Court Rejects Claim That ‘Havana Club' Ruling Erred in Discounting Survey Evidence

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• Case Summary: In the latest installment of a long-running dispute between two multinational distilleries, the Third Circuit affirms a judgment that Bacardi's use of the “Havana Club” mark did not constitute false advertising under the Lanham Act.

• Key Takeaway: If, taking the full circumstances of the use of a geographical term into account, no reasonable consumer could be misled as to the geographical origin of relevant goods, then a court need not take into consideration survey evidence purporting to show that the use is deceptive.

A district court did not err in refusing to consider survey evidence offered to show that the use of the term “Havana Club” used for rum made in Puerto Rico was geographically misdescriptive, the U.S. Court of Appeals for the Third Circuit ruled Aug. 4 (Pernod Picard USA LLC v. Bacardi U.S.A. Inc., 3d Cir., No. 10-2354, 8/4/11).

Affirming a lower court's judgment, the court said that there was no reasonable interpretation of the defendant's rum label that would be false or misleading.

Castro Seizes Distillery

In 1934, Cuba's José Arechabala S.A. rum distillery began using the name “Havana Club” for a new product, which was eventually marketed in the United States. The Arechabala family registered the “Havana Club” mark with the U.S. Patent and Trademark Office.

In 1960, following the Cuban revolution, the Castro regime seized the assets of the Arechabala company and turned them over to the Cuban Food and Varied Products Export Enterprise (Empresa Cubana Exportadora de Alimentos y Productos Varios, known as “Cubaexport”), an entity owned by the Cuban government. In 1963, the U.S. government initiated an embargo, prohibiting the importation of Cuban goods into the United States, and the U.S. trademark registration was allowed to lapse in 1973.

Arechabala's competitor in the Cuban rum distilling industry, Bacardi, Bouteller & Co., originally supported the Castro revolution, but the regime soon prompted the Bacardi operation to shift to Puerto Rico and the Bahamas.

In 1976, Cubaexport applied to the PTO to register the “Havana Club” mark in the United States and in 1984, it registered the mark in Cuba.

French Company Obtains Rights

Pernod Ricard S.A. is a France-based manufacturer of alcoholic beverages that owns many of the world's most famous brand names for spirits, such as Chivas Regal, Glenlivet, Seagram's, Absolut, Kahlúa, Beefeater, and Stolichnaya. Pernod Ricard USA LLC of Purchase, N.Y., is its U.S. subsidiary.

In 1994, Pernod Ricard entered into a joint venture with Cubaexport—using the names Havana Rum and Liquors S.A. and Havana Club Holding S.A.—to begin selling Havana Club in the United States. The same year, the Arechabala family entered into an agreement with Bacardi & Co. for Bacardi to produce Havana Club rum in Puerto Rico using the family's original recipe. Eventually, Bacardi purchased the Arechabalas' interest in the “Havana Club” mark.

In 1995, Cubaexport obtained a license from the U.S. Office of Foreign Assets Control to assign its U.S. trademark rights to the joint venture under 31 C.F.R. §515.318. However, in 1997, that license was revoked and the OFAC refused to allow Cubaexport to file a renewal application for its trademark with the PTO. The registration expired in 2006.

Bacardi Debuts Havana Club in United States

Bacardi then sought to register the “Havana Club” mark and other related marks with the PTO, and in 1996, the Pernod Ricard operation initiated a claim in U.S. federal court seeking an injunction against Bacardi's use of the “Havana Club” name. In 1997, the Trademark Trial and Appeal Board upheld the denial of Bacardi's registration applications on the basis that its use of the term “Havana” was geographically deceptively misdescriptive. In re Bacardi & Co.,48 USPQ2d 1031 (T.T.A.B. 1997).

In 2000, the Second Circuit ruled that the Pernod Ricard joint venture could not pursue its rights in U.S. courts due to the embargo. Havana Club Holding S.A. v. Galleon S.A., 103 F.3d 116, 53 USPQ2d 1609 (2d Cir. 2000).

Meanwhile, Pernod Ricard filed a dispute with the World Trade Organization, which concluded that it was a violation of the Agreement on Trade-Related Aspects of Intellectual Property Rights to deny Pernod Ricard the opportunity to assert its trademark rights in U.S. courts (113 PTD, 06/12/01; and 152 PTD, 08/8/01). The WTO has granted multiple extensions to the United States to comply.

Bacardi test-marketed its Havana Club formulation and made some adjustments to the production process, most significantly changing the type of wood used for its aging barrels. In 2006, Bacardi began selling its Havana Club rum in Florida.

