Cuban Embargo Prevents Renewal Of Trademark Registration

U.S. presidents have power under the 1917 Trading with the Enemy Act to impose embargoes on trade with foreign countries. In 1963, President Kennedy acted under that statute to embargo trade with Cuba and, pursuant to that embargo, the Treasury Department issued the Cuban Assets Control Regulations (“CACR”). The CACR prohibit most transactions between Americans and Cubans. The regulations contain certain exceptions that can be amended, modified or revoked at any time. One such exception allowed Cuban-affiliated entities to register and renew U.S. trademarks.

A Long-Running Case

The Cuban trade embargo has been at issue for more than a decade in the long-running case between Bacardi and Pernod Ricard over the U.S. rights to the HAVANA CLUB trademark for rum. HAVANA CLUB rum was created in Cuba in the 1930s by the Arechabala family, who registered the trademark in the United States in 1935 and sold their rum under that trademark in the United States for the next 20 years. In 1960, when Fidel Castro came to power in Cuba, the Arechabala family's manufacturing plant and trademark were seized by the Cuban government, which began producing rum under the HAVANA CLUB name.

In 1976, after the Arechabalas' HAVANA CLUB trademark registration had expired, the Cuban government (under the name Cubaexport) registered the HAVANA CLUB trademark in the United States, using the exception for Cuban-affiliated entities. French liquor producer, Pernod Ricard, partnered with the Cuban government to sell Cuba's HAVANA CLUB internationally, including in the United States. The Arechabala family, the original HAVANA CLUB trademark owners, did not then have a channel to produce their famous rum in the United States; however, they always intended to resume producing and marketing HAVANA CLUB rum once they had the means and opportunity to do so. In furtherance of that desire, the Arechabalas partnered with Bacardi to sell rum under the HAVANA CLUB name.

Pernod Ricard based its right to enforce the HAVANA CLUB trademark on a transfer by Cubaexport of the trademark to HAVANA CLUB Holdings, S.A. (“HCH”), a joint venture between the Cuban government and Pernod Ricard. HCH renewed the HAVANA CLUB registration in 1996, using the same exception for Cuban-affiliated entities. Bacardi based its claim to the HAVANA CLUB trademark on its purchase of the trademark rights from the Arechabala family.

Pernod Ricard filed suit against Bacardi for trademark infringement, and Bacardi filed an action with the U.S. Patent and Trademark Office to cancel Pernod Ricard's registration of HAVANA CLUB. Pernod Ricard lost its infringement claim and subsequent appeals, and Bacardi lost its cancellation claim before the Trademark Trial and Appeal Board. Havana Club Holding, S.A. v. Galleon, S.A., 203 F.2d 116 (2nd Cir. 2000), cert. denied, 531 U.S. 918 (2000); Galleon S.A. v. Havana Club Holding, S.A., Canc. 92024108 (TTAB 2004) (appealed). In 2006, HCH ran into difficulty renewing the registration because it was barred from paying the renewal fee under the CACR.

An Exemption

The CACR contain a general license that permits transactions relating to trademark registration applications or renewals by Cuban nationals. 31 CFR ' 515.527(a). However, in 1998, Congress exempted from the general license any marks or trade names that were “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 consented.” The 1960 confiscation by the Cuban government of the Arechabala assets brought those registrations within the 1998 exemption.

Because Pernod Ricard was unsure whether 31 CFR ' 515.527(a) applied to the trademarks that had been seized from the Arechabalas by the Cuban government, it applied for a special license from the Treasury Department's Office of Foreign Assets Control (“OFAC”) to engage in the necessary monetary transactions to renew the HAVANA CLUB registration. OFAC denied the license application and Pernod Ricard sought review of that denial in the U.S. District Court for the District of Columbia. The district court granted OFAC's motion for summary judgment, holding that OFAC had not acted in an arbitrary or capricious manner, that OFAC had sole discretion over the granting of licenses under the Cuban embargo program, and that OFAC's decision was not subject to judicial review. Moreover, the court found that OFAC's denial of the license was reasonable as the Arechabalas had not consented to the use of the mark by the Cuban entities, as required by the 1998 amendment. Empresa Cubana Exportadora de Alimentos y Productos Varios v. United States Dep't of Treasury, 606 F. Supp. 2d 59 (D.D.C. 2009).

