TED Case Studies
Number xxx, 20xx
by xxxx
Cuban Cigars, Trade, Intellectual Proterty and Culture
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I. Identification

1. The Issue

The world's finest tobaccos and cigars have long been produced on an island off the coast of Florida. This small Caribbean island has produced cigars sought round the world, from the King of Spain to Winston Churchill to just about anyone with an expensive taste in the distinct, rich smoke only found in a Cuban cigar.

In 1960 the United States adopted fiscally damaging trade embargoes and economic sanctions see (Trading with the Enemy Act) on the island of Cuba. These acts were designed to topple the Cuban government in favor of a more democratic style of government. As a consequence, all trade was forbidden between the two countries. Many American companies, such as General Cigar, have used a legal loophole to produce "Cuban style" cigars with "Cuban seed" and with Cuban brand names to sell in the United States where Cuban companies, products and their brand names are not recognized. The international community however, recognizes Cuban cigars and their prospective brands and participates with the state run Cuban distributing company, Habanos, to acquire and distribute Cuban cigars worldwide. The disagreement lies in the ownership of these brand names and the possible illegal copyright infringement on these brands by General Cigar and other companies in the US.


2. Description

Cigar History:
It is not known when the first tobacco plants were grown and cultivated but historians agree on the place of origin. The natives of the American continents were the first to grow, cultivate and smoke the plant. The Mayan civilization in Central America smoked the leaves and when the civilization fell, the tobacco was spread to North and South America. In 1942 Christopher Columbus discovered America and with it, the act of smoking rolled tobacco leaves. The habit soon grew in favor with the transcontinental sailors and subsequently spread to Europe, Spain and Portugal. Smoking was seen as a status symbol in Europe.The French Ambassador to Portugal, Jean Nicot brought the habit to France and the word "nicotine" was coined after him. The word "tobacco" is believed to be derived from an attempt at the pronunciation of Tobago, the name of a Caribbean island. The word "cigar" is believed to originate from "sikar", the Mayan word for smoking. The word "stogie" is believed to have originated in the late 1800's in America, named after the first factories in Conestoga, Pennsylvania.

The first tobacco plantation was in Virginia in 1612. At the time, smoking in the American colonies was from pipes only. The cigar itself is believed to have made it to the colonies in 1762 when Israel Putnam, an officer in the British army and then an American general in the Revolutionary War, returned to Connecticut from Cuba with a large selection of cigars and tobacco and seeds. Soon after, cigars were produced in and around Hartford.

The demand for quality cigars grew in Europe as smoking rooms were introduced on trains, clubs and hotels and the "smoking jacket" was introduced. After Christopher Columbus took the Cuban tobacco and seed back to Spain, the Spaniards began producing their own version of the cigars. As demand for quality grew there as well, they quickly realized that the cigars produced in Cuba were far superior to their own. In 1821, Spain allowed Cuba to manufacture cigars and thus the modern Cuban cigar was born. In appreciation to the King of Spain, Cubans would send the king their highest quality cigars to the king every year. The boxes were intricately decorated and packaged in Spanish cedar. The King's cigars were named "Trinidads".

As Castro gained power in Cuba in the late 1950's, the wealthy ruling class fled Cuba to countries such as the US. These people who previously owned many business such as cigar and rum (see Bacardi Case) left their production facilities in Cuba and took with them the recipes, production process and know how of making these well known Cuban products. According to the WTO TRIPS agreement, guarantees the right to own the "intellectual property" based on geographic indicators.


GEOGRAPHIC INDICATORS and the unique PRODUCTION PROCESS:

ENVIRONMENT:
The unique composition of the soil, with Cuba's warm tropical climate that is tempered by trades winds makes for a very unique and hospitable environment for tobacco plants.

HARVEST:
The process begins with preparing the beds and laying the seeds. Then, to increase the vitality of the plants, they are topped and the suckers are removed. After 2 1/3 to 3 months the plants reach maturity and are harvested leaf by leaf.

CURING:
First, the leaves are strung together with a cotton string and hung out to dry for a few months. After the leaves are cured they go through a series of fermentation steps and graded and separated according to size, shape and quality. The leaves are then arranged according to measurements and thickness to match the type of cigar. Then, the tobacco is ready to be rolled.

ROLLING:
Cigar rolling requires expertise and care. The tools used to roll cigars have remained the same for generations. They consist of a small wooden board, along with a semi-circular blade, and a small container of clear purified rubber resin used to shape and seal off the ends of the cigar. The cigar that is rolled has to be perfect. The perfect cigar is neither too tight nor too flabby and loose. A cigar that is rolled too tight or too loose will ruin the flavor and effect the burn of the cigar. A roller begins as an apprentice sweeping the floor of the factory and learning the art of hand rolling the perfect cigar from the master rollers. The taste and burn of the cigar varies according to the roller. Master cigar rollers are able to produce an average of 10 cigars an hour. Please click on the image below for a step by step tutorial of the rolling process.


