DGE Diageo Plc

By Tripp Mickle 

SAN JOSE, CUBA -- The distillery that converts Cuban molasses to Havana Club rum beneath palm trees here is about to undergo a major expansion.

A multimillion-dollar expansion of warehouses and bottling lines anticipates a reopening of the American market to the Cuban brand, said Asbel Morales, rum master at Havana Club International, a joint venture between the Cuban government and Paris-based distiller Pernod Ricard SA. "We just need to know when we can enter."

But that very prospect has inflamed a decades-old battle between Pernod Ricard, the world's second-largest spirits producer behind Diageo PLC, and Bacardi Ltd. over ownership of the Havana Club name.

Pernod says a 1993 deal with the Cuban government gives it rights to sell the Cuban-made rum around the world, including the U.S., where sales of the brand currently are blocked by the 1962 trade embargo.

Bacardi, started in 1862 by one of Cuba's oldest families, says it owns rights to the brand after buying it from Havana Club's founding family, the Arechabalas, who, like the Bacardis, fled Cuba when Fidel Castro's government nationalized the island's distilleries in 1960. The distiller has sold rum under the brand name and made it in Puerto Rico off and on since 1995.

As Pernod charges ahead with its distillery expansion in Cuba, Bacardi is ramping up its U.S. distribution and offerings of its Puerto-Rican-made Havana Club rum. Both have designs on the U.S. rum market, which accounts for about 40% of international sales.

"It is going to be an interesting battle," said Fabio Di Giammarco, vice president of rum at closely held and family-controlled Bacardi.

Pernod spokesman Olivier Cavil said, "At the end of the day, if the embargo is lifted, the final judge will be the American consumer. What does he prefer: a Havana Club brand produced in Cuban tradition with pure Cuban sugar cane or a me-too rum produced in Puerto Rico?"

The trademark row, now in U.S. District Court in Washington, D.C., is just one of the challenges Cuba faces in the U.S. There are some 6,000 U.S. property claims worth more than $2 billion filed against the Cuban government, according to the U.S. State Department.

The Havana Club clash is the one of the most highly charged Cuban trademark disputes, and pits two big-name and well-financed distillers with broad U.S. distribution. Bacardi's namesake rum dominates the U.S. market with a 30% market share, according to industry tracker Impact Databank. Outside the U.S., Bacardi faces tough competition from Pernod. Its Havana Club brand last year accounted for four million nine-liter case sales, up from 400,000 cases in 1994.

The conflict is commercial and personal: Bacardi family members lost their homes, and the company lost its distillery, to Castro's government after the revolution. Its rum once was synonymous with Havana nights and Ernest Hemingway's daiquiris.

Now, "very few Cubans even know about Bacardi," said Guillermo Maestre Busto, a Havana resident surveying the company's old Havana office building last month. "They just disappeared."

The Pernod-Bacardi feud began in 1994. Before that, the family-led companies were partners. Pernod says it distributed Bacardi rum in several markets, including France. The relationship ended after Bacardi gained its own distribution system to compete against Pernod in 1992.

A year later, Pernod and the Cuban government struck their Havana Club partnership. Patrick Ricard, then the French company's chairman, was transforming the company and needed a big-name rum like Havana Club.

Before completing the deal, Pernod determined Cuba held Havana Club trademarks in key markets, including the U.S., where the Arechabala family had let its trademark lapse in 1973, said Pernod's Mr. Cavil.

The Pernod-Cuba partnership rattled the Arechabalas which, unlike the Bacardi family, had lost their rum business and livelihood. The Bacardis survived, having built distilleries in Puerto Rico and Mexico before Cuba's revolution.

When Ramón Arechabala learned that Pernod had joined with Cuba, he protested in a letter, telling Mr. Ricard the trademark was "owned, as it has been for 60 years, by [him] and members of [his] family," according to a copy of the 1993 letter. Mr. Ricard replied, saying the partnership was legal and his position prevented him "from adopting management decisions purely based on political considerations."

Unable to afford a fight, the Arechabalas sold the brand to Bacardi. It soon manufactured a version of Havana Club for the U.S. using the Arechabala recipe. Pernod and Cuba's Havana Club International sued Bacardi in the U.S. for trademark infringement in 1996, losing the suit. Later, in a separate matter, Havana Club International's affiliate, Cubaexport, lost its U.S. trademark for the rum.

In January, the U.S. Patent and Trademark Office reinstated the Cuban government's trademark for Havana Club. The U.S. District Court in Washington, D.C., is now weighing a case brought by Bacardi that seeks to have Cuba's trademark canceled.

Rick Wilson, a Bacardi executive who married into the Bacardi family, says the Arechabalas and Bacardis have common-law rights to the Havana Club trademark. Earlier this year, Bacardi filed a Freedom of Information request for all U.S. records related to the mark's registration to the Cuban government. But Pernod's Mr. Cavil says the Arechabala family let the trademark lapse and Cuba now is its rightful owner.

As the court deliberates, Bacardi expects new styles of Puerto-Rican-made Havana Club to score with U.S. consumers while the embargo blocks Cuban-made Havana Club from entering the U.S. The embargo can only be lifted by an act of Congress. If that happens, Bacardi plans to deliver the message that "rum is made in other interesting places that can play to origin as well," said Bacardi's Mr. Di Giammarco.

Pernod is taking a different stance. "The only Havana Club Rum I know comes from Cuba," Mr. Cavil said.

Write to Tripp Mickle at Tripp.Mickle@wsj.com

(END) Dow Jones Newswires

May 30, 2016 08:14 ET (12:14 GMT)

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