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EMPRESA CUBANA DEL TABACO v. CULBRO CORP.

March 26, 2004.

EMPRESA CUBANA DEL TABACO, d.b.a. CUBATABACO, Plaintiff,
v.
CULBRO CORPORATION and GENERAL CIGAR CO., INC., Defendants



The opinion of the court was delivered by: ROBERT SWEET, Senior District Judge Page 2

OPINION

[EDITORS' NOTE: THIS PAGE CONTAINED TABLE OF CONTENTS.] Page 3

[EDITORS' NOTE: THIS PAGE CONTAINED TABLE OF CONTENTS.] Page 4

 [EDITORS' NOTE: THIS PAGE CONTAINED TABLE OF CONTENTS.] Page 5

  The plaintiff Empresa Cubana del Tabaco. d/b/a Cubatabaco. ("Cubatabaco") seeks to recover for alleged willful acts of trademark infringement, trade dress infringement, unfair competition, misappropriation and trademark dilution by defendants Culbro Corporation (now known as General Cigar Holdings, Inc. and General Cigar Co., Inc. (collectively, "General Cigar") with respect to Cubatabaco's trademark COHIBA for premium Cuban cigars and for cancellation of General Cigar's trademark registrations for that mark.

  After the completion of the pretrial proceedings, a non-jury trial was held on various dates between May 27, 2003 and June 23, 2003. Upon all the prior proceedings and the following findings of fact and conclusions, judgment will be entered in favor of Cubatabaco. cancelling General Cigar's trademark registrations and enjoining General Cigar from using the COHIBA mark. Several of Cubatabaco's other claims, however, are dismissed.

 The Issues

  This action considers trademark issues in the unique context of the trade embargo against Cuba. Cuba has developed several strong cigar trademarks. While nearly all of them were developed before the Cuban revolution, i.e., Partagas, Punch and Ramon Allones, the COHIBA trademark was registered in 1969, and was Page 6 first sold outside of Cuba in 1982. Cubatabaco. alleges that General Cigar has unlawfully infringed on the COHIBA mark in the United States despite the fact that Cubatabaco. not only cannot sell Cuban COHIBA cigars in this country because of the embargo*fn1, but did not register the trademark when General Cigar stopped selling its COHIBA cigars for a number of years, nor did it object to General Cigar's application to register the mark in December 1992.

  Several different issues were explored at trial and in the post-trial submissions by both parties. However, as explained in greater detail below, the following issues are the most important in resolving the liability issues in this litigation:
• Was COHIBA a well-known or famous mark in the United States on November 20, 1992, the date of General Cigar's first new use of the COHIBA trademark?
• Is there a likelihood of confusion between the Cubatabaco. COHIBA and the General Cigar COHIBA?
• Did Cubatabaco. abandon the COHIBA mark in the United States from 1992 to 1997?
  • Did General Cigar act in bad faith in exploiting the COHIBA trademark? Page 7

 The Parties

  Cubatabaco. is a company organized under the laws of Cuba with its principal place of business in Havana, Cuba. Directly, and through its licensee, Habanos, S.A., Cubatabaco. exports tobacco. products from Cuba throughout the world, excluding the United States because of the current trade embargo. It was established by the Cuban government as an independent entity with its own assets and administration and is subject to the jurisdiction of a Cuban ministry.

  Culbro has been merged into and is survived by General Cigar Holdings, Inc. General Cigar Holdings is a Delaware corporation with its principal place of business in the county of New York and functions as a holding company for General Cigar Co. Inc.

  General Cigar Co., Inc. is a Delaware corporation with its principal place of business in Bloomfield, Connecticut. General Cigar Co., Inc. is in the business of manufacturing, marketing, advertising and distributing tobacco. products.

  General Cigar and its predecessors in interest have been major U.S. manufacturers and distributors of cigars for more than a century. Page 8

 Prior Proceedings

  Cubatabaco. filed its complaint on November 12, 1997, alleging that Cubatabaco. possessed a COHIBA mark for its cigars that was "well-known" in the United States at the relevant time, and that General Cigar's efforts to exploit and trade upon Cubatabaco's COHIBA mark in order to generate profits on the sale of its own cigars entitled Cubatabaco. to relief under Articles 6bis and 10bis of the Paris Convention; Articles 7, 8, 20 and 21 of the Inter-American Convention; sections 38 and 43(a) of the Lanham Act, 15 U.S.C. § 1120, 1125(c)(1) and 1125(a); and New York state law.

