Distribution & Distributor Agreements
Distributorship arrangements are typically used as a low risk means of expanding business into new markets or territories.
The types of distribution agreements are as follows:
- Exclusive distribution agreements give the distributor the exclusive right to sell the product in the territory covered by the distribution agreement. The supplier will be prevented from selling the goods in the relevant area either on his own account or through agents or other distributors.
- Sole distribution agreements, where the distributor will be the only distributor with whom the supplier will deal in a particular territory. The supplier will not be prevented from selling its products in the territory on its own account. In return, the distributor will normally agree to regard the supplier as his sole supplier of the type of goods which are the subject of the agreement.
- Selective distribution agreements limit the number of distributors the supplier will appoint in a particular territory.
- Non-exclusive distributorship agreements give the distributor no exclusive rights to the supplier's products, so the supplier can appoint other distributors in the same territory.
All distribution agreements are potentially in breach of both EU and UK competition law. Those appointing distributors will need to consider carefully the nature of the arrangements they wish to enter into and may need to ensure that they fall within an appropriate de minimis or other specific exemption.
Issues to consider in any distribution agreement include:
- Exclusivity - exclusive, sole, selective, non-exclusive
- Products - identify the product range and ability to change it over time
- Territory - identify and consider reserving ability to change
- Termination - the circumstances in which the agreement can be terminated
- Any performance criteria (default allowing change of territory or exclusivity, or termination)
- The terms relating to price, payment and delivery
- The granting and reserving of rights relating to trade mark and patents
- Restrictive covenants to prevent a distributor from selling competing products
- Dealing with risk in, and the transfer of title to, the goods
- Limiting liability in respect of the goods