Bacardi and the Long Fight for Cuba

by Gjelten, Tom

  The old Bacardi-Cuba dynamic was entering a new, more controversial phase. For the first time in thirty years, the company’s Cuba agenda was tied to specific pieces of U.S. legislation and to particular members of Congress. Commercial, moral, and political considerations regarding Cuba were blended together, exposing the company to charges that it was exploiting anti-Castro sentiment in part to advance its own business interests. The focus of the new Bacardi activism was Washington, not Havana. While Pepín Bosch had attempted to subvert Castro’s rule through action on Cuban soil, the Bacardi battle over the developing Cuban rum business would be fought in the U.S. courts, in the U.S. Congress, and in federal agency offices. Over the next few years, Bacardi would acquire a reputation in Washington for aggressive lobbying, just as the corrupting effect of special-interest money on the political process was becoming a major reform issue.

  The family and its corporate directors had earned considerable respect over the years for their remarkable business success and their progressive outlook. Now it was time to draw on some of that goodwill. To meet the new Bacardi goals on Cuba, the company joined the ranks of firms jostling for position and influence on Capitol Hill, unseemly though the exercise inevitably would be.

  The Helms-Burton law, enacted in March 1996, proved to be of little use to Bacardi in the company’s effort to challenge Pernod Ricard’s investment in the Cuban rum industry. Presidents Bill Clinton and George W. Bush both waived application of the Title III civil lawsuit provision, meaning Bacardi and other Cuban-American interests were not authorized to initiate court fights against foreign firms “trafficking” in their former assets. It would have been an uphill fight for Bacardi in any case. After the first year or two of its operations in Cuba, Pernod Ricard had generally been careful to avoid contact with any former Bacardi properties. The party with the best case against Pernod Ricard was the Arechabala family, which saw its rum brand adopted by the French-Cuban joint venture and used around the world. But most of the Arechabalas lived in Spain, not the United States. They had abandoned the rum business and did not have the resources to go up against Pernod Ricard and the Cuban government. If there was to be a battle over Havana Club, the Bacardis would have to wage it on the Arechabalas’ behalf.

  Thus began the “rum war” of the 1990s. It would be a highly technical, at times arcane, struggle involving trademark and property law, international treaties, and the U.S. embargo. For all its complexity, however, the underlying questions in the dispute were fairly straightforward: When could Cuban rum be sold in the United States, by what company, and under what label? Though it came at a time when Fidel Castro was still in vigorous health, it was arguably the first big fight about post-Castro Cuba. Among the parties represented were the key players in Cuba’s future—exile interests, foreign capital, and the U.S. and Cuban governments—and the battle foreshadowed legal and political issues that were certain to come up again and again.

  The Bacardi legal strategy was to acquire the Arechabalas’ claim to the Havana Club trademark and then defend it in the U.S. courts as if it were a Bacardi brand. The U.S. Patent and Trademark Office had given the Havana Club trademark to the Cuban government in 1976, but Bacardi lawyers would argue that the reassignment was invalid because the trademark had been illegally confiscated. The Havana Club brand therefore had remained the property of the Arechabalas, meaning that Bacardi had the right to buy the brand and use it. If Bacardi won, Pernod Ricard and its Cuban partner would not be able to export rum to the United States under the Havana Club label, even after the embargo was lifted, barring a settlement.

  One problem with this strategy was that the Cubans generally did all they could to avoid being drawn into any U.S. litigation. Because of the trade embargo, no Havana Club rum was being sold in the United States, so there was nothing to contest. Somehow, Bacardi lawyers had to provoke a fight. In the fall of 1995, the company shipped sixteen cases of rum bearing a hastily prepared “Havana Club” label from the Nassau distillery to a company warehouse in Jacksonville, Florida. It was a bold act. The Arechabalas had not yet formally agreed to sell Bacardi their trademark rights, though the two sides were in negotiation. The token shipment was meant purely to demonstrate the company’s “intent to use” the Havana Club trademark and—more importantly—to goad its French-Cuban adversary into a fight. But it worked. In December 1996, Pernod Ricard and its Cuban partner sued Bacardi in a New York federal district court, charging that the Bacardi version of “Havana Club” rum represented a trademark infringement. The stage was set for an epic legal confrontation.

  In April 1997, Bacardi officially acquired the Arechabalas’ claim to the Havana Club trademark and the family’s former properties in Cuba for a mere $1.25 million. By comparison, Bacardi had paid more than two billion dollars for the Martini & Rossi brand five years earlier. Still, Bacardi gave the Arechabalas more than ten times what Pernod Ricard had offered. In truth, the Arechabalas were in no position to demand a higher price, because it was far from clear that any court would recognize their claim, given that they had not produced their rum for more than thirty years, that they had allowed their trademark registration in the United States (and other countries) to lapse, and that a Cuban government agency in the meantime had registered the Havana Club trademark as its own, following all required legal procedures.

