Diageo challenges Bulgarian grey market fine

By Emma Barraclough, Managing Intellectual Property Magazine, London, UK, Issue July/August 2006


UK drinks group Diageo last week filed an appeal with the Bulgarian competition watchdog after it was fined a total of Lev600,000 ($390,000) for trying to stop local parallel trading company BeGeIn from selling cut-price whisky and liqueurs imported into the country without the permission of the British drinks maker.

BeGeIn, which supplies parallel imported alcohol, cigarettes and perfumes to supermarkets, wholesalers and hotels, complained to the Commission for the Protection of Competition (CPC) that Diageo and some of its subsidiaries had breached competition rules by trying to prevent it from trading their products. Diageo brands include Guinness, Baileys and J&B whisky.

In particular, the Bulgarian company said the police seized more than 90,000 bottles of alcohol from its warehouse after the Diageo companies complained to the authorities, accusing BeGeIn of selling its products without a proper permit.

BeGeIn took the case to the courts and in March the Bulgarian Supreme Court ruled that the company had not infringed Diageo's J&B trade mark by importing bottles of whisky into the country. BeGeIn then asked the CPC to take action.

The Competition Commission made its decision to fine Diageo on June 22 but only notified the parties on July 12.

"Diageo disagrees with the ruling and has filed an appeal," Angelica Patrouba, a spokeswoman for the company, told MIP.

The CPC has the power to fine businesses up to 10% of their turnover if they are found to have breached competition rules. In an unofficial translation of the ruling, the CPC says the defendant companies, which include Diageo Brands and subsidiaries Justerini and Brooks Limited and R and A Bailey & Co, are "large companies, availing with sufficient legal and economical knowledge and resources that would allow them to predict the extent of violation in their actions and what the legal competitive consequences will be".

"This determines a more severe position toward the violations, perpetrated by them. The amount should be large enough in order to have a precautionary and preventive action with regards to the perpetrators," the unofficial translation says.

Georgi Yordanov, BeGeIn's manager and president of Bulgaria's parallel importers association NAPIB, told MIP that goods traded through the grey market can be between 20% and 25% cheaper than when they are sold through the brand owner's own distribution channels.

Diageo and BeGeIn have a long-running dispute over imports into Bulgaria. Last week the UK company obtained a court order requiring Customs to stop imports of its products at the border. Svetlomira Zhelyazkova, who is advising BeGeIn, told MIP that the company would begin new legal procedures to show that it had not breached Diageo's IP rights.

Bulgaria is on track to become a member of the EU within the next two years. Once it does so, many more products will be allowed to be parallel traded within the EU legitimately.

Diageo is being advised by Borislav Boyanov & Co. Lawyers Dragia Dragiev and Svetlomira Zhelyazkova are acting for BeGeIn.