woman cigar old havana

Trademarks, State-owned Enterprises, and Cuba’s Rum and Cigar Industries

Bacardi’s recent US marketing campaign for its Havana Club® brand feels like a typical Barardi campaign, but the look is quite different from the brand’s original label seen mostly outside the US.

The Bacardi bottle’s trade dress is vintage-style packaging that features the Arechabala family crest – not the familiar red oval – and the rum is actually Puerto Rican rum. The reason why Bacardi’s Havana Club® lacks the familiar image on its label is connected to a much larger dispute with roots back to the Cuban revolution and earlier. Bacardi, the largest privately-held spirits maker in the world, is not standing still in the face of what it believes was an illegal confiscation of its assets.

When Fidel Castro took power in 1959, he nationalized the Cuban economy. In the wake of the confiscation, the US Foreign Claims Settlement Commission (FCSC) created a registry to record the Cuban assets seized from American citizens and corporations.  Neither these claims nor the claims of Cuban citizens have ever been settled.

While there has been no movement on asset claims since 1959, there has been a lot of litigation around two Cuban brands that have current economic value, mostly through ex-US sales – and could become much more valuable when the US embargo against Cuba allows US residents a taste of Cuba’s forbidden fruit in the form of its world-famous cigars and rum.

Havana Club® Rum

Havana Club®‘s trademark’s history is the envy of any enterprising trademark attorney. When Jose Arechabala S.A. was nationalized after the Cuban revolution, the Arechabala family fled Cuba, stopped producing rum and in 1973 allowed the US trademark registration for Havana Club to lapse. Taking advantage of the lapse, the Cuban government Havana Club rumregistered the mark in the US in 1976. In 1993, The brand was then assigned by the Cuban government to the French spirits giant, Pernod Ricard SA, it’s global marketing partner.

In 1994, US-based Bacardi obtained the Arechabala family’s remaining rights in the brand and began producing limited amounts of rum in Puerto Rico under the Havana Club® name. Between 1995 and 1996, Bacardi sold 922 cases in the US. Pernod Ricard successful sued in two of the first three legal cases that make up the first round of litigation on the matter.

In 1998, the US Congress passed the “Bacardi Act”, which protected trademarks related to expropriated Cuban companies.  It applied only to the Havana Club® trademark. The act was ruled illegal by the World Trade Organization in 2001 and 2002, on the grounds that it singled out one country – Cuba.

A second round of litigation occurred (from 2009-2012) through the US Federal court system and the Trademark Trial and Appeal Board. Bacardi prevailed again. After this defeat, Pernod Ricard created a similar “Havanista” mark as a plan B option for future Cuban rum sales in the US.  And the US Supreme Court’s refusal to address the matter appeared to settle the dispute.

In January of this year, in a twist, the US Patent and Trademark Office ruled that Cubaexport, the Cuban entity claiming ownership of the Havana Club® trademark, is the owner of the trademark. Bacardi Executive Vice President of External Affairs Rick Wilson said the company would “take every means available to fight this.  It’s appalling that this administration goes ahead and grants this license to the Cuban government for assets that were confiscated,” he said of the Obama administration.  More litigation is expected.

According to Pernod Ricard’s annual report, Havana Club’s sales totaled 4 million cases in 2015. The company’s total net sales in 2o15 was $9.7 billion.

Havana Club’s CEO, Jerome Cottin-Bizonne, has said the company is investing $90 million over the next few years to expand its operations in Cuba in preparation for the opening of the US market.

Cohiba® Cigars

The Cohiba® cigar brand is known worldwide as a symbol of quality and exclusivity. Despite its near universal notoriety, the trademark is actually the property of two companies that have been locked in a legal battle in the US for more than 17 years.

Cohiba cigarCohibas® that are legally purchased in the US are Dominican Republic-produced cigars made by General Cigar. Culbro Corp., which has since been merged into General Cigar, obtained a US registration for the mark “Cohiba” in 1981. General Cigar obtained a second US registration in 1995.