  For two years, the opposing sides filed a series of claims and counterclaims. The presiding federal judge, Shira Scheindlin, dismissed some of the claims but decided the issues were difficult enough to warrant a bench trial. Both sides immediately launched civil discovery efforts, taking depositions and gathering documents to buttress their respective cases. Some Bacardi family members wondered what the company might be getting itself into. Bacardi had grown over the years by investing in new distilling facilities around the world, by developing successful marketing campaigns, and more recently by beginning to build a diversified brand portfolio. The management was now proposing that the company spend millions of dollars on litigation in order to take control of a trademark already in use by a key rival. To some board members, it looked like “investing in a lawsuit.”

  The initiative happened to coincide with a leadership change at the company. In March 1997, Bacardi chairman Manuel Jorge Cutillas relinquished his chief executive position, with the management responsibilities going to his executive vice president, George Reid, the lawyer who had helped resolve the intrafamily legal dispute five years earlier and then directed the company’s reorganization. Reid relished the idea of a new courtroom battle with Fidel Castro’s lawyers, although in his private presentations to the Bacardi board, he was careful to sell the Havana Club litigation strictly as a business proposition. The stakes were only growing higher. In the first four years of the French-Cuban joint venture, Havana Club sales doubled. By 1997, they were generating at least $60 million yearly, even without a presence in the key U.S. market. Bacardi remained far ahead, but a significant commercial rivalry was developing.

  The Havana Club trial opened in New York before Judge Scheindlin in January 1999. Cuban officials of the state-owned Corporación CubaRon, which produced the Havana Club rum, were called from Havana to testify. Bacardi executives flew in from Miami and Nassau, and Pernod Ricard executives came from Paris. Lawyers for the French-Cuban partnership argued that their enterprise had established its rights to the Havana Club trademark and that Bacardi was attempting to take the trademark away because it feared commercial competition. The joint venture lawyers wanted to keep the trial focused narrowly on trademark law, as opposed to the highly charged politics of U.S.-Cuban relations. They reminded the judge that the Arechabala heirs had allowed their Havana Club trademark registration to lapse in 1973, even though they could have renewed it by paying a small fee and filing a “certificate of non-use” stating that they had abandoned the rum business only because Fidel Castro had taken it over. U.S. courts had consistently ruled that the owners of firms expropriated by the Castro regime were entitled to maintain the
ir trademark registrations in the United States, as long as they made an effort to do so. The Cuban government had waited until the Arechabalas’ registration expired before attempting to claim the Havana Club trademark for itself. Those were the essential facts, in the French-Cuban view.

  For their part, the Bacardi lawyers set out from the beginning to steer the case away from trademark law issues and toward Castro’s 1960 expropriation of the Arechabalas’ business. They contended that the Cuban government stole the Havana Club trademark from the Arechabala family and therefore could not claim ownership. Bacardi’s lead lawyer in the trial, William Golden, made his position clear in his opening statement. “Your honor,” he said, “although this case has come to be called the Havana Club case, it’s really not about trademarks. What this case is really all about is the right to private property.” It was a point the Bacardi team would emphasize again and again. “Don’t start with the premise that Cuba is a legitimate regime,” lawyer Ignacio Sánchez advised a reporter. “Start with the premise that Castro’s confiscations were illegal.”

  The problem for the Bacardi team was that U.S. and international trademark laws and agreements did not establish different rules for “legitimate” and “illegitimate” governments. If the Havana Club litigation were to be decided purely on the basis of preexisting law and case precedent, an outcome favorable to Bacardi was far from certain. Sánchez himself recognized what he later called the “vulnerabilities” in Bacardi’s legal position: Existing U.S. legislation might well allow the registration of a trademark acquired as a result of the Cuban government confiscating a firm, as long as the prior owner of the mark did not take the necessary steps to protect it. In order for Bacardi to prevail in this fight, the U.S. Congress might actually need to pass another trademark law that would specifically cover the Havana Club situation.

  Ignacio Sánchez drafted the legislative language. Congress, he said, should prohibit the Cuban government from registering a trademark that it acquired as a result of a property confiscation, unless the prior trademark owner gave permission. The provision he had in mind would effectively instruct U.S. courts, under certain conditions, to disregard the 1928 Inter-American Convention for Trademark Protection, and it would have retroactive effect. He introduced his proposal at a May 1998 House Judiciary subcommittee hearing dedicated to “miscellaneous patent and trademark issues.” In his testimony, Sánchez cited just one example of what should be disallowed: the Cuban government’s 1976 registration of the Havana Club trademark.

  The Sánchez proposal was just one of six issues the subcommittee reviewed that spring day, and in the following months it could easily have been lost in the flood of legislative ideas drawn up to favor specific individuals or firms. With the dispute between Bacardi and Pernod Ricard about to go to trial, however, the Bacardi team was determined to get the provision enacted, and quickly. The company got a Florida senator, Republican Connie Mack, to advocate the Sánchez suggestion, even though only a few members of Congress knew the issue had even been raised. For the first time in its history, Bacardi also hired a legislative lobbyist, Jonathan Slade, one of the many Capitol Hill operatives who know how to negotiate deals and deliver results. Slade had been the chief lobbyist for the Cuban American National Foundation, which under Jorge Mas Canosa’s leadership was famous for treating adversaries harshly and allies generously.

