By Annie Gasparro 

Unilever PLC on Thursday said it is withdrawing a high-profile lawsuit it filed against a California food startup over the marketing of mayonnaise.

Unilever, which makes Hellmann's and Best Foods brands of mayonnaise, had accused California-based startup Hampton Creek Inc. of false advertising for calling its egg-free spread " mayo," in a complaint filed in U.S. District Court in New Jersey.

The consumer products giant alleged that the marketing for Just Mayo was misleading to shoppers. The spread doesn't fit the U.S. Food and Drug Administration's definition for mayonnaise because it doesn't contain eggs. Unilever demanded that Hampton Creek change its label, and sought compensation for unspecified damages, claiming Just Mayo was stealing market share from Hellmann's.

Hampton Creek was founded three years ago to produce substitutes for common egg-based foods that instead are based on plants, which the company says is healthier and more environmentally friendly. The startup has raised $30 million from investors including Microsoft co-founder Bill Gates.

Established food companies have been grappling with growing competition from natural- and organic-food producers that are luring skeptical consumers away from traditional packaged foods.

The Unilever suit, filed Oct. 31, quickly gained national attention in part because of a petition on Change.org asking Unilever to "stop bullying sustainable food companies." That petition had 112,392 supporters as of Thursday afternoon.

As the petition gained traction last month, Unilever stuck to its guns, saying the lawsuit is to protect consumers from false advertising, not to knock small, or socially responsible, food makers.

Mike Faherty, vice president for Unilever's North American food business, said Thursday that Unilever decided to drop the lawsuit "so that Hampton Creek can address its label directly with industry groups and appropriate regulatory authorities."

He praised Hampton Creek's corporate purpose and morals, saying that because of that, Unilever thinks Hampton Creek "will take the appropriate steps in labeling its product going forward."

Hampton Creek Chief Executive Josh Tetrick said the company is keeping the Just Mayo name and not making changes to its label, and that Unilever saw the public support for Hampton Creek and realized itself and Hampton Creek have similar values. The FDA declined to comment.

Write to Annie Gasparro at annie.gasparro@wsj.com

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