Starbucks has to pay $2.76 billion in damages and other costs to Kraft Foods in a dispute over packaged coffee, an independent US arbitrator has ruled.

Kraft began selling bags of Starbucks branded coffee in 1998 under a deal that was due to run until March 2014.

But Starbucks ended the contract in 2010, accusing Kraft of breaking the terms of their deal.

Kraft challenged that move by starting arbitration proceedings saying it had built a business worth $500 million a year.

Starbucks has to pay $2.76 billion in damages and other costs to Kraft Foods in a dispute over packaged coffee

On Tuesday the arbitrator ruled that Starbucks must pay $2.23 billion in damages plus $527 million in interest and legal costs.

Kraft Foods was spun off by Mondelez International last year and under an agreement between those two firms the payments from the case will go to Mondelez.

“We’re pleased that the arbitrator validated our position that Starbucks breached our successful and long-standing contractual relationship without proper compensation,” said Mondelez.

In a statement Starbucks said it “strongly disagreed” with the conclusions of the arbitrator.

“We believe Kraft did not deliver on its responsibilities to our brand under the agreement, the performance of the business suffered as a result, and that we had a right to terminate the agreement without payment to Kraft,” it said.