  In a few weeks, Slade worked with Senator Mack and his fellow Florida senator, Democrat Bob Graham, and with Lincoln Diaz-Balart and Ileana Ros-Lehtinen, both Republicans, in the House of Representatives to get the pro-Bacardi trademark law changes inserted in the Omnibus Appropriations Act of 1999 during House-Senate consultations on the pending legislation. A provision prohibiting U.S. courts from upholding most trademarks “used in connection with a business or with assets that were confiscated” by the Cuban government became Section 211 of the spending bill, one of many such extraneous provisions inserted at the last minute. It was barely noticeable, a few paragraphs tucked into a piece of legislation so massive that the printed version was sixteen inches thick and weighed forty pounds. It passed without protest. The Section 211 provision had been informally approved by the Republican leaders of the relevant congressional committees, but with the exception of the May hearing, the legislation was not openly discussed or analyzed, and few members of Congress realized the full ramifications of its passage.

  The Section 211 legislation effectively trumped the major legal issues in the Havana Club trial. U.S. judicial doctrine was clear: When Congress deliberately acts to override a treaty, the congressional intention takes precedence. Judge Scheindlin’s ruling in April 1999 therefore came as no surprise. Section 211, she wrote, “would appear to prevent Havana Club International from asserting its trade name claims.” Because of the legislation’s retroactive effect, Pernod Ricard and the Cuban government had lost their right to claim the Havana Club trademark. Scheindlin made clear, however, that her ruling did not address the issue of whether the Arechabalas were still in ownership of the brand at the time they sold it to Bacardi. While Judge Scheindlin had effectively taken the trademark away from the French-Cuban venture, she had not given it back to the Arechabalas, or to Bacardi as their successor in rights.

  In the aftermath of Scheindlin’s decision, the new legislation was suddenly the subject of feverish discussion. Fidel Castro was outraged, saying the rejection of the Cuban government’s duly registered trademarks was a “bald-faced violation of international law.” The general counsel for Pernod Ricard, Pierre-Marie Chateauneuf, said the legislative intervention unfairly affected his company’s litigation effort against Bacardi. “It is exactly as if at the end of a soccer game the referee says, ‘O.K. guys, I’m sorry, but the rules of this game changed while you were playing.’” The French company persuaded the European Union to challenge the new U.S. trademark law at the World Trade Organization (WTO) as an abrogation of international trade agreements.

  Even some Bacardi allies had mixed feelings about the legislation. Daniel Fisk, the Jesse Helms aide who had worked with Ignacio Sánchez and other Bacardi lawyers on the Helms-Burton Act, said later he understood why the company felt it had to push for the 211 provision, but he was not sure it was a good idea for Congress to pass legislation concerning legal issues that were in litigation at the time. “The question about 211,” Fisk said in a 2000 interview, “is whether the judicial process should be interrupted by [Congress] telling the courts, ‘We’re going to take jurisdiction away from you.’” Fisk pointed out that whereas the 1996 Helms-Burton Act was intended to advance broad U.S. interests with respect to Cuba, Section 211 “was written with one entity in mind—Bacardi.”

  The legal and political fight over Havana Club had turned bitter. Bacardi and Pernod Ricard were both highly successful, professionally managed liquor empires, and in the past they had enjoyed amicable relations. But one company was Cuban and the other was French, and under the condition of conflict each reverted to a stubborn cultural type. As worldly and capitalist as Bacardi had become, down deep it still had a passionate Cuban temperament, and nothing burned its corporate soul like the thought of Fidel Castro laying claim to the Cuban rum tradition. For Cuba-born Bacardi executives and family members, the fight took on an emotional dimension that non-Cubans would never understand. As for Pernod Ricard, the trademark battle inevitably became a struggle to uphold French national honor. An American representative of the French firm tried in vain to convince the Paris-based management that the company should consider developing an entirely new Cuban rum brand with a trademark that Bacardi could not oppose. After all, only a tiny minority of American drinkers had ever heard of “Havana Club” rum anyway. Why fight so hard for a brand that hardly anyone recognized? But the Pernod Ricard management wouldn’t budge. “It was a matter of French pride,” the American executive said. “They just could not back down.”

  The third party in the dispute—the Cuban government—only made matters worse. To Fidel Castro, the Havana Club
battle was a propaganda opportunity. Cuban accounts of the trademark dispute portrayed Bacardi as a thieving commercial predator and the leader of Cuba’s exile “mafia.” In European leftist circles, the Section 211 controversy spurred a “Boycott Bacardi” movement that also played to Castro’s advantage. A retelling of the Bacardi story by one solidarity group began by saying the family’s fortune “was accumulated in pre-Revolutionary Cuba through the exploitation of impoverished Cuban sugar workers,” and it ended by declaring that Bacardi was so intent on destroying “the real Cuban Havana Club” that it “resorted to stealing its label.” It made a powerful narrative, and keeping it alive apparently mattered more to Fidel Castro than any chance to resolve the trademark dispute quietly. Sources in both the Bacardi and Pernod Ricard managements said Castro personally blocked at least one proposal for an out-of-court settlement of the Havana Club case.