On Appeal

On appeal to the U.S. Court of Appeals for the D.C. Circuit, Cubaexport argued that the 1998 amendment to the CACR should not be applied retroactively to renewals of previously registered trademarks and that such an application would violate its substantive due process rights. The D.C. Circuit upheld the district court decision. Empresa Cubana Exportadora de Alimentos y Productos Varios v. United States Dep't of Treasury, __ F.3d __ (D.C. Cir. 2011).

The Appeals Court concluded that the 1998 amendment barred renewals of previously registered trademarks as well as new trademark registrations, as it applied to both “transactions” and “payments” ' both elements of renewals. In addition, the amendment specifically referenced the portion of the CACR that defined both registrations and renewals as “transactions.” Cubaexport did not have a vested right to renew the HAVANA CLUB registration because the CACR specified that any exception could be amended, modified or revoked at any time. Therefore, Cubaexport could not apply any presumption against the retroactivity of the 1998 amendment.

Moreover, the 1998 amendment did not violate substantive due process rights, as no fundamental rights were involved. The 1998 amendment was rationally related to the government's legitimate goals of isolating Cuba's Communist government and encouraging a more hasty transition to democracy in Cuba. The clear warning in the CACR that exceptions for trademarks are revocable at any time reduces any unfairness to trademark owners.

OFAC denied Cubaexport's request for a special license to renew its trademark because it was “inconsistent with U.S. policy,” after Cubaexport had notice and an opportunity to be heard. The D.C. Circuit concluded that a formal hearing was not required to revoke the CACR general license and that OFAC did not act in an arbitrary or capricious manner in concluding that the Arechabala assets were “confiscated” within the meaning of the 1998 amendment.

Bacardi's trademark application for the HAVANA CLUB mark is still pending before the Trademark Office, as it is suspended until all appeals of the court case have been exhausted. Bacardi's more recent cancellation proceeding against the HCH's U.S. registration of HAVANA CLUB is also suspended pending final disposition of the court case.

This case illustrates the difficulty encountered in registering, renewing and enforcing trademarks by Cuban holders of marks previously owned by third parties that were seized by the Cuban government. Critics argue that the decision will only further strain Cuban-U.S. relations, especially in the realm of intellectual property, and they contend that the Cuban government may retaliate against U.S. marks in Cuban commerce. The consent requirement in the 1998 CACR amendment was the subject of a 2002 decision adverse to the United States by the World Trade Organization, which held that it violated the TRIPS Agreement. U.S. courts have similarly held that the consent requirement is unlawful. However, Congress has not yet directed the Treasury Department to amend the embargo regulations to remove this provision.

Traditionally, the embargo also prevented Americans from sending money into Cuba, which complicated the transactions of U.S. holders of Cuban trademarks wishing to register and renew marks in Cuba. However, in 1995, the CARC were amended to permit filing, prosecution and renewal of Cuban trademarks, receipt of Cuban trademark certificates, prosecution and defense of oppositions and infringement proceedings, and payment of fees to the Cuban government and Cuban attorneys for these actions. 31 CFR
' 515.528.

The COHIBA Trademark Case

Another long-standing case under the CACR involved competing claims to the COHIBA trademark for cigars. The U.S. District Court for the Southern District of New York held that Empresa Cubana del Tabaco (known as “Cubatabaco”), a Cuban company, could enjoin use of the famous COHIBA trademark by General Cigar, a U.S. company, under New York's state misappropriation law, even though Cubatabaco was barred by the Cuban embargo from selling COHIBA cigars in the United States. The district court determined that the owner of a foreign mark that has reputation and goodwill in the United States may establish a misappropriation claim if the defendant deliberately copied the mark and New York consumers of goods sold under that mark primarily associate the mark with the foreign owner. Although the Cuban embargo prevented a claim for trademark infringement, it did not affect a New York state claim for misappropriation of goodwill. Empresa Cubana Del Tabaco d/b/a Cubatabaco v. Culbro Corp. and General Cigar Co., Inc., __ F. Supp. 2d __ (S.D.N.Y. 2009). However, on appeal, the U.S. Court of Appeals for the Second Circuit overturned that decision, awarding the right to use the COHIBA trademark to General Cigar, concluding that the state misappropriation claim required proof of bad faith. Empresa Cubana Del Tabaco v. General Cigar Co., Inc., __ F.3d __ (2nd Cir. 2010).

Judith Grubner, a member of this newsletter's Board of Editors, is a partner in the Chicago office of the IP Practice Group of Arnstein & Lehr LLP. She can be reached at [email protected].

