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A Case of Rum

A few months ago I discussed the potential legal implications of Anheuser Busch’s application to protect the 619 area code as a trademark for beer. Geographic trademarks appear to be increasingly attractive to marketers, as consumers tend to react positively to goods that purport to come from certain locations – think of Wisconsin for cheese. While it remains to see how the 619 trademark application will unfold, a recent case provides insight into using location as a marketing tool.

Recently, rum giant Bacardi obtained a favorable ruling (link leads to the court opinion) in their legal dispute with Pernod (a leading international wine and spirits provider) over the sale of Bacardi’s “Havana Club” rum. Pernod claimed that Bacardi was falsely advertising the rum’s geographic origin per §43(a)(1)(B) of the Lanham Act, the Federal statute that covers trademark and false advertisement disputes.

The case has a long, twisted history dating back to the 1930’s involving the Communist revolution in Cuba, the resulting government, the US/Cuba trade embargo, an age old family rum recipe, and two liquor giants battling it out to the bitter end.

A Brief History of the Ongoing Battle Over “Havana Club” Rum

Beginning around 1935, the Arechabala family produced “Havana Club” rum in Cuba and sold it locally while also exporting it for sale in the US. Following the Communist revolution in 1960, the Cuban government nationalized the Arechabala’s rum business.

A few years later, the US began the trade embargo against Cuba, which is still in effect today and which prevents importation of almost any Cuban goods. In 1976, Cubanexport (the Cuban government-run company that now owned the Arechabala’s rum business), in spite of the embargo, registered HAVANA CLUB as a trademark in the US for use in connection with rum.

Fast forward to 1994, when, through a series of transfers, the Cuban Government assigned its claimed interest in the Arechbala’s rum business to Pernod. Included in this sale was the USPTO registration for the HAVANA CLUB mark. The following year, OFAC (Office of Foreign Assets Control) approved the transfer of the trademark. However, in 1997, OFAC retroactively revoked their permission for the transfer of the mark, reverting the rights back to Cubaexport.

Meanwhile, in 1994, Bacardi had filed an application with USPTO for use of the HAVANA CLUB mark on rum in the US For a brief period, Bacardi labeled rum they imported from the Bahamas with this mark and sold it. Pernod responded by filing suit in US District Court to enjoin (prevent) Bacardi’s use of the HAVANA CLUB mark.

While Pernod’s action was pending, Bacardi purchased from the Arechabala family any remaining rights the family might still own in the HAVANA CLUB mark and any other rum business assets the family owned. Following OFAC’s revocation of the mark’s transfer in 1997, Pernod’s suit was dismissed.

Finally, in 2006, just days after Cubaexport’s federal trademark registration of  HAVANA CLUB expired, Bacardi began selling rum in Florida using “Havana Club” as the brand name. According to the court documents, the rum was distilled in Puerto Rico and made using the Arechbala family recipe they had purchased.

The Legal Status

After Bacardi began selling this “Havana Club” rum, Pernod filed a false advertising suit, arguing that the labeling of Bacardi’s bottle, specifically with respect to the words “Havana Club,” mislead consumers into believing that the rum was produced in Havana, Cuba. After the US District Court sided with Bacardi, Pernod appealed to the US Third Circuit Court of Appeals, who, last month, also held in favor of Bacardi.

Because of the unique circumstances regarding the trade embargo and retroactive removal of Pernod’s ownership of the HAVANA CLUB mark, the Court viewed Pernod’s legal claim as “a proxy for the real fight the parties want to have, which is over the right to exclusive use of ‘Havana Club’ as a trademark.” Because Pernod didn’t own the trademark in HAVANA CLUB (thanks to OFAC) and couldn’t register it themselves (thanks to the trade embargo, given that the rum is produced in Cuba), they did not have standing to pursue a traditional trademark claim.

Pursuing legal action under a false advertising claim, rather than one of trademark infringement, put Pernod at a significant disadvantage. Under false advertising law, the court was required to consider the Bacardi product’s entire label, including the part that says “Puerto Rican Rum.” On the other hand, if a court is presented with a trademark claim based upon false designation of origin, they only have to consider the wording of the trademark itself. As a result, the court concluded that, because the label clearly stated that the rum was made in Puerto Rico, no reasonable consumer could be mistaken into believing that it was produced in Havana, and therefore Pernod’s false advertisement claim was invalid.

Although the focus of the opinion centered on a false advertisement analysis, the Court noted that this case presented a unique question of whether “geographic origin is more akin to ‘heritage’ or to the ‘source of production.’” Which is the type of question that could potentially come into play in a more conventional trademark inquiry concerning geographic description, such as Anheuser Busch’s use of area codes as a brand identifier for beers.

Here, the court applied both “heritage” and “source of production” analyses, concluding that: 1.) the “Havana Club” rum label, in whole, “clearly and truthfully provided the origin of the rum” (Puerto Rico), and 2.) “Havana Club” rum did not deceptively depicting a Cuban heritage because the rum is based on the Arechabala’s recipe which is authentically Cuban, having originated in Cuba in the 1930s.

In sum, the court held that the “Havana Club” label, taken as a whole, could not mislead any reasonable consumer about where Bacardi’s rum is made. The court even went as far as to mention that if they had to answer the same questions by looking at the HAVANA CLUB trademark in isolation, the case may have had a different result.

How Does This Apply to Non-Cuban Brand Identifiers?

There are some parallels to take away from this case that could apply to a trademark claim regarding “geographic origin.” Businesses who wish to use geographic descriptions to market products should be prepared to show that the product either is actually produced in that area or that it has heritage linking the product to the area. In any case, geographic terms, while attractive from a marketing perspective, are perilous in terms of trademark and false advertising law. In most cases, the best approach is to identify another, less-controversial branding approach.

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