  On December 11, 1997, the parties in settlement discussions entered into a written agreement that, inter alia, (1) the actions of both parties in this court and in the U.S. Patent and Trademark Office ("PTO") are "stopped"; (2) "the time spent during the negotiation will not be used by any of the parties to the detriment of the other, in case there is no [settlement] agreement;" and (3) "use of General Cigar's COHIBA trademark as from the signing of this Contract will not be used in detriment of Cubatabaco. if agreement is not reached." The parties reported this agreement to the Court on December 16, 1997, and, at their request, all proceedings were stayed, including discovery, until litigation was renewed in February 2000. Page 9

  By order dated December 5, 2000, Counts V (Article 22 of TRIPS), VI (Article 10 of the Paris Convention), VIII (false representation of origin in violation of Section 43(a) of the Lanham Act) and IX (deceptive advertising in violation of Section 43(a) of the Lanham Act) were dismissed with prejudice in light of the decision in Havana Club Holding S.A. v. Galleon S.A., 203 F.3d 116, 124 (2d Cir. 2000). Cubatabaco's motion to strike the jury demand of General Cigar was granted on December 15, 2000. See Empresa Cubana de Tabaco. v. Culbro Corp., 123 F. Supp.2d 203 (S.D.N.Y. 2000) ("Empresa I").

  On June 26, 2002, this Court granted summary judgment for General Cigar dismissing Counts I (Article 6bis of the Paris Convention) and III (Article 7 and 8 of the Inter-American Convention), granted summary judgment for Cubatabaco. on its claim that General Cigar had abandoned the COHIBA mark from 1987 until 1992, and dismissed General Cigar's equitable defenses. See Empresa Cubana de Tabaco. v. Culbro Corp., 213 F. Supp.2d 247 (S.D.N.Y. 2002) ("Empresa II"). Accordingly, Cubatabaco's claims are now limited to:

  (1) Count II (Article 10bis of the Paris Convention); (2) Count IV (Articles 20 and 21 of the Inter-American Convention); (3) Count VII (Trademark Infringement under Section 43(a) of the Lanham Act); (4) Count X (state and common law unfair competition); (5) Count XI (cancellation of the 1995 registration); (6) Count XII (dilution under state and federal law); and (7) [Count] XIII (common law misappropriation). Page 10

 Id. at 286-87. Motions by both plaintiff and defendants to reconsider Empresa II were denied on October 8, 2002. See Empresa Cubana de Tabaco. v. Culbro Corp., 2002 WL 31251005 (S.D.N.Y. Oct. 8, 2002) ("Empresa III").

  In an opinion dated March 12, 2003, the Court struck General Cigar's inadequate defense of abandonment and permitted it to amend its answer to assert an adequate abandonment defense, and excluded the testimony of two late-disclosed witnesses. See Empresa Cubana de Tabaco. v. Culbro Corp., 213 F.R.D. 151 (S.D.N.Y. 2003) ("Empresa IV").

  In accordance with these rulings, the trial took place on various dates between May 27, 2003 and June 23, 2003. Post-trial argument was heard on October 9, 2003.

 FINDINGS OF FACT

  The following constitute the findings of fact of this Court and are based upon evidence adduced from the trial, testifying witnesses, over 1,500 exhibits, and the proposed findings of fact from Cubatabaco. and General Cigar. Page 11

 History of the Cohiba Mark Prior to 1992

  Cubatabaco's Use of the COHIBA Trademark

  In 1969, Cubatabaco. filed an application to register the "COHIBA" mark in Cuba. By 1970, cigars branded with Cubatabaco's COHIBA trademark were being produced at the El Laguito factory in Havana. The cigar box and band bore a distinctive design developed for the COHIBA cigar as well as the COHIBA trademark. The box is plain and unpainted — the box top contains only the COHIBA name and an Indian Head logo, colored solid black, in the lower right corner. The band consists of a solid yellow field on the bottom section, and rows of white squares on a black field on the top. The name COHIBA, in all capitals in black on a white background in a bold sans serif font, straddles the top and bottom sections. The registration issued on May 31, 1972.

  Throughout the 1970's, Cuban COHIBA cigars were commercially available and sold in Cuba at Havana's main hotels, upscale restaurants and two retail outlets. From 1970 to 1975, Cubatabaco. claims that annual sales at the two retail outlets in Havana averaged approximately 100,000 cigars and increased to approximately 180,000 cigars per year by 1975. In addition, since at least 1970, COHIBA cigars had been sold to the Cuban Council of State, which includes the office of the Cuban President and to another Cuban state enterprise which in turn sold the cigars to Page 12 Cuban Ministries and other government institutions.*fn2 Cubatabaco claims that the total volume of sales grew from approximately 350,000 to 375,000 per year from 1970 to 1975 to approximately 550,000 to 600,000 per year from 1975 to 1980. There are no records of these sales, however, as Cubatabaco. has a policy of destroying its sales and production records after five years.

  By January 1978, Cubatabaco. had made application to register COHIBA in 17 countries, including most of the Western European countries.*fn3 The applied-for registrations issued in due course. Cubatabaco. did not, however, sell COHIBA cigars outside of Cuba until 1982.

  In July 1981, Cubatabaco. announced that it would soon begin commercial exports of COHIBA in Cubatabaco. International (July-December 1981), published in English for the foreign cigar trade. The COHIBA cigar was on the issue's front cover. In this publication, Cubatabaco. expressly positioned COHIBA as the pinnacle of Cuban cigars. Page 13

  On June 30, 1982, Cubatabaco. launched COHIBA's international commercial sales at an event in Madrid during the World Cup.