 


PACKAGING:
Cigars are then packaged and nailed shut in intricately designed Spanish cedar boxes. Due to counterfeit cigars being sold on the black market, cigars produced in the factories are packaged in boxes with official state seals and sold with official receipts.

 

3. Related Cases
CUBA:
Helms-Burton
Cuba
Bacardi
Tequila
Cubamusic
Cubanuke
Cubamine
 
INTELLECTUAL PROPERTY:
Feta
Parmesan
Basmati
Biodiv
Grappa
Budweis
Pisco
Scotch
Mexbrew
Canola
Hiatiart

 

4. Author and Date:

Robert Brian Frankenberry. December 2003


II. Legal Clusters

5. Discourse and Status:

The legal disputes over Cuban cigars surprisingly centers on only two brands: Cohiba and Trinidad. Culbro corporation, an American company, registered its "Cohiba" cigars with the U.S. Patent and Trademark Office in 1978 and assigned the subsequent registration to another American company, General Cigar. In 1997 the Cuban government petitioned the U.S. Patent and Trademark Office in protest of naming rights and the almost identical trademark. According to the (WTO TRIPS agreement), the trademark can fall under protest in three areas. Firstly, is the name "Cohiba" under which Cuba claims to have produced its top of the line cigars since 1960. Cuba claims that "Cohiba" is a "famous name" and under international law, "should not be appropriated by a producer in another country." Secondly, the trademark or logo that wraps the cigar. The wrapping logo is very similar on both the American and the Cuban brand.

The only distinguishing detail on the wrapper is the red color band for the American cigar and the yellow band for the Cuban. Thirdly, the American brand is sold under the advertisement of being "Cuban style" and made with "Cuban seed". According to Cuba, this is a blatant attempt to steal the "intellectual property" and confuse the consumer. In October of 1998, two Florida Senators introduced the Omnibus Consolidated and Emergency Supplemental Appropriations Act into law. Section 211 of this act prohibits Cuban companies from registering "confiscated" trademarks in the US without permission of the original owner. US courts are also prohibited from recognizing any such trademark rights. This is an attempt to outmaneuver both Cuba and the WTO to lay claim that the original owners of the trademarks were the families that fled Cuba before 1960. The EU has formally backed Cuba on questioning the legality of the OCES Act and requested the WTO take the matter to its Dispute Settlement Body. The WTO has since found Section 211 to be out of bounds according to TRIPS and requested the U.S. correct its legislation accordingly. The EU position is that Section 211 "violates several portions or provisions of the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights" (Shapiro, Perry, Woods 2000). US representatives reject the EU stance, stating that Section 211 is in accordance with TRIPS. Several meetings have been held regarding this, with no conclusion to date. It is currently pending review by the Dispute Settlement Body of the WTO. The other brand, Trinidad, is also in a legal dispute. Cuba was granted the registered brand name, TTT Trinidad, La Habana, Cuba by the USPTO in 1996. However, in 1997, the Trinidad family petitioned the USPTO for cancellation. There is no resolution yet, in the meantime, the Trinidad family is selling cigars with the TTT Trinidad name.

 

6. Forum and Scope: WTO and Multilateral

7. Decision Breadth: Cuba, US and European Union

8. Legal Standing:
The WTO has found sec 211 of the OCES Act to be out of line with the TRIPS agreement and requested the US to amend it. That is where it lies today as the Cuban brands are still not recognized and the General Cigar brands are being sold.

Nov 4, 2003, for the 12th year in a row, the UN General Assembly voted overwhelmingly 179-3 (2 abstentions) to remove the US Embargoes on the country of Cuba.

If the Sanctions are removed and Cuban products are recognized, the WTO would most likely hear arguments from all companies claiming ownership of the brand names and the dates of their patents.


III. Geographic Clusters

9. Geographic Locations

a. Geographic Domain: North America

b. Geographic Site: Southern North America

c. Geographic Impact: Cuba

10. Sub-National Factors: No

11. Type of Habitat: Tropical.The unique composition of the soil, with Cuba's warm tropical climate that is tempered by trades winds makes for a very unique and hospitable environment for tobacco plants.


IV. Trade Clusters

12. Type of Measure: Intellectual Property

13. Direct v. Indirect Impacts: Direct

14. Relation of Trade Measure to Environmental Impact

a. Directly Related to Product: Yes, Cigar

b. Indirectly Related to Product: Yes, Tobacco

c. Not Related to Product: No

d. Related to Process: Yes, Intellectual Property

15. Trade Product Identification: Cigars, Tobacco

16. Economic Data

US Cigar Sales Data
From 1996 to 1997 the US experienced a boom in cigar sales. Although numbers may not be as high today, as the "cigar fad" may have died off some, cigar sales are still a multi million dollar industry in the US. These numbers bring to light the magnitude of profits made off "Cuban style" cigars in the US. A box of Cuban cigars can be purchased anywhere from $300 - $1000 (not counting black market prices).


