AMENDED OPINION AND ORDER
At the heart of this case lies an interesting irony: a
half-Cuban company, Havana Club International, S.A., brings an
action to enjoin what it believes is unfair competition and to
preserve its ability to some day compete in the United States
market. Plaintiffs currently distribute a Cuban-origin rum around
the world under the name "Havana Club," but are prohibited from
selling their liquor in the United States because of the Cuban
embargo. Defendants own Bacardi rum, the best-selling brand of
spirits in this country, and claim to be the
successors-in-interest to the rights of the Cuban company that
owned the Havana Club rum business prior to its expropriation by
the Castro government in 1960. Through this action, plaintiffs
seek to enjoin defendants from selling rum under the name "Havana
Club" in the United States.
A. The Parties
Plaintiff Havana Club International, S.A. ("HCI") is a joint
stock company organized under the laws of the Republic of Cuba,
and is domiciled and has its principal place of business in Cuba.
Plaintiff Havana Club Holding, S.A. ("HCH"), a holding company
that owns the Havana Club trademark in certain countries outside
the United States, is a corporation organized under the laws of
Luxembourg. Plaintiffs were formed in connection with a November
1993 agreement ("Convenio Asociativo") between Pernod Ricard,
S.A. ("Pernod Ricard"), a French Company, and Havana Rum &
Liquors, S.A. ("HRL"), a Cuban company. Pursuant to the Convenio
Asociativo, Pernod Ricard and HRL each own 50% of HCH and,
directly and through their ownership interests in HCH, each own
50% of HCI.
Defendant Galleon, S.A. has been merged into defendant Bacardi
and Company Limited ("Bacardi & Co."), which is organized under
the laws of Liechtenstein and is headquartered in the Bahamas.
Bacardi-Martini U.S.A. ("Bacardi-Martini," and together with
Bacardi & Co., "Bacardi") is incorporated in Delaware.
B. Procedural Background
As explained in this Court's three previous opinions in this
case, plaintiffs currently have no rights to the use of the
Havana Club trademark. See Havana Club Holding, S.A. v. Galleon,
S.A., 961 F. Supp. 498 (S.D.N.Y. 1997); Havana Club Holding,
S.A. v. Galleon, S.A., 974 F. Supp. 302 (S.D.N.Y. 1997); Havana
Club Holding, S.A. v. Galleon, S.A., 96 Civ. 9655, 1998 WL
150983 (S.D.N.Y. March 31, 1998). A bench trial was held before
this Court on plaintiffs' remaining claims: (1) that defendants'
sales of Havana Club rum infringe plaintiffs' trade name in
violation of Chapter III of the General Inter-American Convention
for Trademark and Commercial Protection, 46 Stat. 2907
("Inter-American Convention"); (2) that defendants' sales of
Havana Club rum infringe plaintiffs' trade name in violation of
§§ 44(g) and 44(h) of the Lanham Act, 15 U.S.C. § 1126(g) and
(h);*fn1 and (3) that defendants' Havana Club rum is
geographically misdescriptive because it leads consumers to
erroneously believe that it originates in Cuba, in violation of §
43(a) of the Lanham Act, 15 U.S.C. § 1125(a). Plaintiffs seek no
money damages, only injunctive relief and attorney's fees and
costs. In defending against plaintiffs' § 43(a) claim, defendants
assert the affirmative defense of "unclean hands," on the basis
that plaintiffs have used ingredients of
non-Cuban origin in a significant amount of their "Cuban"
Following the close of plaintiffs' case, defendants made a
motion for judgment pursuant to Fed.R.Civ.P. 52(c) on a variety
of grounds. The Court granted the motion as to plaintiff HCH on
its tradename claims, on the ground that HCH is organized under
the laws of Luxembourg, which is not a party to the
Inter-American Convention. The Court deferred ruling on the
remainder of this motion until the close of defendants' case.
