* Kraft will not pay royalties to Green Mountain
* Biggest brand to sell unlicensed K-cups
* Green Mountain stock falls initially on news
(Adds background, market data)
By Martinne Geller
NEW YORK, Oct 11 (Reuters) - Kraft Foods Group Inc plans to sell Maxwell House and Gevalia K-cup single-serve coffee pods compatible with Keurig brewing systems, a spokesman said on Thursday, in another blow to Keurig parent Green Mountain Coffee Roasters Inc .
The pods are not licensed by Keurig or affiliated in any way, Kraft spokesman Basil Maglaris told Reuters. That means that Green Mountain will not receive any royalties from their sale.
The move by Kraft, which also owns the rival Tassimo one-cup brewer, represents the first time a big-name coffee brand skirts Green Mountain in making cups for its market-leading system. Certain Green Mountain patents related to the design of its K-Cups expired in September.
Maxwell House is the third-largest retail coffee brand in the United States behind No. 1 Folgers, which is owned by J.M. Smucker Co , and No. 2 Starbucks , according to market research firm Euromonitor International.
Following news of similar launches by private label brands including Kroger Co , Safeway Inc and Supervalu Inc , the move by Kraft adds more weight to the argument put forth last year by Greenlight Capital's David Einhorn, who questioned the sustainability of Green Mountain's dominance in the single-serve market. Einhorn publicly disclosed a short position in the company a year ago.
Aside from new K-cups coming to market, Green Mountain is also facing new competitors to its coffee brewers from the likes of Bunn, Starbucks and others.
Starbucks Corp and Dunkin Brands Group Inc's Dunkin Donuts also sell cups for Keurig, but they are licensed.
Maglaris said he expects the K-cups to be on U.S. retail shelves sometime in the next several months.
Green Mountain was not immediately available to comment.
Kraft also manufactures the Tassimo single-serve coffee system. Maglaris could not say whether the Keurig cups would cannibalize sales of single-serve discs used in Tassimo machines.
Green Mountain shares initially fell as much as 3.4 percent on the news on Thursday, but by midday were up 0.3 percent at $22.14. Kraft shares were down 1.7 percent at $45.55.
(Additional reporting by Brad Dorfman in Chicago. Editing by Gerald E. McCormick, Matthew Lewis and Gunna Dickson)
Keywords: KRAFT KEURIG/