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Kraft, Starbucks In Dispute Over Coffee Distribution

NORTHFIELD, Ill. - Kraft Foods is seeking a preliminary injunction against Starbucks saying Monday that the coffee chain violated terms of a distribution deal.

The two businesses began arbitration proceedings late last month as Kraft tried to prevent Starbucks from ending an agreement to distribute and promote its packaged coffee in stores. The arbitration proceedings are continuing and are separate from the injunction being sought, according to Kraft.

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Kraft said Monday that Starbucks Coffee Co. was using an aggressive strategy that threatens its business.

``Starbucks is proceeding with flagrant indifference to the terms of the contract and customary business practices,'' Marc Firestone, Kraft's executive vice president of corporate and legal affairs and general counsel, said in a statement.

Starbucks said in early November that it wanted to end the agreement, which began in 1998. Sales at grocery stores and other retailers - which is tied directly to the Starbucks, Kraft agreement - are increasingly important to Starbucks, primarily because of its Via brand. The coffee company has said that it plans to have more products available in stores in the future, after first introducing them in its cafes.

Starbucks says Kraft Foods Inc. has not done what was mandated under the contract, failing to work closely with the company on marketing decisions and customer contacts. Starbucks said its decision to sever relations with the food maker whose brands include Nabisco, Oscar Mayer and Trident is consistent with the contract's terms.

Starbucks said it wants to take back the business on March 1, 2011. Kraft, however, says that if Starbucks goes ahead with those plans, it needs more transition time and that the company should be compensated for the fair market value of the business, plus a premium of up to 35 percent.

Kraft, which is based in Northfield, Ill., says it has grown Starbucks' packaged coffee business from $50 million to $500 million in revenue.

The contract between the two companies automatically renews for successive 10-year terms and has no end date.

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