starbucks vs ethiopia case study

The Coffee War: Ethiopia and the Starbucks Story

The Ethiopian economy is heavily dependent on the trade of its primary products. Among the country’s limited tradable goods, coffee alone generates about 60 percent of Ethiopia’s total export earnings. Indeed, coffee is closely tied to the culture and society of Ethiopia and an estimated 15 million people are directly or indirectly involved in the Ethiopian coffee industry.

Some of the world’s finest coffees, such as Harrar®, Sidamo® and Yirgacheffee®, originate in Ethiopia. These coffees have a unique flavor and aroma that distinguish them from coffees of other countries or even from other coffees of Ethiopia. This African nation enjoys a strong reputation for its heritage coffees which command a very high retail price in the international market. However, only 5 to 10 percent of the retail price actually goes back to Ethiopia; most of the profit is shared by distributors and middlemen in the marketing sector. In wealthy countries, a cup of cappuccino may be sold at US$ 4, but many coffee growers in Ethiopia and other developing countries earn less than a dollar a day. There are instances where farmers abandoned coffee production due to low returns and engaged in growing more profitable narcotic plants.

Seeking to narrow down this gap between the retail price and the return to the producers, the Ethiopian government is trying to use a range of intellectual property rights (IPRs) to differentiate their coffee in the market place and achieve higher returns. In 2004, the government launched the Ethiopian Coffee Trademarking and Licensing Initiative (the Initiative) to provide a practical solution to overcome the longstanding divide between what coffee farmers receive for a sack of their beans and what retailers charge for that coffee when they sell it in retail outlets in different countries.

The Initiative is organized and run by the Ethiopian Fine Coffee Stakeholder Committee (the Stakeholder Committee) – a consortium comprising cooperatives, private exporters and the Ethiopian Intellectual Property Office (EIPO) as well as other concerned government bodies.

IP Management

The EIPO took the leadership of the Initiative and began working on identifying a mechanism which would lead to a greater share for the country’s coffee growers. The Initiative also intended to generate high retail prices for Harrar, Sidamo and Yirgacheffe – the three most famous coffee brands of Ethiopia. “The theory is: make the pie bigger. Let the market pay,” explained Mr. Getachew Mengistie, former Director General of the EIPO. “Rather than focusing on short term gain, this way we can enlist the big companies to do what we don’t have the skills or financial means for – that is, building recognition of our brands in international markets and so increasing long term demand for them.”

The key strategy, the Stakeholder Committee agreed, was to achieve wider recognition of the distinctive qualities of Ethiopian coffees as brands and so position them strategically in the expanding specialty coffee market; while at the same time to protect Ethiopia’s ownership of the names so as to prevent their misappropriation. This would lead to a greater share of the high retail price Ethiopian coffees demand going straight to rural producers.

The Ethiopian government had to make a decision on how to best use IPRs to obtain exclusive ownership of Ethiopian coffee names, achieve wider international recognition and maximize returns. At first glance, registration of each Ethiopian coffee as a geographical indication (GI) might seem to be the best course of action. After all, the coffees are made in Ethiopia and named after the regions that made them famous. However, there are many unique circumstances surrounding specialty coffee production in Ethiopia that actually make GI registrations less suitable than other forms of intellectual property (IP) protection. As Mr. Mengistie explained, “setting up a certification system would have been impracticable and too expensive.”

Used to indicate the regional origin of a particular product, a GI registration must demonstrate a link between a characteristic of the product and the region where it is produced. If each Ethiopian specialty coffee were registered as a GI it would have to be produced in a specific area of the country under specific circumstances. For example, a GI for Sidamo coffee would require every bag of Sidamo to be produced, processed or prepared in the Sidamo region and have a special quality that is directly dependent on the unique properties of the region. A GI also requires that the government oversee producers and distributors to guarantee that the coffees sold belong to a particular style or region, such as Sidamo.

However, this is not a practical solution for Ethiopia. Specialty coffee in Ethiopia is grown on over four million small plots of land by an estimated 600,000 independent farmers spread throughout the country in remote areas. Although Ethiopian coffees such as Sidamo and Harrar are named after specific regions, all of it is not produced in the same region under the same circumstances. Distribution is also a problem, as it is predominately done informally by hauling bags of coffee on foot for many kilometers. Government oversight of coffee producers is therefore nearly impossible. Farmers would be required to pay a surcharge for government oversight, and this would only be an additional burden on them, many of who are already living below the subsistence level. Therefore the very nature of coffee production in Ethiopia makes GI certification difficult and impractical.

The government of Ethiopia decided that instead of trying to protect Ethiopian coffee’s geographical origin, it would be better to protect its commercial origin, which it would do through registering trademarks. This was seen as a more direct route of protection because it would grant the government of Ethiopia the legal right to exploit, license and use the trademarked names in relation to coffee goods to the exclusion of all other traders. Unlike a GI, a trademark registration does not require a specific coffee to be produced in a specific region or have a particular quality in connection with that region. Using trademark registrations, the government of Ethiopia could then produce greater quantities of specialty coffees from all over the country. Rural producers outside the Sidamo region could grow Sidamo coffee, as it would not need to have a characteristic that is unique to the Sidamo region. The Stakeholder Committee therefore opted for a trademark-based solution, with the Ethiopian government as the owner of these marks. This strategy gave the Ethiopian government greater and more effective control over the distribution of its product, which ultimately increases revenue by exporting more goods, enabling a rise in prices and benefits to farmers.

The EIPO began filing applications to register the names Harrar/Harar, Sidamo and Yirgacheffe as trademarks in key markets. In the United States, Yirgacheffe was the first to obtain registration; Sidamo and Harrar / Harar were granted registration at a later time. Trademarks for Ethiopian coffees are also registered in the European Union and Canada . In Japan, registration certificates have been secured for two of the coffees (Yirgacheffe and Sidamo). The EIPO has filed applications for trademark registrations of these three coffees in a number of other countries including Australia, Brazil, China, Saudi Arabia and South Africa.

IP Dispute Resolution

The trademark strategy for Ethiopian coffee faced a major difficulty in 2006. The United States Patent and Trademark Office (USPTO) had approved the application to register Yirgacheffe . But the National Coffee Association (NCA), representing coffee roasters of the United States, objected to the EIPO’s applications to trademark first Harrar, then Sidamo. The grounds for opposition in both cases were that the names had become too generic a description of coffee, and as such were not eligible for registration under United States trademark law. The USPTO turned down the application for Harrar in 2005 and for Sidamo in 2006.

The American coffee chain Starbucks Coffee Corporation, which was widely reported in the media to have been a driving force behind the NCA objection, publicly offered to assist the EIPO in setting up a national system of certification marks to enable the farmers to protect and market their coffee as “robust” geographical indications. “These systems are far more effective than registering trademarks for geographically descriptive terms, which is actually contrary to general trademark law and customs,” said the company in a statement. But the EIPO and its advisors disagreed. The designations, they argued, referred not to geographical locations but to distinctive coffee types. Moreover, appropriate intellectual property (IP) tools had to be chosen to meet specific needs and situations. “You have to understand the situation in Ethiopia,” Mr. Mengistie of EIPO explained. “Our coffee is grown on four million very small plots of land. Setting up a certification system would have been impracticable and too expensive. Trademarking was more appropriate to our needs. It was a more direct route offering more control.”