U.S. presidents have power under the 1917 Trading with the Enemy Act to impose embargoes on trade with foreign countries. In 1963, President Kennedy acted under that statute to embargo trade with Cuba and, pursuant to that embargo, the Treasury Department issued the Cuban Assets Control Regulations (“CACR”). The CACR prohibit most transactions between Americans and Cubans. The regulations contain certain exceptions that can be amended, modified or revoked at any time. One such exception allowed Cuban-affiliated entities to register and renew U.S. trademarks.

A Long-Running Case

The Cuban trade embargo has been at issue for more than a decade in the long-running case between Bacardi and Pernod Ricard over the U.S. rights to the HAVANA CLUB trademark for rum. HAVANA CLUB rum was created in Cuba in the 1930s by the Arechabala family, who registered the trademark in the United States in 1935 and sold their rum under that trademark in the United States for the next 20 years. In 1960, when Fidel Castro came to power in Cuba, the Arechabala family's manufacturing plant and trademark were seized by the Cuban government, which began producing rum under the HAVANA CLUB name.

In 1976, after the Arechabalas' HAVANA CLUB trademark registration had expired, the Cuban government (under the name Cubaexport) registered the HAVANA CLUB trademark in the United States, using the exception for Cuban-affiliated entities. French liquor producer, Pernod Ricard, partnered with the Cuban government to sell Cuba's HAVANA CLUB internationally, including in the United States. The Arechabala family, the original HAVANA CLUB trademark owners, did not then have a channel to produce their famous rum in the United States; however, they always intended to resume producing and marketing HAVANA CLUB rum once they had the means and opportunity to do so. In furtherance of that desire, the Arechabalas partnered with Bacardi to sell rum under the HAVANA CLUB name.

Pernod Ricard based its right to enforce the HAVANA CLUB trademark on a transfer by Cubaexport of the trademark to HAVANA CLUB Holdings, S.A. (“HCH”), a joint venture between the Cuban government and Pernod Ricard. HCH renewed the HAVANA CLUB registration in 1996, using the same exception for Cuban-affiliated entities. Bacardi based its claim to the HAVANA CLUB trademark on its purchase of the trademark rights from the Arechabala family.

Pernod Ricard filed suit against Bacardi for trademark infringement, and Bacardi filed an action with the U.S. Patent and Trademark Office to cancel Pernod Ricard's registration of HAVANA CLUB. Pernod Ricard lost its infringement claim and subsequent appeals, and Bacardi lost its cancellation claim before the Trademark Trial and Appeal Board. Havana Club Holding, S.A. v. Galleon, S.A. , 203 F.2d 116 (2nd Cir. 2000), cert. denied , 531 U.S. 918 (2000); Galleon S.A. v. Havana Club Holding, S.A., Canc. 92024108 (TTAB 2004) (appealed). In 2006, HCH ran into difficulty renewing the registration because it was barred from paying the renewal fee under the CACR.

An Exemption

The CACR contain a general license that permits transactions relating to trademark registration applications or renewals by Cuban nationals. 31 CFR ' 515.527(a). However, in 1998, Congress exempted from the general license any marks or trade names that were “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 consented.” The 1960 confiscation by the Cuban government of the Arechabala assets brought those registrations within the 1998 exemption.

Because Pernod Ricard was unsure whether 31 CFR ' 515.527(a) applied to the trademarks that had been seized from the Arechabalas by the Cuban government, it applied for a special license from the Treasury Department's Office of Foreign Assets Control (“OFAC”) to engage in the necessary monetary transactions to renew the HAVANA CLUB registration. OFAC denied the license application and Pernod Ricard sought review of that denial in the U.S. District Court for the District of Columbia. The district court granted OFAC's motion for summary judgment, holding that OFAC had not acted in an arbitrary or capricious manner, that OFAC had sole discretion over the granting of licenses under the Cuban embargo program, and that OFAC's decision was not subject to judicial review. Moreover, the court found that OFAC's denial of the license was reasonable as the Arechabalas had not consented to the use of the mark by the Cuban entities, as required by the 1998 amendment. Empresa Cubana Exportadora de Alimentos y Productos Varios v. United States Dep ' t of Treasury , 606 F. Supp. 2d 59 (D.D.C. 2009).

