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Ethiopia’s Branding Battle
By Joel Starr & Timothy J. Castle

The complicated issue to trademark applications for ‘sidamo’ and ‘harrar’ continues as some notable leaders in the industry wage their opinions on the matter.

In the last issue of Tea and Coffee Trade Journal, we conducted interviews with Oxfam’s Seth Petchers, Starbucks Coffee’s Audrey Lincoff; Robert Nelson of the National Coffee Association; Steve Bauer of Paragon Coffee Traders and Miguel Meza of Paradise Roasters. In the meantime, there has been some progress made on the situation as Starbucks Coffee has apparently capitulated to Oxfam’s demands. In a joint announcement from Starbucks and the Ethiopian government, Starbucks said it “respects the right and choice of the government of Ethiopia to trademark its coffee brands.” This does nothing changed the minds of the U.S. Patent and Trademark Office (USPTO), which has previously denied the Ethiopian Intellectual Property Office’s (EIPO) trademark applications for “Sidamo” and “Harrar.” Hoping to shed more light on the topic we present these interviews.

Coffee Law
Coffee industry lawyer, Marshall Fuss stated, “My initial reaction when I heard about this, approaching it from my legal background was based on three concerns. I’m well aware of the power of a trademark. My first concern is that the owner of a trademark has tremendous rights about restricting the channels of distribution. Are these going to become luxury good trademarks, where the Ethiopians can say ‘Roaster A can use the terms but Roaster B can’t because they don’t meet our standards? Ethiopia could say ‘whoever pays us the most can get exclusivity for California, New York, etc’… Any U.S. roaster should be concerned about this.”

Fuss added, “My second concern is that a trademark owner gets to say how a trademark can be displayed. They can say that the color and typeface you use on your bag of Yirgacheffe coffee is the wrong color or that it has to be as big as your company name for example, even if it clashes with your existing branding. Those are powers that a trademark owner has; I write these kinds of agreements all the time. My third concern is what kind of royalty charge will there be. All of these powers would be put in the hands of a ministry of the Ethiopian government. They say they are currently signing royalty free licenses. I have requested a copy but I haven’t seen it yet. Please remember, they can change their minds about royalties in the future and they can grant exclusive territories. Starbucks has been painted as the bad guy here, but if they were going to be Machiavellian about it they could endorse the plan and buy exclusive territories for these coffees. I’m sure that’s well within their financial power.”

Fuss expounded, “There is no ‘Bright Line’ rule here in lawyer’s terms on when a generic mark receives ‘secondary meaning,’ meaning there are no hard and fast rules. You generally legally establish secondary meaning by proving that lots of money has been spent to promote the name and taking consumer surveys to show how widely the mark is recognized by consumers. I have my doubts about whether ‘Yirgacheffe’ meets those tests. In the Chicago Law Review there was an article recently about geographic indicators that discussed coffee origins at length and even mentioned ‘Yirgacheffe.’ In it, they say that the EU will not allow geographic origin protection outside of the EU. So a Third World country cannot receive a certification like “Champagne.” So it may have been a savvy play by Ethiopia to get a trademark in the EU to protect themselves, since it’s the only thing left for them. However, it may not be the best strategy for the U.S. because here, geographic origin protections are able to be granted to all nations.”

Light Years Intellectual Property
Ron Layton, chief executive of Light Years IP, told us emphatically, “Ethiopia created the coffees that enabled the specialty coffee industry to exist.” He continued, “These coffees draw high retail prices in world markets and should return about 45% of retail to the owners of this high reputation. However, Ethiopia receives only around 6% of the retail price their fine coffees earn in foreign markets; 45% is a measured top end of what some specialty coffees earn at their countries of export. You might regard it as a measure of boundary as opposed to what they can get immediately, but Ethiopians know that they’re not getting anything like the share that they ought to get. They have a unique product but just don’t have the negotiating power.” Further to the value of the trademark, Layton believes, “the possession of the trademark will also strengthen Ethiopia’s future position to deal with counterfeit Ethiopian coffee once the coffee’s value has risen.”

One could argue that Ethiopian stake holders’ dissatisfaction with its export prices is at least partly the fault of their own internal auction system, which foreign green coffee buyers are not allowed to participate in. We mentioned restructuring this system to all of our interviewees. Layton responds, “The Trademark program has different goals but the initiatives can work together for the maximum profit of the shareholders. Eleni Gabre-Madhin, program leader at the International Food Policy Research Institute (IFPRI), is now working for the government, on the auction system in particular, and the Prime Minister is supporting her work. She’s trying to get auctions set-up closer to the farmers, so they’ll have a better knowledge of the prices.”

