TED Case Studies Number 780, 2005 by Ian E. DeMello

Guarana - Prospects and Geographic Indicator Status

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1. The Issue

Guarana is a berry that grows in the Maues region of Northern Brazil that has been found to hold extraordinary properties for increased energy and stimulation. Its origins are found deep in the forests of the Amazon where it has been revered for centuries by the Guarani tribe for its magical and medicinal qualities(1). Overtime the popularity of the berry has grown and it is now practically the national drink in Brazil. As guarana becomes more and more popular worldwide, as a main ingredient in energy drinks such as "Sobe" and “Rockstar”, conflict has risen between the local producers and distributors of guarana over rights to the marketing of the berry. Multinational corporation that buy the guarana have formed a "cartel" that no longer has to compete for the guarana crops, which some claim has resulted in the ruin of the local economy and the livelihood of guarana farmers.

2. Description

The botanical name for guarana is Paullinia Cupana. It is described as a climbing shrub and is named after C.F. Paullini, a German medical botanist who discovered the plant in the 18th century. The substance guaranine in guarana has traces of alkaloids like theophylline and theobromine that work as a stimulant to increase mental and physical alertness. It also increases the metabolic rate, which can reduce appetite(2). The actual medicinal use of Guarana varies from easing headaches, diarhea, exhaustion and some claims of an aphrodisiac quality. Other reported benefits include hangover relief and a cure for menstrual-type headaches.

True guarana is believed by some to only be made by the Guarani, a tribe of South America from which the common name, guarana, derives. According to a missionary, certain Indian tribes valued guarana in the same way that "the whites valued their gold." (3) The process for making guarana is centuries old and is still performed by the Guarani in a similar manner as their ancestors. First the seeds are shelled, washed, then roasted for six hours. After the roasting process the seeds are then put into sacks and shaken until their outside shell comes off. They are then pounded into a fine powder and made into a dough with water and rolled into cylindrical shapes about 8 inches long. The paste is then dried in the sun or over a slow fire until they are hard and a rough and reddish-brown colour. Once hardened the traditional way to consume the guarana is to add half a tablespoon of guarana with sugar and water and drink it like a tea(4).

The Beginning of Mass Production and the Producers

The main producer and distributor of guarana beverages is Ambev, a Brazilian company that has recently signed agreements with Pepsi-Co to distribute its popular Antarctica guarana soda. Ambev has been producing Antarctica since 1921 and has been buying the fruit from local producers in the Maues region since that date. The largest official processing and research center for guarana is owned by Ambev and is located in Maues. This production/research center started in 1971 and is called the Santa Helena Farm. Ambev claims that the establishment of this farm “enabled ANTARCTICA to deeply study the Guaraná culture and transfer the technology and knowledge developed to other suppliers. Thus, the company could assure a better quality and lower prices for seeds brought from third parties.” Their extraction process is as follows “The extraction process starts by automatically weighting toasted and ground seeds. Then the seeds are sent to rotary extraction vessels with the addition of the extracting solvent fluid and, after a certain amount of contact time, the initial extract is obtained. This extract will follow through 3 steps: decantation, filtering, and vacuum concentration. Then the extract is analyzed by the physical-chemical laboratory, which will assess whether it is according to the specifications established by Arosuco. Only after the entire process is completed will the extract be stored in fiber vessels, located in the cellar, and will be ready for use”. Research conducted on the farm has contributed to the realization that Guarana is not a hermaphodite species and depends on external agents in its reproduction. It can thus be grown amongst the natural rainforest, preserving the natural ecosystem (5). (www.ambev.com).

