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Wall Street Journal
November 2, 2001
Russian Government Takes Back Rights To Stolichnaya Vodka After Legal Fight


MOSCOW -- The Russian government has nationalized one of the country's most famous trademarks, Stolichnaya vodka, in a move which its previous owner says makes a mockery of Vladimir Putin's promise to shore up property rights in Russia.

A government spokesman, Sergei Kuznetsov, confirmed Thursday that the rights to Stolichnaya and Moskovskaya vodka, and 41 other trademarks previously owned by a private company, ZAO Soyuzplodimport, were transferred to the Agriculture Ministry late last month by Rospatent, the Russian agency for patents and trademarks. The spokesman didn't have any further comment on the situation.

Andrei Skurikhin, chief executive of Soyuzplodimport, said he had appealed the decision in the Moscow court of arbitration. "The government said there would be no nationalization, that all investments would be protected," he said in an interview. "This shows that all their slogans don't mean a thing."

The move could prove a headache for British drinks group Allied Domecq PLC, which last year secured 10-year distribution rights to Stolichnaya previously owned by Diageo PLC. One of Russia's few instantly recognizable and universally trusted brands, Stolichnaya is the second-best-selling imported premium vodka in the U.S.

But Allied Domecq denied its contract was now under threat. "We'll continue to market the brand quite happily under the agreement we have," said Jane Mussared, a company spokesperson in the U.K. "It's not an issue."

The Stolichnaya situation has its roots in Russia's helter-skelter privatizations of the early 1990s, when state assets -- including some of its best-known brand names -- were sold off at a fraction of their real value. Before coming to power last year, Mr. Putin promised he would not seek to renationalize any property, however questionable the circumstances of its privatization.

The denouement of the trademark dispute came as the president wooed foreign businessmen and economists at a Moscow meeting of the World Economic Forum, telling them he was committed to modernizing Russia's economy and improving its investment climate.

The state has long been looking to Stolichnaya and other brands owned by Soyuzplodimport. Last November, the Russian audit chamber, a parliamentary watchdog, concluded after an investigation that the company had acquired ownership of the brands illegally.

The dispute stretches back to 1992 and the privatization of state-owned liquor-trading company Soyuzplodimport. The company was reformed into a joint-stock company which in 1997 sold the Stolichnaya brand and 42 others to Mr. Skurikhin's firm for 1.7 million rubles -- about $300,000, or 333,277 euros, the then-exchange rate. But Russia's Supreme Arbitration Court, acting at the behest of the Prosecutor General, ruled last month that Soyuzplodoimport's reorganization was illegal. On the basis of that ruling, Rospatent concluded that the new company formed on the basis of Soyuzplodoimport was not its legal successor and had no right to sell the trademarks.

Mr. Skurikhin said if his appeal fails, Soyuzplodimport can continue to supply the U.S. market with vodka produced at a distillery it recently acquired in the Latvian capital, Riga. He denied the government's action would have any effect on the contract with Allied Domecq and other distributors.

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