TITLE: Ethiopia's loss in the Starbucks affair AUTHOR: Wondwossen Mezlekia PUBLICATION: Addis Fortune DATE: 19 August 2007 URL: http://www.addisfortune.com/Vol%208%20No%20381%20Archive/ec conomic_commentary.htm NOTE FROM GRAIN: The conflict between the Ethiopian government and Starbucks over trademark rights to Ethiopian coffee names has generated a tremendous amount of controversy, campaigning and reporting since it broke out last year. Yet the recent signing of a joint agreement between the two parties has not put the fires out. The below is one take on the outcome. Addis Fortune | 19 August 2007 Why did Ethiopia sign an agreement critics say is favoring Starbucks? Wondwossen Mezlekia, an Ethiopian working and living in Seattle, Washington -- where Starbucks is also headquartered -- has been following the trademark dispute through his well-read blog, http://www.poorfarmer.blogspot.com . In his contribution to a series of articles that appeared on this newspaper, Wondowssen sheds some light on the issue. ETHIOPIA'S LOSS IN THE STARBUCKS AFFAIR Ethiopia, one of the ancient civilisations in the world, collided with a symbol of globalisation 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 a long way to go to get control of their intellectual property rights. Although Ethiopian coffees command a premium price in foreign markets, particularly the United States (US), farmers who grow the beans often live in extreme poverty. The Ethiopian coffee sector's strategy to trademark the famous coffee brands 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 of Starbucks Corporation and this led to several months of conflict between the two. On June 20, 2007, Starbucks and Ethiopia declared that they have both emerged as winners. But analyses of documented facts suggest that there is more to the affair than what either side claims. The bizarre and mysterious ending of the dispute warrants further scrutiny of the accord. Whether and how the terms of the truce will benefit the Ethiopian coffee sector and the trademark project remains to be seen. What is unquestionable is that, because of Starbucks and the National Coffee Association (NCA), Ethiopia has lost the trademark for Sidamo in the US. Sadly, Ethiopia has also surrendered the moral high ground that had won it support all over the globe; it has very little to show for it. Besides, all the windfall 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. The conflict began in March 2005, when Ethiopia filed with the US Patent and Trademark Office (USPTO) 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 an agreement to drop one. The Ethiopian government asked Starbucks to drop its claim. Kassahun Ayele, the former Ethiopian Ambassador to the US, now serving in the same position in Berlin, made the initial effort to engage Starbucks in discussions to resolve the matter. But his letter to Howard Schultz, chairman of Starbucks, went unanswered for over a month. When it did get answered, Starbucks' response was condescending. He received on April 21, 2005, a short and 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 dollars for the 'privilege.', according to the Embassy. In October 2006, Oxfam launched an international campaign to force Starbucks to come to the table and discuss with Ethiopia for resolution. The 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. Arrogance combined with a desire to counteract Oxfam's unexpected campaign actions might have blinded Starbucks' management into making several ridiculous assertions. First, the company claimed that Ethiopia's coffee brands cannot be trademarked because they are generic terms for coffee, rather than distinctive marks. They 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. They exhausted all their fabricated allegations before running out of charges to publicly discredit Ethiopia's trademark project. Ultimately, forced by mounting public pressure, 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 travelled to Ethiopia to convince government authorities by employing alternative negotiating tricks. On the lead-up to the company executives' second trip to Ethiopia in February 2007 -- first trip was in November 2006 -- Starbucks announced its donation of half a million dollars to CARE International, a US-based charity organisation, 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 centre and to double the volume of coffee the company buys from East Africa. During their meetings held in Addis Abeba, Starbucks succeeded in convincing Ethiopian authorities to divert their attention to what they called a "value-added" process. Empty promises, such as the possibility of cooperation with the country's tea and textile sector, and implied support through the African Growth and Opportunity Act (AGOA), were used to entice state ministers from ministries of Agriculture and Rural Development, Trade and Industry, Finance and Economic Development, and others, including Getachew Mengistie, director general of the Ethiopian Intellectual Property Office (EIPO). None of those sectors are as vital as the most exploited coffee sector, which continues to be the backbone of the Ethiopian economy. In spite of that, the authorities were swayed and subsequently signed on Starbucks' press release announcing their agreement to "work together". Four months after that agreement and deafening secret negotiations, the government representatives and Starbucks declared their signing of a "marketing, licensing, and distribution" agreement on June 20, 2007. The devil, however, is in the details. As a global company that fights to secure its grip over the sources of its coffee, it is evident that Starbucks' opposition to Ethiopia's trademark initiative stems from three basic elements: Royalty fees, monopoly over the brands and traceability. As long as Starbucks will not be expected to pay royalty fees, and so long as Ethiopia does not legally own the Sidamo brand, which is the most important brand to Starbucks -- Starbucks does not hold Harar and Yirgacheffe coffees in many of its stores -- signing some sort of weak licensing agreement, with secret details that do not mention financial resources to help promote Ethiopian coffee, offers a safe exit. Therefore, a negotiated settlement outside of administrative rights to own the trademarks is a viable option for Starbucks. Starbucks' concern about Ethiopia monopolising the brands is already non-existent, at least in the US, as Sidamo is not a registered mark. Also, because Starbucks buys most of