A Brand Divided by Government Seizure
By Ryan Jay
Since the day former President Barack Obama ended the travel restrictions between the United States and Cuba, the tourism business in the communist island-state has resulted in an influx of American visitors, changing the dynamic of U.S.-Cuba relations. The phenomenon has led to unforeseen economic consequences that have manifested themselves throughout the American corporate world. The end of the stalemate between the United States and Cuba has spawned a debate characterized by salient opinions. Optimists see the move as a new opportunity for the impoverished Cuban state, which has suffered from the despotic rule of the authoritarian Castro regime. Realists with a grasp of Cuba’s government are conflicted between supporting a meager hope for disenfranchised Cubans and denouncing autocratic governance. Those who understand the legal implications, including the international spirits producer Bacardi U.S.A., Inc., see the move as an obstacle to protecting the sanctity of their brand’s trademark. You may be asking yourself, “How could opening relations with another country pose a threat to American businesses?” The turbulent history of Bacardi, a company founded in Cuba in 1862 by Don Facundo Bacardi Massó sheds some light on the story.
The Story Behind The Story
Bacardi’s usual change in location is no mere coincidence. The contemporary spirits giant has a history that begins on the island of Cuba long before communism completely changed the power dynamic of the governing body. Bacardi’s prominence in the spirits market is not limited to its name brand rum, but also expands to include various aged rums and diverse brands including Bombay Sapphire, Dewar’s, Grey Goose, Martini, and numerous others. The company acquired a diverse portfolio of brands that remain under the umbrella of a single, iconic rum brand.
The Spanish Connection
The tale of Bacardi is that of a wine merchant from Sitges, Spain, who left the comfort of his home in 1830 to reach Cuba and develop a distillation process that would revolutionize spirit consumption for the next century and a half through the development of the first clear rum. The distillation process that distinguished Bacardi’s quality over the available alternatives at the time was the charcoal that founder Facundo Bacardi used to filter out impurities, giving the rum its clear color. Furthermore, the visionary founder developed a fermentation process that required a proprietary strain of yeast in order to produce the desired flavor profile that was characteristic of his rum. It has won over 550 awards worldwide, and the rum inspired the creation of cocktails including the daiquiri, mojito, and the classic Cuba Libre. The insignia of the bat imprinted on the front of the bottle is representative of the fruit bats that were attracted to Don Facundo’s distillery and continues to adorn the label of the Bacardi bottle today.
Despite its success as a brand and a company for an extended period of time, the path to glory became significantly more difficult for the company when international relations played a role in the Bacardi family’s life. During the 1880s and 1890s, the Cuban War of Independence was a historic moment for the island as it gained its freedom with the help of American intervention. Consequentially, Emilio Bacardi, Facundo’s oldest son, was imprisoned and exiled from Cuba after fighting in the rebel army against Spain. The family business was left in the hands of Emilio’s brothers, Facundo and Jose, and his brother-in-law Henri Schueg. After the freeing of the country from colonial power, the Cuba Libre and daiquiri drinks were created with Bacardi rum, which began the expansion of the company into an international sensation. Shortly after in 1912, Emilio Bacardi opened another distillery in Santiago, Cuba, and bottling plants in Barcelona and New York City shortly after.
Iconic Cuban Rum Brand During Prohibition
Prohibition made Cuba a hot destination for American tourists, and it was during this period that Bacardi attained the reputation of being the iconic rum of Cuba. Despite the effects of prohibition in the United States, Bacardi continued to expand by launching its Hatuey beer and expanding to Mexico in 1930 as well as Puerto Rico in 1936. Following the repeal of prohibition, Bacardi began selling under the brand name Ron (rum) Bacardi in the United States from Puerto Rico and expanded into the United States in 1944.
Although the 1940s foreshadowed a positive future for Bacardi, the Cuban Revolution in the 1960s led by Fidel Castro forced the company to nationalize and seized the Bacardi family’s financial assets, banning all private property on the island and bank accounts. The members of the family dispersed without compensation from the Cuban government, relying on the Bahamas to safeguard their valued trademarks and formulas that would later be used in the plants built in Puerto Rico and Mexico. Connections with political elites and the CIA allowed the family to become influential in its lobbying, which culminated in the Helms-Burton Act of 1996. The act extended the scope of the United States Embargo and was followed by another bill that is now known as the Bacardi Act. The Bacardi Act denied protection to the trademarks of
Cuban businesses that were expropriated following the Cuban revolution and Bacardi’s lobbyist Otto Reich helped in the implementation of this law.
The passage of the bill and its support by Bacardi stems from the presence of the Havana Club brand in the United States. Havana Club is a brand that was created following nationalization in the Cuban revolution and was seized without compensation from the Arechabala family, which left Cuba, stopped producing the rum, and sold the brand to Bacardi. After allowing the trademark registered under “Havana Club” to lapse in 1973, the Cuban government registered the brand in the United States in 1976. Thus, the Bacardi Act was meant to invalidate the trademark registered by the Cuban government and has been fought in American courts by the Cuban government as well as the European Union. However, the World Trade Organization ruled that the Bacardi Act was contrary to international agreements that grant the European Community most favored nation status because the Cuban government has entered into a partnership with French company Pernod Ricard, which sells its Havana Club Rum internationally, except in the United States.
The Ruling Outcome?
Although the government has yet to make a conclusive decision on the issue, this story reveals how the newly established diplomatic relations between the United States and Cuba have brought the issue of the trademark ban into relevance once again. As American tourists continue to visit Cuba and return with bottles of the Cuban Havana Club, the sanctity of the trademark is threatened by an impending legal battle over the rights to sell Havana Club. Bacardi maintains that it is the rightful owner of the brand, yet Pernod Ricard has exhausted a plethora of plausible remedies in its attempt to access the American market. The Office of Foreign Assets Control denied permission to renew the trademark registered under Havana Club by the Cuban government in 2006. Even more recently, a 2011 decision by the United States Third Circuit Court of Appeals at the federal level came to the same conclusion and denied an appeal by Pernod Ricard USA, LLC for a district court’s decision that the Havana Club label was not a false advertisement of the rum’s geographic origin. Despite the attempts under international law to allow Pernod Ricard access to the American market, the United States legislature and judiciary have held steadfast to the policy of not recognizing the ownership of businesses seized during the Cuban Revolution. Up until today, the story remains a symbolic representation of how the United States continues to espouse the idea of retributive justice and standing up to autocracy.