March 8 (Bloomberg) -- Britain's biggest importer of Cuban cigars may be facing cheaper competition after losing a legal battle over the luxury good's trademarks.

Hunters & Frankau Ltd., which holds an exclusive distribution agreement with Cuba's Corporacion Habanos in the U.K., brought the lawsuit to prevent another firm from importing a shipment of handmade ``habanos'' cigars through a London airport in 2004.

The Court of Appeal today rejected Hunters & Frankau's case, saying the consignment didn't infringe the company's trademarks. While Corporacion Habanos has set up exclusive distributors outside Cuba, it has also allowed individuals to buy small quantities for resale abroad, the appeals court said.

The decision, which overturns a lower court ruling in the case last March, may weaken Corporacion Habanos's control of the Cuban cigar market in Europe. Lawyers representing Hunters & Frankau said they were ``surprised'' by the appeal court's decision and would continue to take action against any company that imports cigars into Europe for resale.

The dispute centers on the practice of ``parallel importing,'' where goods are purchased at a cheaper price outside the European Union and then sold into the 27-nation bloc.

Resale

The Court of Appeal today ruled that Corporacion Habanos's network of outlets around the world, known as ``casas,'' have historically been allowed to sell small commercial quantities to foreigners for resale in their own countries. The company has thereby consented to the use of its trademark in Europe beyond its exclusive distribution agreements, the appeals court said.

Corporacion Habanos, which is half-owned by Altadis SA, Europe's fourth-biggest publicly traded cigarette maker, has changed the way it sells cigars since the lawsuit was filed. Consumers who purchase genuine cigars in Cuba are now given an invoice marked ``not for resale,'' which will limit the effect of today's judgment, Hunter & Frankau's lawyers said.

``This additional wording in particular makes it now even clearer that Habanos SA does not consent to the parallel importation of its cigars into the EU,'' London-based Mishcon de Reya said in a statement. ``Buyers of fine cigars should be aware that the authenticity of Habanos cigars can only be guaranteed if they are purchased through the authorized channels.''