Money to burn: how a court case could halve the price of Cuban cigars

Money to burn: how a court case could halve the price of Cuban cigars
· Judgment expected this week in import dispute
· Ruling could open up European market
Richard Wray
Wednesday January 18, 2006
Guardian

The price paid by British smokers for Cuban cigars, the smoke of choice for film stars such as Danny DeVito and Jack Nicholson, could more than halve, depending on the judgment in a crucial 18-month court battle expected to be handed down this week.
The case has pitted a five-year-old British company, MasterCigars Direct, against the might of Hunters & Frankau, established in 1790, which bills itself as the exclusive importer and distributor of Cuban cigars into the UK through an agreement with the partly Cuban state-owned Corporación Habanos. The question at issue is whether MasterCigars imported Cuban cigars into the UK in breach of trademark.
A judgment in favour of MasterCigars would allow it to break Hunters' monopoly. It would also have wider repercussions as it would have the power of law across the European Union's jurisdiction. It would allow other potential importers to follow MasterCigars' lead and begin importing cigars directly from Cuba.
It would also be a major blow to Altadis, the Franco-Spanish tobacco company, which seven years ago spent $500m (£290m at today's exchange rate) buying a 50% stake in Habanos, the owner of Cuba's famous cigar brands, and has been buying up cigar distributors across Europe. The other half is owned by Tabacuba, Cuba's state tobacco company.
Industry experts believe that opening up the British market to competition could lead to a dramatic reduction in the price of expensive but much sought-after hand-rolled Cuban cigars such as those under the Cohiba, Montecristo and Romeo y Julietta labels.
In Havana a box of 25 Cuban Esplendidos cigars, for example, costs less than £100. In the UK the same box can cost up to £700. MasterCigars already charges about 40% less than Hunters' recommended retail price and industry experts reckon British prices could come down by at least half if the judge rules in MasterCigars' favour.
Last year investment bank Dresdner Kleinwort Wasserstein warned investors in Altadis that "if it [MasterCigars] wins the case the discount could widen further as its volume throughput increases. Other importers across the EU would be expected to jump into the market. Moreover, internet buyers of cigars that currently deal with Habanos would look for the best price elsewhere."
The case ended up in the courts after MasterCigars bought a consignment of cigars in Cuba and imported them into the UK. They were seized by Customs & Excise, which still holds the cigars, after Hunters alleged they were counterfeit and MasterCigars was in breach of trademark.
MasterCigars started proceedings against Hunters asking the court to rule on whether the goods were counterfeit and whether it had infringed any trademarks or patents by importing the cigars into the UK.
As part of its case, Hunters enjoined Habanos, the ultimate trademark owner, to back up its claims about trademark infringement.
Lawyers for MasterCigars have argued that the cigars were bought from an official Cuban outlet and are not counterfeit. It also argued before Judge Fysh of the patents county court, which has the standing of the high court, that because in Cuba Habanos allows what are termed parallel traders to sell cigars which can then be exported to other countries it is not in breach of any trademark.
If the court rules that MasterCigars was importing cigars with the implied consent of the trademark owner, as set out in EU law, that ruling will apply throughout all EU markets, freeing up the cigar market.
How America failed to snuff out the Havana
Cigars did not appear until the latter half of the 17th century; previously Europeans had enjoyed tobacco in pipes or as snuff.
The first factories were built in Spain using leaf from Spanish colonies in the New World. But it became apparent that a well-produced cigar actually lasted better on board ship than the leaf itself so the Cuban tobacco growers started producing their own. Individual plantations employed rollers and packers and the cigars they made quickly developed their own distinct flavours and textures based on the type of tobacco grown and the treatments used in production.
In 1817 Spain's monopoly over Cuban cigars was lifted and Cuban producers could trade freely across the world.
In 1959 American puppet-dictator Fulgencio Batista was deposed by Fidel Castro which led the US to slap an embargo on Cuban cigars that remains to this day. Following the revolution, many of the cigar plantations became rundown. But by the mid-1960s cigar makers had returned and Cuban cigars once again became the sought-after smoke of aficionados.

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