C. Factual Background
Based upon the evidence presented at the trial, I find the
following facts to be true. Since January 1, 1994, HCI has been
in the business of exporting rum under the "Havana Club"
trademark under an exclusive license from HCH. See Joint
Statement of Stipulated Facts, Exhibit A to Joint Pretrial Order
("SF"), at ¶¶ 4-5. From 1994 through 1998, HCI sold approximately
38,400,000 bottles of Havana Club rum, with approximately 30% of
the sales in Cuba and the remainder exported principally to
Spain, France, Germany, Italy, Canada, Mexico, Bolivia and
Panama. See Testimony of Noel Adrian, Managing Director of HCI
("Adrian Tr."), at 73-74.
Pursuant to the Cuban embargo that has been in place since
1963, U.S. law prohibits the importation of Cuban-origin products
into the United States. See generally, Havana Club, 961 F. Supp.
at 499-500. Thus, plaintiffs' Havana Club rum has never been sold
in the United States. See Adrian Tr. at 105. U.S. visitors to
Cuba, however, are permitted to bring the rum back to the United
States as accompanying baggage. See Plaintiffs' Exhibit ("PX")
407. Pursuant to the travel restrictions imposed by the Office of
Foreign Assets Control ("OFAC"), the class of travelers permitted
to visit Cuba includes journalists, official government
travelers, members of international organizations, persons with
close relatives in Cuba and travelers who have received special
licenses from OFAC. See id.; 31 C.F.R. § 515.560. These
travelers may reenter the United States with up to $100 in
Cuban-origin goods for personal use, with cigars and Havana Club
rum being the most popular items brought back. See id.;
Testimony of Hilda Maria Diaz ("Diaz Tr."), travel agent, at
299-300. Commencing in 1994, HCI has distributed a carrying case
in which tourists can carry their purchases of Havana Club rum,
and since that time travelers from the United States have been
returning with Havana Club rum in these cases. See Adrian Tr.
at 111-113; PX 150; Diaz Tr. at 293.
Although it is currently prohibited from selling in the United
States, HCI intends to export Cuban-origin rum to the United
States as soon as it is legally able. See Adrian Tr. at 105-07.
HCI anticipates using the same marketing strategy it is currently
following worldwide, which emphasizes the quality and the
character of Havana Club rum based mainly upon its Cuban origin.
See id. Thus, for example, the label on its Havana Club bottles
reproduces the city of Havana and proclaims the product to be "El
Ron de Cuba" ("The Rum of Cuba"). HCI's advertising similarly
stresses the product's link to Cuba. See Adrian Tr. at 89-91.
The original producer of Cuban rum under the trademark "Havana
Club" was Jose Arechabala, S.A. ("JASA"), a Cuban corporation,
which was principally owned by members of the Arechabala family.
See Testimony of Ramon Arechabala ("R.
Arechabala Tr.") at 1229, 1235; Defendants' Exhibit ("DX") 583.
JASA exported Havana Club rum to the United States until 1960.
See SF at ¶ 62. On or about January 1, 1960, however, armed
forces from the Castro government forcibly entered into
possession and confiscated the property and assets of JASA. See
R. Arechabala Tr. at 1231-1243. On October 15, 1960, Cuban Law
No. 890 ("Law No. 890") was issued, expropriating for the Cuban
government the physical assets, property, accounts and business
records of JASA. See DX 573A ("Law No 890") ("Nationalization
is ordered by the forced expropriation of all industrial and
commercial corporations, as well as the factories, stores,
warehouses and other assets and rights of same and the properties
of the following natural persons or companies").*fn3 No
compensation was ever paid to JASA or its owners by the Cuban
government or any other entity on behalf of the Cuban government
for the property and assets that were seized in 1960. See R.
Arechabla Tr. at 1236; Deposition of Gloria Marquez Arechabala
Misto at 174-176.
