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HAVANA CLUB HOLDING, S.A. v. GALLEON S.A.

March 10, 1997

HAVANA CLUB HOLDING, S.A. and HAVANA CLUB INTERNATIONAL, S.A., Plaintiffs, against GALLEON S.A., BACARDI-MARTINI USA, INC., GALLO WINE DISTRIBUTORS, INC., G.W.D. HOLDINGS, INC. and PREMIER WINE AND SPIRITS, Defendants.


The opinion of the court was delivered by: SCHEINDLIN

 SHIRA A. SCHEINDLIN, U.S.D.J.:

 I. INTRODUCTION

 A. The Pending Motion

 Plaintiff Havana Club Holding, S.A. ("HC Holding"), owner of a United States registration of the trademark "Havana Club," and Plaintiff Havana Club International, S.A. ("HCI"), exclusive licensee of that trademark, seek to enjoin Defendants Galleon S.A., Bacardi-Martini USA, Inc., Gallo Wine Distributors, Inc., G.W.D. Holdings, Inc. and Premier Wine and Spirits (collectively "Defendants") from using the words "Havana Club" as part of any trademark, service mark, brand name, trade name or other business or commercial designation in connection with the sale, distribution, advertising or promotion of rum or rum products in the United States. Plaintiffs allege that such use violates their respective rights under Sections 32 and 43 of the Lanham Act, 15 U.S.C. §§ 1114 & 1125, and have moved for a preliminary injunction pursuant to Fed.R.Civ.P. 65.

 In connection with their affirmative defenses and counterclaims, Defendants allege, inter alia, that Plaintiff HC Holding secured its alleged rights to the "Havana Club" mark in violation of the Cuban Asset Control Regulations ("CACR"), 31 C.F.R. Part 515, and the Lanham Act, 15 U.S.C. §§ 1059, 1064(3), 1120. Specifically, Defendants contend that the license HC Holding obtained from the United States Department of the Treasury's Office of Foreign Asset Control ("OFAC") authorizing the assignment of the Havana Club mark was procured by fraud. *fn1" Defendants assert that as a result, the assignment of the Havana Club mark to HC Holding is null and void, and HC Holding has no rights in the mark.

 Plaintiffs' motion for a preliminary injunction is currently pending. I write at this stage of the proceedings only to consider the issue of whether this Court has the power to review OFAC's issuance of this license, and if so, whether this review might result in invalidating the license. At the Court's request, the parties briefed this issue by way of letters each submitted to the Court on February 21, 1997.

 B. The Cuban Embargo

 The CACR were implemented in 1963 under Section 5(b) of the Trading With the Enemy Act of 1917 ("TWEA"), as amended, 50 U.S.C. App. 1-44. Section 5(b) afforded the President "broad authority to impose comprehensive embargoes on foreign countries as one means of dealing with both peacetime emergencies and times of war." Regan v. Wald, 468 U.S. 222, 225-26, 82 L. Ed. 2d 171, 104 S. Ct. 3026 (1984). The CACR, one such embargo, were adopted in response to alleged Cuban efforts to destabilize Latin American governments. Id. at 226 (citing Presidential Proclamation No. 3447, 3 C.F.R. 157 (1959-1963 Comp.)).

 Section 5(b) was amended in 1977 to limit the President's authority to times of war. See Title I, Pub. L. No. 95-223, § 101, 91 Stat. 1625. The same bill, however, enacted a new law that now covers the President's powers in response to peacetime crises. See International Emergency Economic Powers Act, 50 U.S.C. §§ 1701-06 ("IEEPA"). Although the IEEPA and TWEA differ significantly with respect to the conditions and procedures required for the President's exercise of his peacetime authority, these differences are not relevant for present purposes. The IEEPA grandfathered the existing exercises of the President's "national emergency" authority, see Pub. L. 95-223, § 101(b), 91 Stat. 1625, as well as permitting the President to extend its exercise at one-year intervals provided that such an extension "is in the national interest." Pub. L. 95-223, § 101(c), 91 Stat. 1625. *fn2" The recently enacted Cuban Liberty and Democratic Solidarity ("LIBERTAD") Act of 1996, codified at 22 U.S.C. §§ 6021-24, 6031-46, 6061-67, 6081-85, 6091, prescribes certain conditions that must occur in Cuba before the President may lift the embargo, including the transition to a democratically elected government, and requires the President to consult with Congress before lifting it. See 22 U.S.C. §§ 6061, 6064-6066. This Act continues the embargo indefinitely and suspends the IEEPA's requirement that the President revisit the embargo each year. See 22 U.S.C. § 6032(h) (providing that all restrictions under the CACR's shall remain in effect until a democratically elected government is in power in Cuba). *fn3"

