relationships with retailers, Kraft charges.  

Kraft maintains that to validly terminate the agreement, which renews automatically for successive 10-year periods and has no expiration date, Starbucks must buy out Kraft and provide enough time for an orderly transition process. The terms call for Starbucks to pay Kraft for the business's fair market value plus a premium of up to 35%. According to some analyst estimates, that could cost Starbucks more than $1 billion.

Kraft reports having grown the annual revenues of the Starbucks CPG partnership tenfold, from approximately $50 million in 1998 to $500 million currently, including YTD 2010 U.S. cofee net revenue growth of about 8%.