HAVANA CLUB: A CASE SUMMARY AND AN ANALYSIS OF SELECTED LEGAL ISSUES Stephen J. Kimmerling In 1996, Havana Club Holding, S.A, and Havana One might well ask how this happened and what its Club International, S.A. (“Plaintiffs”), two corpora- legal and commercial implications are. Unfortunate- tions jointly owned by Cubaexport1 and the French ly, the Havana Club dispute raises more questions firm Pernod Ricard, sued Galleon, S.A., Bacardi- than answers. Nevertheless, we can begin to find Martini USA, Inc., Gallo Wine Distributors, Inc., those answers by untangling the tight knot of facts G.W.D. Holdings, Inc., and Premier Wine and Spir- and law involved in the case. Understanding the dis- its (“Defendants”) in the U.S. District Court for the pute calls for a review of the Havana Club litigation Southern District claiming trademark infringement decisions. It also requires consideration of relevant for use of the famous Havana Club mark.2 U.S. and international laws. Only then will we be able to answer such questions as: This deceptively simple trademark claim blossomed into a two-year litigation yielding four district court • What legal issues did the district court actually decisions and prompting a flurry of alarmist — and resolve—and which remain open? often inaccurate — media reports. It has also led to a • Who owns the Havana Club trademark in the Havana Club lawsuit filed in Spain3 on behalf of the United States? José Arechabala family;4 a probable European Union • What questions under U.S. law still surround the challenge before the World Trade Organization over now-infamous § 211 that the court applied in its one of the U.S. laws applied in the district court;5 last decision? threats of a U.S.-Cuba trade war;6 and cries by Fidel • Does § 211 conflict with U.S. obligations to Castro threatening to produce Cuban Coca-Cola.7 World Trade Organization members? 1. Cubaexport’s official name is Empresa Cubana Exportadora de Alimentos y Productos Varios; see Havana Club Holding, S.A. and Havana Club Int’l, S.A. v. Galleon, S.A., Bacardi-Martini U.S.A., Inc., Gallo Wine Distribs., Inc., G.W.D. Holdings, Inc. and Premier Wine and Spirits, 1998 WL 150983, at *1 (S.D.N.Y. Mar. 31, 1998) [hereinafter Havana Club III]. 2. Havana Club Holding, S.A. and Havana Club Int’l, S.A. v. Galleon S.A., Bacardi-Martini USA, Inc., Gallo Wine Distribs., Inc., G.W.D. Holdings, Inc. and Premier Wine and Spirits, 961 F. Supp. 498 (S.D.N.Y. 1997) [hereinafter Havana Club I]. 3. Juan O. Tamayo, Cuban Rum War in Spanish Court, MIAMI HERALD, June 24, 1999, [hereinafter Tamayo, Cuban Rum War). 4. See Havana Club Holding, S.A. and Havana Club Int’l, S.A. v. Galleon S.A., Bacardi-Martini U.S.A., Inc., Gallo Wine Distribs., Inc., G.W.D. Holdings, Inc. and Premier Wine and Spirits, 1999 WL 219906, at *3 (S.D.N.Y. Apr. 14, 1999) [hereinafter Havana Club IV] (José Arechabala, S.A., a Cuban corporation, was “[t]he original producer of Cuban rum under the trademark ‘Havana Club.’”). 5. David I. Oyama, EU to Challenge U.S. over Dispute of Pernod, Bacardi, WALL ST. J., June 14, 1999, at A12 [hereinafter Oyama]. 6. Cuba Warns of Trade War in US Trademark Dispute, J. COM., May 25, 1999, at 3A [hereinafter Cuba Warns of Trade War]. 7. Juan O. Tamayo, Fidel Threat: We’ll Make Our Own Coke, MIAMI HERALD, May 11, 1999,[hereinafter Tamayo, Fidel Threat]. 120 Havana Club: A Case Summary and an Analysis of Selected Legal Issues • How might Cuba respond to the Havana Club formed Cuban company, Havana Rum & Liquors, case, and what are the implications for U.S. S.A., and 50% by Pernod; and (2) Havana Club In- trademark stability in Cuba? ternational (“HCI”), which has a 50-50 equity split between Havana Rum & Liquors and Pernod, both FACTUAL SUMMARY through direct holdings and through holdings in HC Until 1960, the Cuban corporation José Arechabala, Holding. Plaintiffs allege that all of the assets associ- S.A. (“JASA”) held the original Havana Club trade- ated with the Havana Club trademark were trans- mark, manufactured the rum in Cuba, and sold it in ferred as part of this reorganization by Cubaexport to Cuba and overseas.8 On or around January 1, 1960, Havana Rum & Liquors, which then transferred the Cuban government forcibly expropriated all of them to HC Holding. HC Holding then granted JASA’s assets and property without ever offering or HCI an exclusive license to sell Havana Club rum paying compensation.9 Judge Shira Scheindlin, who and to use the Havana Club trademark.12 decided the case for the U.S. District Court for the Southern District, laid out the following facts: Sometime in 1993, either prior to Pernod Ricard’s • From 1972 until some time in 1993,… (“Cu- entering into … [its agreement with Cubaexport] … baexport”), a Cuban state foreign trade enter- or soon thereafter, a legal advisor to the company, prise established by the Cuban Ministry of For- Emilio Cuatrecasas, met with members of the Are- eign Commerce, was the exclusive exporter of chabala family to discuss purchasing their waiver of Havana Club rum, primarily to the Soviet any claims to the Havana Club name that they may Union and Eastern Europe. 