The EIPO filed rebuttals against the USPTO decisions with supporting evidence to demonstrate that the terms Harrar and Sidamo had acquired distinctiveness. Meanwhile, both Starbucks and the Ethiopian government were keen to resolve their differences quickly and find a flexible way forward. Their joint efforts led to an announcement in 2006 that they had reached a mutually satisfactory agreement regarding the distribution, marketing and licensing of Ethiopia’s specialty coffee designations, which provided a framework for cooperation to promote recognition of Harrar, Sidamo and Yirgacheffe.

Starbucks agreed to sign voluntary trademark licensing agreements which immediately acknowledge Ethiopia’s ownership of the Harrar, Sidamo and Yirgacheffe names, regardless of whether or not a trademark registration has been granted. Legal commentators have honed in on the use of the term “designation” in the agreement as a means of circumventing the obstacle caused by the status of the Harrar and Sidamo applications. “Yes,” acknowledges Mr. Mengistie, “designation is used here as a broader term than trademark, to encompass some of the trademarks that are still pending registration. It is not related to certification.”

In August 2006, the USPTO informed the EIPO that their rebuttal in the case of Harar had been successful. A trademark for Sidamo was also granted in February 2008.

Financing and Partnerships

The Initiative secured financial support from the Department for International Development (DFID) of the United Kingdom, technical advice from a Washington-based non-governmental organization (NGO), Light Years IP, and legal assistance from an American law firm, Arnold and Porter.

The high cost of legal services for foreign trademark registration created some initial difficulties. Ethiopia, moreover, is not a member of the Madrid system for the international registration of marks. This was overcome by support from law firms which agreed to provide their services pro bono.

After acquiring the trademarks, Ethiopia initiated a royalty-free licensing scheme. The purpose of licensing, according to Mr. Mengistie, is “to secure recognition from the coffee distribution industry that Ethiopia owns and controls the use of trademarks, thereby building the reputation and good will of its specialty coffees around the trademarks.” The government of Ethiopia wanted its coffee to have more market visibility so that the export premium for Ethiopian specialty coffee could be raised. The adopted strategy offered royalty-free license agreements and required the licensee to sell the specialty coffees using the registered trademarks (free of charge) on any product that consists wholly of Ethiopian specialty coffees and to promote Ethiopian fine coffee by educating their customers. The licensing strategy is expected to boost consumer recognition of Ethiopian coffee trademarks and facilitate the growth of the demand for Ethiopian fine coffees. This strategy will ensure that Ethiopian farmers and small businessmen secure a reasonable return from the sale of their coffees. Information on the Initiative as well as licensing is made publicly available through a dedicated website.

By mid-2009, almost one hundred license agreements have been concluded with coffee importing, roasting and distributing companies in North America, Europe, Japan and South Africa. Within the country, some forty seven private coffee exporters and three coffee producer cooperative unions in Ethiopia have also signed the agreement.

The high profile dispute with Starbucks increased the popularity of Ethiopian coffee. The media coverage had the effect of greatly increasing public knowledge of, and interest in, Ethiopia’s coffees. “Partly because of this recognition, we have begun to see increases in their price,” says Mr. Mengistie. “I learned from the coffee farmers' cooperatives and exporters just three months ago that the price of Yirgacheffe had already increased by $ 0.60 cents to $ 2 a pound.”

Immediately after the resolution of the dispute, the stakeholders of Ethiopian coffee focused their attention on the need for a marketing strategy. They opted for a well-organized branding instrument. A United Kingdom-based company was given the responsibility of the brand promotion of Ethiopian coffee. The company worked together with the stakeholders and developed the brands and brand guidelines which were approved in July 2008. Under this approach, a total of four brands were created: an umbrella brand with the name “Ethiopian Fine Coffee” and three individual brands entitled “Harar Ethiopian Fine Coffee,” “Yirgacheffe Ethiopian Fine Coffee” and “Sidamo Ethiopian Fine Coffee”. Artistically-designed logos for each of the brand names were also created.

Business Results

The Initiative has helped Ethiopia to differentiate Ethiopian coffees from coffees of other countries, which strengthened the confidence and bargaining position of the coffee growers and exporters of the country. There is an increasing demand for Ethiopian fine coffee in the world market. The novelty of the Initiative is that it enabled the growers and producers to become part of price setters instead of being price takers.

These changes have had marked positive results in terms of increased income and improved living standards of the coffee producers. Prior to the IP protection initiative, Ethiopia was receiving a scanty 6 percent of the final retail price for its coffees. Against the average final retail price ranging from US$ 20 to 28 per kilogram, the farmers were receiving as little as US$ 1 per kilogram. The trademarking and licensing scheme immensely helped improve the situation: Yirgacheffe farmers’ income doubled in 2007 in comparison with their income in 2006, with estimation that over the years the producers could secure their income at around US $6-8 per kilogram. Overall, Ethiopia’s total coffee exports are expected to reach the level of US $1.2-1.6 billion as opposed to a meager US $400 million prior to the Initiative.

Impacts of the Ethiopian Initiative

The Ethiopian Coffee Trademarking and Licensing Initiative set a new dimension in the buyer-seller relationship. The significance of the Initiative is likely to go not only beyond the coffee trade, but also beyond the borders of Ethiopia. Producers of primary goods in many developing countries often receive only marginal returns. The Initiative has created the momentum for change and bears the potential to offer more feasible ways to improve the commercial prospects and financial returns for marginal producers of coffee or other similar commodities. For developing countries, a new frontier is set to leverage benefits from their IP assets. 

September 3, 2010

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Starbucks v. Ethiopia

September 15, 2008 John Feffer , Kim Fellner

Editor’s Note: The following is a book excerpt from Kim Fellner’s Wrestling With Starbucks (Rutgers University Press, 2008).

Tadesse Meskela, general manager of the Oromia Coffee Farmers Cooperative Union in Ethiopia, an organization of 115 cooperatives representing more than 102,000 coffee growers, apparently had mixed feelings about Starbucks. In an interview transcript from a June 2006 Starbucks meeting on African coffees, he spoke warmly about the company’s role in advancing the well-being of Ethiopian coffee farmers: “This year we sold more coffee to Starbucks and they paid us a very good price, which is better than Fair Trade price. So we want this type of pricing for our coffees to improve the lives of coffee growers.”

Yet there he was in Black Gold , a documentary released that year to wide acclaim. Filmed between 2003 and 2005, it followed Tadesse’s valiant struggle to increase the income that Ethiopian coffee farmers realize from their crops. It also featured Starbucks as villain, implying that the company made its millions off the backs of poor farmers.

For a while Dub Hay, Starbucks’ senior vice president for coffee purchasing, wondered if Tadesse had been unaware that the film was going to portray Starbucks as a bad guy. After all, the company had been involved with Ethiopia for more than thirty years, even before the arrival of Howard Schultz, and had been buying coffee from the Oromia Farmers Union since 2003. But Dub hoped in vain. Tadesse was in fact a man on a mission; and in the fall of 2006, he emerged as a key spokesperson for the Ethiopian government and for the international anti-poverty NGO Oxfam. Their prime demand was that Starbucks recognize Ethiopia’s right to trademark the names of its gourmet coffee regions. “Coffee shops can sell Sidamo and Harar coffees for up to $26 a pound because of the beans’ specialty status,” Tadesse said in an Oxfam press release. “But Ethiopian coffee farmers only earn between sixty cents to $1.10 for their crop, barely enough to cover the cost of production. I think most people would see that as an injustice.”