  In 1983, Cubatabaco. sought to register the COHIBA mark in the United States for the first time. In August 1984, its United States attorneys, Lackenbach, Siegal, Marzullo, Pesa & Aronson ("Lackenbach"), informed Cubatabaco. that General Cigar had already obtained the registration on February 17, 1981.

  On February 22, 1985, Cubatabaco. filed an application with the PTO to register in the United States the BEHIQUE mark with the same trade dress it used on COHIBA cigars.

  In 1987, Cubatabaco. sought and obtained an opinion from Lackenbach on whether to begin legal proceedings over the COHIBA registration. Thereafter, Cubatabaco. learned that General Cigar had filed a Declaration of Use and Incontestability for its COHIBA registration under Sections 8 and 15 of the Lanham Act in 1986 in connection with its 1981 registration for COHIBA. Cubatabaco. chose not to take any action against General Cigar.

  General Cigar's Use of the COHIBA Trademark

  General Cigar first learned of the name "COHIBA" in the late 1970's. General Cigar executives had read a Forbes article Page 14 published on November 15, 1977 discussing the impact of Cuban cigars on the U.S. industry and noting that Cubatabaco. was developing a COHIBA cigar to market abroad. In addition, a December 1977 internal memorandum refers to COHIBA as "sold in Cuba/brand in Cuba" and "Castro's brand cigars."*fn4

  In February 1978, General Cigar employee Oscar Boruchin ("Boruchin") discussed the COHIBA brand with Edgar Cullman Jr. ("Cullman"), chairman of Culbro. Boruchin purportedly had learned of COHIBA from a friend who visited Cuba on behalf of the State Department during the Carter Administration and was given COHIBA cigars in Cuba by "the highest echelons of government."

  On March 13, 1978, General Cigar filed an application to register "Cohiba," with a claimed first use date of on or before February 13, 1978. Before or after pursuing this application, General Cigar did not request counsel to conduct a trademark search in Cuba or internationally, which would have disclosed the Cuban registrations. There is evidence to suggest that such a search would not have been industry practice in these circumstances.*fn5 Page 15

  It is a disputed issue as to whether the COHIBA name was well-known at this time. Boruchin testified that he told Cullman that "[n]obody knew the brand," and it was "not on the market," "didn't mean anything to anybody," and was "just given to visitors, diplomats." Cubatabaco. states, however, COHIBA cigars were well-known in the United States cigar industry and among the public because of the Forbes magazine article and a February 6, 1978 article in New York magazine featuring Cubatabaco. and COHIBA. Further, numerous United States journalists, business executives, and others knew of the brand from seeing it on cigars for sale in retail outlets and hotels in Havana, from receiving COHIBA cigars as gifts in Cuba and at receptions in the United States, and by word of mouth.

  On July 25, 1978, the U.S. Patent and Trademark Office ("PTO") asked General Cigar "whether the term COHIBA has any meaning or significance in the relevant trade or industry." General Cigar answered in the negative.

  On March 20, 1979, the PTO, in another Office Action, noted, "Cohiba is a geographical tobacco. growing region of Cuba," and stated that the COHIBA application would be refused as either geographically descriptive or misdescriptive, depending on whether Page 16 the goods were from Cohiba. In a September 14, 1979 response, General Cigar asserted that COHIBA was "wholly arbitrary" and "fanciful and arbitrary," which Cubatabaco. claims General Cigar clearly knew to be false.

  On November 4, 1980, General Cigar's COHIBA application was published in the Trademark Office Official Gazette for opposition purposes. Neither Cubatabaco. nor any other entity opposed General Cigar's COHIBA application. General Cigar obtained United States registration for the COHIBA mark, Registration 1,147,309, on February 17, 1981.*fn6

  General Cigar sold a cigar under the COHIBA name from 1978 until late 1987. From 1978 to 1982, General Cigar shipped 1000 or fewer COHIBA-branded cigars per year. The cigars were White Owl "stock" machine-made cigars that were shipped along with other White Owl cigars (or other "seconds") labeled with as many as 32 other different brands as part of a "trademark maintenance program."

  Beginning in November 1982, General Cigar placed the COHIBA brand on its pre-existing Canario D'Oro premium cigar. The Page 17 total sales from 1982 to 1985 were approximately 600,000 cigars, while fewer than 10,000 cigars were sold in 1986-87. The cigars are described by General Cigar as an "upscale bundle" of cigars, "positioned between premium and machine-made cigars in terms of price and quality." As a result of the declining sales, the lack of advertising by General Cigar, and the nearly complete absence of media mentions of the early General Cigar COHIBA, "[b]y November 1992, whatever goodwill, if any, generated by the sales in the early-mid 1980's would have long been entirely dissipated." Alan Siegel ("Siegel") Report, PX 318, at ¶ 5.

 Fame of the COHIBA Mark in 1992 and Later

  Evidence of the Fame of the COHIBA mark in November 1992

  No studies were commissioned by either party to determine the level of awareness of COHIBA in the U.S. in 1992. As a result, the quantitative data that experts from both sides relied on was from periods before and after General Cigar resumed use of the mark.

