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. Last Updated: 07/27/2016

Murky Battle for the Right to 'Cristall' Vodka

Starting back in the late '80s, the American giant PepsiCo and the Moscow vodka distillery Kristall had a great marketing idea.

In one of the leading Cold War examples of East-West business cooperation, Pepsi had been distributing Russian vodka since 1972. But in 1987, they decided that U.S. drinkers were ready for a high-quality Russian potion.

The Russian vodka industry and PepsiCo cooked up an idea for a premium vodka called Stolichnaya Cristall, which would look -- and cost -- like an expensive liquor.

Three Russian distilleries were already producing export Stolichnaya but following a series of tasting sessions, PepsiCo and the Soviet authorities chose the Moscow Kristall distillery to make the new vodka.

They dressed up the classic but drab Stolichnaya bottle -- which features the Hotel Moskva on its red and white label -- and created a new, more sober look, reminiscent of high-quality labels for American whiskeys such as Johnny Walker Black Label.

The new design combined a black top, gold medals around the neck, and a black label with Stolichnaya written in white and the word "Cristall" embossed over the top in fancy, gold lettering. Black for elegance and gold for high price.

Until 1994, the new sleek label and the new name worked like a dream, selling 450,000 liters a year. It was by no means a vodka for the U.S. masses like the original Stolichnaya, which had sales of $9 million a year. But while Stolichnaya vodka sold for about $16 a bottle, the new Stolichnaya Cristall went for $22.

Since then, it has all gone sour. Moscow's Kristall distillery now says the hustling Pepsi and a group of Soviet-era trade bureaucrats conspired to steal their idea for Stolichnaya Cristall.

"We were betrayed by Pepsi," said Vladimir Yamnikov, the director of the Moscow Kristall distillery.

"They [the bureaucrats] deceived us and Pepsi knew it," Yamnikov said angrily during an interview in his office, where vodka bottles of all shapes and sorts line the walls. "They took our brand name away from us and gave it to Pepsi without our permission."

So far, the Kristall distillery has been to court twice to fight for the control of the Stolichnaya Cristall brand in the United States and they have had the better of the legal dispute so far.

It was all very bad press for Pepsi. "Part of the reason we lost was that the jury saw the case as a world-wide, consumer-market company making life difficult for a small company from Russia," admits Eric Whitman, vice president of PepsiCo Wines and Spirit International.

But neither side has much to be happy about. The court cases have inevitably given rise to appeals, and the issue of who has the rights to Stolichnaya Cristall seems as unclear as ever. The likely result is that by a bizarre twist of Soviet copyright confusion, no one will have a clear right to sell Stolichnaya Cristall and the brand will die.

The disputes began in 1994 when Pepsi decided to bypass Moscow Kristall -- which had, until then, been the only distiller of Stolichnaya Cristall -- and buy 326,000 liters of miniature-sized and liter bottles from a St. Petersburg distiller.

Pepsi says it always likes to diversify its suppliers. "It is our policy to have a minimum of two producers for each product," said Whitman. "We don't want to be held hostage if something happens with the factory."

But Moscow Kristall interpreted the move as a betrayal.

Kristall responded by stopping all sales to Pepsi's Russian partners, the giant exporter Soyuzplodoimport, and signing a contract with a new Florida distribution company.

Soyuzplodoimport -- which began life as a Soviet-era middleman that supplied Pepsi -- said it suspected Kristall just wanted an excuse to get a better distribution deal. The new contract with the Florida distributor was "probably more profitable," said Olga Surgucheva, Soyuzplodoimport's chief lawyer.

The divorce between Pepsi and Kristall was neither clean nor simple, largely because ownership of the Soviet-era brands was so unclear.

Moscow Kristall knew it could not use the name Stolichnaya: That was the name of a vodka that was produced by a number of distilleries across the Soviet Union, and the lucrative trademark had been inherited by Soyuzplodoimport. Instead, the distillery launched its own vodka brands, Posolskaya and Moscow Signature Cristall.

Pepsi was still selling its stocks of Stolichnaya Cristall and was outraged because the new Moscow Signature Cristall label looked strikingly similar.

