June, 2001: Cover Story
By Greg Rushford
Published in The Rushford Report
Angered that the U.S. Congress passed a law to take away Cuba's rights to the U.S. trademark for Havana Club rum, Fidel threatened to make Cuba Libres from his own "Bacardi" rum and a Cuban "Coca-Cola".
You would think that it would be easy to determine which of two global liquor giants — Bacardi Limited, or France’s Pernod-Ricard — has the legal rights to the U.S. trademark for Havana Club rum. In fact, it is easy. There are, as usual in legal disputes, interesting arguments on both sides. But the most powerful ones clearly suggest that Pernod, not Bacardi, has the rights to the U.S. trademark for Havana Club (an abandoned Cuban brand name that had never previously been associated with either the famous Bacardi rum or the Bacardi family). The difficulties stem from the fact that Pernod has a joint venture with Cubaexport, the trading arm of Fidel Castro’s Cuba. When Fidel is involved, nothing is ever simple.
But the stakes are far higher than who owns the U.S. rights to the Havana Club label. Some 400 U.S. companies — including household brands like Coca-Cola, Kellogg’s, Mars M&M’s, and Procter & Gamble — have been waiting somewhat nervously for a WTO dispute-resolution panel to rule on a complaint brought against the United States by the European Union.
If the WTO panel doesn’t uphold the EU’s complaint, it would be saying that it is okay for the United States to ignore a Cuban trademark that has been registered by the Cuban government with the U.S. Patent Office since 1976. If the United States can do that to Cuba, Cuba could respond in kind. Castro could deny protection to legitimate U.S. trademarks that are presently registered in Cuba, which is a member of the WTO. A mischievous Fidel has already raised the prospect of making Cuba Libres from his own brands of “Bacardi” rum and a Cuban “Coca-Cola.” (The Coke that is sold on the streets of Havana today is labeled Made in Mexico).
The EU charges that the United States has violated Pernod’s legitimate intellectual-property rights to hold the U.S. rights to the Havana Club label. Specifically, the EU is alleging that Congress passed a classic special-interest law designed to help Bacardi’s legal position vis-à-vis Pernod, thus running afoul of U.S. obligations as a signatory of the WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights, the so-called TRIPS agreement (As a WTO member, Cuba is also part of TRIPS). The WTO panel could rule this month.
Pernod has been making Havana Club in Cuba and selling it around the world — except for the United States — since 1993. The joint venture between Pernod and Cubaexport holds the worldwide rights to the Havana Club trademark. Pernod is waiting for the lucrative day when the U.S. economic embargo against Cuba is lifted. Bacardi doesn’t want that to happen.
Even if the WTO panel rules in favor of the EU (and Pernod), as most legal authorities expect, this case isn’t likely to be over anytime soon. Think of the difficulties in getting Congress, where anti-Castro sentiment is widespread — to strike the offending law to bring the United States into compliance with TRIPS. U.S. Trade Representative Robert Zoellick is currently desperately in search of congressional votes for fast-track trade authority for President George W. Bush. Mindful of Cuban-American sentiment on Capitol Hill, Zoellick is expected to buy some political time for Bacardi sympathizers by filing an appeal.
Zoellick’s press secretary, Rich Mills, did not return a telephone call asking if the USTR would explain the U.S. position on the substantive issues that the WTO panel has been weighing.
Zoellick’s desire to keep a low profile could signal his recognition that there isn’t much real substance to the official U.S. position to discuss. An internal October 1998 USTR staff memo that was leaked to Inside U.S. Trade concludes that the pro-Bacardi piece of legislation that the EU was complaining about “is problematic since it violates our obligations under the TRIPS agreement.”
While it is obviously important and strongly suggests that the legislation was regarded from the onset as highly dubious, the memo may be something less than a true smoking gun. It was written by officials with responsibility for congressional affairs, not USTR’s general counsel. Still, USTR officials under Zoellick’s predecessor, Charlene Barshefsky, defended the statute when the EU challenged it. They were probably thinking more of Cuban-American politics than TRIPS.
The law that the United States government has defended anyway was passed in October 1998, when Florida Republican Sen. Connie Mack slipped a few pro-Bacardi lines into a 4,000 page omnibus appropriations measure. Known as Section 211, Mack’s rider — principally drafted by Bacardi lawyer Ignacio Sanchez, a partner in the Miami office of D.C.’s Verner, Liipfert, Bernhard, McPherson and Hand — was written to prevent U.S. courts from the enforcement of trademarks associated with expropriated Cuban property. The controversial section basically repealed Pernod’s rights under the Inter-American Convention and the Lanham Act, Section 44 of which permits foreign entities to register trademarks in the United States.
Section 211’s target was a trademark-infringement suit brought by Pernod against Bacardi, which had begun marketing its own “Havana Club” rum in the United States in 1995. You don’t own the label, we do, Pernod’s lawyers argued.
A few months after Section 211 became U.S. law, U.S. District Judge Shira Scheindlin of the Southern District in New York cited Section 211 when she threw out Pernod’s suit.
How did Pernod come to acquire Havana Club?
A bit of Cuban history explains.