Issue and Potential Clash

Globalization is commonly viewed as a way to expand markets and improve the livelihood of those involved. This may not have been the case for guarana growers in Brazil where the price for guarana has reportedly fallen by 80% since the onset of globalization and the consolidation of that market. In an attempt to help counter the monopolistic measures a Danish artist group called Superflex has begun to assist local farmers in creating their own drink brand called Guarana Power. Superflex’s goal is to empower impoverished communities using the tools of commerce. The group claims they “employ global brands and their strategies as raw material for a counter-economic position."(6)

The new logo for Guarana Power is a guarana power sticker pasted over an Antarctica label. The company claims that under the Agreement on the Trade-Related Aspects of Intellectual Property Rights (“TRIPS”), as well as the Madrid Protocol, they are entitled to global trademark protection for their label. This has led to some issues over the legality of Guarana Power's label in the international arena.

The issue between AmBev and the Superflex sponsored Guarana Power is an interesting case of a potential clash between multinational powers and small community organizations. As trade expands there is a movement to compete and survive in a globalizing world which seems to favor the monopolistic giant. It is also a case of trademark protection in an ever-expanding market. In addition there is the local Guarani tribe who’s historic and cultural ties to the use of the Guarana berry may have been exploited for the economic gain of corporations such as AmBev. Guarana Power is an example of a force that is striving to retain this identity and the rights to control their social and cultural identity.

Another competitive issue concerning guarana is the battle between Ambev and Coca-Cola’s efforts to enter the Brazilian market with their guarana soft drink, Kuat. Coca-Cola claims that the Ambev guarana plants in Maues have inferior production capabilities compared to the plants they have begun to produce. Coca-Cola has invested over R$10 million in research planting and improving the guarana plant.

The company claims a plant native to Maues is on average 40 years old. These plants tend to lose their productivity after 30 years. A native bush to Maues produces about 80 grams of seeds whereas a genetically altered plant can increase production by 30 times. Coca-Cola claims they have produced a guarana plant that can produce 1 kg of seeds per bush. They claim to produce “72 percent of the guarana that they [Ambev] produces in an area equal to only 19 percent of the area used in Maues.” (7)(“The Battle over Amazonia’s guarana” Amazon news. Via NWFP newsletter from FAO 7 December 2003).

Ambev has countered with the fact that they are the “originally from Brazil” and that they buy their guarana from small farmers who have been harvesting the berry for years. Ambev launched an investment plan of R$61 million in diverse projects in the Maues region and created 12 development poles to offer assistance to the rural communities and to finance the expansion of guarana farming. The company says they have faced some resistance from the local farmers because “some said the plants that they cultivate were from the grandfather of the great grandfather of the great-great-grandfather; so the modernization and the technology’s incorporation had to be accompanied with a process of re-education and persuading the farmers,” (Gileno Correia, manager of Ambev factory in Manuas).

What is at issue here is the competitiveness of the local producers of Guarana and their ability to retain control of their traditional harvesting and cultivating process. There also may be a loss in product quality and original tastes of the plants as they are genetically altered. A possible benefit could result from this competition. The increased competitiveness amongst buyers may raise the price local growers receive, if they are able to keep up with the demand for the crop.

3. Related Cases

South America	Drinks/Stimulants
Maca-traditional-knowledge	Columbia - Coffee
Rose	Hawaii Coffee
Rubber	Oolong Tea
Coca	Ceylan Tea
banana	Ginseng
Brazilian Cachaca	Pisco

4. Author and Date:

Ian E. DeMello

May 3, 2005

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The last few years have seen many advances in the protection of products in the international market. Numerous treaties have been signed between countries to protect trademarks and other intellectual property holdings, most notably the Agreement on Trade-Related Aspects of Intellectual Property Rights (“TRIPS”) signed amongst WTO members. Guarana as a specific product has limited legal history concerning its use or challenges to its use in certain products. Yet there have arisen specific issues among products that use guarana that have attracted attention in relation to the World Intellectual Property Organization (“WIPO”) and TRIPS.

