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HAVANA CLUB HOLDING, S.A. v. GALLEON

June 28, 1999

HAVANA CLUB HOLDING, S.A. AND HAVANA CLUB INTERNATIONAL, S.A., PLAINTIFFS,
v.
GALLEON, S.A., BACARDI-MARTINI U.S.A., 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, District Judge.

  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.

I. Background

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" rum.*fn2

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.

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.

II. Discussion

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 statute provides:

  (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
  expressly consented.
  (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
  name.
  (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 ...


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