Letter from AmeriKat II: When is Puerto Rican rum not Cuban rum?

The Court of Appeals

The three-judge Court of Appeals for the Third Circuit - Judges Jordan (picture left), Greenaway, Jr. (born in London, UK), and Weis - dismissed Pernod's appeal. Giving the Opinion of the Court, Judge Jordan stated that it was obvious that the false advertising dispute was a "proxy for the real fight the parties want to have" over the right to the exclusive use of the HAVANA CLUB mark. Due to the peculiar circumstances of the Cuban trade embargo and the OCAS refusal for continued registration, the only option Pernod had left was to turn to the false advertising provision in section 43(a)(1)(B) (previous post).

To establish a false advertising claim, Pernod must prove the following under Warner-Lambert v Breathasure (2000), that:

1. Bacardi made false or misleading statements as to his own product [or another's];
2. there is actual deception or at least a tendency to deceive a substantial portion of the intended audience;
3. the deception is material in that it is likely to influence purchasing decisions;
4. the advertised goods travel in interstate commerce; and
5. there is a likelihood of injury to the Pernod in terms of declining sales, loss of good will, etc.

Under the second element, actual deception or a tendency to deceive is presumed if the plaintiff proves that an advertisement is unambiguous and literally false (Novartis Consumer Health, Inc. v Johnson & Johnson-Merck Consumer Pharm Co. (2002)). If a message conveyed by an ad is literally true or ambiguous, the plaintiff must prove actual deception or a tendency to deceive and it may do so with properly conducted consumer evidence (Johnson & Johnson-Merck Consumer Pharm., Co. v Rhone-Poulenc Rorer Pharm (1994)).

Pernod thus submitted its consumer survey and contended that the District Court was required to consider it when determining if Bacardi's "Havana Club" label amounted to a misleading statement of geographic origin. Pernod argued that the determination of whether an ad implies an inaccurate message to a sufficient number of consumers "virtually demands survey research because it centers on consumer perception and memory." Bacardi stated that the first step in a false advertising claim is for the Court to determine what message is conveyed which can sometimes be done on the face of the ad itself. (picture, right - Judge Greenaway, Jr.)

The Court of Appeals recognized that the central question before them was whether language could ever be clear enough that its meaning is beyond reasonable dispute. The issue in false advertising cases is whether an ad implies an inaccurate message. The Court of Appeals stated, in an amazingly constructed passage, that the word 'implies'

"indicates that the words themselves have meaning beyond the subjective inferences of any individual reader of listener. Words, malleable though they may be over time, must still, of necessity, be repositories of commonly accepted meaning at any given point in time. Were it otherwise, ordinary discourse would be impossible...while they lack the precision of numbers, words must, as nearly as possible, be accorded an objectively reasonable meaning if law is to have any fair claim as an instrument of justice."

The Court of Appeals listed several examples throughout the law, from criminal law, to statutory interpretation, to defamation claims, where the law holds that there is and must be a point at which language is used plainly enough that the question ceases to be "what does this mean?" and instead becomes "It is clear what this means, what is the legal consequence?". To highlight this position, the Court referred to the Seventh Circuit decision of Mead Johnson v Abbot Laboratories (2000) where the Court considered whether the phrase "1st Choice of Doctors" could be misleading (picture, left - picture of the product with the blue ribbon in left hand corner). There the court held that in the context of false advertising cases, whether a claim is false or misleading is an issue of fact not law. It recognized that there was a common baseline meaning to some words that put them beyond any credible claim of misunderstanding. The Seventh Circuit stated that:

"never before has survey research been used to determine the meaning of words, or to set the standard to which objectively verifiable claims must be held."

Although not without recognizing that the Mead Johnson decision has flaws, the Court of Appeals agreed that there are circumstances where the meaning of a factually accurate and facially unambiguous statement is not open to attack through a consumer survey. Such a factually accurate and unambiguous statement is that of the geographic origin of Havana Club rum being from Puerto Rico - a fact that is stated on the front and back of Bacardi's bottle. No reasonable consumer could be misled by those statements and the rest of the label does not put those statements in any doubt.