  Cubatabaco. has presented evidence which demonstrates that there was a significant interest in Cuban cigars generally in the period before General Cigar's reintroduction of the mark. Cullman has acknowledged that "Cuban cigars have had a mystique in the U.S. since the embargo." Tr. at 1021. In addition, according to the Page 18 Cigar Association of America, the cigar industry's national trade organization, in 1988-89, despite the embargo, "as much as 10% of the 56 million premium cigars smoked in the United States were of Cuban origin." PX 217. The most substantive indication of interest in Cuban cigars and/or COHIBA cigars by premium cigar smokers, however, comes from survey evidence.

  The Shanken Survey

  In December 1991, a survey was conducted on behalf of M. Shanken Communications, Inc. (the "Shanken Survey"). The results were tabulated in January 1992. The survey participants were not representative of the general population, nor were they intended to be. Approximately 44% of the respondents reported annual incomes of over $100,000. Most of the respondents were selected from a list of subscribers to Wine Spectator, which is published by M. Shanken Communications, Inc.

  The survey respondents expressed a particular interest in Cuban cigars: 47% of the respondents thought Cuba produced the best cigars; 33% of the respondents traveled outside the U.S. at least two times a year, and 54% of these travelers indicated that they had purchased Cuban cigars while traveling; and 24% of the respondents stated that the brand of cigar they normally smoked was Cuban. Page 19

  The Shanken Survey did not measure either unaided awareness or aided awareness for any cigar brands. Unaided awareness is awareness of a brand without the benefit of prompting, while aided awareness measures the recognition of a brand after that brand has been mentioned. As measured by the Shanken Survey, awareness of the Cuban COHIBA was quite low:
Only 0.6% of respondents mentioned COHIBA as the most preferred brand they normally smoked, which placed it in a tie for 25th out of 26 among all brands mentioned. COHIBA was only ranked 8th among all Cuban cigars.
When asked about all brands of cigars normally smoked, 1.1% of respondents mentioned COHIBA, which placed it in a tie for the 29th position out of 30 among all brands. Among Cuban brands, COHIBA was ranked 8th.
2.2% mentioned COHIBA when asked about the finest cigar they had ever smoked. On this measure, COHIBA was tied for the 8th position out of 9, and was ranked 6th among Cuban brands. However, in the over $3.50 per cigar group, COHIBA tied for fourth place, with 6% mentioning it.
  Based in part on the Shanken Survey, General Cigar's expert Itamar Simonson ("Simonson"), a marketing professor at Stanford University, hypothesized an unaided awareness level of 3.5%. Simonson also testified that given that figure, the true awareness level was "well below 50% and in all likelihood, well below 15 to 20%," although he could not "put a number on that." Simonson Dep. at 119. Page 20

  February 1992 issue of The Wine Spectator

  The Wine Spectator magazine published a feature in its February 15, 1992 issue entitled "The Allure of Cuban Cigars, Special Report from Havana 30 Years After the U.S. Embargo." PX 1157. The issue included several articles on Cuban cigars, and described COHIBA as Cuba's "finest" cigar. Another article reported that COHIBA is "the hot brand" in London's cigar shops. In an article entitled "The Man Behind the Coveted Cohiba," it is reported that
Cohiba is revered by cigar aficionados like Lafite or Petrus are treasured by wine connoisseurs. American cigar collectors are known to pay three or four times the normal retail price for a box of 25 Cohibas smuggled into America. Actor Tom Cruise reportedly has a standing order for two boxes of Cohiba Robustos whenever he is in Europe.
Id. The total paid circulation of the February 15 issue was 105,659 issues. PX 1221.

  The Launch of Cigar Aficionado

  Sometime in 1992, Marvin Shanken ("Shanken"), the editor and publisher of Wine Spectator, approached Cubatabaco. to seek advertising and assistance in putting together articles for Cigar Aficionado, Cubatabaco. agreed to advertise in the magazine and to provide information for articles about its cigars by giving Shanken Page 21 and his reporters access to farms and factories and setting up interviews upon request. Cubatabaco. agreed to pay the expenses of Shanken and others from Cigar Aficionado for their trips to Cuba.

  On September 1, 1992, M. Shanken Communications, Inc. ("Shanken Communications") published the premier issue of Cigar Aficionado magazine (the "premier issue"). Other than trade papers, it was the only U.S. publication devoted to premium cigars, and remained the sole publication of its kind for several years. Before Cigar Aficionado was published, the only article discussing the Cuban COHIBA in any detail was one written by Shanken and James Suckling, Cigar Aficionado's European Editor, in the February 15, 1992 issue of Wine Spectator.

  The premier issue of Cigar Aficionado had a U.S. circulation of 115,000 copies. Of these, 73,000 represented paid subscriptions, 32,000 went to newsstands (inclusive of cigar retail stores, street newsstands and bookstores) and 10,000 were promotional.

