Why Fashion Brands Should File for Trademark Protection in Cuba

Reprinted with permission from the August 25, 2016 edition of the New York Law Journal© 2016 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. ALMReprints.com – 877-257-3382 – reprints@alm.com.

It is no secret that First Lady Michelle Obama is a huge fan of fashion designers with Cuban roots. Perhaps her decision in 2008 to wear a dress designed by Cuban-American designer Narcisco Rodriquez on election night, followed by her inauguration dress designed by Cuban-born designer Isabel Toledo, was a signaling of what was to later come between the United States and Cuba, and their steps toward improving trade relations.

As the U.S. and Cuba progress toward economic normalization, many U.S. and multinational companies are contemplating whether it makes sense to do business in Cuba. The fashion world is no exception, as more and more designers are channeling the nostalgia of Cuba in their collections. American designer Tracey Reese is said to have been inspired by the streets of Havana and Afro-Cuban culture when designing her spring 2014 collection, while Versace’s spring/summer 2015 men’s collection was similarly inspired by Cuban architecture.

Perhaps the biggest fashion nod to Cuba came from the multinational brand Chanel, which held a one-of-a-kind fashion show in May 2016 in the center of Old Havana, where it showcased its 2017 Cruise Collection. This marked the first time in over 50 years that a major fashion brand hosted an event in the capital city since diplomatic relations between Cuba and the U.S. began to normalize in 2015.

An important fact to note is that none of the aforementioned fashion brands operate retail outlets in Cuba, nor do they sell products directly to Cuba. That is because economic and social reform in Cuba has been slow, thus dissuading some European and multinational businesses from offering goods and services there. Further, the trade embargo between the U.S. and Cuba is still in effect, thus prohibiting most U.S. companies from doing business there altogether. However, that has not stopped European companies like Versace and Chanel, as well as more than 400 U.S. businesses from registering more than an estimated 5,000(1) trademarks in Cuba. While some of these companies plan to enter the Cuban market once the embargo is fully lifted, others have no plans to do so, but have nonetheless filed for trademark protection as a precautionary measure.

Regardless of where a company may fall on the spectrum, failing to register one’s trademarks in Cuba could create major obstacles down the road, even if a company has no immediate plans to offer products or services in Cuba especially given the global business of counterfeits, thanks in large part to ecommerce. Filing for trademark protection in Cuba is particularly crucial for fashion brands, since handbags, wallets, watches, jewelry, clothing, footwear and other fashion accessories are the most counterfeited products globally.

Furthermore, because Cuba is a “first to file” country with no use requirements to obtain a trademark registration, opportunists with no “legitimate” trademark rights in Cuba may file applications and secure exclusive rights to a company’s trademarks before the brand owner, potentially blocking the rights holder from using and registering their trademark in Cuba in the future. In fact, a number of trademark applications for well-known American brands, including fashion retailers like DILLARD’S, KOHL’S, and NORDSTROM have already been filed by individuals that have no apparent affiliation with those companies. The primary motivation for a trademark “troll” to register someone else’s brand in Cuba is to try and block the legitimate rights holder from bringing their brand to Cuba, or at least without first paying the troll who filed first.

The scenario is reminiscent of South Africa,(2) when trade relations resumed there after the end of apartheid. During that time, several companies like Ralph Lauren, Victoria’s Secret and others learned that not only had their trademarks been registered by third-party companies in South Africa during apartheid, but those companies were actually using the trademarks to sell apparel. Recovering those trademarks involved either lengthy litigation or purchasing the trademarks from the registrant. Thus, the lesson learned is that protecting one’s trademarks, even in the absence of trade, is vitally important to both reserve the right to do business once trade resumes, and to also maintain the integrity and reputation of one’s brand in the face of counterfeiting.

If that is not enough to chew on, there is even more. Here are the top 10 reasons for fashion brands to file for trademark protection in Cuba:

1. Trademark use is not required in Cuba to obtain a registration. As noted above, because Cuba is a first-to-file country, a company can register its mark even if it has not yet entered the Cuban market. Despite the 54-year Cuban trade embargo, there are numerous Cuban trademark registrations for U.S. brands, including fashion brands such as LEVI STRAUSS, MARC JACOBS, RALPH LAUREN, NIKE, TOMMY HILFIGER, and DONNA KARAN.

