| Policy Papers
5/7/02
Special Report for Trade LAs: Can Russia Be a Reliable
Trading Partner?
Recent Soviet-Style Actions Undermine Request for Free Market Trade
Status
SUMMARY
After a decade of privatization efforts and free-market reforms,
rogue bureaucrats in the Russian government are undermining critical
reforms. Recently, the Russian government ordered Soviet-style nationalization
of the vodka industry. Such heavy-handed tactics raise questions
as to the Russian government’s ability to be a reliable trading
partner.
The Bush Administration must soon decide whether Russia qualifies
for "market economy status," a designation that will lead
to entry into the World Trade Organization (WTO). The White House
and the Congress should not ignore Russian tactics that undermine
the free market, destroys patent and trademark protection, and tramples
intellectual property rights.
ISSUE
Crime and Punishment is a Russian story of a criminal who wishes
by his action to set himself outside and above society. The ongoing
dispute between SPI International NV (SPI) and Russia over the rights
to Stolichnaya vodka has all of the harrowing action of Dostoevsky's
novel, but none of his trademark moments of humor. By ignoring SPI’s
intellectual property rights and trampling its own court dictates,
Russia, like the young Raskolnikov, threatens to set itself outside
and above the international society.
By way of background, following the 1991 fall of the Soviet Union,
SPI and its predecessor entities became the legal owner of Stolichnaya,
one of the most popular brands of vodka in the world. In 1992, the
Ministry of Foreign Economic Relations of the Russian Federation
stated that SPI "is a legal entity in the Russian Federation
and the successor of its Soviet predecessor VVO ‘Sojuzplodoimport’.
SPI has the right to export Russian vodka to the USA under the following
trademarks: Stolichnaya, Stolichnaya Christall, Pertsovka, Limonnaya,
Prievet, Prievet Orange (Apelsinovaya), Russian, Okhotnichya."
While seemingly clear (as vodka), Russia recently has SPI and international
observers seeing double. Last October, the Russian state trademark
agency Rospatent turned over SPI’s vodka trademarks to the
Agriculture Ministry. Then, on February 6, 2002, a Russian arbitration
court ruled that the transaction by which SPI originally bought
the trademarks was void.
On March 4, 2002, the Leninsk-Kuznetskiy City Court seemingly resolved
the dispute by ruling that the Ministry of Agriculture had illegally
registered 17 trademarks belonging to SPI, including the Stolichnaya
trademark, and ordered that SPI be reinstated as the registered
trademark owner. The court ordered Rospatent to reregister SPI as
the legal trademark owner. Additionally, the same court's ruling:
- Forbade the Ministry from acting as the legal owner
of the 17 trademarks and from taking any action prohibiting SPI
from exercising its rights as the true legal owner;
- Forbade the Customs Office from denying clearance
to SPI's shipments for export, and;
- Recognized the Contract of Sale of Stolichnaya
and a number of other trademarks to ZAO Sojuzplodimport (SPI)
to be in full force and effect.
Shockingly, the Russian Government ignored the Leninsk-Kuznetskiy
City Court’s ruling and employed intimidation and police-state
tactics to grab the company's assets and trademark rights for its
own purposes. Some examples of these tactics include:
- The Government's Federal Security Service, in
a letter dated March 5, 2002, ordered Kaliningrad Customs to prohibit
bulk export of Stolichnaya vodka produced by SPI's Kaliningrad
distillery.
- Confiscation of more than 150,000 cases of SPI
vodka products seized in Kaliningrad along with related packaging
material.
- Criminal charges levied against Andrey Skurikhin,
president of SPI Spirits-Russia, and its Kaliningrad distillery.
The problems facing SPI are hardly unique. The fact is that SPI’s
problems are simply one part of a larger problem. In an April 5,
2002, article in The Wall Street Journal Europe, Boris Nemtsov,
former Deputy Prime Minister for the Russian Federation and presently
a member of the Russian Duma, called for President Putin to "Stop
the Rot." Mr. Nemtsov identifies "dangerous trends that
threaten to undermine the twin pillars of true progress for Russia
– democracy and property rights." Mr. Nemtsov asks a
question that the Congress should be concerned with: "Why are
property rights in Russia so weak?"
Unfortunately, the March 4, 2002, SPI ruling in the Leninsk-Kuznetskiy
City Court appears to be an aberration. Indeed, Russia’s court
system met with disapproval last summer in the United States District
Court for the Eastern District of New York. There, the dispute involved
efforts by a state-sponsored company to rescind copyrights previously
issued to an American company. The action uncovered all of the hallmarks
of the Russian Government’s tactics to illegally rescind SPI’s
property rights to Stolichnaya.
United States District Court Judge Trager exhaustively reviewed
Russian law and the facts behind the issuance of copyrights to the
American company, Films By Jove. Then, Judge Trager upheld Films
By Jove’s copyrights and described a decision from the Russian
Arbitrazh Court as "incoherent," "irrelevant,"
and "shocking."
The same can be said regarding Moscow’s actions towards SPI.
Before rewarding Russia by removing Jackson-Vanik trade treatment
and supporting PNTR, the United States Congress must demand that
Russia recognizes the rule of law. The documentation and Leninsk-Kuznetskiy
City Court rulings are dispositive. Russia must recognize SPI's
legal claim to ownership of the company and trademark rights. In
so doing, it will demonstrate that it respects the rule of law and
acts as a reliable member of the world economic community.
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