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EXCLUSIVE-UPDATE 3-Kraft to sell Maxwell House K-cups for Keurig

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* 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 Incplans to sell Maxwell House and Gevalia K-cup single-servecoffee pods compatible with Keurig brewing systems, a spokesmansaid on Thursday, in another blow to Keurig parent GreenMountain Coffee Roasters Inc .

The pods are not licensed by Keurig or affiliated in anyway, Kraft spokesman Basil Maglaris told Reuters. That meansthat Green Mountain will not receive any royalties from theirsale.

The move by Kraft, which also owns the rival Tassimo one-cupbrewer, represents the first time a big-name coffee brand skirtsGreen Mountain in making cups for its market-leading system.Certain Green Mountain patents related to the design of itsK-Cups expired in September.

Maxwell House is the third-largest retail coffee brand inthe United States behind No. 1 Folgers, which is owned by J.M.Smucker Co , and No. 2 Starbucks , according tomarket research firm Euromonitor International.

Following news of similar launches by private label brandsincluding Kroger Co , Safeway Inc and SupervaluInc , the move by Kraft adds more weight to the argumentput forth last year by Greenlight Capital's David Einhorn, whoquestioned the sustainability of Green Mountain's dominance inthe single-serve market. Einhorn publicly disclosed a shortposition in the company a year ago.

Aside from new K-cups coming to market, Green Mountain isalso facing new competitors to its coffee brewers from the likesof Bunn, Starbucks and others.

Starbucks Corp and Dunkin Brands Group Inc's DunkinDonuts also sell cups for Keurig, but they are licensed.

Maglaris said he expects the K-cups to be on U.S. retailshelves sometime in the next several months.

Green Mountain was not immediately available to comment.

Kraft also manufactures the Tassimo single-serve coffeesystem. Maglaris could not say whether the Keurig cups wouldcannibalize sales of single-serve discs used in Tassimomachines.

Green Mountain shares initially fell as much as 3.4 percenton 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 byGerald E. McCormick, Matthew Lewis and Gunna Dickson)

((martinne.geller@thomsonreuters.com)(646 223-6023)(ReutersMessaging: martinne.geller.reuters.com@reuters.net))

Keywords: KRAFT KEURIG/