When Losers Declare Victory, Look Beneath the Surface

Synopsis of the case of Ethiopia’s battle against Starbucks over trademarks

“For every cup of Ethiopian coffee Starbucks sells, Ethiopian farmers earn 3¢. Tell Starbucks: Honor your commitments to coffee farmers.” – Oxfam, October, 2006

"Ethiopia salutes Starbucks for its exemplary display of global corporate citizenship." - Dr. Samuel Assefa, the Ethiopian Ambassador to the United States, June 20, 2007

“We don’t have any additional information to provide beyond what Ambassador Samuel Assefa and Getachew Mengistie already shared.” – Stacey Krum, Starbucks Global Brand Communication, August 3, 2007

The trademark dispute between Ethiopia and Starbucks has ended with a bizarre and mysterious accord. Ethiopia, one of the ancient civilizations in the world, collided with a symbol of globalization and, to some extent, challenged the status-quo without success. The outcome should serve third-world countries as a reminder of the harsh reality that they have far go to get control of their intellectual property rights.

Although Ethiopian coffees command a premium price in foreign markets, particularly the US, farmers who grow the beans often live in extreme poverty. The Ethiopian coffee sector’s strategy to trademark the famous coffee brands, Harar, Sidamo, and Yirgacheffe, in all major international markets was an eye-opener for many of the coffee growing nations in Africa. But that effort hit a dead end in the US, home for Starbucks Corporation. After several months of fight, Starbucks and Ethiopia declared on June 20, 2007 that they have both emerged as winners.

Whether and how the terms of the truce will benefit Ethiopian coffee farmers remains to be seen. What is unquestionable is that, because of Starbucks and the National Coffee Association, Ethiopia has lost the trademark for Sidamo in the US and has surrendered the moral high ground that had won her support from all over the globe and has very little to show for it. Besides, all the economic opportunities that might have changed the lives of the poor farmers, who, for centuries, have been taken advantage of, have vanished into thin air.
To understand what went wrong and where, let’s have a closer look at what happened.

Ethiopia’s Plea vs. Starbucks’ Arrogance

The conflict began in March 2005, when Ethiopia filed with the U.S. Patent and Trademark Office to trademark the country’s most valued brands Harar, Sidamo, and Yirgacheffe.

Starbucks had filed an application to trademark Shirkina Sun-Dried Sidamo in 2004, making it impossible for Ethiopia to go forward with its own application until the two applicants reached to an agreement to drop one of the applications. The Ethiopian government asked Starbucks to drop its claim.

Kassahun Ayele, the former Ethiopian Ambassador to the United States made the initial effort, in a letter dated March 18, 2005 and addressed to Howard Schultz, Starbucks Chairman, to engage Starbucks in discussions to resolve the matter. Mr. Schultz never responded to the letter.

"My letter to Howard Schultz went unanswered for over a month" stated Kassahun Ayele, who is now the Ethiopian Ambassador to Germany. He added, "When I learned that Mr. Schultz was to be in Washington to receive an award, I invited him to meet with me at our Embassy, or at any convenient place of his choosing. I received no reply from him."

Starbucks' response was condescending.

According to the embassy’s press release, "On April 21 he received a short, dismissive reply from a company lawyer, and a short time later a note from a Corporate Vice President inviting him to attend the award event for Mr. Schultz, and to contribute $600 for the 'privilege.'

Starbucks Kept Ethiopia from its Rights

“Worse was to come,” continues the press release, “Only after many attempts by the Ambassador and vigorous prompting from Oxfam America did Starbucks finally send two representatives to the Embassy on December 6, 2005, after nearly nine months of keeping Ethiopia from its rights to the Sidamo name. At the December 6 meeting, little was achieved. Ms Teraberry, a Starbucks lawyer, repeatedly denied that Ethiopia had the right to own the trade marks for the names widely associated with its prized coffees. Starbucks reluctantly agreed to look at a proposed licensing agreement, which it quickly rejected.”

