News & Views
In Iran, Coke Bottles Contain Something Else
By DANIEL PEARL and NIKHIL DEOGUN
The Wall Street Journal
July 10, 1998
TEHRAN, Iran -- In a soda factory here, a circular machine injects a familiar brown liquid into familiar old Coke bottles. The bottles go into red "Coca-Cola" crates. Upstairs, the factory's marketing manager sits at a desk etched with a huge "Coca-Cola" logo and declares:
"We have nothing to do with Coca-Cola."
In 1995, when President Clinton prohibited U.S. companies from doing business with Iran, Noushab Manufacturing Co. suddenly became a Coke-free Coke bottler. It no longer gets concentrate from Coca-Cola, using local sources instead.
Now, Coca-Cola wants an Iranian judge to stop Noushab from using Coke bottles. And Noushab is suing Coke for cutting off shipments of concentrate and stopping its investment in the Noushab plant. Noushab wants as much as $72 million.
"Basically, Noushab is suing us for following U.S.-government-imposed sanctions," says Randal Donaldson, a Coca-Cola vice president.
That might sound strange in Atlanta, but this is Tehran, and a commercial court is taking the suit seriously. It recently assigned three experts to study contract documents and assess possible damages. The sanctions are "not my client's fault," argues Noushab's lawyer, Akbar Hendizadeh. He concedes his client would have trouble collecting any damages from Coke, but says a judgment would spell trouble for Coke should it ever enter Iran again.
"We know some other U.S. companies provide materials and spare parts" to Iran, says Mr. Hendizadeh. "This Coca-Cola is the only one that said they cannot."
Iran certainly is full of U.S. products. McGraw Hill Cos. had one of the biggest booths at the Tehran International Book Fair in May. Nearby, Microsoft Corp. software lined a wall of the Information Technology Fair. Black & Decker Corp. kitchen appliances take an entire row of Tehran's Shahrevand department store; the warranty cards have Farsi lettering, and list an address "In the GM Building" in Tehran.
Ways Around Sanctions
Some companies, including McGraw Hill, enjoy an exemption for information products. Also, foreign subsidiaries sometimes can sell legally in Iran: Black & Decker says its Dubai subsidiary handles Iran. In other cases, Iranian merchants say they order American goods from retailers in Dubai. Microsoft says any of its products displayed in Tehran more likely come from software pirates in Bulgaria.
In March, a Pepsi bottler in Dubai told reporters it was "invading new markets such as Iran... ." But PepsiCo says the bottler was referring to its non-Pepsi products, like mineral water. A Pepsi bottler in Iran recently started producing plastic bottles of "Pepsi" with a small disclaimer on the label that the ingredients are actually Iranian. "If someone is locally producing what they're calling Pepsi, it's an infringement of our trademark, and we're going to look into it," said Brad Shaw, a spokesman for PepsiCo, in Purchase, N.Y.
Coke says it asked U.S. officials if it could supply Iran from third countries, and was told no. But Noushab lawyers say Coke did supply a bottler in eastern Iran that way. In court, Noushab produced a letter purportedly from Coca-Cola Atlantic in Ireland to the bottler, called Khoshgovar, saying Coke will increase "the number of units sold to you." It has the stamp of Iran's Ministry of Industry, which approves importers' requests for hard currency, and is dated September 22, 1995 -- four months after sanctions took effect. How did Noushab get the letter? "It's Tehran, you can get anything," says Hamid Sabi, a Noushab lawyer.
Coke categorically denies shipping concentrate to Khoshgovar after the sanctions took effect, and says the letter is bogus. In any case, both sides agree that Coke stopped supplying Noushab when the sanctions took effect. Noushab turned to Fariborz Sarmad, a food technician and Coca-Cola admirer who has been trying to replicate Coke's taste since the last U.S. embargo, in 1980. Back then, Dr. Sarmad, whose Tehran office is decorated with Coke bottles, brewed caramel in an open kettle in his backyard and combed books for supposed ingredients of Coca-Cola.
His early batches of concentrate were so bad soft-drink plants turned them down. Now, says Dr. Sarmad, "We buy from the very sources Pepsi-Cola and Coca-Cola use: citrus oils, orange and lemon." A quick test of his handiwork: Twelve men, including construction workers and actors, were given glasses filled with Noushab, real Coca-Cola smuggled in from Russia and the United Kingdom, and Iran's Coulack Cola (slogan: "Drink Coulack"), which also buys concentrate from Dr. Sarmad. Only four picked out The Real Thing.
Still, "non-genuine product" in genuine bottles damages Coke's "image and goodwill," says Gregory Kearney, a Coca-Cola Co. lawyer in Windsor, England. Mr. Sabi says another Coke official was more blunt, telling him, "I will not allow our bottles to go around with junk cola." Coke demanded that Noushab retire the Coca-Cola bottles. But Noushab, which is financed by a Saudi sheik and Iranian investors, said it would cost $3.5 million to replace them.
And so, to court. Tehran's Public Court granted an injunction allowing Noushab to keep its bottles; Coke has appealed. Meanwhile, Noushab sued Coke, blaming it for the fact that Noushab still has only one production line, even as Tehran faces summertime soda shortages. (Iranians don't take cola breaks, but they are increasingly using soda instead of yogurt to wash down their meat-heavy meals.)
Coke and a Smile
Tehran's courts have some sympathy for the American company. The judge in the bottle case ordered Noushab to remove the Coke label from trucks and bottle caps, and to place ads telling consumers that its "Coke" bottles don't really contain Coke. Noushab, which no longer has a bottling contract with Coke, repainted its red delivery trucks with big smiley faces. "With time, we'll probably replace the bottles. We're working on a design," says marketing director Sassan Jahan.
For now, Noushab retrieves, washes and reuses as many of its bottles as it can. In Mohsen Lotfi's Tehran grocery store, some of the "Coca-Cola" bottles look a bit worse for wear. One has a fingernail-size chip in the glass. Mr. Lotfi will sell Parsi Cola or Zam Zam cola to take away, but he insists the contents of any "Coca-Cola" bottle be consumed on premises. If a single bottle breaks or is missing, he explains, Noushab cuts his allotment.
Mr. Lotfi, whose shop still has a red Coca-Cola awning, thinks Noushab's strict policy may have something to do with the Coke name. That baffles him. "If you make a good cola, you can call it what you like," he says. "I personally prefer Zam Zam."