  At year-end 1991, there were 467,000 premium cigar smokers in the U.S.; by year-end 1992, there were 483,100. Thus, the circulation of the premier issue of Cigar Aficionado was equal to approximately 25% of all premium cigar smokers at the time. Page 22

  Cigar Aficionado's premier issue was a glossy, full color upscale publication with high production values. The issue contains a six-page story entitled, "The Legend of Cohiba: Cigar Lovers Everywhere Dream of Cuba's Finest Cigar." COHIBA is described as "legendary to cigar aficionados," and smoking a COHIBA is described as "giving the same kind of satisfaction as a wonderful glass of Chateau Lafite-Rothschild does to a wine lover or a superb main course at a Michelin three-star restaurant does to a gourmet." The issue also rated cigar brands, and gave the COHIBA Robusto the highest ranking, a 96 out of 100. Other highly positive references to the Cuban COHIBA appear throughout the magazine. Other than COHIBA, no article in the premier issue is devoted to a particular cigar brand. Siegel, who has extensive experience in the branding and marketing of products, testified that "[i]n my more than 35 years of experience, I cannot recall any product in any category getting more powerful and favorable publicity than the Cuban Cohiba received in the premier issue of Cigar Aficionado." Siegel Direct ¶ 17.

  The premier issue was published with two different covers, one for the U.S. market and one for the rest of the world. Both mentioned "Cuba's Best Cigar" on the cover, but the international cover featured those words, while the U.S. cover placed the words in smaller print at the bottom, headlining instead "America's Favorite Cigars," a reference to an article within about Dominican-made cigars. Page 23

  Although it cannot be quantified with precision, the Cuban COHIBA was further publicized by pass-along readership, the phenomenon whereby "readers talk to others about what particularly memorable articles they have read in an authoritative publication and frequently pass along the issue." Siegel Direct ¶ 51. Cubatabaco's expert, Alvin Ossip ("Ossip") testified that a premier issue of a magazine would receive greater than average pass-along readership.

  Other Publicity Following the Premier Issue

  The September 21, 1992 issue of Newsweek, with a national circulation of 3,195,309, see PX 64.1, reported on the launch of Cigar Aficionado magazine. The article described Cigar Aficionado's "blind tastings," and noted, "Unfortunately this month's winner, the five-inch Cohiba Robusto (`mouth-filling with rich coffee, spicy flavors and an impressively long finish'), is Cuban and can't be bought on the open U.S. market." PX 1112(c)(1)-49 at P10897. The article also commented on the "impressive 60 pages of ads for such premium products as a handblown bottle of Glenlivet Scotch at $650, Louis Vuitton luggage and, of course, Cohiba cigars." Id.

  Other articles published soon after the premier issue focused on the growing cigar market and referenced both Cigar Aficionado and COHIBA. See Cynthia Penney, "Puff Piece," Forbes, Page 24 Nov. 23, 1992 (observing that Cuban cigars "have enormous cachet" and noting demand for "the fabled Cohibas and Punches and Monte Cristos"); Gregory Katz, "Dominicans Burn With a Desire to Claim Cigar Dominance," Dallas Morning News., Nov. 1, 1992 (referring to COHIBA and Montecristo as "the best Cuban cigars").

  Other Media References

  Between 1986 and November 20, 1992, there were approximately 46 news articles published which mentioned COHIBA. The majority of the articles are not about cigars and mention COHIBA only in passing. Over 70% of the articles contain only a single reference to COHIBA. No evidence has been produced as to how many premium cigar smokers were exposed to the articles. However, COHIBA is referred to in the articles very positively and is portrayed as the cigar of the rich and powerful. A 1990 New York Times article on the film director Michael Winner reports that Winner smoked a "$15 Cohiba cigar as smoked by Castro" and quotes him observing: "Have you noticed that the world's greatest luxury items in the world are always Aas used by' Communist leaders?" John Culhane, In `Bulls-Eve!' the Aim is Laughter, N.Y. Times, Jan. 14, 1990, at Sec. 2, p. 15. A 1992 article in a Miami newspaper stated in a featured sentence in large print: "Cohibas, the best of the Cuban-made cigars, sell for $12 to $25 in London." Nancy San Martin, Fake Cuban Cigars Raise Quite A Stink, Miami Herald, Sep. 30, 1992, at IB. Page 25

  The evidence presented by Cubatabaco. demonstrates that there was significant awareness of the COHIBA brand in November 1992. While the Shanken Survey shows that awareness was quite low prior to the premiere issue of Cigar Aficionado, that issue provided a significant boost in name recognition for the brand. The only significant data on the fame of the brand that post-dates the premier issue comes a year and a half after General Cigar resumed sales of its COHIBA cigar, as set forth below. Undoubtedly, the continued publicity of the Cuban COHIBA in subsequent issues added to whatever fame the brand had achieved in November 1992. Nevertheless, the data from July 1994 can be reasonably extrapolated to determine that the estimates provided by Ossip for mid-1994 to mid-1995 do not grossly overestimate the probable awareness of the Cuban COHIBA brand in November 1992.

  The Introduction of the General Cigar COHIBA in 1992

  In September 1992, following the publication of the premier issue of Cigar Aficionado, General Cigar made a decision to adopt the name "Cohiba" for a new super-premium cigar product. General Cigar made the decision in part to capitalize on the success of the Cuban Cohiba brand and especially the good ratings and the notoriety that it had received in Cigar Aficionado, The General Cigar management, including President David Burgh ("Burgh"), discussed the Cigar Aficionado article. The management was pleased that the Cuban Cohiba had rated so well in the premier Page 26 issue, and thought that it would be good if General Cigar were able to capitalize on those good ratings.