10 have had. Ultimately, no agreement was reached be- tween the Arechabalas and Pernod Ricard.13 • Under Section 44 of the Lanham Act, foreign entities are permitted to register trademarks in The Arechabalas subsequently attempted to reach an the United States. Pursuant to Section 44, the agreement with International Distillers & Vintners Havana Club mark was registered in the United Limited (“IDV”), an international distilled spirits States in 1976 by Cubaexport,… based on Cu- company, with respect to Havana Club rum, but baexport’s registration of the mark in Cuba. Cu- IDV advised the Arechabalas in or about March baexport continued to market Havana Club rum 1995 that it did not wish to enter into any such internationally from 1972 until 1993.11 agreement. The Arechabalas, however, found a will- In 1993, Cubaexport’s Havana Club rum business ing partner in Bacardi & Co., and following negotia- was reorganized to incorporate a foreign partner. Cu- tions beginning in or about 1995, the parties entered baexport reached an agreement with Pernod Richard, into a formal Share Purchase Agreement in April S.A. (“Pernod”), an international distributor of li- 1997. Pursuant to this agreement, Bacardi & Co. quor, to form two companies: (1) Havana Club purchased the Havana Club trademark, the related Holding (“HC Holding”), of which 50% equity and goodwill of the the [sic] business and any rum busi- board representation was to be held by a newly ness assets that still existed from the Arechabalas.14 8. Havana Club IV, supra note 4, at *3. 9. Id. at *3. 10. Id. (citations omitted). 11. Havana Club Holding, S.A. and Havana Club Int’l, S.A. v. Galleon S.A., Bacardi-Martini USA, Inc., Gallo Wine Distribs., Inc., G.W.D. Holdings, Inc. and Premier Wine and Spirits, 974 F. Supp. 302, 305 (S.D.N.Y. 1997) [hereinafter Havana Club II] (citations omitted). 12. Id. at 305-306 (citations omitted). 13. Havana Club IV, supra note 4, at *3 (citations omitted). 14. Id. 121 Cuba in Transition · ASCE 1999 On October 5, 1995, Plaintiffs applied to OFAC15 service mark, brand name, trade name or other busi- for a specific license authorizing the assignment of ness or commercial designation in connection with the Havana Club trademark, Registration No. the sale, distribution, advertising or promotion of 1,031,651, from Cubaexport to Havana Rum & Li- rum or rum products in the United States”18 and quors, S.A. to Havana Club Holdings, S.A. On No- claimed that Defendants’ use of the famous rum vember 13, 1995, OFAC issued License No. trademark violated Plaintiffs’ rights under the Lan- C-18147, which approved the assignment and au- ham Act.19 thorized all necessary transactions incident to the as- signment of the mark. However, on April 17, 1997, Defendants alleged that Havana Club Holding ob- OFAC issued a Notice of Revocation stating that “as tained rights to the Havana Club trademark in viola- a result of facts and circumstances that have come to tion of the Cuban Asset Control Regulations 20 the attention of this Office which were not included (“CACR”) and the Lanham Act. They claimed that in the application of October 5, 1995, License No. Havana Club Holding had no rights to the trade- C-18147… is hereby revoked retroactive to the date mark since they defrauded OFAC into “authorizing 21 of issuance.” OFAC did not further explain the the assignment of the ... mark.” grounds for the revocation but did state that any ac- While Plaintiffs’ motion for an injunction remained tion taken under the license is null and void as to pending, U.S. district court judge Shira Scheindlin 16 matters under its jurisdiction. wrote “only to consider the issue of whether this In 1995, Bacardi-Martini began to distribute rum in Court ha[d] the power to review OFAC’s issuance of the United States which was produced in the Baha- this license, and if so, whether this review might re- 22 mas under the authority of Galleon, Bacardi & Co.’s sult in invalidating the license.” Following a two- predeccessor-in-interest [sic], bearing the trademark and-a-half page discussion of the Cuban embargo Havana Club. This distribution consisted of sixteen (including a summary of arguments against it), Judge cases of rum shipped to four U.S.