Starbucks Dropped its Sidamo Application after NCA Filed Opposition

“From my own experience of Starbucks in 2005 and nearly half of 2006”, says Ambassador Kassahun, “I have no doubt that the company changed strategy and, after 16 months of blocking Ethiopia’s Sidamo application, coordinated the withdrawal of its Sidamo application with the filing of the NCA opposition papers. This looks to me like a clear attempt of the company to hide behind an industry association, while Starbucks continued in its determination to prevent Ethiopia from carrying out its trade mark program.”

USPTO Twice Refused Registration of Sidamo

In the Office Action of July 17, 2006, the USPTO refused registration of Sidamo because, the examining attorney noted, “the mark is incapable of serving as a source-identifier for applicant’s goods, namely “coffee.””

On March 27, 2007, the USPTO refused registration of SIDAMO as a trademark, for the second time. This time, the examining attorney was convinced that registering Sidamo “would grant the owner of the mark a monopoly, since a competitor could not describe his goods as what they are.”

To date, the NCA has not dropped its opposition against Ethiopia’s trademark application. There is little hope, if any, that the USPTO will now accept Ethiopia’s application to register the mark Sidamo as long as the NCA opposition remains in effect.

Yirgacheffe has already been registered as a trademark mainly because it was not challenged by the NCA or other parties. The decision on the Harar appeal is still pending.

Oxfam Interfered; Starbucks’ Position Changed to Defense

In October, 2006, Oxfam launched an international campaign to force Starbucks to come to the table and discuss with Ethiopia for resolution.

Oxfam’s campaign was framed to depict Starbucks as a company exploiting its coffee producers. The theme “For every cup of Ethiopian coffee Starbucks sells, Ethiopian farmers earn 3¢” proved to be Starbucks’ irritant. A wave of news articles and full page ads in major newspapers, websites, blogs, followed by street protests, and a YouTube video smothered the company, denying senior officials a breathing space. Over 90,000 people from all over the world faxed or called the Company with the message “Honor your commitments to coffee farmers.”

The charge was challenging for Starbucks to defend. The accusation also made Starbucks a target for Oxfam’s global Make Trade Fair campaign.

In their desperate attempt to protect their reputation, Starbucks public relations professionals responded in kind with their own ads and encouraged pro-Starbucks articles and YouTube videos. A combination of arrogance and a desire to counteract Oxfam’s unexpected campaign actions might have blinded company management into making several ridiculous assertions.

At first, Starbucks claimed that Ethiopia’s coffee brands cannot be trademarked because they are generic terms for coffee rather than distinctive marks. It should be noted here that this claim contradicts the company's own act as it had already filed an application to trademark Shirkina Sun-Dried Sidamo. This is also in line with the opposition statement submitted by the NCA when it opposed Ethiopia's application.

Starbucks then asserted that the trademarks are against the interests of Ethiopian farmers.

At the peak of its charges, the company went on to say that Ethiopia’s attempt to trademark the coffee brands was illegal. Dub Hay, Starbucks Senior VP, said on a YouTube video: “For us to do what we've been asked to do, which is to sign a licensing agreement recognizing the trademark name to the geographies is something against the law.”

The company exhausted all its options before running out of charges to publicly discredit Ethiopia’s trademark project.

To this date, Starbucks has not issued an official statement acknowledging its fabricated allegations accusations, its indecent behavior, its disrespect to a soverign country's Ambassador, and for unlawfully undermining the people’s rights much less apologize for trying to publicly discredit the country’s efforts.

Starbucks Management Changed Strategy; Ethiopia Swayed

Forced by mounting public pressure, the Starbucks senior management resorted to a different strategy without losing sight of their goals. They hired the Washington based lobbying firm, The Whitaker Group and together traveled to Ethiopia a number of times to convince government authorities by employing alternative negotiating tricks.

On the lead up to the company executives’ second trip to Ethiopia, Starbucks announced their donation of $500,000 to CARE International, a charity organization, for its social work in the coffee growing regions of Ethiopia. In addition, the company issued a press release with promises to build a Farmer Support Center and to double the volume of coffee the company buys from East Africa.