From 1972 until some time in 1993, Empresa Cubana Exportadora
De Alimentos y Productos Varios ("Cubaexport"), a Cuban state
foreign trade enterprise established by the Cuban Ministry of
Foreign Commerce, was the exclusive exporter of Havana Club rum,
primarily to the Soviet Union and Eastern Europe. See SF at ¶¶
64-66. In 1993, Cubaexport reorganized its business to
incorporate a foreign partner, transferring all of the assets
associated with the Havana Club rum business, including its
Havana Club trademark, to HRL. Pursuant to the Convenio
Asociativo entered into with Pernod Ricard, HRL transferred these
assets to HCH, which, in turn, granted an exclusive license to
sell Havana Club rum and use the Havana Club trademark to HCI.
Sometime in 1993, either prior to Pernod Ricard's entering into
the Convenio or soon thereafter, a legal advisor to the company,
Emilio Cuatrecasas, met with members of the Arechabala family to
discuss purchasing their waiver of any claims to the Havana Club
name that they may have had. See SF at ¶ 77; Testimony of
Thierry Jacquillat, president of Pernod Ricard ("Jacquillat Tr.")
at 1450-1452. Ultimately, no agreement was reached between the
Arechabalas and Pernod Ricard. See Jacquillart Tr. at 1452.
The Arechabalas subsequently attempted to reach an agreement
with International Distillers & Vintners Limited ("IDV"), an
international distilled spirits company, with respect to Havana
Club rum, but IDV advised the Arechabalas in or about March 1995
that it did not wish to enter into any such agreement. See SF
at ¶ 80. The Arechabalas, however, found a willing partner in
Bacardi & Co., and following negotiations beginning in or about
1995, the parties entered into a formal Share Purchase Agreement
in April 1997. See PX 253, 254. Pursuant to this agreement,
Bacardi & Co. purchased whatever rights (if any) the Arechabalas
possessed in any Havana Club trademark, the related goodwill of
the business and any rum business assets that the Arechabalas
still owned. See id.
In 1995, Bacardi-Martini began to distribute rum in the United
States which was produced in the Bahamas under the authority of
Galleon, Bacardi & Co.'s predeccessor-in-interest, bearing the
trademark Havana Club. This distribution consisted of sixteen
cases of rum shipped to
four U.S. distributors. See SF at ¶ 19; PX 146. From May 1996
through August 1996, Bacardi distributed an additional 906 cases
of Havana Club rum to distributors in seven states. See PX 136,
146. Bacardi has not distributed any Havana Club rum since 1996,
pursuant to an agreement reached with plaintiffs to halt such
sales pending the outcome of this litigation.
A. Trade Name Claims
On October 21, 1998, prior to the trial but well into the
course of this litigation, Congress passed § 211 of the Omnibus
Appropriations Act. See Pub.Law 105-277 (1998). This new
statute limits the registration and renewal of, and the assertion
of trademark and trade name rights in, marks that were used in
connection with property confiscated by the Cuban government. The
(a)(1) Notwithstanding any other provision of law, no
transaction or payment shall be authorized or
approved pursuant to section 515.527 of title 31,
Code of Federal Regulations,*fn4 as in effect on
September 9, 1998, with respect to a mark, trade
name, or commercial name that is the same or
substantially similar to a mark, trade name, or
commercial name that was used in connection with a
business or assets that were confiscated unless the
original owner of the mark, trade name or commercial
name, or the bona fide successor-in-interest has
(2) No U.S. court shall recognize, enforce or
otherwise validate any assertion of rights by a
designated national based on common law rights or
registration obtained under such section 515.527 of
such a confiscated mark, trade name or commercial
(b) No U.S. court shall recognize, enforce or
otherwise validate any assertion of treaty rights by
a designated national or its successor-in-interest
under sections 44(b) or (e) of the Trademark Act of
1946 (15 U.S.C. § 1126(b) or (e)) for a mark, trade
name or commercial name that is the same or
substantially similar to a mark, trade name, or
commercial name that was used in connection with a
business or assets that were confiscated unless the
original owner of such mark, trade name, or
commercial name, or the bona fide
successor-in-interest has expressly consented.*fn5
Defendants argue that subsection (b) of this new statute
prevents this Court from recognizing any trade name rights to
which plaintiffs would otherwise be entitled in the name "Havana
Club." It is well-established that Congress may pass legislation
that effectively takes away rights to which parties were
previously entitled by virtue of U.S. treaty obligations. "[A]n
Act of Congress . . . is on a full parity with a treaty, and . .
