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Sunday, 14 August 2011

Letter from AmeriKat I: When is Puerto Rican rum not Cuban rum?


The AmeriKat's dream of escaping to the land of the free, home of the brave, customer service, and green chiles has been put momentarily on hold until Thanksgiving. In the meantime, she has been prowling London's streets during a couple of days of respite. One could have seen her furry profile looming over Italian literature in Daunt, eating fresh bread at The Riding House Cafe (picture, left), purchasing kitten clothes for her niece at Peter Jones, and meandering to and from Fitzrovia for a morning's stroll. On the way to Fitzrovia one passes the famous Dorchester Hotel - where in 1944 Ernest Hemingway took a room to write articles about the RAF for Collier's Weekly magazine and where Hemingway, as John Walsh writing for the Independent states, "held court as the Great American Writer and went to parties receiving compliments on his beardy, macho wonderfulness." Many, when they think of Hemingway, will think of two things: writer and rum. Hemingway lived in and around Cuba for almost 30 years, and although fond of gin and "the steering liquor" tequila, he was most famously a fan of rum from the country. His home bar held a bottle of Bacardi rum and daiquiris - a drink he paid tribute to in Islands in the Stream - and mojitos were amongst his favorite rum-based drinks (and the AmeriKat's).


When is a bottle of Puerto Rican rum not Cuban rum? When it says it isn't....

Rum is distilled from sugarcane (picture right) by-products such as molasses or directly from sugarcane juice. By a process of fermentation and distillation a clear liquid is obtained that is then aged in oak barrels. The white or dark rum has been a subject of literature and legend for centuries, becoming associated with the English privateers and pirates, which was further bolstered by Treasure Island. Rum production occurs throughout the Caribbean and Latin America, but it has been Cuban rum that has been the subject of decades'-long dispute, and two weeks ago, the subject a Court of Appeals for the Third Circuit decision in Pernod Ricard USA LLC v Bacardi USA, Inc.

The History

For many years there has been a protracted war between Pernod Ricard USA and Bacardi USA over the right to use the words HAVANA CLUB to sell rum in the U.S. The battle's origins stem all the way back before the start of the Cuban Revolution in 1953. Prior to the Revolution, the Arechabala family produced "Havana Club" brand rum in Cuba, sold it locally and exported it for sale in the U.S. Following the Revolution, the Cuban government expropriated the Arechabalas' business without compensation. Three years later in 1963, the US started its trade embargo against Cuba which still continues to this date. The trade embargo, administered by the Office of Foreign Assets Control (OFAC), prevents the importation of Cuban goods into the US. However, the embargo did not prevent the Cuban government in 1976 registering at the USPTO, through a government-owned company called "Cubaexport", the words HAVANA CLUB for use in connection with rum.

In 1994, the Cuban government assigned its claimed interests in the Arechabala family's old business, including the USPTO HAVANA CLUB mark, to joint venture of which Pernod Ricard S.A. (Pernod's parent company) is a member. OFAC approved the transfer of the trade mark in 1995, but then retroactively revoked its permission for the transfer in 1997. The mark remained registered to Cubaexport until July 2006 at which point the registration expired after OFAC denied permission to renew the mark.

In 1994, Bacardi filed a federal trade mark application for the use HAVANA CLUB mark on rum in the U.S. and in the following year Bacardi importated rum from the Bahamas and sold it in the US under the mark for a small amount of time. The joint venture sued Bacardi in the Southern District of New York. While that action was pending, Bacardi purchased from the Arechabala family any remaining rights they might had to the HAVANA CLUB mark, related goodwill in the business, and any rum business assets the family owned. Following the OFAC's revocation of its permission, the suit against Bacardi in New York was dropped.