If the words "Havana Club" were in isolation, the Court of Appeals stated they may have agreed with Pernod that those words are misleading as to the geographic origin of the rum (as was held in Corporacion Habanos, 88 USPQ 2d holding that the trade mark Havana Club on Cigars not made in Cuba was geographically deceptive and In re Bacardi 48 USPQ 2d in relation to trade marks Havana Select, Habana Clasico, Old Havana"). However, the words "Havana Rum" were not dealt with in isolation - this is a false advertising case not a trade mark case - so the words are dealt with in the context of the entire advertisement on the label of Bacardi's rum. A consumer who may have thought that the words "Havana Rum" indicated that the product's place of origin was Havana, Cuba would be corrected by the "plain and explicit statements of geographic origin on the label" stating that the product was from Puerto Rico. (picture, right - Pernod's Havana Club logo)

Under these circumstances a district court can properly disregard survey evidence as immaterial because Section 43(a)(1) does not forbid language that reasonable people would have to acknowledge is not false or misleading. Once the meaning of the words is beyond reasonable dispute, there is no longer a question of fact and the court may place such weight on survey evidence as it deems appropriate - even if that means that no weight is placed on the survey evidence at all.

In closing the Court of Appeals issued two cautions - one to litigants and one to judges. To potential litigants, the court warned that cases involving truly plain language, such as this case, should not be worth the time and expense of contesting in court - although it was the "unusual political baggage and branding potential involved" in this case that made the dispute see the light of day in the court room. To judges, the court warned that its decision was not carte blanche to rule out survey evidence from the initial determination. The court stated that

"Before a defendant or a district judge decides that an advertisement could not mislead a reasonable person, serious care must be exercised to avoid the temptation of thinking, "my way of seeing this is naturally the only reasonable way." Thoughtful reflection on potential ambiguities in an advertisement, which can be revealed by surveys and will certainly be pointed out by the plaintiffs, will regularly make it the wisest course to consider survey evidence."

The Court was also careful to state that its conclusion in the case said nothing of whether the words HAVANA CLUB are eligible fore registration as a trade mark.

The lesson from the Court is that where the meaning of the disputed language subject to a false advertising claim is clear, it is not necessary to place much or any weight on admitted survey evidence. However, it is only when the disputed language is plainly clear that this process of determination is reasonable; the majority of cases which make it to court will hopefully necessarily not have plainly clear language and so survey evidence will be of assistance to the Court.

Patricia Neal, a spokeswoman for Bacardi stated that:

"Bacardi applauds the appellate court's decision which reaffirms that Bacardi has accurately portrayed both the geographic origin an Cuban heritage of our Havana Club rum."

David Bernstein, a lawyer from Debevoise & Plimpton representing Pernod Ricard told Bloomberg that Pernod was disappointed with the decision and may consider an appeal. He also stated that

"The Court seems to be substituting its own view over that of consumers."

Spanish readers of the IPKat will of course recognize that the parties in this dispute were subject to a Spanish Supreme Court recent decision this past February. Bacardi had sued Pernod stating that they were the rightful proprietor of the mark HAVANA CLUB. The Spanish Supreme Court ruled that Bacardi had no rights in the trademark HAVANA CLUB because Bacardi had no claim to the mark in Spain following from the Arechabala's family neglect of its rights, including allowing its trade marks in the name to expire. (picture, right - the Spanish Tribunal Supremo)

Taking language from the decision, in isolation, the AmeriKat understands and agrees with the reasoning of the court. However, it is impossible to view the decision of the Third Circuit without the historical context of the Cuban Revolution, section 211 and the revocation of Pernod's trade mark for HAVANA RUM. It is for this context, that the AmeriKat considers that it will be likely that Pernod will appeal the decision and continue the fight. As stated by General Counsel for Pernod Ricard Ian FitzSimons following the Third Circuit's decision,

"We are determined to continue to fight for fair competition in the United States market where ownership of the ‘Havana Club' trademark dates back to 1976.”

And so the fight goes on....