The Havana Club brand, long synonymous with Cuban white rum, has recently been the cause of an international dispute involving the World Trade Organisation (WTO), the Cuban and us governments, the European Union and two of the largest drinks multinationals: Bacardi Martini and the French Pernod Ricard group.
The complaint, filed by Cuba and the EU with the WTO, stemmed from a legal battle between the two multinationals over which had the rights to the Havana Club trade marks registered in the US.
Havana Club rum was brewed and sold by the Arechabala family in pre-revolution Cuba, and until 1960 when the distillery and business were expropriated by Fidel Castro. The family flew to exile in Miami and the marks were abandoned.
Then in 1993, Pernod set up Havana Club Holding (HCH), a joint venture with a Cuban state-owned rum producer. Under the joint venture, Pernod became co-owner of the world-wide rights to the Havana Club marks I which had been owned by the Cuban government since their expropriation. By 1994, HCH was selling its Cuban produced Havana Club rum around the world. It had also started building a trade mark portfolio covering 220 registrations in 75 countries, including the US, where the original registrations for Havana Club (in the name of the Arechabala family) had lapsed in 1973.
Meanwhile, Bacardi had been marketing rum under the Bacardi trade mark in the US and elsewhere. Following Pernod's success in the US with Havana Club, in April 1997 Bacardi purported to acquire from the Arechabala family the rights to the Havana Club trade marks in the US, Cuba and several other countries where the marks had originally been registered before the Cuban revolution, Bacardi then tried to offset the stiff competition it was facing in the US from Pernod by launching its own rum, also branded Havana Club. It also launched an offensive against Pernod to gain total control of the Havana Club name in the US, filing trade mark applications in its own name as well as cancellation proceedings against Pernod's registrations.
Pernod challenged Bacardi's claim to the trade marks on the grounds that the Arechabala family had abandoned its registrations in the US by failing to renew them when necessary. It also sued Bacardi for trade mark infringement and for misleading the public about the origin of its (Bacardi's) Havana Club rum, which was produced in the Bahamas rather than in Cuba.
In the middle of all this, in 1998, the US government approved a rather obscure piece of legislation: the Omnibus Appropriations Act (OM). This was specifically designed to protect trade marks belonging to businesses confiscated by the Cuban government after the 1959 revolution. Section 211 of the OM establishes that trade marks connected to assets confiscated by Castro cannot be registered without the permission of the original brand owner.
The fight in the US courts went all the way to the Supreme Court, which finally dismissed Pernod's infringement action and held that its claims to protect the Havana Club mark in the US infringed section 211 of the OM. Bacardi's right to the name Havana Club in the US was thus upheld. Consequently, Cuba complained to the Trade Related Aspects of Intellectual Property Rights (TRIPS) Council of the WTO. Pernod lobbied extensively and the EU joined in with Cuba's concerns.
The EU argued that the decision of the US courts was inadequate and that section 211 infringed several US obligations under the TRIPS agreement (originally part of GATT, the General Agreement on Tariffs and Trade, and now administered by the WTO) by treating foreign right-holders with Cuban assets less favourably than US right-holders.
The EU claimed that section 211 obliges companies seeking to register US trade marks to obtain an original owner's consent if those trade marks had previously been expropriated by the Castro government - even when the original owner had abandoned the trade marks and let the registrations lapse. The EU claimed this obligation is unlawful as it is discriminatory and breaches international trade marks rules which state that registration of a trade mark cannot be made conditional on the consent of a trade mark owner who has abandoned his rights.
The WTO gave its final ruling at the end of June 2001 in what had become a long, complicated and very political dispute. It rejected the challenge filed by the EU and held that section 211 precludes US courts from granting rights to Cuban trade marks deemed to be confiscated. The WTO panel upheld the right of the US not to register trade marks confiscated by the Castro regime after the 1959 revolution, confirming that it was up to governments to decide on their trade mark registration criteria. In essence, therefore, the US government and Bacardi won.
While Bacardi's strategy - to launch a new brand on collision course with an existing one in a fight to the death - might seem crazy to an outsider, one should not forget the strength of anti-Castro sentiment in the US; nor the fact that this sentiment is as much entrenched in American law as in American society. Many individuals and businesses are still aggrieved at the nationalisation of their property in 1959, and they appear to have the support of the most powerful government on earth. Bacardi clearly did its homework very carefully before embarking on this course of action.
This is, by no means, the end of the dispute between the parties. At stake are the rights to the lucrative US market once the US government's embargo on all Cuban goods (declared by President Kennedy in 1962) is lifted. And as far as the EU is concerned this row joins a list of important trade disputes with the US that includes: the EU's banana import regime, US tax breaks for exporters, the ban on hormone-treated beef and aid to the aircraft consortium Airbus.
First published in Brand Strategy in August 2001.