The case that will be highlighted here is the case of Ambev’s Antarctica brand and Guarana Power (Note the use of case here does not represent an actual legal case that has been filed in court). I have chosen this case to highlight potential issues that may arise for guarana in the future. In addition the issues included an international lawyers perspective concerning intellectual property rights in relation to formal treaties and U.S. laws. Also relevant in this case is that Superflex, the Danish artist group responsible for sponsoring the Guarana Power movement, is highlighting the plight of the local people culturally and regionally tied to the geographic origin of Guarana and how this geographic indicator may be in danger of being stolen by multinational corporations (Ambev). The case of Ambev and Guarana Power rests on Guarana Power's partial use of Antarctica’s label for the label of its own guarana brand soft drink. The label has a black and white Guarana Power sticker pasted over Antarctica’s label. This is meant to be symbolic of the worker movement to overcome powerful multinational organizations.

The use of Guarana in this example is based on the use of a registered label rather than the actual use of the guarana but it is an example that could represent a future clash between a growing divide in multinational corporations that use the product and those who are losing the cultural and geographic identity that is attached to Guarana. In a world where there has been a dramatic increase in the registration of international trademarks, corporations and large industrial complexes have an advantage over smaller cultural entities in developing countries. How will this issue be in the future and more importantly how will guarana be preserved as a geographic indicator?

In order to determine whether Guarana Power is infringing on Antarctica’s trademark laws Anupam Chander highlights the importance of TRIPS and how Guarana Power might be in violation. TRIPS is important in this issue for two reasons. The first being that it requires that “countries that belong to the World Trade Organization (“WTO”) must protect intellectual property in specific ways and second, it requires that such countries must treat foreigners equally to their own nationals.” According to TRIPS the Antarctica brand is protected in WTO countries and if Guarana Power makers are violating this trademark then they will face consequences(8).

In light of this background and the increasing registration of international trademarks after the Madrid protocol, Chander argues that according to precedent in the American legal system, Guarana Power is not infringing on Antarctica’s rights based on the fact that the case does not prescribe to the basic violations of trademarks, being (i) whether there it is likely that consumers will be confused, (ii) whether the label lessens Ambev’s Antarctica brands ability to distinguish itself in the soft drink market. Chander claims that Guarana Power does neither. First he says that there is little likelihood that consumers will be confused, and preventing such confusion is one of the main purposes of trademark law.

Chander uses a recent Supreme Court case Mosley v. V. Secret Catalogue, Inc. to suggest that Ambev does not have a case for “dilution” of its trademark. In that case the Supreme Court held that unless Victoria's Secret could prove an “actual lessening of the capacity of a famous mark to identify and distinguish goods or services” there was no dilution.

In addition to the stated legal precedence Chander goes on to point out that the two labels are in fact very distinct and that Guarana Power “parodies the Antarctica by emphasizing how Guarana Power empowers both the drinker and the farmers” which is grounds for fair use.

5. Discourse and Status: Agreement and Allegation

 

6. Forum and Scope: WTO, GATT, TRIPS, Multi

7. Decision Breadth: Guarana as a Geographic Indicator

The World Intellectual Property Organization (“WIPO”) defines geographic Indications as “agricultural products [that] typically have qualities that derive from their place of production and are influenced by special local factors, such as climate and soil.” The organization says whether or not a sign functions as a geographical indicator is a matter of national law and consumer perception. Currently it would seem that Guarana is in danger of losing this status. Multinational corporations are using the name guarana as an additive in sodas and other energy drinks thus taking away from the fact that the use of Guarana extends back hundreds of years and is a product from one small region of the world. The rapid increase of the use of Guarana is grounds for concern when considering how companies might abuse its popularity, attempt to grow it elsewhere or simply lie about its content and purity.

The WIPO says that if not adequately protected, geographic products may be misrepresented by dishonest commercial operators. This has in fact happened already in the United States where cases have been cited where instead of actually including the guarana ingredient, caffeine or sugar is added. These dishonest merchants are benefiting in sales from the popularity of guarana without giving credit to the origin or purity of guarana.

