Distribution of Wine in Russia

Based on research published by marketing.rbc.ru in 2019, for the first time in five years, wine sales increased by 4.4% compared to 2018, or by 40.9 million liters in physical terms. In 2019 consumers' interest in imported wines increased significantly - supplies to Russia increased by 15.8%. Sales of wines in Russia are expected to fall by 10.1% in 2020. The main reason will be the decline in real incomes of the population due to the economic crisis. During the Coronavirus epidemic, a significant contribution to sales reduction will be made by a fall in demand for wines from the HoReCa sector: during the quarantine period it will be almost zero. In 2021-2024, wine sales in Russia are expected to recover at an annual rate of around 4%.

On June 26, 2020 Federal Law of 27 December 2019 N 468-FZ "On viticulture and winemaking in the Russian Federation" entered into force (hereinafter - Federal Law on winemaking).

The law is intended to support local wine producers and to protect consumers against counterfeit of wine. It provides for:

• classification of winemaking products;
• technological rules for the production of wine products, requirements for raw materials and materials used;
• legal status of subjects of viticulture and winemaking;
• requirements for the accounting and economic use of vineyards;
• creation of tasting commissions for organoleptic evaluation of wine products quality;
• formation of the Russian national wine protection system by geographical indication and place of origin;
• peculiarities of labeling and retail sale of wine products;
• creation of collections and rating of wine products;
• forms, conditions and procedure for providing state support to producers of grape products grown in Russia.
  

Russian law protects the rights to the geographical designation of origin as well as the right to trademarks.

In order to receive protection under the Russian law both the rights to the geographical designation of origin and the rights to trademarks shall be registered in Russia with the Federal executive body on intellectual property (Rospatent).

State registration of a geographical designation of origin which is situated in a foreign state is allowed if the name of such object is protected in the country of origin of goods. The exclusive right to use the name of the specified place of origin of goods can belong to the person only whose right to use such name is protected in the country of origin of goods.

In relation to the trademarks, in addition to possibility to register trademarks in Russia, there is also a possibility of international registration of trademarks based on the Madrid Agreement and the Protocol relating to that Agreement.

The Madrid System might be a convenient and cost-effective solution for registering and managing trademarks worldwide. You can file a single application and pay one set of fees to apply for protection in up to 118 countries, including Russia.

The general civil liability imposed for violation of rights of owners to the designation of origin and trademark is a reimbursement of damages. However, there is also a specific sanction “compensation” that can be imposed as an alternative to damages.

Under the Russian law the labelling of food products shall comply with the requirements of the technical standard of safety of the Customs Union that determines the requirements on safety of food products. The food products that received confirmation of compliance shall be labelled with the Customs Union conformity mark.

The minimum amount of information to be reported in Russian on the label:

• name and type of the wine;
• content and a list of ingredients;
• volume;
• date of bottling;
• date of consumption;
• conservation conditions before and after opening of bottle;
• name and address of the producer and of the authorised importer;
• recommendations and/or restrictions of consumption;
• nutritional content;
• information if GMO contains in the product;
• the Customs Union conformity mark.

In accordance with the new Federal Law on winemaking producers and persons engaged in retail sales of wine products must ensure that the consumer is informed about the variety(s), place of origin and year of harvest of grapes used in the production of sold wine products, regardless of the place of production.

Information about the variety(s), place of origin and year of vintage shall be communicated to the consumer by indicating it on the label. In this case, information about the place of origin and year of vintage should be indicated in the font, the size (pin) of which is equal to at least 14 points. On the label and in the name of alcoholic beverages obtained by fermentation of a fruit other than grapes, the use of the word "wine" is not allowed as well as phrases and derivatives thereof.

The label and counter-label of grape-containing alcoholic beverages with the actual volume content of ethyl alcohol not exceeding 22 percent shall indicate that the alcoholic beverages in question are not wine by placing the inscription "IS NOT WINE". The area of the part of the label and the counter-label intended solely for the placement of the information shall not be less than one fifth of the total area of the label and the counter-label.

In case of retail sale of grape-containing alcoholic beverages, the actual volume content of ethyl alcohol in which does not exceed 22 percent, in the sales area or other place of sale such alcoholic beverages should be placed (lined) separately from wine, fortified wine, sparkling wine in a way that allows to visually separate such products from wine, fortified wine, sparkling wine, and accompanied by an information inscription "PRODUCTION IS NOT WINE".

Vineyards producing sparkling wine in the territory of the Russian Federation from the grapes grown in the territory of the Russian Federation by the method of secondary fermentation of the cuvée obtained from it in packaging containers at their retail sale have the right to indicate the name "Russian Champagne" on the label of such products.

Parallel import as import into the Russian Federation of the original products labelled with an owner's trademarks by persons other than the trademark owner or an importer authorized by the trademark owner. It is worth noting that parallel import means genuine products manufactured by the trademark owner or under its control. In this regard, the parallel import shall be distinguished from fake (counterfeit) goods produced and labelled by third parties without consent of the trademark owner.

