The Russian capital's love affair with lattes and cappuccinos has been squarely in the sights of Seattle-based Starbucks for years. So why hasn't a city with a gold mine of a coffee-lover market seen its first Starbucks?
An enterprising Muscovite named Sergei Zuykov can explain.
During Russia's financial crisis in 1998, Zuykov's car-alarms dealership was foundering, so he poured his money into acquiring the Russian rights to foreign trademarks. Then, for the right price, he sold the rights to the companies that had established those trademarks elsewhere in the world, effectively forcing them to pay a toll for using their own corporate identities in Russia.
Intellectual property rights advocates say the practice amounts to blackmail; Zuykov calls it a simple case of exercising initiative.
"If no one before me imagined to do this, if I am the first, then I get the prize," he said.
Zuykov wants to make Starbucks his biggest prize yet. The $6.4 billion coffee giant has been eyeing Moscow since 1997, when it registered its trademark with Russian authorities.
Starbucks had three years to begin doing business in Russia to keep its trademark registration active in the country. That time lapsed, and in 2002 a company co-owned by Zuykov obtained the Russian rights to the Starbucks name.
Zuykov's company, OOO Starbucks, has no inventory, no personnel and no experience in the coffee industry. OOO Starbucks does have a logo, though: a forest green, star-crowned mermaid that is virtually identical to the Seattle chain's logo printed on every cup and every bag of Starbucks coffee.
Zuykov's company has offered Starbucks the Russian rights to the trademark for $600,000, though Zuykov said he would be equally happy opening a Starbucks cafe in Moscow. So far, Starbucks has refused his offer and instead has waged a legal challenge to his claim.
The chain scored recent victories over Zuykov, including a decision by Rospatent, the Russian government agency in charge of trademark rights, to nullify Zuykov's registration of the Starbucks name. Zuykov said he will appeal the agency's decision in Russian courts.
Starbucks attorneys in Moscow declined to comment on the case. Asked about Zuykov, the company issued a statement citing its recent legal victories. "We expect to have continued success in the defense of our intellectual property in Russia," said Martin Coles, president of Starbucks International.
For his part, Zuykov insists he isn't trying to capitalize on Starbucks's success. "We just like the name," he said.
The Zuykov-Starbucks battle is just one example of the lack of progress Russian authorities have made in ensuring intellectual property rights of foreign companies. For years, U.S. officials have been urging the Russian government to clamp down on the country's huge CD, video and DVD piracy industry, which cost U.S. businesses more than $1.7 billion in 2004, and $6 billion in the last five years. Just as problematic, intellectual property rights advocates say, has been the Russian government's indifference toward trademark squatters such as Zuykov.
Russia has plenty of laws on the books that protect trademarks, copyrights and other intellectual property. What it lacks is the will to enforce those laws fairly and consistently, said Peter Necarsulmer, president of the Coalition for Intellectual Property Rights.
"The rubber hits the road on enforcement -- always has and always will," Necarsulmer said. "There's one person who can address this, and that's [Russian President Vladimir] Putin. If he demonstrated political will on fighting trademark and copyright infringement, we'd see enormous change."
Zuykov won't specify how much he has made registering foreign trademarks in Russia. "Enough to buy an apartment in the center of Moscow," he said. It's clear, however, that he makes a tidy profit with each trademark transaction. Applying for the registration of a trademark at Rospatent costs just $20; Zuykov routinely sells the Russian rights to a trademark for $20,000 or more.
His system for finding which foreign companies to target is as basic as pulling out the corporate merchandise catalogue, picking out a batch of company and model names, and cross-checking them with a database he keeps of trademarks already registered in Russia.
He said European carmaker Audi paid him $20,000 for the rights to five of its own car model names in Russia, Belarus, Kazakhstan and Ukraine. He worked out a similar deal with Samsung for the rights to model names for electronic products, though he said he doesn't recall the transaction amount.
Zuykov owns the Russian rights to more than 300 trademarks. When he began his operation more than five years ago, he was filing trademark registration applications at a rate of up to 300 a month.
While a few companies like Starbucks have refused to give in to Zuykov, many have fueled the fire by acquiescing for the sake of avoiding a drawn-out legal battle, Necarsulmer said.
"If companies didn't pay the ransom, there'd be no market for people like Zuykov," Necarsulmer said. "There's plenty of blame to go around."
Starbucks recently began serving its coffee in Russia -- at the U.S. Embassy in Moscow, where Russian law does not apply. In the meantime, Zuykov is intent on opening his own Starbucks, and he said he won't lose any sleep if customers arrive expecting Starbucks-caliber coffee.
"Coffee is coffee," Zuykov said. "If they don't like it, they'll leave and won't come again."