  On November 20, 1992, General Cigar reintroduced its COHIBA as a premium cigar, sold through Alfred Dunhill, a high-end nationwide chain of cigar stores. General Cigar acknowledges that the reintroduction was at least in part a response to Cigar Aficionado's coverage of the Cuban COHIBA. However, Cullman and Ronald Milstein ("Milstein"), a former in-house attorney for General Cigar, both testified that General Cigar had intended to launch a premium COHIBA cigar and had been engaged in discussions with outside counsel since 1989 regarding possible use of the Cuban trade dress on such a cigar. No documentary evidence was adduced showing that General Cigar had plans for a "super-premium" cigar prior to the premier issue of Cigar Aficionado, General Cigar has stated that "[t]he high ranking of the Cuban COHIBA and the perception at the company that the brand would grow in prominence motivated General Cigar management to direct that a product be introduced as soon as possible." Def.'s PFF, ¶ 63.

  In reintroducing its COHIBA, the General Cigar management wanted to use trade dress for its product as close as permissible to that of the Cuban COHIBA. General Cigar pursued this strategy because "they wanted to somehow capitalize on the success of the Cuban brand, and especially at this point in time the good ratings that it got, the notoriety that it got from Cigar Aficionado." Page 27 Milstein Dep. at 283. General Cigar's Vice-President of Marketing, John Rano ("Rano"), retained a graphic designer and asked him to produce packaging that was "exactly same." Bachner Dep. at 56-57. The designer did as instructed, although the prototypes that were made were never used in commerce.

  When considering packaging for the General Cigar COHIBA, Milstein wrote to General Cigar's trademark counsel, Harry Marcus ("Marcus") of Morgan & Finnegan, stating: "Enclosed is a label, a box with a label, and a cigar with a band from Cubatabaco's COHIBA brand cigar. As we discussed, we would like to use a label as near as possible to this one. Please review their U.S. registration and suggest label designs as close as possible to these." PX 926. General Cigar did not tell Marcus that their purpose for wanting to use a label as close as possible to the Cuban COHIBA was in order to capitalize on the success and notoriety of the Cuban brand. See Tr. 1154-55 ("He wouldn't have told me because that is not what I understood his purpose to be.").

  The General Cigar COHIBA that was introduced in November 1992 was sold in a high quality but plain wooden box. The box had only the COHIBA name on the lid and the name of General Cigar's importing company on the bottom with the words "made in the Dominican Republic." DX 287. The COHIBA name printed on the box was in a bold sans serif typeface like that of the Cuban COHIBA and was in a location similar to that of the Cuban COHIBA box. General Page 28 Cigar did not use any element of Cubatabaco's registered Cuban COHIBA trade dress, such as the Indian Head logo or the black, white and yellow design. The box did not have any logo or design, and the cigars were sold without bands. The cigars were sold without bands because General Cigar "didn't want anything to be registering in a very big way with the consumer for a long period of time," Rano Dep. at 99, and "because the brand image was in transition, [General Cigar] did not wish to commit to a band with a particular design on it." Collman Direct ¶ 56.

  The General Cigar COHIBA introduced in November 1992 was in fact a preexisting General Cigar product, "Temple Hall." General Cigar initially manufactured a small quantity — 3600 cigars — and sold them exclusively through Alfred Dunhill stores. Dunhill agreed to sell the unbanded Temple Hall-COHIBA branded cigar because of the COHIBA name. The Dunhill catalog advertised the General Cigar COHIBA as the "[r]ightful heir to the Cuban legend," and noted that "[t]he cigars have no band, but you will know." PX 335. Another Dunhill catalog states in reference to the General Cigar COHIBA that "[t]oday's cigar enthusiast need look no further than the Alfred Dunhill humidors for this celebrated range of Cuban origin." PX 1153. In March 1994, Marc Perez ("Perez"), a buyer for Dunhill, characterized the Cuban Cohiba as "the most legendary cigars in the U.S. market, where they cannot legally be purchased." PX 899. Perez testified that when he wrote that he Page 29 was "playing off the hype that I believe started with the article in the premier issue of Cigar Aficionado." Perez Dep. at 436.

  The Temple Hall-COHIBA was sold by Dunhill, and later by Mike's Cigars, a Florida retailer, wholesaler, and mail-order distributor, for almost five years, from the end of 1992 to sometime in 1997. General Cigar engaged in no advertising or promotion of its Cohiba cigar from 1992 to 1997. Sales of the General Cigar COHIBA from November 1992 to 1996 were as follows:
1992: 5600
1993: 50,000
1994: 49,000
1995: 101,000
1996: 96,000
These sales constituted less than 0.05% of General Cigar's annual premium cigar sales from 1992 to 1996.

