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18 I Companies & Markets bne June 2017
Pepsi Cola famously distributed Stolichnaya in the US in the 1970s as part of a barter agreement with the Soviet Union, which lacked a free market economy at the time.
After the Soviet Union collapsed, many of Russian distilleries fell into private hands. With no legal recognition of trade- marks for the most popular brands, different distilleries all tried to produce the same vodka labels and violent conflict broke out.
Stolichnaya was very much struggling and was saddled with massive debts from the Soviet era. SPI claim the business model then was very different and it was essentially a middle- man selling vodka from other vodka producers and taking a small commission on sales.
During the chaos of the 1990s, Shefler assumed control of a state-owned enterprise called Soyuzplodoimport, which distributed Stoli.
Shefler then gained the trademarks in 1999, but the Russian government contends that the privatisation of the business during the chaos following the fall of the Soviet Union was not completed and that the purchase was invalid.
FKP maintains the Soviet-era company, to which it claims to be the successor, was unlawfully privatised and that Shefler used coercion to persuade shareholders to sell to him. SPI denies these claims.
Shefler paid $300,000 for 43 brands, whereas a subsequent report by a Kremlin audit commission valued those rights at $400mn.
When President Vladimir Putin came to power in 2000, he promised to renationalise vodka production as well many other industries considered public property and that been sold off cheaply during the early privatisations.
“Until 2000, the Russian Federation time and again confirmed that the company was the legitimate owner of the trademarks, and together with the company defended these trademarks,” says Ribbert. “After Putin came to power, the Russian Federa- tion changed its tune.”
In 2002, a Russian court ultimately gave control of the brand to FKP. Ever since then, FKP has argued it owns the rights to the brand, but it has had to contest SPI’s distribution of Stoli- chnaya in court in every country where it sells the product. “This was the first case of open de-privatisation,” Shefler
told Forbes Russia in May 2015. “Even then it was quite obvi- ous that if they came for me, they would be able to go after the oilmen and the miners.”
In 2002, FKP launched Stolichnaya in Russia under its own label, while SPI has since become the fourth-biggest premium vodka brand and mushroomed into a global booze conglomer- ate worth an estimated $2bn. It sells alcohol under 380 brands
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in 160 countries and owns the rights to the Kremlevskaya, Rizhsky and Cherny Balsam brands, as well as everything from wine, to rum and Mexican tequila.
When Shefler took over, the old business model was revamped and the business was fully restructured to produce the vodka and production assets were acquired in Kaliningrad, Latvia and a facility was built in Russia. After the 2002 ruling, production continued for a period in Russia before shifting to Latvia.
“He fully overhauled and invested in the marketing and
the branding and packaging of the product, which was not previously done in-house,” says Ribbert. “In those early years, there was investment by Shefler of about a couple hundred million dollars.”
The battle between the two sides has been acrimonious. In 2003, the Kremlin asked Interpol to help find Shefler after accusing him of threatening to kill Vladimir Loginov, a former deputy agriculture minister. Shefler denied the allegations and said the case was part of a plot to hijack his company.
The charges against Shefler, who left Russia in 2002 and has never returned, were dropped in September 2010. The only pending charge against him is “the organisation of perpetra- tion of a criminal offence of illegal use of a trademark” under two articles of the Russian Criminal Code.
SPI said there were about 30 raids on SPI’s offices in the late 1990s and early 2000s with thousands of key documents being seized.
“You can imagine how hard it is to litigate against an opponent who has seized your corporate documents and never given them back so essentially you are fighting one hand – if not both – tied behind your back,” says Ribbert.
On behalf of his client FKP, van Manen says claims that “key documents” are missing are “untrue”.
“FKP is quite surprised that SPI never raised this argument until 2015 where this case has been running since 2003,” van Manen says.
Shefler, whose fortune American Forbes estimates at $1.7bn, seems to have stepped back from the day-to-day running of the business, but his lifestyle keeps him in the newspapers. In March, Shefler was widely reported to have shelled out £25mn to buy the Tulchan Estate, one of the most expensive estates
in Scotland with 21,000 acres. That was pocket change for the tycoon, who sold his 134-metre yacht in October for $400mn to a Saudi prince.
The protracted and hostile legal battle, which started in 2003, is being fought in multiple geographies, including Australia, Switzerland and the US, which accounts for almost half of Stolichnaya’s sales. Shefler told Forbes in 2015 that the case had already cost him a whopping $200mn.