. when a statute which is subsequent in time is inconsistent with
a treaty, the statute to the extent of the conflict renders the
treaty null." Reid v. Covert, 354 U.S. 1, 18, 77 S.Ct. 1222, 1
L.Ed.2d 1148 (1957); Whitney v. Robertson, 124 U.S. 190, 193, 8
S.Ct. 456, 31 L.Ed. 386 (1888) (where a treaty and a statute
conflict, the last one in date controls); accord, Breard v.
Greene, 523 U.S. 371, 118 S.Ct. 1352, 1355, 140 L.Ed.2d 529
(1998). Courts, however, will find later legislation to have
abrogated a treaty only when Congress' intention to do so "has
been clearly expressed." Trans World Airlines, Inc. v. Franklin
Mint Corp., 466 U.S. 243, 252, 104 S.Ct. 1776, 80
L.Ed.2d 273 (1984). Abrogation of a treaty by implication will
only be found when the later legislation is "in irreconcilable
conflict" or the legislation "covers the whole subject of the
earlier [treaty], and is clearly intended as a substitute."
Posadas v. National City Bank of New York, 296 U.S. 497, 503,
56 S.Ct. 349, 80 L.Ed. 351 (1936). In either case, the intention
of the legislature must be clear. See id.
Here, in specifying that "no U.S. court shall recognize,
enforce or otherwise validate any assertion of treaty rights by a
designated national," Congress made clear its intention to repeal
rights in marks and trade names derived from treaties where those
marks and trade names satisfy the requirements set forth in §
211. As a company owned in part by the Cuban government, HCI
clearly is a "designated national" within the meaning of the
statute.*fn6 See SF at ¶ 41. In addition, the evidence at
trial established that on October 13, 1960, the Revolutionary
Cuban Regime confiscated the physical assets, property and
business records of JASA, the original owner of the Havana Club
trademark. See 31 C.F.R. § 516.336. Thus, on its face, § 211
would appear to prevent HCI from asserting its trade name claims.
HCI, however, argues that for a variety of reasons § 211 does not
effect the outcome in this case.
1. Claim Asserted under the Inter-American Convention
HCI's first argument turns on the language of § 211(b) and the
self-executing nature of the Inter-American Convention.
Specifically, HCI argues that § 211 does not apply to rights
derived from self-executing treaties, but rather is only
addressed to the assertion of "treaty rights . . . under
Sections 44(b) or (e) of the Trademark Act" (emphasis added). HCI
points out that it has asserted a trade name infringement claim
directly under Chapter III of the Inter-American Convention, and
that the Convention grants it the private right to bring an
action in the United States to enjoin infringement of its trade
name. Thus, HCI argues, because it has pled a claim for
protection of its trade name under Chapter III of the
Inter-American Convention, and because this claim does not arise
"under sections 44(b) or (e) of the Trademark Act," § 211 does
not bar this claim.
The Inter-American Convention, which was adopted at a special
conference held in February 1929, is a self-executing treaty, and
thus it became law in the United States without the necessity for
implementing legislation. See Bacardi Corp. of America v.
Domenech, 311 U.S. 150, 161, 61 S.Ct. 219, 85 L.Ed. 98 (1940).
Article III, which covers commercial or trade names, provides
that a party in any of the Contracting States
may, in accordance with the law and procedure of the
country where the proceeding is brought, apply for
and obtain an injunction against the use of any
commercial name or the cancellation of the
registration or deposit of any trade mark . . . by
proving: (a) that the commercial name or trade mark,
the enjoining or cancellation of which is desired, is
identical with or deceptively similar to his
commercial name already legally adopted and
previously used in any of the Contracting States, in
the manufacture, sale or production of articles of
the same class . . .
General Inter-American Convention for Trademark and Commercial
Protection, Chapter III, Article 18.