Morocco-Cuba: The Habanos cigar legal imbroglio, explained

By Bilal Mousjid
Posted on Wednesday, 28 December 2022 11:45

Cuban cigar on table, Cuba (photo: AFP)

Habanos, a young Moroccan company, claims to manufacture Moroccan cigars and accuses the famous Cuban brand of the same name of unfair competition. We take a closer look at an extraordinary legal drama.

The affair has kept the business community and legal experts on tenterhooks for several years.

It all began in 2011 when Omar Zahraoui, a Moroccan then aged 20, created a company called Habanos SA, just like the famous Cuban brand.

Its purpose: manufacturing cigars, an industry to which the young entrepreneur was until then a complete stranger.

Although the Cuban brand had been a protected denomination of origin (French acronym DOP) since 1994, Zahraoui still managed to register his trade name with the Moroccan Office of Industrial and Commercial Property (OMPIC) and even to obtain, in 2015, an authorisation for the wholesale distribution of manufactured tobacco from Morocco’s industry ministry.

It was also in 2015 that the CEO of Habanos SA began to reveal the contours of his project to the press: an investment of one billion dirhams (nearly €90m) to produce a “100% Moroccan cigar”. This alerted the Cuban Habanos Corporacion, which then filed a lawsuit for usurpation of a protected name of origin.

To everyone’s surprise, the Commercial Court of Casablanca dismissed the case twice: first in 2017, and again on appeal in 2018.

Emboldened by this victory, Omar Zahraoui filed a complaint for unfair competition against Habanos Corporacion and the Moroccan Tobacco Company (SMT), a subsidiary of the British group Imperial Brands PLC (formerly Imperial Tobacco), which has had exclusive rights to Cuban cigars in Morocco since 2004.

Pending the ruling, the Commercial Court of Casablanca had ordered SMT to stop importing and distributing Habanos brand cigars under threat of a fine of 1,000 dirhams (€90) for every day of delay.

In all, Zahraoui has filed no less than seven lawsuits against Habanos Corporacion (and its parent company Empresa Cubana Del Tabaco – Cubatabaco), SMT and two of its distributors.

1. What does the latest court decision say?

After nearly five years of legal wrangling and a ruling by the Court of Cassation invalidating the initial judicial decisions, Habanos Corporacion has finally won its case. In late November, Rabat’s Court of Appeals condemned Omar Zahraoui’s company to change its commercial name, faced with a fine of 5,000 dirhams (€450) for every day it delays.

The court also ordered Habanos SA to cease all use or exploitation of its website under threat of a 5,000 dirham penalty per day. Although the ruling is “immediately enforceable despite any appeal to a higher court”, according to a source close to the case, the company’s website has not yet been removed.

2. Who is behind the Moroccan Habanos SA?

The very discreet CEO of Habanos Morocco, now 32, never mentions his background in the press. All we know, according to his LinkedIn profile, is that he obtained a degree in 2012 at the University of Sunderland in England after studying at an American school in Rabat. In reality, Omar Zahraoui is merely the company’s legal representative, the real conductor being his father Mohamed Zahraoui, whose name does not appear anywhere in the company’s statutes.

From the media campaign to the lawsuits, the elder Zahraoui has been managing everything related to the Habanos affair for a decade. Little known in the business world, Mohamed Zahraoui is a shareholder in a family company specialising, according to its statutes, in transport (EMX Express).

An activity launched in 2009 about which little is known, the last available company balance sheet dates from 2011 when EMZ Express recorded a net profit of 738,118 dirhams (€66,000) for a turnover of 28 million dirhams (€2.5 million).

No data on the volume of cigar sales is available

In 2017, Mohamed Zahraoui also created Africa Tobacco International with the stated purpose of manufacturing cigars and cigarettes. But with no balance sheet available since its inception and its activity uncertain, it may be a shell company.

What is certain is that the company has taken legal action against Cuban companies to request the cancellation of the Habanos brand, a request that was rejected on 14 March by the Commercial Court of Casablanca.

3. What about the production and quality of ‘Moroccan’ cigars?

In 2018, Omar Zahraoui explained in an interview that his factory had a production capacity of “500,000 cigars per day” and that he had just signed “a $500m contract with an American group”, even going so far as to forecast an export turnover of $1bn in 2019.

In reality, Habanos SA, whose headquarters are located in a residential centre in the industrial district of Ain Sbaâ, in Casablanca, has never exported cigars, according to customs sources. Nor has it “been able to establish the existence of any real production, marketing or distribution of any product”, according to the SMT.

At the request of SMT’s counsel Hicham Naciri, the Directorate of Internal Trade, then under the supervision of the Minister of Industry and Trade Moulay Hafid Elalamy, replied by letter on 17 April 2019 that the company headed by Omar Zahraoui had “submitted two activity reports to the administration for the years 2016 and 2017 […] except that these two reports do not contain any data relating to the volume of sales of cigars during the two fiscal years”.

Habanos SA counts on lawsuits to ensure the viability of its business model

In 2017, Habanos SA registered a cigar brand called “Premium” with the OMPIC, the quality of which has not seemed to convince distributors. Far from it. Exasperated by the Moroccan company’s practices against some of its members, the National Union of Professional Traders (SNCP) in its turn headed to the front, in a letter it also sent on 17 April 2019 to then Minister of Industry and Trade Moulay Hafid Elalamy, asking him to intervene.

“Although we trust our country’s justice system to issue a decision [in the legal dispute between SMT and Habanos SA], we consider this strategy of judicial harassment and the forced sale of products distributed by Habanos SA, which do not meet consumers’ quality standards, intolerable,” the union wrote.

4. Why is Omar Zahraoui holding out?

Advertising campaigns in Morocco and abroad, lawsuits galore… Why did the Zahraouis engage in a procedure that seemed lost in advance? “By filing lawsuits after his initial victories, he was trying to obtain maximum damages,” a source close to the case told us.

The same is true of the distributors’ union, which considers, in a letter to the industry ministry, that Habanos SA’s “only commercial action is counting on lawsuits for damages brought against the tobacconists to ensure the viability of its business model”.

In 2018, Omar Zahraoui announced that he was claiming 200 million dirhams (€18 million) in damages from the Cuban company. A legal expert even established the damage suffered by Habanos SA at 49 million dirhams, nearly €4.5m.

But over time, this strategy has ended up working against Zahraoui: not only have the courts ended up refusing all his requests for compensation – ordering him to stop using the Cuban brand’s trade name – but other legal problems with certain administrations have been added to his legal tussle with the Cubans.

This is the case, for example, with customs authorities, who in 2021 obtained a court order for Habanos SA to pay 40 million dirhams for, among other things, the absence of any accounting relating to storage.

5. Is the case closed?

In the case’s commercial aspect, the courts, in the first instance and on appeal, have rendered an enforceable decision: Omar Zahraoui has to stop using the trade name Habanos SA.

The criminal aspect remains, as Zahraoui has filed a complaint against Cuban companies. Referred on 12 July to Casablanca’s court of first instance, it concerns “charges of forgery in commercial writing, use of forgery, falsification of administrative documents, use of an inaccurate or falsified certificate and participation in an association with a view to undermining an automated data processing system”, says an informed source.

While awaiting the outcome of this umpteenth trial, Habanos SA is calling for the cases pending in the commercial courts “to be suspended until the final outcome of the criminal complaint”.

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