During their February, 2007 trip to Ethiopia (first trip was in December, 2006), Starbucks executives and Rosa Whitaker, founder of The Whitaker Group, have succeeded in convincing Ethiopian authorities to divert their attention to what they called a value-added process. Rosa Whitaker said on an Ethiopian Television program that the Trade Mark vs. Geographic Indications issue is just a distraction that takes the focus away from more important things. She argued that the only way a country can increase its income and get out of poverty is by adding value to their primary exports.

Accordingly, possibilities of cooperation with that country’s tea and textile sector, implied support through the African Growth and Opportunity Act (AGOA), etc. were used to entice state Ministers of Ministries of Agriculture and Rural Development, Trade and Industry, Finance and Economic Development, and others, including Getachew Mengistie, Director of EIPO.

Getachew proudly argues that the February, 2007 meetings with Starbucks were the first steps which led to resolution of the conflict. He characterizes the whole process since then as “building blocks.”

Starbucks and the Ethiopian government issued their first joint statement declaring an agreement to “work together.” Starbucks said, “We agreed not to oppose Ethiopia's efforts to obtain trademarks for its specialty coffees, Sidamo, Harar/Harrar & Yirgacheffe, & its efforts to create a network of licensed distributors.”

The company did not express regret for the difficulties, cost, and unnecessary effort it has caused Ethiopia; for its opposition which cost Ethiopia the opportunity to trademark Sidamo; nor did it apologize for its long effort to keep the country from its rights of ownership of the brands.

Secret Negotiations

Although details of the said agreement were never released in full, the possible sticky points awaiting the parties’ negotiation were disclosed in different forms. During Starbucks’ 2007 Annual Meeting of Shareholders held in Seattle, Washington on March 21, 2007, Chairman Howard Schultz explained:

“This is, perhaps of all the things we’ve dealt with recently over a fragile issue and difficult issues to explain and are also things that aren’t for public domain in terms of can we … be assured that any premium or licensing fee of any kind will go to the farmer? Can we be assured that if in fact a country or government did control a mark, it won’t be sold something at some point to some other entity and how can we be assured that a coffee is coming from that specific region.”

From this, it is evident that the items Starbucks had been worried about ever since the executives returned from Ethiopia in February, 2007 are mainly: 1) Royalty fee, 2) Monopoly over the brands, and 3) Traceability.

As a global company that fights to secure its grip over the sources of its coffee, it is safe to assume that Starbucks’ opposition to Ethiopia’s trademark initiative stems from these three basic elements. Therefore, a negotiated settlement outside of administrative rights to own the trademarks is a viable option for Starbucks. This means that as long as Ethiopia does not legally own the most important Ethiopian brand to Starbucks, Sidamo, (Starbucks does not hold Harar and Yirgacheffe coffees in many of its stores,) signing some sort of weak Licensing Agreement, with secret details and no reports of a promise to spend money to help promote Ethiopian coffee, offers a safe exit.

Confidential Agreement Signed

Dr. Samuel Assefa, the incumbent Ambassador of Ethiopia to the US and Getachew Mengistie, Director of EIPO confirmed in an interview with Coffee Politics that on June 20, 2007, they have signed, along with Howard Schultz, Chairman of Starbucks Corporation and Dub Hay, Senior VP, “an agreement regarding distribution, marketing and licensing that recognizes the importance and integrity of Ethiopia's specialty coffee designations.”

The agreement is binding for five years. The government officials have also confirmed that certain elements of the agreement are bound by the confidentiality agreement they signed with the company. However, they were free to disclose some information available to the public.

According to the agreement, Ethiopia’s responsibility in the agreement is not to impose royalty fee of any nature. Ambassador Samuel further confirmed that Mr. Schultz’s question of “how can we be assured that a coffee is coming from that specific region?” was not addressed anywhere in the agreement.

Assuming that other contract provisions do not pose any threat, what remains for Starbucks to worry about is Mr. Schultz’s other question: “Can we be assured that if in fact a country or government did control a mark, it won’t be sold … at some point to some other entity?” But this is already guaranteed, at least in the US, as Sidamo is not a registered mark.