If Starbucks felt betrayed by the two faces of Tadesse, Tadesse felt betrayed by the two faces of Starbucks. Yes, it pays better than fair trade prices and is arguably the most ethical major coffee company in the world. But it also uses its reputation to avoid sharing real power.

Global Coffee

The conflict over Ethiopia’s right to trademark its coffee lasted for roughly two years and involved three continents, a slew of public demonstrations, and a steady stream of media reports. The themes echoed those that had ignited the 1999 Battle of Seattle: economic relations between the global south and the global north and the role of corporations in translating capitalism for performance on the world stage. While flat-worlders like New York Times columnist and author Thomas Friedman enthused over the opportunities, not to mention the inevitabilities, of globalization, detractors saw it as a new version of imperialism, a way for the north to munch up both material and cultural assets. “Do we really need a Starbucks on every corner of every city in the world?” asked political theorist Benjamin Barber in the Philanthropy News Digest . “That’s not economic competition; that’s cultural monopoly, and it ends up destroying local cultures.” Even Friedman acknowledged that, without some pushback, the “electronic herd” of global finance will turn indigenous culture “into a global mush, and their environment into a global mash.”

By 2006 Starbucks was certainly a global player. Though Schultz originally conceived of the company as a vehicle to import coffeehouse culture to the United States, he soon discovered he could export his own version back to Europe and to anywhere else in the world that seemed ready for the Starbucks coffee experience. As he told his shareholders at the 2006 annual meeting, “In 1996, we began to dream we could be an international business”; and that same year the company opened its first overseas store, in Tokyo. By 1999 Starbucks was solidifying its presence in Britain and aiming to have five hundred European stores by the end of 2003. By early 2006 , Starbucks had more than 3,000 company-owned and licensed stores outside the United States in thirty-seven countries. Its feet were firmly planted in China, its toes testing the market in Brazil, its eyes turned toward India. To Starbucks, this behavior was in no way predatory. The company was merely sharing the delight of Starbucks at an international level and, of course, increasing the bottom line.

There were difficulties, of course. In China, state news anchor Rui Cheggang took aim at a Starbucks store lodged in a corner of the imperial palace of the Forbidden City, calling it “a symbol of low-end U.S. food culture” and “an insult to Chinese civilization” and generating a torrent of response that pitted cultural nationalism against imperialism in round after round of heated blogging. And sometimes the war of words concerned real wars. One set of bloggers castigated Schultz as a Zionist and accused Starbucks of anti-Arab bias, while others condemned Starbucks for closing its Israeli outlets. In fact, Starbucks had closed its stores in Israel because of poor management and performance, while maintaining numerous stores in Arab countries; and Schultz, in real life, appeared to favor a two-state solution. In 2006, when fighting in Lebanon temporarily shut down the Beirut Starbucks, the company continued to pay staff wages and benefits throughout the conflict.

Ethiopia’s Strategy

Ethiopia is blisteringly poor country, ranked at 170 out of 177 countries in the 2005 United Nations Development Program Human Development Report. More than 25 percent of its people survive on less than a dollar a day; the average per-capita gross domestic product is less than 1,000 dollars. Although the country produces barely 6 percent of the world’s coffee, more than 1.5 million smallholders grow the crop, which sustains 15 million people and accounts for 40 to 60 percent of the country’s total exports. A significant percentage of the crop (estimates vary widely, depending on whom you ask, from a low of 15 percent to a high of 45 percent) is specialty coffee from the Harar, Sidamo, and Yirgacheffe regions, all prized for their quality and unique flavor.

In 2006 Starbucks purchased fewer than 10 million pounds of coffee from those regions, the equivalent of 2 to 3 percent of the company’s worldwide coffee purchases and a relatively small percentage of Ethiopia’s total coffee exports. Most of the nation’s coffee ends up on the arabica commodities market, where world overproduction has kept prices low. Moreover, because the country has no port, coffee must travel 1,000 miles to be shipped from Djibouti on the Gulf of Aden. In short, low prices and high marketing costs, combined with an outdated coffee auction system and a weak infrastructure, mean that most small coffee farmers stay poor.

To combat this destitution, the Ethiopian government decided in early 2005 to pursue an innovative strategy: it wanted to trademark, or brand, the names Harar/Harrar, Sidamo, and Yirgacheffe to command a greater share of the prices that its best coffees fetched at the retail end in the global north. With trademarks, the country could charge distributors a licensing fee for their use. The European Union, Japan, and Canada all approved this trademark scheme. But when the Ethiopian intellectual property office approached the U.S. Patent and Trademark Office to register Sidamo, they were surprised to discover that something called Shirkina Sun-Dried Sidamo was already in the pipeline. Starbucks had gotten there ahead of Ethiopia, and the patent office refused to consider another trademark that included Sidamo.

Trouble began when the Ethiopian government tried to contact Starbucks to resolve the matter. Yet the origins of the conflict were innocent enough. In 2002, Starbucks had approached the Fero Farmers Cooperative in Ethiopia and asked members to experiment with a different way of processing their coffee. Dub Hay explained, “We took the cherry, did not ferment or process it, just put it on drying beds and let it dry in the sun. There’s mucilage around the seeds, and when you don’t wash that off and allow it to sit, some of that flavor and the sugars are absorbed in the bean. It’s more bold, more up front, not as crisp, clean, or lemony, but you get all these wild flavors.”

It wasn’t an instant success. “We had to convince the farmer co-op it would be a good experiment, and the first year we did it, it was a complete disaster,” Hay recalled. “The coffee was undrinkable. We didn’t have all perfectly ripe berries, so some of the flavors were bad. We paid them for the 40,000 pounds of coffee and threw it away. But we convinced them to try again using only perfectly ripe beans, and we got this unique flavor; I’d never tasted anything like it. We asked the co-op to help us name it and called it Shirkina Sun-dried Sidamo, Shirkina meaning “partnership” in the local language. It became a Black Apron special and was a huge partner and customer favorite.” At this point Starbucks applied to the U.S. Patent Office for the right to trademark Shirkina Sun-Dried Sidamo.

Copyrighting Coffee?

Most of us are generally familiar with the notion of copyrighting original literary and artistic work, patenting inventions, and trademarking brand names and logos. According to the Patent Office, “A trademark includes any word, name, symbol, or device, or any combination, used, or intended to be used, in commerce to identify and distinguish the goods of one manufacturer or seller from goods manufactured or sold by others, and to indicate the source of the goods. In short, a trademark is a brand name.” But as a new era of global trade has developed under the jurisdiction of the World Trade Organization, a new raft of intellectual property laws has also emerged. Known as Trade Related Aspects of International Property (TRIPs), they were passed in 1995 to prevent entities (mostly in developing nations) from stealing or misusing corporations’ intellectual property. TRIPs place the burdens and costs of enforcement on the poorer countries. Yet its proponents argued that strict adherence would encourage affluent nations to lavish their poor cousins with new business ventures and inventions to address problems of hunger and health.