  In late 1992 and early 1993, General Cigar decided to seek Cubatabaco's permission to use its registered Cohiba trade dress. According to a memo authored by Milstein in January 1993, the stated rationale for seeking Cubatabaco's permission was that in order "[t]o aid GC in successfully repositioning and relaunching its Cohiba brand cigar, it would be useful to exploit the popularity, familiarity, brand recognition and overall success of Page 30 the Cuban Cohiba." PX 1084. According to Milstein, this referred to General Cigar's intent to develop a brand image in the U.S. based on the growing reputation of the Cuban COHIBA outside the United States. Tr. 1286-87. The memo also stated that "[t]he obvious immediate benefit for GC of such an arrangement is to promote its relaunch of Cohiba and exploit the brand recognition and image of its Cuban cousin." PX 1084. The plan to seek permission from Cubatabaco, however, was ultimately abandoned.

  In the same period from late 1992 to early 1993, General Cigar developed a marketing and advertising strategy with its long-time advertising agency, McCaffery, Ratner, Gottlieb & Lane ("McCaffery Ratner"). The strategy, "Marketing the Cuban Cigar," was prepared either by McCaffery Ratner or by General Cigar in late 1992 and early 1993. The document describes the fame of Cuban Cohiba:
Cohiba is the magic word in the cigar industry. It is consistently given top ranking by the industry judges and the name has a high recognition factor here in the U.S. despite the fact that it cannot be purchased in the country.
PX 966. The possibility of confusion between the two brands was also considered:

  There is a problem that could lead to confusion in the marketplace with the introduction of a premium cigar with the Cohiba name. There is a "Cuban" Cohiba already being advertised here. This creates an uneven playing field Page 31 for the new introduction. It means, essentially, that every Cohiba ad will benefit that cigar equally as well as the American Cohiba cigar. When the embargo is lifted, it is important that General Cigar continue to own the Cohiba name so that they will have leverage in distributing the real, Cuban Cohiba.

 Id. Part of General Cigar's strategy was to foster an association of the General Cigar COHIBA with Cuba. Phase 1 of the marketing strategy was to "[e]xploit the Cohiba name, with its reputation as one of the world's finest cigars, to build a brand image for the U.S. product." PX 314. Among the "tactics" to be used in implementing that strategy was "subliminally connect[ing] the Cohiba name with the romance of pre-Castro Cuba," id., despite the fact that Cohiba was developed after the Cuban Revolution. To do this, McCaffery Ratner originally suggested a "Cohiba Launch Campaign":
For the introduction of Cohiba we recommend a special event. The time is the 50's, the place Havana, Cuba, where the fantasy, glamour, romance and mystic [sic] were at its height and the wealthy Americans and Europeans used it as their playground. We want to titillate the memories of those who have known and those who have wondered.
PX 940.1. The phrase "the place Havana, Cuba" was replaced with "And the place is reminiscent of the favored playgrounds of the Caribbean," id., but the proposal was otherwise unchanged. Page 32

  The 1994 and 1995 Surveys

  The first survey after Cigar Aficionado's publication was conducted by General Cigar in July 1994 by telephone with a sample of 200. The source of the respondents or their qualifications has not been provided by General Cigar. However, Ossip reports that:
The respondents in these studies, compared with those in the Shanken Study, were less likely to be $200,000 a year earners and less likely to be corporate executives and managers, although there was a general upward income skew among respondents. They were somewhat more likely to be under 35 years of age than those in the Shanken Study and somewhat less likely to buy cigars via mail order.
Ossip Direct, ¶ 36. The 1994 survey measured the percentage of respondents who indicated that they had tried a COHIBA cigar ("trial awareness") at 18.5%, placing it 10th among all brands of premium cigars. Unaided awareness in this survey, and in subsequent surveys, was measured by first asking "What is the first brand of cigar you can think of?" and following that up with "What other brands of cigar can you think of?" Respondents were not asked to name Cuban brands. According to the survey, the unaided awareness level for COHIBA was 14.5%. No aided awareness survey data was taken for COHIBA, or for any other Cuban brand.

  Another telephone survey, reported in February 1995 with a sample of 304, but likely conducted earlier, registered a trial awareness for COHIBA of 21.4% and an unaided awareness of 17.1%. Page 33 A third post-publication survey, reported in May 1995 with a sample of 363, registered a trial awareness of 23.4% and an unaided awareness of 16.7%. Simonson, the defendant's expert, hypothesizes that trial awareness is higher than unaided awareness because the previous trial awareness questions "are likely to aid the consumer in retrieving cigar names from memory." Simonson Direct ¶ 47. Ossip similarly suggests that unaided awareness data

 
is obtained in studies like these in a telephone interview where the respondent may not give deep thought to plumbing his memory for brand names, and where the interviewer, who has a long interview to complete, will move the questioning along when the respondent pauses.
Ossip Direct ¶ 38. On average, respondents volunteer 4.4 brand names (some of which are not premium brand names) but they report having tried an average of 6.8 brands.
  All three surveys collected aided awareness data for other brands. The following tables summarize the figures for four brands with comparable trial and unaided awareness rates:
July 1994
Trial Unaided Aided
Davidoff 27 18.0 73
Hoyo de Monterey 26 11.5 76
Avo 26 13.0 52
  Ashton 22 8.5 60 Page 34