its coffees through third parties, the concern about tracing the beans to the origin is automatically taken care of. Starbucks' obligations in the agreement, if any, are confidential. The signatories imply that Ethiopia's obligations are uncomplicated and the benefits flowery. Getachew Mengistie said Ethiopia's obligation is not to impose a royalty fee of any nature during the contract period whereas its benefits include a contractual provision, which recognises Ethiopia's common law rights where applicable. According to available information, however, Ethiopia's benefits are not as impressive as the words. Although common law is a valid form of trademark rights in the US as rights stem from use rather than registration in this country, not all countries have the same system as the US. In some countries, Ethiopia does not have any rights at all unless the mark is registered. In addition, enforcement of trademarks is expensive and probably not practical in every instance of infringement. That is why the conventional rights of registration are important -- they help prevent infringement and consequently avoid expensive enforcement before it occurs. Strikingly, the negotiation process did not fully address the promises made by Starbucks during the February 2007 meeting, which Getachew proudly refers to as the turning point that led to the resolution. Only the promotion of the output of other sectors is mentioned in the contract. Even that is not listed as enforceable. The government representatives failed to follow through on the rest of the promises, such as building a farmers support centre and doubling the amount of coffee Starbucks would buy from Ethiopia, which is believed to be only two per cent. The centre was not even a negotiating point, if we go by what Samuel Assefa (PhD), Ethiopia's ambassador to the US, said. "Starbucks is a private company; we cannot ask them to open a farmer support centre in Ethiopia," he told the media. But another African country leader did just that: reached out to private companies such as Starbucks, Google and Costco to attract business investment. His name is Paul Kagame, the president of Rwanda. Starbucks invited Mr. Kagame to deliver a corporate endorsement at the company's annual shareholder meeting on March 21, 2007, -- a key moment when 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. Recent reports indicate that Starbucks eyes Rwanda for setting up the Farmer Support Centre. Another widely publicised promise was that Starbucks would increase its Ethiopian coffee purchases. As of this day, there is no indication that Starbucks bought more Ethiopian coffee; nor is there any way to substantiate this claim in the future as Starbucks buys most of its coffee through third parties, mainly from Germany. How else Ethiopia benefits from the agreement is either not defined, or undisclosed. "Having the commitment and support of Starbucks will help enhance the quality of Ethiopian fine coffees and improve the income of farmers and traders," Getachew, told the media. But Starbucks' executives do not acknowledge any such commitment. In an interview with the Seattle PI, Sandra Taylor, Starbucks senior vice president of Corporate Social Responsibility, said 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." Starbucks would work with Ethiopian farmers to improve quality and crop yield, but not dedicating any new financial resources, according to the paper's report. The status-quo is conserved. What did Ethiopia lose? Everything it tried to gain, and then some. Starbucks succeeded in preventing Ethiopia from gaining permanent control of the mark Sidamo in the US market, effectively eliminating Ethiopia's opportunity to move beyond its cycle of poverty. In addition, the long fought battle to this ruinous end was exasperated by Ethiopia's loss of dignity in the process. Oxfam's approach of using images of poor farmers, the victims of Starbucks' insensitivity, was meant to coerce the company into changing the way they do business; but instead, Ethiopia once again garnered a reputation reminiscent of 1984. The country was dishonoured in front of the world while 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. Starbucks has still not admitted any of its wrong doings: its misleading statements, which unlawfully undermined the people's rights, and its disrespect to a sovereign country's Ambassador, much less apologise for trying to publicly discredit the country's efforts. To this day, the company has not expressed regret for its opposition that cost Ethiopia the opportunity to trademark Sidamo. The trademark dispute which carried the hopes of over 15 million people was concluded with a reprehensible remark by Ambassador Samuel: "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." And Oxfam celebrated "resolution" of the dispute between Starbucks and Ethiopia. Starbucks recently increased its coffee prices in the US by nine cents a cup, which further widens the income gap between Starbucks and coffee farmers. But, the equation still remains the same: "For every cup of Ethiopian coffee Starbucks sells, Ethiopian farmers earn three cents." GOING FURTHER (compiled by GRAIN) Oxfam, "Oxfam celebrates win-win outcome for Ethiopian coffee farmers and Starbucks", press release, Washington DC, 21 June 2006. http://www.oxfam.org/en/news/2007/pr070621_win-win-outcome- for-ethiopian-coffee-farmers-and-starbucks.html Government of Ethiopia and Starbucks Coffee, "Joint statement: Starbucks and Ethiopian Intellectual Property Office (EIPO) partner to promote Ethiopia's coffee and benefit the country's coffee farmers", Addis Ababa and Seattle, 20 June 2007. http://www.starbucks.com/aboutus/pressdesc.asp?id=779 Amy Goodman (host), "Following public campaign for trademark efforts, coffee giant Starbucks signs licensing deal that could bring millions to Ethiopian farmers", Democracy Now!, New York, 9 May 2007. http://www.democracynow.org/article.pl?sid=07/05/09/1515200 Anton Foek, "Trademarking coffee: Starbucks cuts Ethiopia deal", CorpWatch, Oakland, 8 May 2007. http://www.corpwatch.org/article.php?id=14474 David Bollier, "Starbucks, trademarks and coffee colonialism", On the commons, 6 March 2007. http://onthecommons.org/node/1108 Joshua Gallu, "Starbucks, Ethiopia, and the coffee branding wars", Der Spiegel, 16 November 2006. http://www.spiegel.de/international/0,1518,448191,00.html Light Years IP http://www.lightyearsip.net/ Ethiopian Trademarking and Licensing Initiative http://www.ethiopiancoffeenetwork.com/