Bacardi's Havana Club rum

Only days after Cubaexport's federal trade mark registration of HAVANA CLUB expired, Bacardi begun selling in Florida rum made in Puerto Rico using the Arechabala family recipe under the brand name HAVANA CLUB (picture, left - Bacardi's Havana Club rum). According to a member of the Arechabala family, the rum was "almost identical" to the original Havana Club rub made by the family in Cuba. The front of the bottle of Bacardi's rum has the phrase "Havana Club TM" in large stylized letters, followed by the word "Brand" in smaller letters. Below the brand name, in prominent lettering the words "Puerto Rican Rum" appear. The mark HAVANA CLUB appear in other locations on the label, around the neck of the bottle and it is again stated that it is produced in San Juan, Puerto Rico. The back of the bottle contains a printed statement stating that the rum is
"distilled and crafted in Puerto Rico using the original Arechabala family recipe. Developed in Cuba circa 1930..."
In 2006, after Bacardi began its sales of the Puerto Rican Havana Club rum, Pernod filed a false advertising suit under Section 43(a)(1)(B) of the Lanham Act (codified as section 1125(a)(1)(B)) - the false designation of goods provision. Section 43(a)(1)(B) states:
"Any person who, on or in connection with any goods or services, or any container for goods, uses in commerce any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which—in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another person’s goods, services, or commercial activities, shall be liable in a civil action by any person who believes that he or she is or is likely to be damaged by such act."
The District Court's Decision

Pernod alleged that the words "Havana Club" misleads consumers to believe that the rum is produced in Cuba. During the three-day bench trial before the District Court, Pernod presented unrebutted survey evidence that approximately 18% of consumers who looked at Bacardi's bottle were left thinking that the rum was made in Cuba or from Cuban ingredients. However, the District Court ruled in favor of Bacardi finding that the use of the Havana Club brand name reflected the Cuban heritage of the rum's recipe and that Bacardi had "a First Amendment right to accurately portray where the product was historically made". The District Court also held that the Havana Club label clearly and truthfully provided the origin of its rum as being from Puerto Rico and was therefore not deceptive. (picture, right - the famous mojito)

The District Court had admitted Pernod's survey evidence, but decided during the initial step of its determination under section 43(a)(1)(B), that no false or misleading statement was made by the label, so there was no need to "analyze actual (or likely) consumer deception" and therefore skipped over Pernod's survey evidence because
"[a] court is permitted to find, as a matter of law, that no reasonable consumer could be misled by the challenged advertising."
The Court stated that "Havana Club" was not the same as "Made in Havana" or "Havana Rum". Even if "Havana Club" constituted an actionable statement, the question was then whether 'geographic origin' was more akin to 'heritage' or to the 'source of production'. The District Court drew a distinction between section 43(a)(1)(A) which is the preceding section that is focused on trade marks and unfair competition, and (B) which deals with false advertising. Section (A) prohibits false and misleading representation that may deceive consumers about the "origins" of goods and services, whereas (B) prohibits false or misleading representations as to the "geographic origin" of goods and services." In considering the meaning of the addition of the word "geographic" to the word origin in subsection (B) the District Court considered that the authorities dealing with subsection (A) would not be instructive on the meaning of 'geographical origin'. However, the District Court did acknowledge that the Supreme Court in Dastar Corp. v Twentieth Century Fox Film Corp (2003) ( a subsection section (A) case) held that 'origin' refers to
"the producer of the tangible goods that are offered for sale, and not the author of any idea, concept or communication embodied in those goods."
Applying this to 'geographical origin' the District Court held that the meaning of the words would "implicate the place of manufacture, rather than the source of that product's recipe or its heritage", but acknowledged that in the false advertising context the term may be broad enough to embody a product's heritage, including its history and recipe.

Nevertheless, if one took 'geographic origin' to mean origin, Bacardi's label clearly and truthfully informed the consumer that the rum was made in Puerto Rico, not in Cuba. If one took 'geographic origin' to mean heritage, Bacardi's "Havana Club rum" has a Cuban heritage and therefore depicting such heritage is not deceptive. The District Court held that "survey research does not determine the meaning of words or 'set the standard to which objectively verifiable claims must be held.'" (picture, right - the flag of Puerto Rico).

[Note: The Court of Appeals criticized the District Court for endeavouring to use the modifier 'geographic' to expand the meaning of 'origin' into the realm of history, heritage and culture. The Court of Appeals referred again to the Supreme Court's decision in Dastar which observed that a claim for false advertising relating to the authenticity of a good would fall under the "misrepresents the nature, characters [or] qualities' provision of section 43(a)(1)(B). The Court of Appeals stated that applying the Supreme Court's interpretation of the word 'origin' from Dastar may lead more naturally to an understanding of 'geographic origin' as implicating the place of a product's manufacture, not a broad inquiry into the product's background.]

Pernod appealed on the sole ground that the Court failed to consider the survey evidence presented by Pernod.

Click here for discussion of the Court of Appeals decision in Part II.

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