Nor surprisingly, however, the results are hardly salubrious. In addition to normal corporate battles to protect brand and lucre, there have also been breathtakingly venal moves to assert dominion over various kinds of property. Most notorious have been the efforts of big pharmaceutical companies to protect drug patents against the development of cheaper generics to treat HIV/AIDS and cancer. Although the TRIPs had originally included a few safeguards so that developing nations could produce generics, companies such as Novartis and Pfizer have lobbied to weaken even these modest protections. They argue that the monetary rewards promised by intellectual property are necessary to encourage scientific innovation. India, which rejected the patent for a cancer drug because a similar generic was available at one-tenth the cost, has been sued by Novartis to capitulate.

The story is similar in agriculture, where Monsanto has become a monster, harvesting seeds for subsistence crops such as maize, rice, and cotton from developing countries and then subjecting those seeds to genetic engineering. The new seeds, ostensibly engineered to withstand disease and produce higher yields, are then resold to the very same countries. The genetically engineered strains supplant heritage varieties and are often bred to germinate for one year only, forcing farmers to buy new seeds every year rather than save part of the crop for replanting. In other cases, farmers in the origin countries are prohibited by law from creating their own supply. Thus, Monsanto both wipes out native species and forces poorer nations into greater dependence and poverty.

Starbucks’ invocation of intellectual property laws has been less disastrous, but it’s often been silly. A number of conflicts have arisen over store names deemed too similar to Starbucks’ own. Targets have included tiny Sambucks in Astoria, Oregon; HaidaBucks on Queen Charlotte Island in Canada; and Starstrucks in India. This seems rather like the lord of the manor pursuing poachers: both predatory and petty. But Starbucks also protects particular blends or products. You would, for example, be unwise to market Gazebo blend coffee or a Frappuccino. Thus, the Ethiopian situation was a notable reversal in the pattern. When the company tried to brand its new method of processing Sidamo beans, it was accused not of overzealous trademark enforcement but of stealing Ethiopia’s birthright.

Ron Layton, an attorney from New Zealand, has developed and promoted intriguing ideas on the use of intellectual property as a tool for development in the global south and started a company called Light Years IP to advance the work. In a 2004 World Bank publication titled Poor People’s Knowledge , he argues that intellectual property provides more profit than manufacturing and agriculture do: “The IP laws, although somewhat disadvantageous to developing countries, are available for enforcement in the developed markets. Fair trade interventions offer the needed model for market access and delivery systems that ensure that revenues from IP exports do alleviate poverty.”

In The Coffee Paradox , authors Daviron and Ponte note that specialty coffee commands high retail prices not because of its tangible qualities but because of the symbolic qualities of the brand or experience. Ironically, they find, the higher the quality of the coffee, the lower the percentage of its retail price that goes to farmers. So long as farmers in producing countries sell commodities and distributors in consuming countries sell brands, the suppliers at the beginning of the chain will suffer increasing income disparity; they can only change the equation by capturing some of that intangible value for the countries of origin.

“It’s not really value-added,” Ron Layton corrected me when I used the term. “I call it ‘value inherent.’ We are shifting away from competing as a commodity to the inherent value of the coffee. If you have a shirt by a major designer and an identical one from an unknown, what makes you pay two hundred dollars for one and not the other? It’s the brand, the nonphysical enhancement . . . So we realized there’s a big intangible value to this coffee that they’re not getting a share of, and how do we get hold of that?”

Ethiopian coffee was a test of the intellectual property approach: the names of the indigenous coffees were already somewhat familiar in the developed world, and fair trade models were already in play. Layton and his firm assisted the newly formed Ethiopian Intellectual Property Office and its director Getachew Mengistie to formulate a plan that led them to the U.S. Patent Office, to Starbucks’ Shirkina Sun-Dried Sidamo, and to the company’s wall of silence.

No one at Starbucks is willing to say how this happened, but unfortunately for all concerned the original correspondence from the Ethiopian embassy was routed to an intellectual property attorney in the Starbucks legal department and was ignored by anyone whose viewpoint might have transcended legal considerations. Beginning in March 2005, K. E. Kassahum Ayele, a former Ethiopian ambassador to the United States, tried to meet with Howard Schultz to resolve the issue of the Shirkina application. He received only a curt response from a company attorney and an invitation to a dinner honoring Schultz. A press release from the Ethiopian embassy quoted Ayele as saying, “I asked to engage in substantive discussion with Mr. Schultz on the issues, not to have a debate with a lawyer and attend award ceremonies. I expected reasonable consideration and friendly dialogue, but was shocked at Starbucks’ refusal to meet and to discuss the situation.”

The Oxfam Intervention

Then Oxfam stepped onto the scene. The U.K.-based nonprofit describes itself as a “development, relief, and campaigning organization that works with others to find lasting solutions to poverty and suffering around the world.” With the millennium coffee crisis, Oxfam’s “Make Trade Fair” campaign focused on the plight of coffee growers.

In the past, Starbucks and Oxfam had been wary partners in several small projects. For instance, they had collaborated to help a small Mexican farmers’ cooperative improve the quality of its fair trade coffee; and in 2004 Starbucks U.K. had contributed 179,000 dollars to a jointly sponsored rural development effort that included irrigation and women’s literacy programs in Ethiopia’s East Hararge region. To avoid the appearance and prevent the reality of selling out, each party reserved the right to criticize the other. At the time of the East Hararge effort, Phil Bloomer of Oxfam U.K. told the Financial Times , “We want to maintain a constructive and critical relationship with Starbucks. We hope they’ll challenge us, and we know we’ll continue to challenge them.”

When the Ethiopian trademark became an issue, the moment of challenge arrived. Seth Petchers, head of Oxfam America’s coffee campaign, knew one of Ron Layton’s Light Years staff members and had been following the new strategy with interest. “In the spring of 2005,” he told me, “I got a call from Light Years and the Ethiopian government, expressing frustration about not being able to get in touch with Starbucks. Since we knew about coffee and had a relationship with the company, we got involved.”

Oxfam and Starbucks tell somewhat conflicting stories about communications during the eighteen months between Ethiopia’s first effort to talk with the company and Oxfam’s public campaign to change the company’s mind. It rapidly became apparent, however, that the issue involved more than miscommunication. Starbucks did not want to sign a licensing agreement. “It’s not a good solution, and the details are unacceptable,” Dub Hay protested to me early in the conflict. “We’d have to consult with them about how we package and market our coffee. It’s just not tenable. And there’s no guarantee that the fees would ever reach the farmers. It’s not good for them either.”

The company expressed agreement with the underlying goal of getting more money to the Ethiopian farmers but advocated instead a geographic certification, or appellationsomething comparable to the name protections granted to Wisconsin cheddar and French champagne. Certification would allow Ethiopia to protect the product’s good name and authenticity. Yet as its advocates pointed out, the appellation approach relies on market demand to set higher prices rather than paying direct fees for use of a name.

According to Oxfam, both the farmers’ welfare and Starbucks’ own reputation were indisputable arguments for signing the licensing agreement. By obstructing the trademark filing, the company was depriving Ethiopia of critical additional revenues, a figure that advocates estimated at 88 million dollars roughly eighty cents more per pound of coffee. There were also behind-the-scenes discussions at the Specialty Coffee Association of America (SCAA) and the National Coffee Association (NCA); and reports of those discussions slipped into advocates’ hands and into cyberspace, alleging that Starbucks was obstructing the trademark filings while publicly denying any such role.