Trademark Dispute by Other Means

The instant action was filed by Pernod Ricard in 2006. In this complaint, Pernod Richard alleged that Bacardi's use of the “Havana Club” mark constituted a false and misleading representation of the origin of its Havana Club rum in violation of the Lanham Act, 15 U.S.C. §1125(a). Pernod also included allegations of false advertising.

Judge Sue L. Robinson of the U.S. District Court for the District of Delaware ruled that the use of the term “Havana club” by Bacardi was not misleading nor deceptive under Section 43(a) of the Lanham Act and granted judgment in favor of Bacardi.

Pernod Ricard appealed, arguing that the court erred in failing to give adequate weight to evidence in the form of a consumer survey.

Proxy for Trademark Dispute

Judge Kent A. Jordan first acknowledged that the instant false advertising proceeding appeared to be a “proxy for the real fight the parties want to have, which is over the right to the exclusive use of ‘Havana Club' as a trademark.” The court suggested that as a result of the embargo's denial of a trademark infringement claim to Pernod Ricard, it was trying to achieve the same end through a false advertising claim.

The court, however, agreed with the lower court that the survey evidence was irrelevant because as a primary matter, Pernod Ricard had failed to establish that Bacardi had made any false statement as required for a false advertising claim under the Lanham Act.

The key factors underlying the lower court's decision included:

• that Section 43(a)(1)(B), which bars misrepresentation of “geographical origin,” encompasses the use of geographical indicators that indicate the “heritage” of the goods in question and is not necessarily restricted to the place of manufacture;

• that the Bacardi label clearly indicated that the rum was “Puerto Rican Rum,” that it was manufactured in Puerto Rico, and, thus, was not deceptive; and

• That the Bacardi Havana Club rum, being based on the Arechabala family's original recipe did indeed have a “Cuban heritage,” making the use of the mark nondeceptive.

The appeals court said that this set of conclusions represented a “carefully reasoned opinion” on the part of the district court, and, even if the appellate panel did not completely agree with every step, that the result reached by the lower court was correct.

“[W]e conclude, as did the District Court, that the Havana Club label, taken as a whole, could not mislead any reasonable consumer about where Bacardi's rum is made, which means that survey evidence has no helpful part to play on the question of what the label communicates regarding geographic origin,” the court said.

Context Relevant

Furthermore, taking into account the totality of the context in which Bacardi uses the “Havana Club” mark, the court said, there could be no reasonable dispute that the use is not deceptive.

The court compared the instant circumstances to those in Mead Johnson & Co. v. Abbott Laboratories, 201 F.3d 883, 53 USPQ2d 1367 (7th Cir. 2000) (59 PTCJ 466, 1/14/00), amended 209 F.3d 1032 (7th Cir. 2000).

Mead Johnson said that the issue of whether any particular statute was false or misleading was a fact question, but that survey evidence offered by one party could not change the conclusion that a statement was not false nor misleading.

The court said of the Mead Johnson decision: “Recognizing that there is a baseline meaning to some words that put them beyond any credible claim of misunderstanding, the Seventh Circuit said, ‘never before has survey research been used to determine the meaning of words, or to set the standard to which objectively verifiable claims must be held.' ”

This principle was applicable here, considering that the Bacardi label clearly stated that its rum was made in Puerto Rico. This statement, according to the court was “factually accurate” and “unambiguous.”

“No reasonable consumer could be misled by those statements, and the rest of the label does not put those statements in doubt,” the court said.

Even if the term “Havana Club” might be misleading if used by itself, the context—the accompanying unambiguous statements of Puerto Rican origin—made it impossible for a reasonable consumer to be misled, the court said.

The court rejected Pernod Ricard's argument that the term “Havana Club” should be analyzed in isolation.

“This is not a trademark case, and certainly not one addressing trademark registration, no matter how much Pernod may wish it were,” the court said.

The fact that this claim was brought under Section 43(a)(1)(B) meant that the broader context of the use of the term—not just the term itself—must be considered, the court said.

Given this context, the district court bore no obligation to consider survey evidence purporting to show that Bacardi's use of the term “Havana Club” was deceptive, the court said.

The court thus affirmed the judgment finding no liability for false advertisement.

The court's opinion was joined by Judges Joseph A. Greenaway Jr. and Senior Judge Joseph F. Weis Jr.

Pernod Ricard was represented by David H. Bernstein of Debevoise & Plimpton, New York. Bacardi was represented by Anne S. Gaza of Richards, Layton & Finger, Wilmington, Del.

By Anandashankar Mazumdar

Opinion at