Market Reports

Liable labels: A look at the implications of the Kona Coffee lawsuit

An American lawsuit involving Kona Coffee out of Hawaii has sparked an interesting debate on the regulation of coffee labelling ‚Äì or arguably lack thereof.','none',' On 19 November 2010, Paul Uster, coffee farmer and owner of Mokulele Farms in Kona, dropped in to a Safeway grocery store in Northern California to pick up some “odds and ends”, as the popular expression goes on the Big Island.  As he walked down the coffee aisle, a coffee labelled from his home island of Kona jumped out at him. He noticed it was a Kona blend. The next thing that caught his eye was what the package didn’t say. “I looked at it again and I went: ‘there’s no identity statement, there’s no indication of what the percentage is.’ So of course I was a little astounded at this and I bought a package and brought it back to Kona.” Uster was astounded because in Hawaii, the state statute dictates that every package of coffee must carry an identity statement, clearly labelling what percentage of Kona beans the blend contains. He learned this only when showing the package to his fellow islanders. “Some of my more savvy fellows over here said, ‘well, you know it’s just a state statute. It’s only enforceable on the islands. I said: ‘wow.’” Uster’s coincidental discovery catalysed a chain of events resulting in a class action suit being filed in California’s civil court against Safeway for allegedly mislabelling their coffee blends.  The suit was filed by attorney Janet Spielberg on 30 August 2011 – just one day before Safeway’s Director of Public and Government Affairs, Susan Houghton, sent a letter to the Kona Coffee Farmer’s Association (KCFA) agreeing to voluntarily comply with Hawaii state laws. These laws require a minimum of 10 per cent Kona coffee in any blend carrying the Kona name. Spielberg declined to comment for this article while Houghton did not respond to requests for an interview. The KCFA categorically states that they are not a party to this lawsuit. The suit delineates six causes of action under California state law. Spielberg’s argument rests on the assertion that the consumer has the right to assume that a package labelled with a geographical indication contains a substantial proportion of beans from that origin. The case has been filed on behalf of individuals who purchased Kona Blend within a defined period. The main plaintiff in the case is Chanee Thurston, and the lawsuit sums up that she “… is and has been aware of Kona coffee’s reputation as a very desirable, high-quality coffee with a unique flavour… Ms Thurston not only purchased the Kona Blend Coffee because the label said it was a ‘Kona Blend’, but she paid more money for the Kona Blend Coffee she purchased than she would have had to pay for other similar coffee products that contained large amounts of non-Kona coffee beans.” The lawsuit seeks damages and an injunction “to prevent Safeway from making the ‘Kona Blend’ representation on its Kona Blend coffee without [disclosure of the proportion of Kona beans] in the future as long as these products continue to contain minimal amounts of Kona coffee beans that do not comprise a majority of the Kona Blend Coffee”. There are no US federal laws regulating coffee blends. The question therefore arises as to exactly what percentage of Kona is in Safeway’s blends. As Houghton hints in an email to Uster: “Over the next month, we will research… whether or not we can increase the Kona blend to the 10 per cent criteria cited by Hawaii’s coffee labelling law on coffee.” Under the wording of the lawsuit, the state of California is asked to require Safeway to use a minimum of 51 per cent Kona coffee in their named Kona blend. This would afford Kona coffee a higher protection in California than it is given in Kona itself. Similarly, in Japan, where Kona coffee is beloved, the legal minimum amount in a blend is 30 per cent.  As odd as that sounds, comparable quirky twists are not uncommon in the field of intellectual property law that deals with geographical indication (GI). A World Trade Organisation (WTO) source stated: “Geographical indication has to represent a product’s quality reputation or other characteristic. The TRIPS [Agreement on Trade-Related Aspects of Intellectual Property Rights] is concerned that… there has to be some relationship to the location where [the good] is produced… it’s still left up to each country to decide the level of protection, provided the basic standards are met.” Most GIs are associated with niche luxury products that rely on a sterling reputation combined with limited availability, making the question of brand protection an extremely touchy subject. One major difference between geographical indications and other types of trademarks is that they protect traditional, collective knowledge rather than new, individual inventions.
Massimo Vittori of the NGO oriGIn says: “[Geographical indication is] a monopoly over a name.  If you prove some specific characteristics given to a product and those characteristics are deeply related to the territory then you could use the name, Kona coffee for example… and other people shouldn’t. In that sense it becomes intellectual property rights.”  Safeway sells a range of blends named for premium coffees, among them Ethiopia, Costa Rica, and Kenya. This could give the issue international proportions. Costa Rica announced on 9 September 2011, that all coffee grown within its borders would carry the registered trademark “Coffee of Costa Rican Origin” and Colombian coffee has been registered as a Product of Designated Origin in the EU since 2007. According to the WTO source, Costa Rica would have the right to pursue the issue of Safeway’s blending through the WTO under the TRIPS Agreement. The coffee industry does not have to entirely reinvent the wheel when creating rules on blending. A handy frame of reference is the wine industry, which is also deeply concerned with issues of terroir. As Colehour Bondera, President of the KCFA, points out: “Napa Valley wine growers in California have registered the GI “Napa” in the European Union, not because they ever plan to sell wine there – the domestic demand for their product is too high – but because the EU registration gives them broader protection and makes their product more secure against the ever present threat of being downgraded to generic status.” The French wine industry is regulated in great detail. Laurent Barbier of Clos Lorca vineyard in the Bordeaux region states: “Concretely, these rules tell you the grapes you can grow in a region, the