Yet there’s ample evidence that many association members agreed that licensing was a bad idea. “Ethiopia got some very poor advice from both the marketing and legal standpoint” was the personal assessment of Ted Lingle, former director of SCAA. “No one wants to beat up on the Ethiopian farmer; there’s no PR value that comes out of that. But the specialty market doesn’t really need Ethiopian coffees.” He noted that, out of 3 or 4 million bags of coffee from Ethiopia, perhaps half a million are high-end coffees. “The world has otherwise thought of them as a Brazil substitute, a commercial supply. Their market reputation really isn’t much, and now they feel they can inflate what little they have. The market is not going to support it. The effort is misguided and doomed to fail.”

Nonetheless, in 2006 Oxfam and Light Years convened a cadre of progressive advocates, including Co-op America and Catholic Relief Services; they envisioned a “big noise” strategy waged with street demonstrations, letter-writing campaigns, and a heated Internet presence to pressure Starbucks into an agreement. These factors alone would have been enough to create a collision course. But Starbucks was about to be hit from another quarter as well. In 2003, two young British filmmakers, Marc and Nick Francis, decided to make a documentary on how the poverty crisis in Ethiopia was intersecting with the coffee industry. Nick Francis told me:

I first went to Ethiopia in 1997, and when I was there, I was thinking, “I’m in the birthplace of coffee, yet this is one of the poorest countries. How can that be?” Then in 2003, we learned that Ethiopia was facing another famine, like the one in ’84 that led to the Live Aid concert. But unlike ’84, even the richest coffee-growing areas were caught up in the crisis. At the same time, we were seeing more and more coffee shops everywhere, in Britain, in the U.S. There was this mushrooming coffee industry, but the people who grew it were in this absolute humanitarian emergency. We wanted to make the connection between the two, between the coffee-consuming public and the growers.

The result of their two-year odyssey was Black Gold, which premiered at the Sundance Film Festival on January 24, 2006, generating a buzz of its own. The documentary follows Tadesse Meskela from the Ethiopian coffee fields and the Oromia offices in Addis Ababa to the trade shows of Europe and the United States to seek a market for the beans. “We wanted to feature a protagonist from Africa who is out there doing something rather than waiting for charity and goodwill,” Nick explained. For the filmmakers, Tadesse’s work challenged our western notion that Africa survives solely on aid from the developed world.

By way of the farmers in the cooperative and Tadesse’s efforts on their behalf, the film exposes the web of trade regulations that keep farmers in developing countries poor, even while transnational corporations in the global north prosper. Women painstakingly sort millions of beans; and viewers observe the hunger and substandard housing that accompany poverty. Juxtaposed with these images are the cosmopolitan cafés of Europe and America, the comfort of conspicuous consumption, the places of commerce where deprivation in one part of the globe is turned into the wealth of another.

And like most recent efforts to hold the coffee industry accountable for the plight of the farmers, the film can’t resist featuring Starbucks as a predatory Goliath. In a scene praised by Washington Post film reviewer Ann Hornaday, the camera pays a call on the original Starbucks store at Seattle’s Pike Place Market, where two ever-so-bubbly baristas welcome the crew. Hornaday comments, “During the film’s most painful sequence, his [Tadesse’s] efforts and Ethiopia’s persistent, crushing famine are juxtaposed with the vapidly cheerful corp-speak of two Starbucks baristas.”

Yes, the baristas are excessively perky as they purvey coffee and the Starbucks experience; yet they are also model employees, supportive of each other, efficient, and proud of their company. At the time of the filming, the young women were entertaining a tour from the Specialty Coffee Association, to which the filmmakers had attached themselves to avoid asking Starbucks or its employees for permission to film. How could these young women know that they would be featured as unwitting symbols of the harm that transnational coffee giants inflict on poor Ethiopian farmers? At the progressive screening I attended, they were also the objects of disparaging audience laughter. Great, I thought. Because these Brit filmmakers couldn’t, or wouldn’t, interview Howard Schultz, they’re making two low-wage workers the target of their comparison.

Nick assured me this wasn’t his intention: “People are laughing at what they’re saying, like ‘Starbucks touches people’s lives all over the world,’ not at who’s saying it. The intention is not to mistreat them but to illuminate the issues, because they are the foot soldiers.” He said that the filmmakers had spent six months trying to interview someone from Starbucks for the film, to no avail. Former director of media relations Audrey Lincoff recalled meeting the filmmakers after a conference presentation and told me they had once asked to interview Schultz on very short notice, which he was unable to accommodate. The filmmakers claim that subsequent calls went unanswered. The final frames of the film say that the big-four coffee transnationals and Starbucks refused to comment.

When I noted that Starbucks, which buys just a small percentage of Ethiopian coffee, had been made the villain of the piece rather than Nestlé, Proctor & Gamble, Kraft, and Sara Lee, which buy exponentially more coffee, Nick suggested that my cultural bias was influencing my viewpoint. “The film isn’t about Starbucks,” he insisted. “They’re a very tiny part. It’s just that in the U.S. people look for Starbucks; it’s the cultural reference point that gets illuminated. It’s very much a lifestyle, and people may see it as a critique of their own lifestyle choice.” Nevertheless, the film sent a far sharper message about Starbucks than it did about the companies more accountable for Ethiopia’s plight. And with the conflict about trademarks mushrooming, Black Gold itself had struck gold: the filmmakers had received the perfect media hook for their film, and they lost no time in making it part of their publicity campaign.

Growing Criticism

Starbucks’ response to the film was curiously flat-footed. At the beginning of June 2006, the company held an African Coffee Celebration, touting the continent’s gourmet coffees and implicitly Starbucks’ good works. Although the producers of Black Gold suggest this was purely an effort to counter the bad publicity generated by their film, the event had actually been planned many months earlier, and Tadesse Meskela had been invited to participate. As it turns out, Tadesse did speak at the Starbucks event, praising the company’s prices and projects in Ethiopia. Then he attended the Seattle screening of Black Gold , where he condemned the company’s perfidy. Meanwhile, although the Starbucks staff had seen the film, no one seems to have approached Tadesse to acknowledge or discuss his concerns or explore ways to blunt the mounting crisis.

There were other missed opportunities. Not only had the coffee purchasing department been working with Tadesse and his cooperative for a number of years, but Seth Petchers of Oxfam and Starbucks vice president Sue Mecklenburg had developed a working relationship during prior collaborations. Both Petchers and Mecklenburg sidestepped questions on these matters, but sources suggest that Mecklenburg had advocated a course of engagement different from the one the company actually followed and that she met internal opposition from hardliners. As a result, chances to engage the parties went begging, apparently overcome by distrust and organizational tensions about how to respond.

Faced with growing criticism and the threat of a public confrontation, Starbucks decided to back off. When the trademark for Shirkina Sun-Dried Sidamo was approved on June 25, 2006, the company walked away from the application. “We dropped it,” Dub Hay told me. “All we had wanted was to protect this coffee, the shirkina sun-dried process that we had worked on.” He was aggrieved and angry. “Hurting farmers was the farthest thing from what we were trying to do. Our purchases in Ethiopia over the last four years are up 400 percent, our prices are up 40 percent. We’re buying more Ethiopian coffee than we’ve ever bought before and paying premiums no one else has paid. So here we are, thinking we’re doing absolutely the right thing helping the farmers and the co-ops, and someone’s thinking that we’re hurting them. It wasn’t worth it. We gave it up.”