2. The trademark application process in Cuba is relatively simple. The Cuban trademark application process is not that much different than other Caribbean countries or even common law jurisdictions. Like the U.S., the EU, and numerous other jurisdictions, Cuba is a member(3) of an international system for registering trademarks in multiple jurisdictions around the world called the Madrid System.(4) Companies can file one trademark application with one office and register their trademarks in multiple countries, including Cuba.

Companies also have the option of filing a national application directly through the Cuban Industrial Property Office by using local counsel. Filing via local counsel—which may be desirable if, for instance, expanded trademark coverage is needed—is potentially more complicated due to certain existing restrictions on the transfer of funds between U.S. and Cuban banks. In some cases it may be necessary to use a third-party liaison law firm (e.g., in Mexico) to avoid these issues.

3. Obtaining a trademark registration in Cuba is relatively inexpensive. Assuming no one has already filed for the trademark or a similar mark and there are no other major substantive issues with the application, the cost to obtain a Cuban trademark registration is relatively low. All in, the cost is estimated to be approximately $1,200 to $1,500 if one files a national application. This amount includes government filing fees and local attorney fees, although local attorney fees could vary and the applicant may incur additional attorney fees if a third-party liaison counsel is needed. If the applicant files through the Madrid System, and again assuming there are no major substantive issues, the cost to obtain a registration in Cuba could be less.

4. The risk of a non-use cancellation of a trademark in Cuba is probably low. One reason often cited by companies for not filing for trademark protection in Cuba is that the registration will be vulnerable to cancellation after three years of not using the mark in Cuba. Under Cuban law, a trademark registration can be cancelled if the mark has not been used in Cuba after three years of registration. Since most U.S. companies still cannot actually sell products and services in Cuba (and it is unclear when they will be able to do so), a trademark registration filed today could potentially be cancelled for non-use in three years. However, the Cuban trademark office does not go out looking for trademarks to cancel for non-use. Instead, an interested third-party would have to bring the cancellation action against a trademark that has not been in use.

A trademark troll looking to hijack a well-known fashion brand is probably unlikely to take the time and money to commence a non-use cancellation action against an existing registration. Instead, they are more likely to target those trademarks that are not yet registered. Thus, the risk of a third-party non-use cancellation action in Cuba is likely small and should not prohibit companies from registering their trademarks there.

5. It may be difficult to take back one’s brand in Cuba from pirates. If someone else files for another company’s trademark in Cuba before the owner does, one of the only viable recourses to take back ownership is to oppose the infringing application or cancel the registration based on the fame of the trademark. However, unless the brand is NIKE, establishing that a U.S. fashion brand is famous in Cuba could be difficult, since American companies have been prohibited from doing business in Cuba for decades.

Typically, American companies will submit evidence of online ads, marketing, and media coverage to show that its brand is famous in other jurisdictions. However, it remains to be seen whether such information would even be relevant in Cuba since it has been reported that only 5 percent of Cuban citizens currently have access to the Internet.(5) Taking back a trademark that has been hijacked in Cuba is an uphill battle with significant costs and delays, all of which can be avoided if brand owners file first.

6. Increased Internet access will give consumers in Cuba easy access to purchase counterfeits. With Google’s plans to expand access to the Internet in Cuba,(6) it’s just a matter of time before products bearing counterfeit copies of fashion brands make their way to Cuba. American fashion brands are particularly at risk for counterfeit sales to and in Cuba. Cubans are very attracted to American brands and according to online marketing news aggregator Marketingdive.com, many are already big fans of certain fashion brands like NIKE, CALVIN KLEIN and JUICY COUTURE through access, albeit limited, to American movies and television shows.

As tourism increases from the U.S. and elsewhere around the world, Cuban citizens will be further exposed to American fashion brands, thus increasing their desire to obtain those products for themselves, even if they are knockoffs.