Cigar Sales in the US

Year
per cigar sold
$sales$
1996
3.8 billion
613 million
1997
4.4 billion
876 million

 

Cuban Tobacco exports to North America (Canada - per cigar)
Year # of cigars
2000 5.6 million
2001 5.7 million
2002 5.5 million
2003-Jun 2.1 million

Here is a list of Cuban brand cigars that are sold in the US by non Cuban companies.
Source: Cigar Aficionado, July 20, 1998. * Denotes cigar brands not currently made by Cuba.
Brand Name
US Rights Owned by
Country made in

Belinda*

General Cigar

Honduras

Bolivar

General Cigar

Dominican Rep.

Cabanas*

Consolidated Cigar

United States

Cifuentes

General Cigar

Jamaica

Cohiba

General Cigar

Dominican Rep.

El Rey del Mundo

General Cigar

Honduras

Fonseca

MATASA

Dominican Rep.

Gispert

Tabacalera SA

Honduras

H. Upmann

Consolidated Cigar

Dominican Rep.

Henry Clay

Consolidated Cigar

Dominican Rep.

Hoyo de Monterrey

General Cigar

Honduras

La Gloria

El Credito

Dominican Rep.

Montecristo

Consolidated Cigar

Dominican Rep.

Partagas

General Cigar

Dominican Rep.

Por Larrañaga

Consolidated Cigar

Dominican Rep.

Punch

General Cigar

Honduras

Ramon

General Cigar

Dominican Rep.

Romeo y Julieta

Tabacalera SA

Dominican Rep.

Saint Luis Rey

Tabacalera SA

Honduras

Santa Damiana*

Consolidated Cigar

Dominican Rep

 

17. Impact of Trade Restriction: Ban

18. Industry Sector: Manufacture

19. Exporters and Importers: Cuba and the US


V. Environment Clusters

20. Environmental Problem Type: Deforestation

21. Name, Type, and Diversity of Species

Name: Nicotiana tabacum, Nicotiana rustica

Type: Tobacco plant

Diversity: 2 types

22. Resource Impact and Effect: Deforestation. Although deforestation in Cuba seems to be more of a result from construction rather than the planting or sewing of tobacco fields.

23. Urgency and Lifetime: Not urgent. Cuba is Mountainous and much of the forests are protected by these mountains.

24. Substitutes: None


VI. Other Factors

25. Culture: Yes

Possibly more so than the government, the Cuban people and their culture have been effected by the US Sanctions. The use of economic sanctions in the post cold war era is seen as a strategic move away from direct military conflict in an attempt to achieve similar goals. Economic sanctioning is believed to be more “humane” but may have the same devastating effects on a society. The economic sanctions on Cuba have a dramatic effect on the economy, standard of living and ultimately the culture of the Cuban people. The UN charter states that economic sanctions can be legally imposed multilaterally and only if the sanctioned country has been determined to be a threat to peace and international security. It can be argued that Cuba no longer poses a threat to the US or the international community. The sanctions imposed upon Cuba are explicitly unilateral and may even be counterproductive. Here are several reasons: The sanctions elicit sympathy for Cuba from the international community, strengthen and unify the people against a common enemy and allow the government to use the sanctions as a “scapegoat” for the internal economic problems. It can be argued that the Helms-Burton law which attempts to stop businesses from other countries from doing business with Cuba only isolates the US and angers its neighbors. The economic situation in Cuba has decimated the middle class, which is seen as an important factor in pressing for regime change.
It is also possible, that smaller, weaker countries, wary of globalization and the global capitalism, see Cuba as an example or model to withstand these pressures and threats while balancing a growing international export/import industry.

26. Trans-Boundary Issues: No

27. Rights: Yes

28. Relevant Literature

Cigar Aficionado: A great resource for Cigar smoking enthusiasts. Also very resourceful for information on Cuban cigars, Cuban cigar production process and also various state legal issues on smoking bans.
http://www.cigaraficionado.com/Cigar/Home/

Cigar Weekly: Cigar, Cuban cigar and trademark issue resource.
http://www.cigarweekly.com/magazine/archives/

Intellectual Property Rights and International Trade in Cuba Products: This is an excellent resource that specifically addresses the Cuban cigar and Bacardi rum intellectual property issues. Highly recommended
Shapiro, Stephen L., Perry, Joseph A., Woods, Louis A., (2000). Intellectual Property Rights and International Trade in Cuba Products [Online]. http://lanic.utexas.edu/la/cb/cuba/asce/cuba10/perry.pdf

Emerging from Conflict "Improving US Relations with Current and Recent Adversaries": Excellent resource on strategies, effects, and new ideas on economic sanctions. Specifically addresses Cuba, Iraq, Iran, China, Vietnam, North Korea and Russian sanctions.
http://www.emergingfromconflict.org


 

 

 

 



12/2003