Geographic Indicators(9) are protected by numerous laws and by a number of treaties administrated by the WIPO including the Paris Convention for the Protection of Industrial Property of 1883, the Lisbon Agreement for the Protection of Appellations of Origin and their International Registration as well as Articles 22 and 24 of TRIPS. Article 22 specifically cites the protection of geographical indications first defining indication as “indications which identify a good as originating in the territory of a member, or a region or locality in that territory, where a given quality, reputation or other characteristic of the good is essentially attributable to its geographic origin.” Members of TRIPS are required to prevent the following:

(a) the use of any means in the designation or presentation of a good that indicates or suggests that the good in question originates in a geographical area other that the true place of origin in a manner which misleads the public as to the geographic origin of the good;
(b) any use which constitutes an act of unfair competition within the meaning of Article 10bis of the Paris Convention (1967).

If a member finds someone to be at fault for any of the above violations they are required to refuse or invalidate the registration of a trademark which contains or consists of a geographic indication with respect to goods not originating in the territory indicated. It may be feasible to say that guarana needs protection as a geographic indicator rather than some ingredient in a soft drink. It clearly meets the requirements for such designation being both “originating in a territory of a member country” and having a “reputation” for a certain quality. If Guarana is not protected it runs the risk of being produced in inferior climates and thus resulting in inferior products which endanger the production of guarana and the farmers who develop it. This could become an even bigger issue as South America continues to develop agriculturally and other countries with similar climates attempt to enter the market.

This protection is what organizations such as Superflex seem to be trying to accomplish, gaining more recognition for the people (and geographic region) behind the product. So far they have not received any formal complaint from Ambev for the use of their logo. Maybe this movement marks the beginning of securing the status of Brazilian or Maues Guarana as a geographical indicator. Possibly with greater attention the government of Brazil will take a more active role in securing Brazilian guarana as a geographic indicator to protect that product.

There are two forms in which guarana is traded. The first, as a finished product in soft drinks and other beverages such as Ambev’s Antarctica brand soda and second, a powdered form which is added to products or taken as a supplement for a variety of ailments such as stomach aches and fatigue.

In Marketresearch.com’s Flavor/Ingredient Outlook 2004 they recognize guarana’s popularity as an ingredient in soft drinks due to its natural energy producing capabilities and forecast its addition to a variety of products such as energy bars and other mainstream beverages. In 2003 27 new products included Guarana.(11)

As discussed above the number one guarana soda factory in Brazil is Antarctica followed by Coca-Cola's Kuat. Produtos Globo is the main producer of Guarana syrup and exports seeds and powder. There is a Guarana factory located in Seattle Washington called Sol Rio which imports raw guarana from Brazil and produces its own guarana softdrink. The following is a list of online shops selling Guarana products:

• Beverages Direct
• Brasimpo (Dutch importer of Brazilian food and drinks)
• Experentis
• Finalmente Brasil
• Pop the Soda Shop
• Seattlebev

The previously listed sources sell a variety of products ranging from sodas to powdered guarana and can be found on www.guarana.com.

 

Product	Number
Beverages	54
Confectionary	14
Dessert and Ice Cream	2
Weight Control	1
Bakery	3
Snacks	1

16. Economic Data

As guarana is almost solely produced in Northern Brazil, that country is the major exporter country of the product. Within this context, Ambev controls most of the production and sale abroad. In order to gain insight into the world wide trade of guarana I have found it most relevant to use Ambev’s trade data and financial information. Ambev had annual sales of $ 4, 845.7 million in 2002 and is an international public company with about 18,136 employees. In 2002 Ambev introduced Guarana Antarctica to Japan, becoming its fourth international market. Ambev has a distribution agreement with PepsiCo and already has products in Spain, Portugal and Puerto Rico. (Business & Co Resource Center)

Ambev’s annual sales total around 800 million liters and its Guarana brand is one of the 15 most consumed soft drinks around the world. Ambev, in its efforts to surpass Coca-cola as the number one soda product in Brazil has shifting its marketing strategy placing an emphasis on “Guarana’s taste, natural ingredients and Brazilian identity.”