On Appeal

On appeal to the U.S. Court of Appeals for the D.C. Circuit, Cubaexport argued that the 1998 amendment to the CACR should not be applied retroactively to renewals of previously registered trademarks and that such an application would violate its substantive due process rights. The D.C. Circuit upheld the district court decision. Empresa Cubana Exportadora de Alimentos y Productos Varios v. United States Dep ' t of Treasury , __ F.3d __ (D.C. Cir. 2011).

The Appeals Court concluded that the 1998 amendment barred renewals of previously registered trademarks as well as new trademark registrations, as it applied to both “transactions” and “payments” ' both elements of renewals. In addition, the amendment specifically referenced the portion of the CACR that defined both registrations and renewals as “transactions.” Cubaexport did not have a vested right to renew the HAVANA CLUB registration because the CACR specified that any exception could be amended, modified or revoked at any time. Therefore, Cubaexport could not apply any presumption against the retroactivity of the 1998 amendment.

Moreover, the 1998 amendment did not violate substantive due process rights, as no fundamental rights were involved. The 1998 amendment was rationally related to the government's legitimate goals of isolating Cuba's Communist government and encouraging a more hasty transition to democracy in Cuba. The clear warning in the CACR that exceptions for trademarks are revocable at any time reduces any unfairness to trademark owners.

OFAC denied Cubaexport's request for a special license to renew its trademark because it was “inconsistent with U.S. policy,” after Cubaexport had notice and an opportunity to be heard. The D.C. Circuit concluded that a formal hearing was not required to revoke the CACR general license and that OFAC did not act in an arbitrary or capricious manner in concluding that the Arechabala assets were “confiscated” within the meaning of the 1998 amendment.

Bacardi's trademark application for the HAVANA CLUB mark is still pending before the Trademark Office, as it is suspended until all appeals of the court case have been exhausted. Bacardi's more recent cancellation proceeding against the HCH's U.S. registration of HAVANA CLUB is also suspended pending final disposition of the court case.

This case illustrates the difficulty encountered in registering, renewing and enforcing trademarks by Cuban holders of marks previously owned by third parties that were seized by the Cuban government. Critics argue that the decision will only further strain Cuban-U.S. relations, especially in the realm of intellectual property, and they contend that the Cuban government may retaliate against U.S. marks in Cuban commerce. The consent requirement in the 1998 CACR amendment was the subject of a 2002 decision adverse to the United States by the World Trade Organization, which held that it violated the TRIPS Agreement. U.S. courts have similarly held that the consent requirement is unlawful. However, Congress has not yet directed the Treasury Department to amend the embargo regulations to remove this provision.

Traditionally, the embargo also prevented Americans from sending money into Cuba, which complicated the transactions of U.S. holders of Cuban trademarks wishing to register and renew marks in Cuba. However, in 1995, the CARC were amended to permit filing, prosecution and renewal of Cuban trademarks, receipt of Cuban trademark certificates, prosecution and defense of oppositions and infringement proceedings, and payment of fees to the Cuban government and Cuban attorneys for these actions. 31 CFR
' 515.528.

The COHIBA Trademark Case

Another long-standing case under the CACR involved competing claims to the COHIBA trademark for cigars. The U.S. District Court for the Southern District of New York held that Empresa Cubana del Tabaco (known as “Cubatabaco”), a Cuban company, could enjoin use of the famous COHIBA trademark by General Cigar, a U.S. company, under New York's state misappropriation law, even though Cubatabaco was barred by the Cuban embargo from selling COHIBA cigars in the United States. The district court determined that the owner of a foreign mark that has reputation and goodwill in the United States may establish a misappropriation claim if the defendant deliberately copied the mark and New York consumers of goods sold under that mark primarily associate the mark with the foreign owner. Although the Cuban embargo prevented a claim for trademark infringement, it did not affect a New York state claim for misappropriation of goodwill. Empresa Cubana Del Tabaco d/b/a Cubatabaco v. Culbro Corp. and General Cigar Co., Inc. , __ F. Supp. 2d __ (S.D.N.Y. 2009). However, on appeal, the U.S. Court of Appeals for the Second Circuit overturned that decision, awarding the right to use the COHIBA trademark to General Cigar, concluding that the state misappropriation claim required proof of bad faith. Empresa Cubana Del Tabaco v. General Cigar Co., Inc. , __ F.3d __ (2nd Cir. 2010).

Judith Grubner, a member of this newsletter's Board of Editors, is a partner in the Chicago office of the IP Practice Group of Arnstein & Lehr LLP. She can be reached at [email protected].