Cigar Wars: Battle of the Brands

As a semester intern in the United States Senate last year, the majority of my time was spent either attending hearings or sorting and responding to my Senator’s mail. Often, I was put on the phones to answer constituent calls or ran other important errands such as picking up a pound of guacamole from Chipotle. There was, however, one meeting that I got the chance to sit in on which continues to fascinate me. A frantic pair of men from a local cigar company arranged a meeting with the Senator, and I joined them. What could a cigar company possibly be so flustered about? Within minutes, it became clear. This local business was not concerned with any sort of Federal regulation on tobacco, rather, they were terrified of the president’s recent plan to open trade with Cuba. The expected import competition from Cuban cigars flooding the U.S. economy would presumably be the doomsday for American cigar manufacturers and the tobacco lobby. After taking a closer look at the tobacco industry, however, it is evident that the true battle lies in the rights to originally Cuban brand names and trademarks that have been replicated by Cuban expatriate cigar makers in other countries.

Cuban cigars have been one of the most controversial products banned by the United States as part of its Cuban embargo, which started in the early 1960s following the rise to power of Communist Fidel Castro. Despite the ban, cigar smokers have gone to great lengths to get their hands on Cohibas and Montecristos.[1]

As relations thaw, will this doomsday for American tobacco become a reality? As of April 2016, recent policy changes “allow the purchase and consumption of Cuban cigars only while in third-party countries, such as the U.K., Canada, Switzerland and the like”.[2] While you may smoke the cigars while you are in these third-party countries, importing the cigars remains illegal and travelers may only bring back up to $100 in Cuban tobacco and alcoholic products. According to John S. Kavulich, president of the U.S.-Cuba Trade and Economic Council, Inc, this limit is expected to remain low while the overall $400 limit on Cuban goods is expected to increase.[3] However, the tobacco interest groups continue to lobby congress against the lifting of the Cuban trade embargo harder than any other special interest group (alongside Bacardi rum).[4]

With a stable $100 limit in place for alcohol and tobacco from Cuba, import competition is nearly non-existent. The miniscule number of Cuban cigars crossing U.S. borders under this limit pales in comparison to tobacco giants such as Philip Morris International, which generated $30 billion in revenue last year alone.[5] Instead, the core of the tobacco lobby’s argument against the embargo (and even this $100 limit) is that allowing Cuban cigars will ignite trademark disputes between Cuban and American cigar manufacturers. Since the embargo began in 1960, American cigar manufacturers have been growing their tobacco in the Dominican Republic, Nicaragua, Honduras, and Ecuador.[6] Cuban cigars are considered a specialty item in the cigar industry. With a stiff trade embargo established, U.S. manufacturers have established a variety of “knock-off” cigar brands that resemble actual Cuban brands. Examples of these “knock offs” include Cohiba, Montecristo, and Guantanamera.[7] With the Cuban legal system firmly separated from the U.S., these brands have enjoyed freedom from trademark disputes.

General Cigar Co., for example began selling its own version of Cohiba in the U.S. in the late 1970s and filed trademarks for Cohiba in 1981 and 1995.[8] Cuba’s state-owned tobacco company, Habanos S.A., has made an effort to claim their brand rights through filing an application to the Trademark Trial and Appeal Board in the United States. In March 2013, the TTAB ruled Habanos S.A. did not have standing because the Embargo would prevent it from selling or marketing the cigars, and therefore it has no legitimate interest in the trademark itself.[9] Unable to declare their own trademarks, Cuba’s state-owned cigars companies are kept from suing these knock-off American cigar producers. Should the U.S. continue to normalize relations with Cuba, these previously divided legal systems will collide as Cuban cigar companies file legitimate claims to their original brand names. It is the fear of these expensive and potentially devastating lawsuits that is driving the tobacco lobby into Capitol Hill offices, not the fear of import competition. The debate over the Cuban embargo that we see today serves as a perfect example of how bilateral trade policy is more than just mere economic theory. The legal business environments of both parties are playing an increasingly influential role in how trade terms are negotiated.

While President Obama has been increasingly making historical strides in normalizing relations with Cuba, the tobacco lobby’s strength and dedication to keeping authentic Cuban cigars out of the United States to preserve their brands is expected to continue. In the meantime, everyday Americans must sit back and smoke their knock-off Cohibas while these brand battles remain unsettled.

 

[1] http://fortune.com/2014/12/17/ban-on-cuban-cigars-goes-up-in-a-puff-of-smoke/

[2] http://www.cubatrade.org/

[3] David Savona, “New Regulations Make It Easier For Americans To Visit Cuba” Cigar Aficionado Magazine, March 2016: New York, New York

[4] https://www.opensecrets.org/news/2016/02/tobacco-rum-and-other-interests-lobby-on-cuba-as-restrictions-ease/

[5] http://www.statista.com/topics/1593/tobacco/

[6] https://www.jrcigars.com/blending-room/university/top-10-countries-that-grow-cigar-tobacco/2015/08/26/

[7] http://www.businessinsider.com/r-whats-in-a-name-cuban-cigars-plant-legal-seeds-for-us-future-2015-5

[8] http://halfwheel.com/cubatabaco-wins-appeal-general-cigar-cohiba-trademark

[9] http://halfwheel.com/cubatabaco-wins-appeal-general-cigar-cohiba-trademark

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