7. Low incomes may motivate consumers in Cuba to purchase fake fashion brands. The typical Cuban citizen reportedly earns under $30 a month.(7) Therefore, it is highly unlikely that Cuban citizens would be able to afford authentic designer products. Thus, Cuban citizens may be more likely to purchase cheaper knockoffs or grey market products than the real thing. Having one’s trademark registered in Cuba is required in order to enforce one’s rights against counterfeit sales in Cuba.

8. Online money transfers to and from Cuba may also increase counterfeiting sales. PayPal’s reported plans to allow consumers to make money transfers(8) to and from Cuba later this year will also make it much easier to facilitate online counterfeiting sales to Cuba.

9. Mail delivery services will increase the flow of fashion goods from the U.S. to Cuba. As restrictions on trade between Cuba and the U.S. ease, it is likely that Cubans will see more American and multinational fashion brands, and, for the reasons described above, will want to purchase cheaper alternatives. Federal Express has obtained a license from the U.S. Department of Transportation that will allow it to deliver packages directly to Cuba(9) beginning in January 2017. This will mean that not only will Cuban-Americans be able to easily send their relatives authentic fashion products, but counterfeiters will be able to do so as well.

10. Cuba could become the next hot spot for fashion brands. As the Obama administration eases travel and trade restrictions to Cuba, it makes sense to consider Cuba as a potential new market for retail opportunities, especially fashion. Several U.S. airline companies are seeking permission from the Department of Transportation to provide direct flights to Havana,(10) and Starwood Hotels and Resorts announced a contract to manage several hotels(11) owned by the Cuban government.

As tourism increases, travelers will be looking for well-known fashion brands in the country to purchase. Therefore, even if Cuba is not currently on a company’s radar for business because Cuban citizens cannot afford to purchase the company’s products, it may be soon. Having already obtained a trademark registration in Cuba will make it that much easier for companies to establish their brand in Cuba before entering the market.

Endnotes:

1. “The Business Community and Congress Agree: Trademark Protection ‘A Must’ for U.S. Interests in Cuba,” PRNewswire, Oct. 28, 2003. http://www.prnewswire.com/news-releases/the-business-community-and-congress-agree–trademark-protection-a-must-for-us-interests-in-cuba-72748667.html.

2. “Restoring Their Good Names; U.S. Companies in Trademark Battles in South Africa,” The New York Times, May 1, 1996. http://www.nytimes.com/1996/05/01/business/restoring-their-good-names-us-companies-in-trademark-battles-in-south-africa.html?pagewanted=all.

3. Madrid (Marks) Notification No. 73, Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks, World Intellectual Property Organization.http://www.wipo.int/treaties/en/notifications/madridp-gp/treaty_madridp_gp_73.html.

4. http://www.wipo.int/madrid/en/.

5. “Cuba internet access still severely restricted,” BBC News, Miami, March 21, 2016.http://www.bbc.com/news/world-latin-america-35865283.

6. “Google Set To Expand Internet Access in Cuba, Obama Says.” Time, March 21, 2016.http://time.com/4265721/google-cuba-obama-internet/.

7. “Guess How Much Cubans Earn Per Month,” Forbes, April 26, 2016.http://www.forbes.com/sites/kenrapoza/2016/04/26/guess-how-much-cubans-earn-per-month/#563aee251d1b.

8. “PayPal Brings Money Transfers to Cuba,” Fortune, March 21, 2016.http://fortune.com/2016/03/21/paypal-cuba-xoom/.

9. “Direct mail packages and FedEx flights to Cuba,” OnCuba, July 29, 2016.http://oncubamagazine.com/economy-business/direct-mail-packages-and-fedex-flights-to-cuba/.

10. “Nation’s biggest airlines apply to fly regular routes to Cuba,” Los Angeles Times, March 2, 2016.http://www.latimes.com/business/la-fi-airlines-cuba-20160302-story.html.

11. “Starwood signs historic deals in Cuba for three Havana hotels,” The Washington Post, March 19, 2016. https://www.washingtonpost.com/business/economy/starwood-signs-deals-in-cuba-for-three-havana-hotels/2016/03/19/4eb2e9c6-ee1e-11e5-b0fd-073d5930a7b7_story.html.

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