19. Exporters and Importers: Exporter: Brazil (Ambev), Importers: Many

Examples of U.S Patents Containing Guarana - USPTO

• No. 6,610,277 Appetite Suppressant Gum
• 6,861,594 Guarana Seed Extract and Method of Preparation
• 6,312,736 Herbal Composition to Relieve Pain
• 6,475,530 Methods and Compositions for Producing Weight Loss
• 6,025,363 Composition for Suppressing Appetite
• 5,977,120 Composition for Achieving an Alert Yet Calm State
• 6,652,839 Chewing Gum with Liquid Medium

  Examples of Products Registered under the Madrid System for the International Registration of Trademarks - Madrid System

• 615773 Guarana Verde Strong
• 618394 Guarana Brazil
• 623546 Guarana Enerjoy Drink
• 623548 Guarana Megafly
• 636989 AFRI Guarana

The environmental aspects of this case are varied in terms of limited physical effects and possible large scale cultural effects. In terms of actual environmental effects the production of Guarana is said to be done in a way that promotes the crop as sustainable cash crop in an eco-friendly manner. It seems as thought the production of Guarana has limited negative effects on the environment, in an area where typically environmental problems have arisen over agricultural production. The effects of the growing popularity of the plant may have unforeseeable consequences such as those related to the deforestation of the Amazon with cattle grazing or sugar cane.

25. Culture: Yes

The Guarani tribe is responsible for processing about 80% of commercially grown guarana (in the Maues region). The Guarani Indians harvest and process gGuarana by hand, first dry roasting the seeds, then mixing it into a paste with water. The FUNAI National Indian Foundation has set up a number of projects to improve local production.

The worldwide introduction of Guarana as a popular additive in energy drinks and tonics has increased the demand for the crop. This, initially, has created greater income and development for the Guarani people. Unfortunately there are negative social environmental cases that have evolved.

The negative effects of the popularity of Guarana and the internationalization of the Guarana market include the development of a monopoly which is able to force an artificially lower price to for the raw Guarana product. As a result of globalization and merging multinationals the consumer price for the product has risen while the price the Guarani producers are receiving is decreasing.The actual price received for guarana has fallen by 80% since the onset of globalization and the consolidation of that market. (Superflex figures). In addition there is a potential loss of cultural significance and traditional knowledge as a product is transferred into the main stream international market. This may prove to be a problem for the Guarani in the future.

Expeditions

An expediiton group in the web offers a journey into the world of Guarna called "Expedition to the heart of Mundo Guarana" They trip is described as " exploring new frontiers of sustainable development - practicing a type of reverse colonialism - where through education and the principles of Fair Trade, we integrate commercial, social, and environmental innovations controlled by indigenous peoples.." (13)

28. Relevant Literature

1. Anup,Chandler, “Illegal Art? The Artists' Group Superflex Co-Opts Global Trademarks” Thursday, May. 13, 2004. www.Findlaw.com.
2. www.superflex.net
3. www.guaranapower.com
4. www.guarana.com
5. The Romance of the Public Domain, Anupam Chandler. 92 Calif. L. Rev. 1331
6. (TRIPS) http://www.wto.org/english/tratop_e/trips_e/trips_e.htm
7. (Madrid protocol) http://www.wipo.int/madrid/en/
8. Moseley v. V Secret Catalogue, Inc.
9. "The Battle over Amazonia’s guarana” Amazon news. Via NWFP newsletter from FAO 7 December 2003.
10. http://www.hort.purdue.edu/newcrop/1492/paullinia.html Neglected Crops: 1492 from a Different Perspective. 1994. J.E. Hernándo Bermejo and J. León (eds.). Plant Production and Protection Series No. 26. FAO, Rome, Italy. p. 223-228
11. www.naturalfacts.com.au/guarana.html
12. www.nutriherb.com
13. www.marketresearch.com
14. Business and Comany Resource Center Database
15. "Boning up on Botanicals Prepared Foods", April 2002 Claudia D. O'Donnel, Lyn Dornblaser, Business News Publishing Co.
16. Beverage World Oct 15, 2000 "Ambev goes global with Spot on NYSE and PepsiCo Contract" Elizabeth Mora-Mass
17. http://www.explorasport.com/guarana/