Tobacco Showdown

MIAMI -- Generic cigarette maker Trademark Holdings Corp. faced a tough choice recently: Cease production of its new and profitable Cowboys brand cigarettes ? which are packaged with the image of a cowboy astride a horse ? or shoot it out with Philip Morris U.S.A. in an intellectual property lawsuit.

In a July 17 letter, Philip Morris warned Trademark that the marketing or sale of the Cowboys brand, which Trademark launched in March, violates its trademark and trade dress rights ? the company's proprietary interest in the product's overall image, according to the Miami Daily Business Review. Philip Morris claimed that the cowboy logo infringes on the tobacco giant's popular "Marlboro man" trademark. The letter demanded that Miami-based Sun Tobacco, which imports the cigarettes from South America for Trademark, immediately stop sales and distribution of Cowboys and destroy all cigarettes in its inventory.

But Trademark chose to fight. It continued supplying distributors nationally with Cowboys cigarettes. And on Aug. 16, it filed a lawsuit in U.S. District Court in Miami seeking a declaratory judgment that its use of the Cowboys name and caballero image does not infringe on Philip Morris's intellectual property.

"It appears to be that you cannot put any image of the American West on a pack of cigarettes without infringing on their trade dress rights," said Mark Stein, a partner at Lott & Friedland in Coral Gables, Fla., who represents Trademark and Vibo Corp., the company's marketing and distribution arm. "Our clients' position is that trade dress does not extend nearly that far."

In response, New York-based Philip Morris U.S.A. filed counterclaims and a third-party complaint in the same court, alleging that Trademark's Cowboys brand, along with its Bronco and Silver lines, infringed on the company's intellectual property rights. The packaging for the Bronco and Silver brands features images of horses but no cowboys, the report said.

Philip Morris contends that the packaging on Cowboys brand cigarettes appropriates the Marlboro cowboy, that the brand name Bronco is reminiscent of Marlboro Country, and that the packaging of Silver cigarettes employs a similar image of a horse. The company also alleges that the design and color schemes of the Trademark brands are similar to Marlboro and violate its trademarks and trade dress rights.

"We believe certain trademarks are infringing upon ours," said Philip Morris spokesman Tom Ryan. "And we are requesting that those two parties ? Vibo and Trademark Corp. ? cease and desist the use of these trademarks and trade dress."

Philip Morris is seeking unspecified compensatory damages as well.

Low-Priced Brands Thriving
The legal battle in Miami represents the latest showdown between generic and brand name cigarette makers. Philip Morris's flagship Marlboro brand and other brand-name smokes have been losing market share to brands like Cowboys and other less expensive rivals, which typically retail for $1.50 to $2 less per pack, or $12 to $15 less per carton, than brand-name smokes.

Brand-name cigarette makers are seeing increased competition from the generic distributors, which enjoy cost advantages that allow them to price their products lower. Compared with the big tobacco companies, generic cigarette makers pour much less into production and promotion. They manufacture their cigarettes in Latin America rather than in the United States and focus their marketing efforts on widespread distribution rather than on advertising.

That's been the business strategy behind the Cowboys, Bronco and Silver brands, and it has reaped profits for Trademark Holdings, which primarily sells cigarettes made in Colombia. The company, which distributes about 120 million cigarettes in the United States annually, has captured 1.3 percent of the overall market share for generic and brand-name smokes, the report said,

While other generic cigarette makers have come and gone, Trademark and Vibo have been successful in distributing four brands of cigarettes: GT One, believed to be the best-selling generic, and the Cowboys, Bronco and Silver brands. It has continued expanding its line of products: Bronco hit the market in 2000, Cowboys debuted in March 2002 and the Silver brand came out this summer.