But despite Starbucks’ withdrawal, criticism continued. To make matters worse, Ethiopia’s advocates again accused the company of pressuring the National Coffee Association to oppose the trademark filings in its stead. Starbucks and the NCA both vigorously denied this assertion, but none of the advocating groups believed them. “From my own experience of Starbucks in 2005 and nearly all of 2006,” wrote Ambassador Ayele, “ . . . 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 trademark program.”

When I saw Dub Hay in mid-October 2006, he was still convinced that trademarking was a poor strategy. “Oxfam wants us to sign, and they won’t listen to why we don’t think it’s a good idea,” he lamented. At the end of that month, the story broke in the foreign press, with Oxfam in particularly strident form. “Starbucks’ behavior is indefensible,” Petchers inveighed to a reporter. “Starbucks works to protect and promote its own name and brand vigorously throughout the world, so how can it justify denying Ethiopia the right to do the same?” Another Oxfam spokesperson told the BBC that the company’s behavior “stinks of corporate bullying.”

To stave off the escalating controversy, Starbucks again offered to help Ethiopia develop and implement a geographic coffee certification, but the offer did nothing to diffuse the conflict. Oxfam New Zealand staffer Linda Broom told a reporter, “We’ve been lobbying from behind the scenes, but Starbucks has turned a blind eye, so now we’re hoping for a public backlash.”

By November, the Ethiopian government, Oxfam, and Light Years effectively mounted a coordinated effort to compel Starbucks to sign the licensing agreement. Over a period of a few months, more than 90,000 activists and consumers contacted the company to demand a change in its position. On December 16, 2006, Oxfam coordinated a day of action in the United States and abroad. Activists leafleted stores, picketed with posters picturing Ethiopian farmers, and enlisted the support of local Ethiopian communities. On a YouTube video, newly educated customers urged Starbucks to pay Ethiopian farmers more for their coffee and recognize the trademarks.

Dub Hay responded for the company with a YouTube offering of his own, sincere and low-key but wrongly impugning the legality of the trademark strategy. And according to reports, former Starbucks CEO Jim Donald, meeting with Ethiopia’s prime minister, Meles Zenawi, didn’t seem to know the difference between a trademark and a certification. “I can’t talk about the details because I don’t understand them,” he told a London Times reporter. “I’m not a trademark lawyer.”

Honest Mistake?

Its more aggressive opponents remain convinced that Starbucks, like all corporations, is incapable of making an honest mistake. All errors are attributed to bad faith; the company’s motives are berated, its missteps celebrated, and all its actions viewed through a prism of cynicism. The supercynical argue that the accuracy or inaccuracy of the particulars doesn’t really matter because the company is surely bad enough to deserve the negative blast. Hence, Reverend Billy of the Church of No Shopping had no problem with saying, “You’re stealing trademarks from Ethiopian coffee farmers. Starbucks is the devil.”

But some progressives take a more nuanced approach. The National Labor Committee, run by Barbara Briggs and Charlie Kernaghan, was established to help protect worker and human rights in the global economy. Since 1991, the committee has focused U.S. consumers’ attention on offshore clothing sweatshops, most notably exposing the Honduran sweatshops that sewed the Kathie Lee Gifford line for Wal-Mart. Briggs and Kernaghan are masters at holding corporations accountable, often through the canny use of publicity to magnify their organizing. Over the years, they’ve developed a sophisticated view of corporations and tactics.

Briggs acknowledges that, in choosing a public target, “the calculus includes how well-known the brand is, and how much the brand will want to protect its image. It’s not so much how good or bad the company is on a theoretical level, but what we actually see on the ground.” She suggests that the difference in how to proceed depends a lot on what happens once a human or workers’ rights issue has been flagged. “We’ve found that even the best companies have some pretty lousy places,” she told me. “The difference is, the good companies called us and told us what they were doing to correct the problem. We didn’t hear that from Wal-Mart.”

A key criterion for a confrontation and the way in which it is waged is whether it benefits the people in whose name the effort has been undertaken. Not all struggles for greater justice can be won, certainly not in the short term, but it helps to have a meaningful and achievable outcome in mind. For some radical campaigners, like the IWW, the publicity sometimes seems more important than the outcome. Ethiopia, on the other hand, needed real solutions and an agreement. “Starbucks is a valuable partner,” Getachew Megistie of Ethiopia’s Intellectual Property Office told me. “We just want to make the relationship more meaningful. Both they and we want to stop the loss of farmers and small traders. And we want to resolve our differences amicably.”

It looks like Getachew will get his wish. At the fourth African Fine Coffee Conference in Addis Ababa in February 2007, Dub Hay announced that Starbucks would not oppose Ethiopia’s trademarking initiative: “It is Ethiopia’s absolute right to take the course they think is best for Ethiopia and we will not oppose that.” He sweetened the Starbucks response with commitments to double the amount of coffee the company buys from Africa, jumping from 6 to 12 percent of its total by 2009. He also promised a 1-million-dollar revolving microloan fund for Ethiopia and 500,000 dollars to CARE International for a literacy program in the country. And the company committed to opening a farmer support center in East Africa.

“We made a mistake,” Jim Donald told me, echoing, or maybe leading, others in the company to the well. “We treated it as though it was a legal issue. But it wasn’t. It was a relationship issue.” Bingo. Starbucks took a bit too long to reach this conclusion, but it finally did. Although company experts still seemed to think the licensing idea was misguided, they had decided to suspend judgment and help Ethiopia’s experiment move forward.

When I did my last interviews at Starbucks on April 3, 2007, Howard Schultz and Jim Donald were meeting with representatives of the Ethiopian government. A month later Starbucks agreed to negotiate a licensing agreement, and the deal was inked in late June. As has so often been the case, the conflict drew massive attention. By comparison, the resolution received little notice.

Given the trademarking scheme’s experimental nature, there is no way to know if the strategy will be successful. The greatest boon to farmers might be Starbucks’ commitment to buy more coffee, make more loans, and offer greater technical expertise. But at least the campaign had moved Africa’s plight to the head of queue.

For a company that likes to portray itself as artfully balancing the demands of profit and principle, the Ethiopian crisis was a hard test. Starbucks didn’t do a very good job of handling it, but the company survived and learned something more about its role in the world, although what and how much would have to await the next crisis. “When you sign a copy of the book for me, I’ll tell you whether I think the resistance was worth all the aggravation,” one Starbucks player ruefully told me. I thought I knew the answer.

But Getachew was thrilled with the outcome, and hopeful. “Once we were actually able to talk with them, we were able to start resolving the problems,” he told me. “It’s like me sitting here with you. We haven’t met before, but we get to know each other. And next time we know each other a little better, and we grow to understand each other.”

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The price differential, says Getachew Mengistie, head of Ethiopia's Intellectual Property Office, is evidence that his country has been unable to capitalize on what he calls its intellectual property. The Fero coffee is an extreme example, but it's not the only one. Ethiopia's specialty beans routinely retail abroad for three times the price of ordinary coffee.