 The President had delegated his powers under the TWEA to the Secretary of the Treasury in 1942, who, in 1962, delegated the administration of foreign assets control regulation to OFAC. See Sardino v. Federal Reserve Bank of New York, 361 F.2d 106, 109 n.2 (2d Cir.), cert. denied, 385 U.S. 898, 17 L. Ed. 2d 130, 87 S. Ct. 203 (1966). OFAC remains responsible for executing and enforcing economic embargoes and sanctions programs against several countries. See Free Trade with Cuba Act, Hearings on H.R. 2229 Before the Subcomms. on Select Revenue Measures and Trade of the House Comm. on Ways and Means, 103rd Cong. 99 (1994) (statement of R. Richard Newcomb, Director of OFAC) ("Newcomb Test."). In that capacity, OFAC administers the embargo against Cuba pursuant to the CACR.

 The CACR prohibit transfers of property, including trademarks, in which a Cuban entity has an interest, except when specifically authorized by the Secretary of the Treasury. 31 C.F.R. §§ 515.201(b), 515.311. Licenses of the type at issue in this matter are one such type of authorization. Id. The CACR creates both general licenses, which permit classes or categories of transactions with Cuban nationals, see, e.g., id. § 515.542 (authorizing "all transactions of common carriers incident to the receipt of mail between the United States and Cuba"), and specific licenses, which require individualized determinations and approval by OFAC. See id. § 515.801. OFAC, acting on behalf of the President, enjoys considerable discretion to authorize otherwise prohibited transactions by way of licenses. See id. § 515.801 (b) (6). *fn4" Moreover, OFAC has the same discretion to amend, modify or revoke both the licensing provisions of the CACR, as well as individual licenses, at any time. Id. § 515.805.

 The wisdom of maintaining the Cuban embargo that the CACR embody some 35 years after its inception has come under serious attack from many camps and on many grounds in recent months. The embargo has been harshly criticized by several United States allies (including Mexico, Canada, and the European Union), a delegation from the United States Association of Former Members of Congress, the American Association for World Health, and notably, one of the embargo's original architects, Arthur Schlesinger, Jr., former special advisor to President Kennedy. See Jack Nelson, Embargo in Cuba Exacts a "Tragic Human Toll", L.A. Times, March 3, 1997, at A4; David E. Sanger, U.S. Won't Offer Trade Testimony on Cuba Embargo, N.Y. Times, Feb. 21, 1997, at A1; William E. Gibson & Deborah Ramirez, Cuban Embargo Intact after 35 Years, Houston Chronicle, Feb. 9, 1997, at 34; After Cuba Trip, U.S. Group Sees Castro Keeping Power, Boston Globe, Jan. 10, 1997, at A9; Editorial, A Frozen Approach to Cuba, Jan. 10, 1997, at A32. Much of the controversy has been churned up in the wake of the recent passage of the Cuban Liberty and Democratic Solidarity Act ("the Act"). The Act has further tightened the embargo in what its critics view as a profoundly misguided attempt to topple the Castro regime. *fn5"

 This new legislation reiterates some standard rationales for the embargo -- among them protecting national security and ending Castro's regime -- rationales that, according to its detractors, have endured longer than the embargo's "success" justifies and outlived whatever usefulness they may once have possessed. The Los Angeles Times reports that the American Association for World Health's ("AAWH") year long study of Cuba has concluded that the embargo itself has led to increased suffering and death in Cuba, a condition that has been aggravated by the passage of the Act. See Jack Nelson, Embargo in Cuba Exacts a "Tragic Human Toll", L.A. Times, March 3, 1997, at A4. For example, the article relates that according to the AAWH, screening and treatment for breast cancer has been severely compromised by the embargo, to the point that the entire screening program was halted in both 1994 and 1995 due to a shortage of x-ray film. Id. The study charges, according to the Los Angeles Times, that the embargo has contributed to cutbacks of supplies of safe drinking water due to a lack of equipment and chemicals, which has in turn led to increased outbreaks of typhoid fever, dysentery, and viral hepatitis. Id.

 Critics also question the embargo's continued relevance to and impact on our national security. Some contend that the enduring presence of the embargo is counterproductive, only strengthening Castro's grip on Cuba by furnishing an all-purpose excuse for any and all of Cuba's ills. See William E. Gibson & Deborah Ramirez, Cuban Embargo Intact after 35 Years, Houston Chronicle, Feb. ...


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