Shortly after coming to power in 1959, Castro stole the Havana Club distillery in Cuba from its owners, the Jose Arechabala family, most of whom fled to live in exile in Spain. Castro then began exporting Havana Club, mostly to his patrons in the Soviet Union and to the Soviet satellite countries in Eastern Europe. It is logical to say that after Castro is out of office the Arechabalas may well have a claim inside Cuba against the Cuban government for stealing its property on the island. But that’s tomorrow’s problem, and a separate one from the matter of who owns the U.S. trademark for Havana Club.
Even before Castro took power in 1959, the Arechabala family had already shown signs of losing its competitive drive. In Cuba, partygoers were enjoying their daiquiris mostly from Bacardi rum. In 1955, for example, the Arechabala family did not renew its Havana Club trademark registrations in several countries. After 1960, the Arehabalas failed to defend their trademarks in all of the key global markets that Pernod is now exploiting.
The Arechabalas didn’t even pay the $20 dollars to keep their Havana Club registration current in the United States. They walked away from one trademark registration in the United States in 1962. They took a hike again when the last trademark rights to Havana Club lapsed in 1973. For lawyers, that is a record demonstrating nearly 14 years of Arechabala non-interest in Havana Club in this country. In 1974, since the trademark was then fair game for anyone, Cubaexport paid the filing fee to the U.S. Patent Office. The Cuban government entity was awarded the trademark in 1976. Not a peep from the Arechabalas. The Cuban-Pernod joint venture — Havana Club Holdings — renewed the trademark again in 1996.
Ramon Arechabala, who had lived the playboy life in Havana in the 1950s before fleeing to Spain, told the American Lawyer’s Arian Campo-Flores last year that he had been told by a Cuban lawyer friend in Miami that the renewal was impossible. Arechabala said that he couldn’t remember his friend’s name. That is hardly the mark of a driven entrepreneur.
By the mid-1990s, however, the Bacardi interests were alert to anything that their competitor Pernod was up to. Bacardi bought the Havana Club trademark from the Arechabalas in 1995. The obvious question is: did the Arechabalas really have anything to sell? By then it had been nearly four decades since the Arechabalas had walked away from Havana Club trademarks around the world.
By contrast to the Arechabalas, the Bacardis were smarter after Castro stole their property in Cuba in 1960. The Bacardi family admirably got busy working its way to a greater prominence than the family had previously enjoyed in Cuba.
Now headquartered in Bermuda, Bacardi Limited is one of the world’s top three or four liquor concerns, offering brands like Dewar’s Scotch, Bombay gin, and of course Bacardi rum in 170 countries. Bacardi operates distilleries in Mexico, Puerto Rico, Brazil, and the Bahamas. Unlike the Arechabalas, the Bacardis have successfully defended their trademarks from Fidel Castro’s encroachment in several countries.
The Bacardi family’s drive has also a long and honorable political history. Bacardis stood with Jose Marti to fight for Cuban independence in the 1890s. Some Bacardis went to jail in the 1950s for opposing dictator Fulgencio Batista (as well as Castro). Since 1959, the Bacardis have been opposing Castro, big time. The company is a bulwark of the anti-communist sentiment in the Cuban-American community in the United States, and the Bacardis have contributed millions of dollars to both major U.S. political parties.
For Bacardi, Pernod is a very tough competitor of roughly equal size. Pernod offers some 80 brands around the world, including Wild Turkey Bourbon and Bushmills Scotch, as well as the company’s original anise liquour. Pernod has recently acquired such valuable Seagram’s brands as Chivas Regal, Extra Dry gin, and Glenlivet scotch whiskey. It makes obvious business sense for Bacardi to work overtime to prevent Pernod and its Havana Club rum from competing for the big U.S. market when the Cuban embargo is lifted.
And so far, Bacardi‘s strategy has succeeded, at
least up to a point. Thanks to Section 211, no U.S. court has said who
owns Havana Club’s U.S. trademark.
Fidel would love to have the last word — but it isn’t likely.
In March, Castro announced that (impoverished) Cuba would begin producing its own Bacardi rum. The Bacardi family members could be forgiven if they laughed. The Cuban dictator did not explain how he would be able to sell “Bacardi” rum outside of Cuba, due to Bacardi’s vigorous enforcement of its valid trademark rights.
What about Castro’s threats (and legal rights, depending upon the outcome of the WTO Bacardi-Pernod case) to retaliate by going after the trademarks of important U.S. companies like Coca-Cola? While the issue is certainly important in a legal sense, Castro really is in no position to offend corporate America. He needs the CEO’s — the majority of whom strongly oppose the U.S. economic embargo against Cuba — as political levers.
How will all this play out?
As with all other issues regarding Cuba, the answers seem to come down to the lifespan of the 74-year old Castro.
It is probable that Pernod will ultimately prevail in marketing Havana Club in the United States, when that day comes.
It is also probable that even though they walked away from their trademark rights to Havana Club around the world, after Castro’s death the Arechabala family will launch a successful legal challenge inside Cuba to get compensation for what Castro stole from them.
It is also easy to imagine the Bacardi family proudly returning to Cuba to reclaim what Castro stole from them.
The ultimate loser will be Fidel Castro.