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Coffee City

Melissa Allison follows the world's biggest coffee-shop chain and other Seattle caffeine purveyors.

December 6, 2010 at 1:04 PM

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Kraft seeks preliminary injunction against Starbucks

Posted by Melissa Allison

In the continuing saga of Starbucks trying to end a 12-year relationship in which Kraft Foods has distributed its coffee to grocery stores, Kraft is seeking a preliminary injunction in the U.S. District Court for the Southern District of New York to prevent Starbucks from behaving as though their agreement has been terminated -- specifically, meeting with Kraft's grocery store customers to discuss a transition away from Kraft.

"Starbucks is proceeding with flagrant indifference to the terms of the contract and customary business practices," Marc Firestone, Kraft's general counsel, said in a press release.

Starbucks CEO Howard Schultz told investors in early November that the company was ending its distribution relationship with Kraft, which says the business has grown revenues from $50 million in 1998 to $500 million now.

Kraft says Starbucks must buy it out, which analysts say would cost $1 billion or more.

It says Starbucks made an offer in August to buy out the agreement, but Kraft rejected it as inadequate. In October, Starbucks sent Kraft a letter alleging breach of contract, which Kraft disputed in a letter on Nov. 4, the same day Schultz went public with news of the break-up.

Since then, there have been public statements about who did what wrong -- Starbucks alleging that Kraft hurt its brand, and Kraft alleging that the contract goes on indefinitely unless both parties agree to a buy-out.

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

Starbucks called Kraft's move for an injunction a delay tactic that will hurt customers. It has terminated its agreement with the company and will take responsibility for sales and distribution of its packaged coffee on March 1, the Seattle chain said.

"Kraft's self-serving and blatantly disruptive actions risk creating unnecessary confusion for our shared customers, and in turn their consumers," Starbucks said in its press release. It said it looks forward to presenting its case in arbitration, a separate proceeding that is not affected by today's court filing.

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