According to Getachew Mengistie, the contract provides the recognition of Ethiopia’s Common Law rights where applicable. Since the agreement is good for five years only, the Common Law provision Getachew mentions would protect Ethiopia’s rights to the brands only as long as the contract is in good standing. Like many agreements, this contract is not cast in stone, so, Starbucks may withdraw at any time barring contact limitations. The company is free of all obligations once the contact expires. Starbucks succeeded in preventing Ethiopia from gaining permanent control of the mark Sidamo.

Ethiopia Lost Again

Ethiopia has already lost the administrative rights to its mark Sidamo in the US market. The country also was humiliated in front of the world when its Ambassador was disrespected. The trademark initiative was discredited and the project was delayed by over two years. As if that was not enough, Ethiopia was deceived by empty promises.

Of all the promises Starbucks executives and Rosa Whitaker made to the government and the coffee farmers during their trip to Ethiopia in February, 2007, only the cooperation to promote output of other sectors is mentioned in the contract. Ambassador Samuel acknowledged that there are some agreements with respect to other sectors as well that were included “in the spirit of cooperation, though not to be enforced.”

The government representatives failed to follow through on the rest of the promises which paved the way for an agreement to settle the dispute. These include building Farmers Support Center and doubling the amount of coffee Starbucks would buy from Ethiopia, and others. When asked why, Ambassador Samuel was defensive. “Starbucks is a private company; we can not ask them to open a Farmer Support Center in Ethiopia. The support center was not a negotiating point.”

But another African country leader did just that: reached out to private companies such as Starbucks, Google, Costco, and others. His name is Paul Kagame, the president of Rwanda. Starbucks invited Kagame to deliver a corporate endorsement at the company’s annual shareholder meeting on March 21, 2007 – a key moment Starbucks executives needed an African leader to paint a picture different from what the shareholders have come to read in the media as a result of the trademark dispute with Ethiopian coffee growers.

Recent reports indicate that Starbucks eyes Rwanda for setting up the Farmer Support Center.
Another widely publicized promise was that Starbuck would increase its Ethiopian coffee purchases. As of this day, there is no indication that Starbucks bought more Ethiopian coffee; nor will there be any way to substantiate this claim in the future as Starbucks buys most of its coffee through third parties, mainly from Germany. This route takes care of Schultz’s concerns about traceability.

Starbucks’ obligations in the agreement, if any, are confidential. The limited information available in the public domain is contradictory.

News papers quoted Getachew Mengistie as saying "This agreement marks an important milestone in our efforts to promote and protect Ethiopia's speciality coffee designations. Having the commitment and support of Starbucks will help enhance the quality of Ethiopian fine coffees and improve the income of farmers and traders."

Starbucks says something different.

In an interview with the Seattle PI, Sandra Taylor, Starbucks senior VP of Corporate Social Responsibility said, "This agreement is an opportunity for us to deepen our relationship with Ethiopia to make some specific commitments to promote their coffee," adding, "It's about helping the coffee farmer."

According to the paper, Taylor declined to provide specific details on what Starbucks would do under the new deal to promote Ethiopian coffee. She added that the deal was not intended to set prices. "Starbucks pays based on the quality and marketplace," she said. "If this works right, it will lead to better pricing for high quality. ... For Starbucks, we have long paid premium prices," said Tailor.

The paper further reported, “Starbucks said it would work with Ethiopian farmers to improve quality and crop yield, but the company said it is not dedicating any new financial resources.”

Starbucks Won Ethiopia’s Praise

The trademark dispute which lasted for about three years and carried the hopes of over 15 million people was concluded with a shameful remark by Dr. Samuel Assefa:

"Ethiopia salutes Starbucks for its exemplary display of global corporate citizenship. This alliance highlights the significance of visionary entrepreneurs in creating space for win-win engagements between corporations that operate globally and developing countries such as ours."

Starbucks recently increased its coffee prices by 9¢ a cup, which further widens the income gap between Starbucks and coffee farmers. The equation still remains the same: “For every cup of Ethiopian coffee Starbucks sells, Ethiopian farmers earn 3¢.”

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