Havana Club Holding, S.A. v. Galleon, S.A., 96 Civ. 9655(SAS).

• Citation: 62 F.Supp.2d 1085
• Decision Date: 28 June 1999
• Docket Number: No. 96 Civ. 9655(SAS).,96 Civ. 9655(SAS).
• Parties: 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.
• Court: U.S. District Court — Southern District of New York

62 F.Supp.2d 1085

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.

No. 96 Civ. 9655(SAS).

United States District Court, S.D. New York.

June 28, 1999.

COPYRIGHT MATERIAL OMITTED

Michael Krinsky, Debra Evenson, Rabinowitz, Boudin, Standard, Krinsky & Lieberman, P.C., New York, NY, Charles Sims, Chuck Reed, Proskauer Rose LLP, New York, NY, Richard Huffman, Baden, Kramer, Huffman & Brodsky, New York, NY, for Plaintiffs.

William R. Golden, Paul F. Doyle, Sarah L. Reid, Margaret Ferguson, Michelle Graham, Kelley Drye & Warren LLP, New York, NY, for Defendants.

AMENDED OPINION AND ORDER

SCHEINDLIN, District Judge.

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);¹ 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.²

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.

The original producer of Cuban rum under the trademark "Havana Club" was Jose Arechabala, S.A. ("JASA"), a Cuban corporation, which was principally owned by members of the Arechabala family. See Testimony of Ramon Arechabala ("R. Arechabala Tr.") at 1229, 1235; Defendants' Exhibit ("DX") 583. JASA exported Havana Club rum to the United States until 1960. See SF at ¶ 62. On or about January 1, 1960, however, armed forces from the Castro government forcibly entered into possession and confiscated the property and assets of JASA. See R. Arechabala Tr. at 1231-1243. On October 15, 1960, Cuban Law No. 890 ("Law No. 890") was issued, expropriating for the Cuban government the physical assets, property, accounts and business records of JASA. See DX 573A ("Law No 890") ("Nationalization is ordered by the forced expropriation of all industrial and commercial corporations, as well as the factories, stores, warehouses and other assets and rights of same and the properties of the following natural persons or companies").³ No compensation was ever paid to JASA or its owners by the Cuban government or any other entity on behalf of the Cuban government for the property and assets that were seized in 1960. See R. Arechabla Tr. at 1236; Deposition of Gloria Marquez Arechabala Misto at 174-176.

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...