Regarding the Conspiracy Theorists
There seems to be a general fear among roasters that the EIPO’s initiative is actually an attempt to raise money not for farmers, but for the Ethiopian government. Layton asserted, “The government does not receive money from coffee exports. This government’s moved in the opposite direction; they’ve eliminated the old tax on coffee exported. The five year licenses will be given free as a matter of policy and it has already been agreed that people who sign now would get a free license for another five years.”

So how does the initiative lead to greater amounts of money raised for coffee stakeholders? Layton answered, “The stakeholders need a structure where they can create a network of licensed distributors that are focused on them. Specialty coffee is a growing market. It’s growing faster than the general coffee market. You’ve got buyers that appreciate the coffee. Now if you have that, you need to manage your brand. Although Ethiopia doesn’t have the resources to generate massive international ad campaigns about their product, they do have the ability to generate publicity. The government has transferred the powers created by the trademarks to the stakeholders; they’re the ones that have the control. The Stakeholder Committee includes unions of farmer cooperatives, exporters and others that represent as many stakeholders in the sector as possible. What’s in it for Ethiopia is that they’re working in an environment of declared intent with a network of licensed distributors. Getting more to the farmer means more income coming to the export sector, to come down to the farmers, either through cooperatives or the private supply chain. In essence, what we’re looking for over a 10 year period, is a system that benefits both parties, the coffee distributors and the Ethiopian stakeholders, in an agreement for a rising share of gross retail income going to Ethiopia in the form of higher export prices. Ethiopia was in danger of losing its brand from Starbucks and other companies acquiring trademarks for these fine coffee names… Ethiopia had to act.”

On Certification
In regards to certification, Layton remarked, “It has been ruled out. Making the certification system is too expensive. Jamaican Blue Mountain producers don’t get their 45% using their certification marks.

They don’t get the leverage from the mark; they get the leverage based on the fact that there is only eight people selling it. When you’ve only got eight people selling, your negotiating stance is strong. There’s got to be a way for Ethiopian export prices to be somewhere in between 5% and 45% of retail prices. Within U.S. trademark law, there are provisions that apply to these trademarks. The ‘Yirgacheffe’ trademark falls within that framework under an existing provision. It’s not a fantasy. The person who awarded the license knew the intricacies and why it should be awarded under its ‘acquired distinctiveness.’ ‘Harrar’ is a name for a special coffee; it’s not ‘Joe.’ A very detailed knowledge of the trademark system is required to reach a decision on these matters and the top lawyer who advised Ethiopia how to apply for the trademarks, including the ‘Yirgacheffe’ mark had 35 years of trademark experience. In lay terms, the coffee trademark is distinct from the region, the question is ‘Has the coffee acquired distinctiveness?’” Layton asked rhetorically.

On the Starbucks Trademark Application Rebuttal and the SCAA
Layton responded to Lincoff’s interview (presented in the last issue), “Technically the text is true, it does show that Starbucks filed the application in 2004. Although the U.S. trademark office wouldn’t grant a trademark to ‘Sidamo,’ until the ‘Shirkina Sundried Sidamo,’ which had been requested by Starbucks, had been resolved. In March 2005, the Ethiopian Ambassador contacted Starbucks and asked them to withdraw the request and offered a free license to Starbucks. The application was not withdrawn until June 30, 2006. That means Starbucks blocked the Ethiopian trademark application for ‘Sidamo’ for 15 months. Two weeks before the withdrawal, the NCA filed a 440-page letter of protest against Ethiopia’s application for ‘Sidamo.’ The Ambassador is convinced that Starbucks was trying to hide behind the NCA.”

Layton continued, “The IFPRI report says that the farmer gets 40 - 50% of the border price. On exporter relationships with international clients, the IFPRI reported a 6% profit margin for the Ethiopian exporters. They’re not big companies. In August 2006, the SCAA put out a document (penned by Mike Ferguson) against the initiative. Getachew Mengistie, Director-General of the EIPO, wrote a detailed letter to Rob Stephens that explained the inaccuracies in the SCAA on www.ethiopianembassy.org.” Layton added.

In our final interview, we spoke with Getawchew Mengistie, director-general of the Ethiopian Intellectual Property Office. We asked Mengistie about the U.S.’s reluctance against awarding trademarks for terms that are geographical indicators. Mengistie said this is not true. He explained, “The names that we are trying to protect are coffee names, not geographical regions. Even if we accept the argument that they are geographical names, U.S. law doesn’t exclude all geographical names from being trademarked. There is an exception to the rule. The U.S. trademark law explicitly states that a name of a region can be registered as a trademark if it acquires a secondary meaning, conveying a distinguished feature of a product or a service and not a name of a location. In the U.S., geographical names may be protected through certification marks or trademarks. We think that the names are coffee names that distinguish coffee beans of a particular quality from similar coffee beans. Our decision to trademark the names was made after a thorough study and broad consultation. The fact that we got a trademark certificate for ‘Yirgacheffe’ shows our position is right. So the point you’ve raised does not hold ground.”