amount that can be produced, the minimum and maximum amount of sugar allowed at picking, if you can add sugar, if you can add acids…  If you are beyond these parameters you run the risk of being declassified.” While that is reassuring from the perspective of maintaining distinctive character, it does severely limit the producer’s creativity. United States wine producers have much more leeway, with the provision that 85 per cent of the grapes must come from within the named viticultural area. This gives the farmer much more freedom to engage in a creative relationship with specific aspects of ecology, microclimate and geology. Some WTO members have suggested that regulators step back and allow the consumer to regulate GI through the market. In the information age consumers have more access to supply chain data than ever, and have become accordingly more responsive to issues of origin and quality of goods. Other WTO members feel that this leaves both farmer and consumer far too vulnerable to unfair business practices like false advertising and fraud. The debate about GIs at the WTO level has, to a large extent, been focused on the debate about generic names in recent years. Article 22 of the TRIPS Agreement states that WTO members will prevent the use of geographical indications to market goods that do not originate in the territory named by the GI. Article 23 extends the GI protection for wines and spirits, such as Champagne, Chablis, and Tokay, saying that the members must renounce using incorrect GI even when there is no chance that the public will be misled, such as in the case of a “Chablis” which is labelled clearly as being produced in California, or labelled as “Chablis-style wine”. The US previously argued that these names became generic with common use. However, in 2005 it signed a bilateral trade agreement with the EU in which the US agreed to pursue legislative changes to limit the use of so-called “semi-generic” names to wines that originate in the EU. The US also promised not to allow any other EU GIs related to wine or spirits to become generic in the future. It is problematic that although GIs for wines and spirits are protected against becoming generic names in the market, those for foods and other goods are not. One famous example is Parmesan cheese, which the US categorises as a generic name. The cheese producers of Parma and Reggio Emilia beg to differ. Both Italian and EU law recognise the name as a Product of Designated Origin. “If you look at products that have long standing recognition over centuries… you’re talking about [local culture]. People aren’t going to just get rid of the basis of their community so somebody else can make a bunch of money. And I think that is what you’re looking at in the case of Kona coffee,” says Bondera. Generic names allow products to be taken out of the unique local context of human culture and terroir, which is often an intimate and loving relationship between farmer and nature. Cupping exercises have shown that it is not possible to distinguish the flavour characteristics of an origin coffee when it constitutes a proportion of 10 per cent or less in a blend. Since Kona is branded, handcrafted and limited – and therefore extremely marketable coffee – it doesn’t seem necessary to sell the majority of it as a blend. As Ken Davids of Coffee Review wrote in 2002: “Always a coffee blessed by nature and a superb coffee… Kona coffee is now benefiting from the same loving attention by retired-executives-turned-farmers that transformed Napa Valley wines from ordinary to world-beating. Every time I cup Konas they seem to impress me more with their quality and variety.” One question is why the State of Hawaii does not require higher percentages of Hawaiian coffee in geographically named blends, which would allow the quality of the coffee to shine through. Russell Kokubun, the Chairperson of Hawaii’s Department of Agriculture, describes the negotiations between farmers, processors and legislators as “a series of compromises”. 
“We reverse-engineered the retail price,” says Jim Wayman, President of Hawaii Coffee Company, of the early negotiations with legislators. Hawaii Coffee Company purchases about 20 per cent of the entire Kona crop each year. Safeway is one of their customers. Some Kona coffee producers continue to lobby for a higher minimum in blends, but Wayman is more cautious. “We don’t want to play Russian roulette with the whole coffee industry. About 50 per cent of Kona coffee is used in blends; something bad could happen if we start playing around with that. What we said to the KCFA is: ‘Let’s be reasonable here.’ There’s no steeple on my building. I want to make a profit. If I can make more of a profit selling 30 per cent or 75 per cent, then I will, but we need to commission a professional research study to find the optimum amount of blend to offer the right price [for the consumer]. We’ve built the Kona coffee industry into the most successful industry in Hawaii, and we want to know what we’re doing before we change that.”  Wayman disputes the results of a study commissioned by the KCFA, saying, “[The study] stated that I buy coffee at about US$5 per pound, but in reality it is about US$10 per pound. It quoted the retail price from my website which is the highest price I sell at, but 90 per cent of my business is wholesale which is about half that price. There was a much larger gap for them to proclaim that we are making abusive profits.” Wayman cites his commitment to the Kona coffee community: “We are not horrible or bad people, we’re business people…There’s a lot of ways [the market] could go… There are a lot of people predicting that the highest priced commodity in the world will be fresh water… I do not support that. Those thoughts scare me, but I generally think that the knowledge of the world, and/or Mother Nature will balance this out and find a way to make it work… I am on [the KCFA’s] side. That’s the really funny part of it.”  It seems that, regardless of the lawsuit, single-origin Kona coffee is on the rise. Wayman is encouraged that Safeway agreed to offer 100 per cent Kona coffee in their stores, which Royal Coffee will supply, and cites another agreement he has to put 100 per cent Kona coffee into 350 Wal-Mart stores. “If 100 per cent Kona does well there then guys like me will make a lot more money selling fewer bags of coffee.” In the meantime, a much wider global audience than the Kona coffee community will likely be awaiting the outcome of the law suit, and the industry action that could follow. 

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