On July 29, 2008 a Russian appellate court upheld the decision of the Kurgansk Department of the Federal Antimonopoly Service of the Russian Federation ruling that the pricing and sales territory provisions in the distribution agreement of a Russia-based dairy company, Unimilk LLC, constituted an unlawful restraint on trade. Under Unimilk's distribution agreement, the distributor was required to agree with Unimilk on its prices for milk sold in a specific geographic territory and on the terms and conditions of its sales. As part of the ruling, the antimonopoly agency imposed a fine of RUB16.17 million (approximately US$700,000) on Unimilk.
The ruling is significant as it marks the first time a court has upheld the antimonopoly agency's position that provisions of distribution agreements limiting the prices and sales terms of distributed products and where they can be sold are unlawful. While the antimonopoly agency has previously ruled against these provisions (e.g., against Coca-Cola HBC Eurasia), its position was never tested in court before now. Moreover, the fine imposed by the antimonopoly agency is considerable and sets a benchmark of risk that companies with similar distribution arrangements may face.
It is fairly typical for distribution arrangements to include restrictions limiting the distributor's ability to determine pricing, sales terms and territory. In light of the ruling, we recommend that companies operating in Russia review their current distribution arrangements for compliance with antimonopoly law. The Moscow office of Squire Sanders has considerable experience in advising on distributorships and would be pleased to assist in reassessing your arrangements. For help, please contact your principal Squire Sanders lawyer or one of the individuals listed in this alert.