Whenever a product is imported into the Russian Federation without the consent of the trademark owner by any unauthorized person, such importation would be lawful only subject to consent of the trademark owner (even if the product has been purchased by the importer abroad from the trademark owner itself or from its distributor). In the absence of such a consent, the trademark owner shall be entitled to bring an unauthorized importer to liability stipulated by the Russian law.

In order to enhance control over parallel import into the Russian Federation, the trademark owners include their trademarks into the Intellectual Property Register, maintained by the Russian Federation Federal Customs Service (hereinafter referred to as "RF FCS").

The trademark owner who has reasonable grounds to believe that there may have been a violation of its rights in accordance with the legislation of the Russian Federation associated with importation of goods into the Russian Federation, is entitled to submit to a Customs authority an application for including the respective intellectual property into the Customs Intellectual Property Register (hereinafter referred to as the "Register").

Therefore, one of the basic conditions for including a trademark into the Register is the existence of sufficient grounds to assume that the said trademark may have been violated by third parties. Including trademark into the Customs Register provides the trademark owner with the following advantages:

• possibility to prohibit any unauthorized third parties from importing the goods to Russia;
• possibility to grant the right of importing the goods labelled with trademark included into the Register only to authorized importers. The trademark owner may at any time change the list of the authorized importers, excluding and including companies;
• possibility to immediately obtain (within a business day) the information from a Customs authority about assumed infringement of the rights to trademark and arrangement for the actions to protect its right.
  

Excise tax: can range from 5 to 36 rubles for one liter:

• 5 rubles for one liter (wines that have a registered designation of origin)
• 18 rubles for one liter (other wines)
• 14 rubles for one liter (sparkling wines / champagnes that have a registered designation of origin)
• 36 rubles for one liter (other sparkling wines / champagnes)

Customs duties: 12,5% of the value

VAT: 20%

Advertising of alcoholic drinks is strictly regulated in Russia by the Law on Advertisement. Below are examples of some of the requirements specified by the law.

The advertisement of alcoholic drinks shall not:

• contain affirmation that the use of alcoholic products plays an important part for achievement of public recognition, professional, sport or personal success or improves physical or emotional state;
• condemn desisting from consumption of alcoholic products;
• contain affirmation that alcoholic products are harmless or healthful including information about existence of biologically active additives, vitamins in the alcoholic products;
• contain information that consumption of alcoholic products is one of the means to satisfy thirst;
• address minors;
• use images of people and animals including those made with the use of cartoons (animation).

The advertisement of alcoholic drinks shall not be placed in magazines, newspapers, public transportation, billboards, child, educational, medical, military organizations, theatres, circus, museums, concert and exhibition halls, lecture-halls, planetariums, libraries, sport premises, on radio, TV, Internet with some specific exceptions related to wines produced from the grapes grown at the territory of Russia.

Wholesale distribution

In order to supply goods to Russia the parties shall conclude a supply contract that contains essential information about delivery terms of each instalment required to comply with customs regulations as well as with currency control requirements. The supply contract shall be provided by the buyer both to the customs authorities for customs clearance purposes as well as to the bank to make payment to the supplier and to comply with currency control regulations.

Notwithstanding the fact that the distributorship agreement is not specifically regulated in Russia, the parties are free to conclude distribution agreements based on the express provision of the law (art. 421 Russian Civil Code) which stipulate that the parties are free to conclude contracts even if such contracts are not specified by the law.

Considering that the distributorship agreement stipulates larger scope of obligations than the supply contract including, among other, provisions on exclusivity, territory, competition, use of trademarks etc. the parties usually either include provisions regulating required terms and conditions of supply contracts into distributorship agreement or conclude a separate supply contract regulating specific delivery terms of each instalment.

The supply of wine to Russia require receipt of license by the purchaser of wine (distributor) established as a legal entity under the laws of the Russian Federation.

Given that the new Federal Law on winemaking does not contain provisions relating to the establishment of specific licensing activities for the production and circulation of wine products, re-registration of licenses, including the production, storage and supply of alcoholic beverages (wine, fruit wine, liqueur wine, wine drinks) in connection with the entry into force of the Federal Law on winemaking is not required.

Retail sales

E-commerce distribution of wine is prohibited in Russia.

Retail sales of wine are strictly regulated by law and require receipt of a separate license by the legal entity established in the Russian Federation, i.e. a foreign supplier can make retail sales only through its subsidiary and/or distributor established under the laws of the Russian Federation and upon receipt by such subsidiary and/or distributor of all required authorizations.

Russian law stipulates also specific requirements regarding locations and time when the sale of wine is prohibited. The retail sale of alcoholic drinks is prohibited from 11 p.m. till 8 a.m. with some exceptions.

Applicable law and dispute resolution

The parties are free to choose the applicable law and agree to resolve their disputes by arbitration or by the state courts. It is however advisable to choose arbitration in international agreements rather than the state courts to ensure recognition and enforcement of the arbitral awards in Russia as well as to keep confidentiality of business relations with the Russian party. Russia is a party to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, also known as the "New York Convention", and Russian courts have good statistics of recognition and enforcement of foreign arbitral awards based on the New York Convention.