Trademark wars to light up cigars, rum in post-embargo Cuba

A cigar may be just a cigar sometimes, but when's a Cohiba a Cohiba? Any devotee of the leaf is aware of the existence of parallel brands. A Montecristo in Manhattan is not the same as a Montecristo in Havana. Nearly five decades of isolation have led to two separate worlds, and an end to the Cuban embargo could lead to trademark mayhem for the decades to follow.

And, it's not just cigars. Many products, including rum and coffee, may wind up in some combination of confusion and litigation in a post-embargo marketplace. In the case of Havana Club, which exists in different form inside and outside Cuba, this is already in the works, with more than 10 years of legal sparring.

For Bacardi, which claims the Havana Club brand outside Cuba, there is clearly a lot at stake. The company bought the name and recipe from the Arechabala family in 1997. Meanwhile, Cuba claims to have registered the trademark in the United States in 1976, when the Arechabalas let their claim to it expire. Bacardi says that the Cuban government took the name.

In the United States, Bacardi has been supported by a law that prevents the registration or renewal of trademarks related to companies that were nationalized by the Cuban government. But Cuba is having more luck in the rest of the world. In a suit in Spain, Bacardi's case against Cuba and Pernod Ricard (OTC: PDRDY) was tossed (Bacardi has since appealed, and it's now in front of the Spanish Supreme Court).

The stakes are high for liquor manufacturers. The United States has 40 percent of the world's rum drinkers, and Cuba's Havana Club has sustained a 13 percent increase in sales to 3.4 million cases. Bacardi has more than 200 brands, with 20 million cases of liquor sold in 150 countries.

For the cigar market, the numbers are considerably smaller, but the fight could be incredibly fierce. The strength of the domestic brand could be overshadowed by the fact that the competing Cuban product will have its own recognition, simply because of the fact that it's from Cuba. Even if trademark struggles favor companies currently operating in the United States, cigar smokers, always eager to get their hands on the illicit fare from just south of Florida, could wind up equating changed brand names with their predecessors – whatever the Cuban brand is named, it would always be "the old Cohiba" to them.

The strength of Cuban product brand recognition among cigar smokers in the United States makes many parallel-brand manufacturers incredibly nervous. Swedish Match North America's executives are losing sleep, according to the Associated Press, over the prospect of competing with Cuban cigar manufacturers. Swedish Match (OTC: SWMAF) owns General Cigar, which sells Dominican-made Cohibas.

The other Cohiba company is Habanos, a joint venture between the Cuban government and Altadis, which was acquired by Imperial Tobacco Group (OTC: ITYBY) last year. Habanos has 27 premium brands but never registered its claim to Cohiba in the United States. Nonetheless, the company sued General Cigar, but the U.S. Supreme Court sided with the domestic company.

In addition to Cohiba, General Cigar produces Partagas, Hoyo de Monterrey, Bolivar and Punch – all of which have Cuban counterparts.

So, not only would General Cigar face a brutal battle over trademark, it probably wouldn't benefit fully from a victory. The fight is further complicated by access to materials. In a post-embargo market, demand for Cuban cigars (and thus Cuban tobacco to make them) would prompt non-Cuban companies to tap the island for product in order to compete, and current supply is unlikely to support such need.

There is always the possibility that access to Cuban fare would put downward pressure on demand. Once they are legal, people aren't likely to want them as much, some believe. An estimated 85 million Cuban cigars would be imported post-embargo into a market in which 255 million premium cigars are sold every year. Yet, it would probably take several years for the market to sort itself out, as domestic companies would have to contend with the spike in supply, curiosity factor and trademark mayhem. The ultimate outcome is impossible to forecast.

Whether the rum, cigar and coffee manufacturers – along with everyone else – start to push this issue before or after the embargo is lifted (if ever), the outcome will be hard-fought and probably be universally painful. You know it's fair when nobody wins.

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