File photo. Courtesy Getty Images.
Lebanon, TN -- A federal judge in Chicago has temporarily blocked Cracker Barrel Old Country Store from selling branded meats and other food items in grocery stores.
The lawyers of the restaurant chain based here indicated they plan to appeal U.S. District Judge Robert Gettleman's ruling issued Monday.
Cracker Barrel (CBRL) was seeking to broaden its portfolio of packaged food items - mainly hams and other meats - and start selling them through supermarkets, club stores and other retailers. Grocery sales are part of Cracker Barrel's strategy to expand its brand beyond its 600-plus restaurants and stores. The chain has signed a licensing agreement with John Morrell & Co. for ham, bacon and other meats.
But food giant Kraft Foods (KRFT) is suing to block the move, saying it would infringe on Kraft's trademarked Cracker Barrel brand cheese and confuse consumers.
In his eight-page ruling, Gettleman agreed and said Kraft had a strong case.
"The court finds that Kraft is likely to prevail on the merits of its trademark infringement and unfair competition claims," the order said. "Kraft need only show a 'better than negligible' chance of success on the merits, and has more than sufficiently carried this burden."
Gettleman said Kraft's trademark was "indisputably strong" because it has been in use since 1957, more than a decade before the first Cracker Barrel restaurant opened in 1969, and generates more than $130 million in annual sales.
Selling products that are complementary to and in close proximity to Kraft's cheese brand would dilute it and cause "significant" harm, the judge said. In doing so, he rejected Cracker Barrel's argument that the distance between grocers' dairy cases and meat sections would reduce consumer confusion.
"A consumer who views the Kraft mark briefly in the dairy section of the grocery store and subsequently views the CBOCS mark in the deli or meat section of the same store may not distinguish between the two brands," he wrote. "The similarity of the marks will likely contribute to confusion."
Gettleman also put more credence on a survey from Kraft's market research expert, which said 1 in 4 people shown pictures of Cracker Barrel's ham during an online survey wrongly thought its manufacturer also makes cheese. Cracker Barrel's expert said the confusion rate was closer to 7%, based on his poll of shoppers at malls in nine states.
"The (Kraft) survey was appropriately conducted on a national scale (defendant's intended distribution area), utilized sound methodology and produced credible results," Gettleman said. "The court is not convinced that the survey conducted by defendants' expert, Phillip Johnson, appropriately measured potential confusion because it was conducted primarily in areas with heavy CBOCS presence."
The confusion rate is key because of the so-called 15% rule. Courts typically have sided with trademark owners who can show, usually through surveys, that at least 15% of consumers would be confused.
After issuing his ruling, Gettleman denied Cracker Barrel's request to stay the injunction while the chain appeals. However, he verbally ordered Kraft to post a $5 million injunction bond - more than the $1 million he initially wrote in his written ruling - by July 8 when another status conference is scheduled.
In a statement, Cracker Barrel said it and John Morell "are understandably disappointed" with the ruling.
"While we respect the court's ruling, we will explore all of our legal options, including a possible appeal of the preliminary injunction," the statement said. "We continue to stand firm in our belief of the merits of our case. We are convinced the marketplace understands and recognizes the differences in the Cracker Barrel Old Country Store brand and Kraft's Cracker Barrel cheese. We are not selling cheese or any cheese-related products."
Kraft did not immediately respond to a request for comment.