Getachew, who like most Ethiopians goes by his given name, argues that if the higher rates were simply the product of investments in roasting, packaging or marketing, distributors could do the same with any coffee. Since they don't, he says, some of the extra value must originate where the beans are grown. "There is clearly an intangible value in the specialty coffee of Ethiopia," he says. "But it's not being captured here."

That observation put the country that is the birthplace of the coffee bean on a collision course with the company that gave the world the $4 latte. The conflict began in March 2005, when Ethiopia filed with the U.S. Patent and Trademark Office to trademark the names of three coffee-producing regions: Yirgacheffe, Harrar and Sidamo, where Fero is located.

It was an attempt to use tools usually reserved for corporations in developed economies to wrest profit from their distributors. By seizing control of these brands, the Ethiopian government planned to force those who sell its coffee into licensing agreements, eventually obtaining a larger share of the sales.

But in the case of Sidamo, Starbucks ( Charts ) had got there first, with an application the year before to trademark Shirkina Sun-Dried Sidamo. Until that application was resolved, Ethiopia's claim could not go forward. The country asked Starbucks to drop its claim but received no answer for more than a year, says Kassahun Ayele, Ethiopia's ambassador to the U.S. at the time: "They said, 'You have to talk to our lawyers.'"

The coffee company's objection was to Ethiopia's choice of intellectual-property protection. Trademarking is an unusual, though not unprecedented, choice for a geographic region. It gives the holder the exclusive right to use the name in branding, but it doesn't place any requirements on the product. Instead, Starbucks argues, Ethiopia would be better served by another form of protection, called geographic certification, used for such products as Idaho potatoes, Roquefort cheese and Florida oranges. It guarantees that the product comes from the stated region but allows others to use the name in their branding. Jamaican Blue Mountain and Kona coffees have geographic certifications. "I can't name one case where there are trademarks for coffee," says Dub Hay, senior vice president for coffee and global procurement at Starbucks.

Ethiopia doesn't deny that its choice is unorthodox, countering that its industry, in which 95 percent of the coffee is produced by two million subsistence-level farmers, is too unwieldy and impoverished to take on the administrative burden required to guarantee geographic origin. "If you set up certification, you have to bear the cost," says Ron Layton, head of Light Years IP, a nonprofit intellectual-property consultancy that has been advising Ethiopia.

More to the point, certification wouldn't require distributors to seek permission to use the names in their branding. Starbucks, for instance, could still sell Shirkina Sun-Dried Sidamo, as long as its beans came from the region. "It doesn't give you that control over the market," says Getachew.

To blunt some of the opposition, Ethiopia has said it will not ask for royalties for its trademarked beans. The initial licensing requirements would be simply to label the beans prominently on the package and help in the promotion of Ethiopian coffee. "When demand for Ethiopian coffee grows, we will be able to ask for higher prices," says Getachew. Only if that strategy fails, he says, would other options, such as minimum prices, be pursued.

For Starbucks, the scenario is a potential public relations disaster, pitting the coffee company, which had record revenue of $7.8 billion last year, up 22 percent over 2005, against one of the world's poorest countries. The Seattle company has no shops in Ethiopia or indeed in sub-Saharan Africa, but Starbucks does source 2 percent of its beans from Ethiopia, accounting for 2 percent of the country's crop. It has also spent $2.4 million in investments and loans in Ethiopia since 2002. "We need these coffee farmers to be in business," says Hay.

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4 Starbucks—The ‘Coffee House’ Experts: A Case Study in Cultural and Strategic Alignment

• Published: June 2022
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Because of rapid globalization over recent years, the competition around the world becomes, more intense, especially for the service industry with similar products. The most critical point for business to succeed is not only the quality of products they supply, but the atmosphere of cooperating and the amount that teamwork yields in retail sales. The employees who always touch with customers and can realize what customers really need are first-line staff. Therefore, it is essential for companies to motivate, reward, and train their employees to be the best quality personnel. Starbucks Corporation, the most famous chain of retail coffee shops in the world, mainly benefits from roasting, selling special coffee beans and various kinds of coffee or tea drinks. It owns about 4000 branches in the whole world. Moreover, it has been one of the most rapid growing corporations in America as well. The reasons why Starbucks is popular worldwide are not only the quality of coffee, but also its customer service and cosy environment. Starbucks establishes comfortable surroundings for people to socialize with a fair price, which attracts all age ranges of consumers to get into the stores. Besides, it is also noted for its satisfaction of employees. The turnover rate of employees at Starbucks was 65% and the turnover rate of managers was 25% a year. However, the rates of other national chain retailers are 150% to 400% and 50% respectively. Compared with them, the turnover rate of Starbucks is much lower than other industries on an average. As a result, Starbucks would be one of the optimal business models for understanding the strategies of employee motivation, customer satisfaction, and cooperation of teamwork.

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Case Studies in Ethics: Teaching Notes dukeethics.org

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Teaching Notes

Institutions in Crisis

Ln March 2005, Ethiopia filed with the U.S. Patent and Trademark Of-fice to trademark the names of Yirgacheffe, Harrar and Sidamo, three coffee producing regions within the country. In doing so, the Ethiopian government hoped to force coffee buyers into potentially lucrative licensing agreements. However, Starbucks had already applied a year earlier to trademark Shirkina Sun-Dried Sidamo. Until a decision was made on Starbucks’ application, Ethiopia’s claim could not be processed. Ethiopia requested that Starbucks drop its claim, but Starbucks was reluctant to do so, and suggested that Ethiopia apply for a different type of certification. This led to public criticism of Starbucks and ques-tions regarding its supposed dedication to selling ethically grown and traded coffee.

This case highlights the complexity surrounding global certification programs, the difficulty inherent in balancing corporate and shareholder interests with respon-sible corporate citizenship, and the challenge to preserving economic value for the producers of consumer goods grown in developing nations.

The case text and teaching notes for this case were completed under the direction of Dr. Rebecca Dunning, the Kenan Institute for Ethics.

Donald DePass

Starbucks vs. EthiopiaCorporate Strategy and Ethical Sourcing in the Coffee Industry

Case Studies in Ethics: Teaching Notes dukeethics.org2

Target AudienceCourses in:

• Organizational Studies• Organizational Ethics• International Comparative Studies• Sociology• Public Policy• International Law

Learning Objectives

1. Consider the complexities involved with being a responsible corporate citizen, while remaining accountable to shareholder interest.

2. Gain a better understanding of the role played by global certification programs in today’s marketplace.3. Explore how ethical standards are enforced and how governance is structured in the agro-food industry.4. Assess the ability of large, transnational corporations to dictate state policies abroad.5. Compare the benefits associated with licensing, trademark, and certification for producers, buyers and host

governments.

Questions for Class Discussion

1. Topic: General Case Overview

Question: What ethical issues are at play in the case study?