  COHIBA 18.5 14.5

  February 1995

  Trial Unaided Aided

  Davidoff 28 16.8 77

   Hoyo de Monterey 32 16.4 80

   Avo 31 15.0 58

   Ashton 22 7.2 58

  COHIBA 21.4 17.1

   May 1995

   Trial Unaided Aided

   Davidoff 31 18.4 80

   Hoyo de Monterey 32 17.1 83

   Avo 32 14.6 61

   Ashton 23 7.7 57

   COHIBA 23.4 16.7

   Aided awareness frequently overstates the true brand awareness because of the phenomenon of "spurious awareness." Spurious awareness occurs when survey respondents are asked whether they have heard of a particular brand name; if the name seems plausible for the product category, some respondents will say they have heard of it even if they have not. Both Cubatabaco's and General Cigar's experts have concluded, however, that "it is almost always the case that true awareness exceeds unaided awareness." Page 35 Tr. 1427 (Simonson). One way to address the problem of spurious awareness is to include "controls," which are "often fictitious brand names that appear plausible for the product category or existing brands from related but different product categories." Simonson Direct ¶ 26. Controls were not used in the 1994 and 1995 surveys. Neither General Cigar nor Cubatabaco. provided an estimate of the degree of spurious awareness in the three telephone surveys.

   Cubatabaco's expert, Ossip, has estimated that based on the survey data "it is likely that Cohiba awareness in mid-1994 to mid-1995 was in the 62-71% range." Ossip Direct ¶ 50. Ossip examined the three surveys for the differences between unaided and aided awareness for nine brands (four of which are shown above), and then averaged the differences as a guideline for the likely increment over Cohiba's reported unaided awareness. Ossip initially averaged seven of the nine brands, which yielded an average increment of 55%. Ossip excluded Macanudo and Partagas "because their extremely high trial rates limit the potential for the increment between unaided and aided awareness." Id. at ¶ 43. In response to criticism by Simonson, Ossip averaged all nine brands, which produced an average increment of 48%. Neither of these approaches are generally used, and are not reported in the relevant literature. Ossip explains his resort to estimation as follows:

   The task of deriving an estimate of aided awareness from unaided awareness numbers is uncommon since if one has an Page 36 interest in both measures then such information would be collected. Apparently, General Cigar was interested in the nine brands for which both types of data were collected, but not in Cohiba unaided awareness. Consequently, I cannot draw on established procedures.

  Ossip Direct ¶ 41. Simonson criticizes the methodology because it is guaranteed to yield an aided awareness level of 48%, even for a brand with zero unaided awareness. While such a result would not make sense, Simonson's criticism has only limited application when applied to unaided awareness levels which are comparable to other brands. In fact, three to four brands in each survey registered lower unaided awareness than COHIBA, despite being available in the United States. It is therefore appropriate to use an estimation technique in determining the Cohiba's aided awareness level in 1994 and 1995.

   While it is true, as General Cigar argues, that "there is no way to derive aided awareness for a given brand from the relationship between aided awareness (or trial awareness) for other brands because these relationships may vary significantly from one brand to another," Def. PFF ¶ 86, it does not therefore follow that it is illegitimate to estimate aided awareness based on similar data for other brands. General Cigar provides no evidence that the aided awareness figures for COHIBA would be significantly lower than those of other brands with comparable trial and unaided awareness figures. Indeed, Simonson also uses estimation techniques to derive an awareness figure from the Shanken Survey, Page 37 which did not ask about unaided or aided awareness. See id. at ¶¶ 77-81. Based on the evidence provided in the 1994 and 1995 surveys, aided awareness of the COHIBA brand was significantly higher than 50% in July 1994.

   Ossip also testified persuasively that the unaided awareness of Cohiba would have measured significantly higher if questions such as "What brands of Cuban cigars can you think of?" were asked, instead of asking about cigar brands generally. Ossip Direct ¶ 40. Such an approach is suggested by Kevin Keller in his book Strategic Brand Management: Building, Measuring and Managing Brand Equity (2d ed. 2003), pp. 453-57, a book also cited by Simonson.

   Evidence of General Cigar's Intent in Reintroducing the COHIBA Mark in 1992

   General Cigar Executives' Trip to Havana

   In November 1992, Milstein and Alfons Mayer ("Mayer"), then General Cigar's Vice President for tobacco, attended a symposium in Havana celebrating the fifth centennial of the discovery of tobacco. Milstein does not speak or read Spanish, although he was involved in the legal aspects of General Cigar's international business. Mayer had worked for General Cigar in Cuba prior to the revolution, and was fluent in Spanish. Page 38

   Neither Milstein nor Mayer had been instructed to engage in any discussion with Cubatabaco. Their plans were to learn more about the world cigar markets and assess the implications for the company should the embargo end.

   Milstein and Mayer had a meeting with Cubatabaco's President, Francisco Padron ("Padron"), on November 3, 1992. There was no mention of COHIBA at the meeting. However, according to a memo by Milstein dated November 25, 1992, "Padron made it very clear that trademarks are not important. ...


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