"They took the trade dress from us, copied it and put their label on it," said Whitman.

Plus, he said, Kristall's Florida distributor was taking a free ride on Pepsi's $3 million a year advertising budget.

This was doubly annoying for Pepsi because while its Stolichnaya Cristall retailed for $22, the Moscow Kristall distillery was selling its look-alike Moscow Signature Cristall for $8.

"Stolichnaya Cristall has a very strong and positive image in the U.S. because of the quality of the vodka and the marketing we did around it," said Jerry Ciraulo, head of Pepsi's vodka distributing. "And basically they were using our advertising for free."

In a Florida district court suit filed in 1995, Pepsi accused Kristall of "inappropriate use of trade dress."

Kristall responded in the autumn of the same year by filing a suit in Seattle against Pepsi, accusing them of having stolen their Stolichnaya Cristall brand name.

The court cases have been an embarrassment to good corporate citizen Pepsi, but they have not really pleased either side.

The Florida court sided with Pepsi and stopped Moscow Kristall from selling its cut-price look-alike vodkas in the United States.

But the Seattle court cut the apple in half and gave some of the rights to the name to Pepsi, and some to Moscow Kristall.

Pepsi won the right to the trade dress and the look of the bottle. But the court awarded the disputed trade name to Moscow Kristall. And so the Moscow distillery not only won the right to the trade name Cristall, but also $873,000 in reparations from Pepsi.

The confusion is probably due to the fact that back in Soviet days, no one spent much time worrying about things like trademarks.

"Only the state could benefit from the exploitation of intellectual property rights, including trademarks," said Anya Goldin, a Moscow-based lawyer with the firm Latham & Watkins.

U.S. courts are now forced to reconstruct exactly who developed each aspect of the Stolichnaya Cristall concept.

Pepsi's Russian partner, Soyuzplodoimport, the old Soviet trade organization, claims it has owned the rights to the trademark Stolichnaya since 1969, which it says makes it the de facto owner of all Stolichnaya brands.

But Moscow Kristall claims it owns the rights to Stolichnaya Cristall in the United States, since the distillery registered them in Russia by 1993.

Kristall's registration of the trademark in Russia does not mean that it is automatically recognized in the United States, said Goldin.

Pepsi's Whitman added that the Kristall distillery did not succeed in registering the brand name in the United States.

Pepsi also argues that the decision to add "Cristall" to the brand name Stolichnaya was entirely theirs.

"Enrico, PepsiCo 's president, chose the word Cristall because it was a reminder of the fact that the vodka was crystal-clear. The word Cristall on the bottle had nothing to do with the name of the company," said Whitman.

In fact, Pepsi claims the name Stolichnaya Cristall was invented even before the Kristall factory was chosen to produce it. Furthermore, Kristall Moscow is but one of a string of Russian distilleries called Kristall.

Both sides have different views on who invented the new look for the bottle.

"I recall I came personally to Russia to show him [Kristall director Yamnikov] the sketches of the label we had prepared," said Pepsi's Whitman.

Yamnikov replies, "We created the label, since we told Pepsi how we wanted it to be."

As for the recipe, Pepsi says it was an old industry-wide one. Yamnikov counters that the recipe of Stolichnaya Cristall vodka was the Kristall distillery's creation. "It's our factory that created the vodka."

Pepsi has now appealed the latest court decision, but for the moment it looks as though no one will ever have a clear right to sell Stolichnaya Cristall.

Pepsi has lost the right to sell Stolichnaya Cristall in America, which it admits represents "significant losses." Although the courts will allow it to sell its remaining two or three months worth of stock, when those are gone, it will lose the brand name.

Yamnikov, whose distillery can use the name Cristall but cannot use Stolichnaya or the trade dress, also admits Kristall will take a loss. But he has new plans. "As soon as the whole issue is settled, we will resume our production of Cristall vodka and export it to America," he said.

Unfortunately, the new bottle will not be called Stolichnaya Cristall, but more likely "Cristall Moscow," and it will probably have a different look. Millions of dollars of brand loyalty will be lost and the Stolichnaya Cristall dispute looks set to die the confused death of a Soviet brand.