When we asked Mengiste if the Ethiopian government could better serve coffee farmers by dealing first with its own closed auction system, he replied, “Yes, we know that there are lots of things that should be done in Ethiopia. Just getting the trademark registration alone will not help to realize the broad goal set by the stakeholders. There is a need to take a number of measures to compliment the international trade marking of the coffee names. This includes measures such as strengthening existing organizations and establishing new ones. We have at present four coffee producers unions, which represent about 20% of the coffee farmers. These unions should be strengthened and others be formed as appropriate. We also need the coffee exporters association strengthened and other small traders in the coffee chain to be organized. There is also a need to educate the stakeholders on the importance of maintaining the quality of Ethiopia’s specialty coffee. There is no information that we will hide from the public. The stakeholders are coffee producers, exporters and relevant government agencies. A stakeholders committee consisting of heads of coffee producers unions, the president of the exporters association and representatives of relevant government bodies is now established. The committee is chaired by myself. One of the principles set by the stakeholders is transparency, whatever progress is made will thus be known to the stakeholders and the general public.”

If all was successful in their plan we wanted to know if licensing charges would be required 10-20 years down the line. “No no, there will never be a fee! We are not after that. This will not change. We are looking at long-term benefits not short-term benefits. We have offered a royalty free license and entered in to an agreement with 11 coffee roasters and distributor companies here in the U.S. What we’re aiming for is not to have a share of the existing cake, but to contribute to the growth of it by benefiting not only the Ethiopian coffee farmers and exporters but also the coffee roasting and distribution companies at import destinations and by meeting the needs of their consumers.”

The Future of Ethiopia’s Specialty Coffee and Farmers
Concluding our interview, Mengistie spoke directly to the specialty coffee industry. “If you look at the lives of the majority of stakeholders in the coffee sector, then you can see how miserable they are. Coffee farmers for example, are not in a position to feed their families all year round. They aren’t in a position to send their kids to school or to buy clothes for them. In addition to the economic consideration, the project has broad objectives of addressing environmental and social concerns. There is a trend of cutting down specialty coffee trees like Harrar and replacing them with khat, a narcotic. This has both environmental and health impacts. The government wants to change this but it’s not possible now with the small price coffee beans receive compared to khat, as well as the period of harvest. Coffee beans take about nine months to mature while the leaves of khat are harvested in shorter periods of time. Improving the benefits that go to farmers from selling specialty coffee will not only help to raise their living standards but also help to save these valuable genetic resources from being lost to mankind.”

Much of this is true, of course, but how good a record do the powers that be in Ethiopia have in “trickling down” the rewards for producing great coffee? Even if the record is exemplary, what is the perception of it? On the one hand, the stated position is that everyone should be rewarded equally, but on the other, they want to assert that certain regions are better than others. Who really benefits when premiums are paid? (What does Starbucks know that we do not?) In short, while the case may be just, there is more work to do be done bolstering the “infrastructure” of this plan and building confidence in it. By the same token, though, that is not reason for a sound strategy to not move ahead. And the burden is unfairly placed on the “less developed” country to show more diligence than an “industrialized” nation.

Should the specialty coffee industry acknowledge these regional coffee names as owned by Ethiopia? In doing so, will it provide Ethiopia with enough leverage that it can impact the market to obtain the exponentially higher export prices it desires? With higher public regard and higher prices demanded from and for these coffees, amid great publicity, can the $5.00 “Cup O’ Joe” (maybe from Java, maybe not) be far behind? Should it be?

Indeed, with the advent of the clover brewing machine and with other high end brewing devices on the way the idea of a “custom” brewed, high end cup of estate, or at least single-region coffee selling for $5.00 will become increasingly accepted, even welcomed, by consumers looking for the “ultimate” coffee experience. (If consumers are willing to pay $25, even $100 and up for a single serving of wine, cognac or scotch wasn’t it only a matter of time this same merchandising template would be applied to coffee?) In the meantime, roasters and farmers (and other stakeholders) will continue to struggle with the percentage of margin each receives for their trouble. There is nothing wrong with this process and each side seems to be aware that they need to leave something on the table for everyone else. The key is to remember that the coffee drinker is the one, finally, who needs to sign off on how much will be paid. More work needs to be done adding value to the specialty coffee model, rather than arguing over the existing pieces of pie. The good news is that the dedicated specialty coffee drinker, when presented with a coffee that was well tended to and processed, freshly, expertly and perfectly roasted, will pay a very fair price…one that will reward everyone for their efforts. Sure, this high-end stuff is a niche market, but then so was the entire specialty coffee market 30 years ago.

About the Authors: Send us your thoughts at joel@castleandcompany.com and at tim@castleandcompany.com.

Tea & Coffee - April, 2007
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