Cubatabaco (Empresa Cubana del Tabaco), owned by the Cuban government, began producing cigars under the name “Cohiba” pursuant to a trademark registered in Cuba in 1972. In the 1970s, Cubatabaco registered the trademark in more than 115 countries, except in the US.

Imperial Tobacco Group PLC, based in the UK, currently distributes all Cuban cigars sold world-wide through a joint venture with Cubatabaco.

US law, under the Cuban Assets Control Regulations (CACR), prohibits Cuban merchandise from being sold in the US – thus, in 2005, Cubatabaco’s legal efforts to claim the trademark failed because it would have resulted in a transfer of prohibited proprietary rights to the mark under the CACR.

In 2006, General Cigar’s legal victory appeared insurmountable when the US Supreme Court denied Cubatabaco’s petition for writ of certiorari.

In a surprising legal twist, the US Court of Appeals for the Federal Circuit ruled in favor of Cubatabaco by giving it standing to seek a cancellation of the registrations that blocked its own ability to register trademarks. This 2014 ruling means that the Second Circuit’s 2005 determination that Cubatabaco could not prevail in an infringement action – since the relief sought would result in a prohibited transfer of the mark – was “irrelevant to the proceeding before the Board,” according to the Federal Circuit.

In February of this year, the US Supreme Court handed another victory to Cubatabaco by refusing to intervene in the legal case against General Cigar. The decision allows Cubatabaco to once again request the cancellation of the trademark registered by General Cigar.

The case will now move to the U.S. Patent and Trademark Office’s Trademark Trial and Appeal Board (TTAB). If the US embargo against Cuba is lifted, and the legal provisions of the CACR are rescinded, Cubatabaco could gain control of the Cohiba® trademark in the US.

US International Trade Commission

Written submissions made by Bacardi and General Cigar to the U.S. International Trade Commission (Commission) focused on the reported need for reforms to address the dominance of Cuban state-owned enterprises in the rum and tobacco sectors, respectively, before normalizing trade relations between the US and Cuba.

Bacardi’s written submission to the Commission stated that it will be unable to compete effectively with the Cuban government-favored state monopoly without access to the physical assets and trademarks expropriated by Cuba in 1960. According to Bacardi, any normalization must be based on the principle of reciprocity. That is, US and other foreign firms should be free to export, invest, and compete on the same footing as state-protected operators in Cuba. Bacardi stated that Cuba’s restrictions on investment are particularly severe, as multinational firms have been required to form joint ventures with state enterprises, employ Cubans vetted by the government, and compete with protected state monopolies on unfair terms.

Bacardi asserted that it seeks a long-term and multifaceted process for normalization that would require Cuba to permit the import of US goods and services on a most-favored-nation basis; open investment to US firms on the same terms the US extends to foreign firms; privatize state-owned enterprises; and respect and enforce the IP rights, including trademarks, of prior owners, foreign exporters, and investors.

General Cigar, a US company that makes and markets premium cigars, stated in its written submission that it holds a certified loss claim for assets expropriated by Cuba, including interests such as trademarks that it purchased in the claims of exiled Cuban tobacco families. According to General Cigar, if trade were normalized without the ability of companies other than state-owned entities and their partners to access Cuban tobacco, the exiled families would be twice deprived of the value of their Cuban businesses.

General Cigar further stated that Cuba’s tobacco sector is fully state-controlled, with no ability for companies other than the state entity and its joint venture partners to access the Cuban crop, establish cigar operations, or distribute Cuban-made products. Like Bacardi, General Cigar states that distortions in the Cuban market must be reformed before trade normalization proceeds.

Sources: Bacardi, written submission to the USITC, October 22, 2015; General Cigar, written submission to the USITC, October 23, 2015; Wilson, statement to the House Committee on the Judiciary, February 11, 2016; Empresa Cubana del Tabaco v. General Cigar Co., Inc., 753 F.3d 1270 (Fed. Cir. 2014).

Trademarks, State-owned Enterprises, and Cuba’s Rum and Cigar Industries was last modified: July 19th, 2016 by Simons Chase