Heinz is threatening to sue Dick Smith over claims made on his company's beetroot tins.
The company says the wording of a label on Smith's Magnificent Sliced Beetroot constitutes injurious falsehood.
The label says: "When American-owned Heinz decided to move its beetroot processing facility from Australia to New Zealand causing hundreds of lost jobs, we decided enough is enough.
"So we are fighting back against poor quality imported product."
Heinz, in a letter to Smith, said the label falsely represented that hundreds of jobs had been lost and that its New Zealand products were of poor quality. It said job losses were minimal and that its products are of a high quality.
Heinz demanded Smith re-label his cans or face action in the Federal Court.
"Your statements in relation to both job losses and poor quality are factually incorrect," the letter said.
"Our position is that the statement has caused and continues to cause damage to the reputation of Heinz, together with pecuniary loss to our business."
Smith released the letter from Heinz during a rally of dairy farmers at Tongala in the Goulburn Valley.
He said he stood by the claims, but was worried about the potential cost of legal action.
"They would know that to go to every warehouse and change the label and reprint them - we would go broke," Smith told AAP from Tongala on Wednesday.
"They're only doing this because we're taking up their market share.
"Most people don't look at the label; they just know our stuff is better quality."
Smith said he relied on media reports over the job-shedding claim.
Comment is being sought from Heinz.
The company announced in 2011 it would relocate production of beetroot, some sauces - including its favourite Wattie's Tomato Sauce - and some canned products from Australia to Hastings in Hawke's Bay.
That year, Heinz said the move was expected to create just a handful of new jobs in Hastings but cost over 340 jobs in Australia.
The move was projected to add 30,000 tonnes to the Kiwi factory's output, an increase of between 10 and 15 per cent.