Pernod Ricard Loses Appeals Court Ruling in Bacardi ‘Havana Club Fight

Pernod Ricard SA, the world’s second-biggest liquor maker, lost a U.S. court ruling in its decades-long battle with Bacardi Ltd. over the right to use the name Havana Club on rum in the American market.

The U.S. Court of Appeals in Washington ruled today that the U.S. Treasury Department’s Office of Foreign Assets Control was correct when it refused to let a Cuban state-owned group renew its U.S. trademark on the Havana Club name because of a 1998 law that barred renewal of certain Cuban trademarks.

Pernod Ricard sells Havana Club throughout the world except in the U.S. under a 1993 venture with Cuba’s state-owned Cubaexport. It has been fighting with Bacardi over rights to the name in the U.S. since 1994, when Bacardi applied for a U.S. trademark on Havana Club. The U.S. Patent and Trademark Office rejected Bacardi’s request in part because of Cubaexport already had a trademark.

At stake is Pernod’s future use of an historic brand name in the world’s second-largest market for rum should the U.S. embargo on Cuban goods be lifted. U.S. consumers buy about 17 percent of the world’s rum, second only to India’s 29 percent, according to the London-based industry research firm International Wine and Spirit Research.

“We will appeal,” Ian Fitzsimons, Pernod’s general counsel, said in a telephone interview. “We’re encouraged that it was only a decision by a 2-1 majority. We were particularly encouraged by the dissenting opinion.”

Cuban Trademarks

Cuban trademarks have been registered in the U.S. in anticipation of an end to the embargo, and for the same reason U.S. companies regularly register trademarks in Cuba even as the 1963 U.S. embargo blocks most trade between the countries.

The Havana Club trademark was first used by the Arechabala family in Cuba, which lost its distilling company in 1960 when it was nationalized by Fidel Castro’s revolutionary government. After the trademarks owned by the Arechabalas lapsed, Cubaexport registered the trademark in the U.S. in 1976 and assigned it to a Pernod joint venture in 1993.

In 1998, Congress passed legislation making trademarks confiscated by the Cuban government unenforceable in the U.S. The law, known as Section 211, has been applied only to the Havana Club mark. The World Trade Organization has said since 2001 that the law violated international treaties and demanded that it be changed.

Each company claims to have the legal rights to the Havana Club name and to make the “real” Havana Club rum. Pernod says its rum is made in Cuba using traditional methods.

Family Rights

Bacardi, which traces its roots to 1862 in Cuba and bought rights to the name from the Arechabala family, contends that it relies on the recipe of Jose Arechabala, the original maker of Havana Club, according to court papers.

Bacardi, based in Hamilton, Bermuda, said it was “thrilled” with the decision.

“With this ruling, the United States reaffirms the traditional principle that confiscation of trademarks in one country has no effect on another,” Patricia Neal, a spokeswoman for Bacardi, said in an e-mailed statement. “Cuban confiscation of trademarks without compensation to the original owners does not extend to U.S. trademarks.”

Standard Rum

Pernod, based in Paris, has turned Havana Club into the world’s fourth-most popular brand of standard rum, selling about 3.5 million cases a year, up from 400,000 cases sold in 1993, according to the International Wine and Spirit Research report.

Without access to the U.S. market, Pernod’s Havana Club has 5 percent of the world’s rum market, compared with 35 percent for Bacardi’s eponymous rum, about 16 percent for Diageo Plc’s Captain Morgan and 6.9 percent for closely held Brugal Co.’s namesake spirit, according to the report. Bacardi’s Havana Club, available since 2006 only in Florida, doesn’t sell enough to register on the firm’s ranking.

After its 1994 bid to register the Havana Club name failed, Bacardi sued in 1999 in Spain, claiming it was the rightful owner of the Havana Club trademark.

Two Spanish courts ruled that the joint venture with Pernod is the proper owner because the Arechebala family neglected its rights, both in allowing its trademark to expire and waiting too long to challenge ownership. The Spanish Supreme Court in February sided with Pernod.

Assets Control

Bacardi has had more luck in the U.S. The decision today upholds a trial judge’s ruling that the Office of Foreign Assets Control acted within the scope of the 1998 Section 211 law blocking Cubaexport’s application to renew the trademark on Havana Club.

Still pending is an appeal in a case in which a federal judge in Wilmington, Delaware, rejected Pernod’s claim that Bacardi was misleading consumers into thinking its rum was made in Havana. The fact that it is made in Puerto Rico is clearly marked, the judge said.

The OFAC case is Empresa Cubana Exportadora v. Department of Treasury, 09-5196, U.S. Court of Appeals for the D.C. Circuit (Washington). The lower court case is Empresa Cubana Exportadora de Alimentos y Productos Varios v. U.S. Department of Treasury, 06cv1692, U.S. District Court for the District of Columbia.

The 3rd Circuit case is Pernod Ricard USA LLC v. Bacardi USA Inc., 10-2354, 3rd U.S. Circuit Court of Appeals (Philadelphia). The Delaware case is Pernod Ricard USA LLC v. Bacardi USA Inc., 06-cv-505, U.S. District Court for the District of Delaware (Wilmington).

To contact the reporter on this story: Susan Decker in Washington at sdecker1@bloomberg.net.

To contact the editor responsible for this story: David E. Rovella at drovella@bloomberg.net; Allan Holmes at aholmes25@bloomberg.net.

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