Potential Answers: Starbucks was faced with a crisis in its efforts to be a responsible corporate citizen, balancing the welfare of its farmers with the interests of its shareholders. The situation also highlights a conflict of interests for a Starbucks vice president who simultaneously served as chairman of the National Coffee Association. Another potential issue points to the motives of the Ethiopian government. Some have charged that the government was not looking out for the interests of its farmers as it proclaimed, but rather, was simply looking to benefit from the situation and generate some money for itself. A trademark deal would give the government complete control, and could give it the ability to prevent certain farmers from using the trademark.1

2. Topic: Sovereign Institutions and Accountability

“Accountability” refers to the obligation to explain, justify, and answer questions about how resources have been used and to what effect. “Sovereign Institutions” are nonterritorial entities whose authority transcends national boundaries, giving them some ability to neglect or enforce state policies. For example, the Fédération Internationale de Football As-sociation’s (FIFA) “position as the ultimate governing body over the world’s most popular sport allows it to get

1 Ford, Holly M., and Bryce J. Maynard. 2007. “Starbucks and Ethiopia Settle “Brewing” Dispute.” The Licensing Journal 27(8): 29-30. Page 30.

Case Studies in Ethics: Teaching Notes dukeethics.org3

involved effectively in the political affairs of sovereign states.”2 This power was on display in the 2010 FIFA World Cup, when FIFA was able to dictate South African security policy for several weeks, during the games.3

Question: Given the above definition, is Starbucks an example of a sovereign institution? To whom is the company accountable?

Potential Answers:

Starbucks is a sovereign institution because it does exert power across national boundaries. It dictates the terms of negotiations over every supplier along its supply chain, whether domestic or overseas. As evidenced in the Ethiopia case, Starbucks has the ability to influence economic policies of other countries.

No, while Starbucks has international influence, it does not really have the power to dictate state policies. In the case, Starbucks only inadvertently interfered with Ethiopia’s bid to trademark and needed to go through the U.S. Patenting Office in order to do so. Furthermore, it was the National Coffee Association that represented the big-gest obstacle to Ethiopia’s efforts.

Starbucks is accountable to its shareholders, as well as to the certification programs, such as the FLO, to which it is a part. In addition, it is accountable to its farmers, who it has vowed fair engagement. Finally, Starbucks is accountable to its customers, who have come to expect the company to adhere to a certain degree of ethical standards. As illustrated in this case, accountability to varying interests can create a sense of conflict within the organization.

Question: Heated debate surrounds the position of transnational corporations (TNCs) and their opera-tions within developing countries. Is it necessarily problematic that TNCs take advantage of the re-sources available in the third world? Is it possible that the positive externalities that these firms create outweigh the negative? What role does Starbucks play in this conversation?

Yes, it is necessarily problematic. Because these firms have so much power, they are able to exploit the condi-tions in other countries and to abuse their positions of authority. Gross negligence including the existence of sweatshops, child labor and other human rights abuses have been connected with the activities of these compa-nies. Furthermore, TNCs often set up factories in host countries but the capital resources remain at firm head-quarters, in the home country. No technology transfer takes place and most workers fail to gain any meaningful skill or knowledge during their occupation. This becomes particularly problematic when TNCs decide to leave a host nation and the country is left just as impoverished and vulnerable as before.4 As this case study suggests, even companies who are praised for their ethical practices take advantage of the desperate economic situations in other parts of the world.

No, it is not necessarily a problem. While there have been disturbing instances of company abuse, the presence of transnational firms has undoubtedly also brought some tangible benefits to host economies. Multinational corporations create jobs, many of which offer higher pay and benefits than those available from local firms in host countries. Much of the reason that third world workers become victimized can be attributed to poverty,

2 Brauer, Jurgen and Robert Haywood. 2010. Non-state Sovereign Entrepreneurs and Non-territorial Sovereign Organizations. UNU-Wider. Working Paper No. 2010/09. Page 12. Accessed December 6, 2010 at http://www.wider.unu.edu/publications/working-papers/2010/en_GB/wp2010-09/_files/82967192285675604/default/2010-09.pdf.3 For further reading, Big Business, Poor Peoples: How Transnational Corporations Damage the World’s Poor, by John Madeley, offers a unique perspective on the influence of transnational corporations on the policies of governments, and the consequences that this has on workers in the developing world.4 Ibid.

Case Studies in Ethics: Teaching Notes dukeethics.org4

and the ready supply of jobs with good wages offered by transnational companies helps to alleviate this vic-timization. In recent years, TNCs have gone beyond conforming to local labor and environmental regulations and have instituted corporate codes of conduct, corporate social responsibility programs and partnerships with NGO’s. All of these steps work to ensure greater worker protection. In the case of Starbucks, the company’s efforts have educated farmers on best practices and have generated other benefits, including providing electric-ity to small villages

3. Conflict of Interest

Question: Dub Hay, Starbucks’ vice president for coffee and global procurement also served as the chair-man of the National Coffee Association’s government relations committee. Is this a problem? If so, what is at risk by failing to address this conflict of interest? What, if anything, should be done to address the issue?

No, there is no conflict of interest. Thee NCA does not claim to be non-partisan and represents the interests of the U.S. Coffee industry. Since Starbucks is one of the largest and most important players in the industry, and has employees/corporate leaders that are experts on issues related to coffee production and sale, it is reasonable and beneficial for the industry that it has a voice within the organization.

Yes, although Hay may have not influenced the NCA’s decision, as both he and the NCA claimed, there is a clear conflict of interest that should have been confronted. A person in Hay’s position has the power to mobilize the NCA on behalf of his own company. As may have happened with Starbucks, this could lead to a situation in which the NCA interferes with the national economic policies of an entire nation on behalf of one single member. A potential solution would be to bar employees of coffee corporations from attaining NCA officer po-sitions. This could help to ensure that the NCA is acting on behalf of the U.S. coffee industry as a whole, rather than one firm.

4. Topic: Merits of Competing Intellectual Property Tools

Question: In the case, Starbucks firmly maintained that the interests of the EIPO and Ethiopian farmers would be best served by pursuing geographical certification marks, a common approach used for agri-cultural products originating from a specific region. For a variety of reasons, the Ethiopian government asserted its disagreement and instead elected to pursue trademarks, which are typically reserved for cor-porations. Did Starbucks have the right to tell the Ethiopian government what tactic it should pursue? How, if at all, is this complicated by the fact that the EIPO’s strategy directly interfered with Starbuck’s plans?

Possible Answers:

Yes, Starbucks had the right. Granted, Starbucks is just a firm and is based out of the United States. But it was trying to work with the EIPO for what it considered the best possible outcome for the Ethiopian farmers. Advo-cacy for the geographical certification falls in line with Starbucks’ goals of selling and profiting off the best cof-fee, while also working to improve the lives of the people that cultivate its coffee beans. There may have been a conflict of interest because both Starbucks and Ethiopia were applying for the same certification within

Case Studies in Ethics: Teaching Notes dukeethics.org5

the United States; however, this does not necessarily imply that Starbucks’ best intentions were compromised. Even if they had been, Starbucks has done plenty to help assist Ethiopian farmers and geographic certification would have likely helped in some respect. After all, it has been used successfully in a number of other regions.

No, firms like Starbucks should not have the ability to dictate or influence the economic or development poli-cies of other governments. No matter its intentions, Starbucks should have accepted Ethiopia’s decision. If it were truly acting in the interest of Ethiopian farmers, Starbucks would have acknowledged the value created by trademarks and conceded that a trademark scheme could help retain value within Ethiopia. In addition, there was a clear conflict of interest, since both the EIPO and Starbucks filed to trademark the same name. It is highly unlikely that Starbucks could offer an unbiased opinion on Ethiopia’s actions, since the EIPO impinged on Starbucks’ corporate strategy.

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