Proper successor shielded from patent infringement claim

May 16, 2007
Post by Blog Staff

In General Mills, Inc. v. Kraft Foods Global, Inc., the Federal Circuit affirmed the judgment of the district court holding that General Mills's claim for patent infringement against Kraft Foods was barred by a covenant not to sue that General Mills granted to Farley Candy Company, Kraft's predecessor in interest.

In affirming the district court's decision, the Court held that Kraft, when it acquired Farley's business, became the successor to Farley's rights under a covenant not to sue before commencing the allegedly infringing activities, and did not lose that status by divesting itself of much of Farley's assets after the acquisition.

More details of the case after the jump.

In the matter before the Federal Circuit, General Mills appealed the final judgment of the district court dismissing its claim for patent infringement against Kraft Foods on the ground that the claim is barred by a covenant not to sue. Kraft cross-appealed, challenging the district court's decision to treat its counteclaims to General Mills' original complaint as having been abandoned after Gernal Mills filed an amended complaint.

General Mills sells rolled food items under the brand name Fruit by the Foot® and owns U.S. Patent Nos. 5,284,667 ("Rolled Food Item Fabricating Methods") and 5,723,163 ("Rolled Food Item"). As a result of a dispute between General Mills and Farley for infringement of the aforementioned patents, a Settlement Agreement was reached where, in part, General Mills released its patent claims and entered into a covenant not to sue Farley for past, current, or future infringement in exchange for a lump sum from Farley. "Farley" was defined inthe Settlement Agreement to mean "Farley Candy Company and its Affiliates, including, without limitation, all parent corporations, subsidiaries, heirs, executors, administrators, and corporate predecessors and successors."

Through a series of transactions, Kraft succeeded to the business of Farley; Kraft then sold and transferred Farley assets to a subsidiary of Catterton partners; and finally Kraft sold the remainder of its rolled food business and transferred whatever rights it had under the Settlement Agremement to Kellogg. General Mills alleged that Kraft engaged in infringing activities prior to the Kellogg transaction.

In its argument, General Mills conceded that Kraft became Farley's successor by virtue of the Farley transaction. In an impressive display of citation precision, the court cited to the exact point during the oral argument where counsel for General Mills made this statement:

General Mills concedes that by virtue of the Farley transaction in 2001, Kraft stepped into Farley’s shoes and became Farley’s successor. See Oral Arg. at 02:35–02:45, available at; see also Amended Complaint ¶ 15; Br. for Appellant at 20–21.

General Mills went on to unsuccessfully argue that the Catterton transaction divested Kraft of any right it might have had under the Settlement Agreement because without the Farley assets that were sold to Catterton, Kraft cannot be "Farley" under the Agreement.

In affirming the district court's decision, the Federal Circuit agreed that the Agreement only spoke to the assignment of rights and did not address Farley's retention of the Agreement and sale of other assets. Because the Catterton transaction did not purport to assign Kraft's rights under the Settlement Agreement, there was no provision of the Agreement which barred Farley from retaining its rights under the Agreement when it transferred parts of its rolled food business. The court found that there was nothing in the Agreement that required Kraft to retain all or any particular assets of the Farley business to preserve Kraft's status as successor. Thus, the Federal Circuit concluded there was simply no basis from which it could conclude that anyone other than Kraft succeeded to Farley's rights under the Settlement Agreement, at least until the Kellogg transaction.

As well, the Federal Circuit affirmed the district court in finding that Kraft had abandoned its counterclaim by failing to raise it in response to General Mills's amended complaint before the case was dismissed.

To read the full opinion in General Mills, Inc. v. Kraft Foods Global, Inc., click here.

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