NEWS // Distribution Agreements (continued)
Sub-distributors: the distributor may want the ability to appoint sub-distributors. If the supplier is agreeable to that then it should review the terms of any sub-distribution agreement.
Warranties: the distributor will look for the supplier to warrant the condition of the product being supplied and that no third party intellectual property rights are being infringed.
Liabilities: both parties will look to restrict their respective liabilities to the fullest extent possible and possibly cap liability at an agreed amount.
Length of the Contract: where there is an exclusive arrangement then the supplier will want the ability to terminate the contract if the distributor is not performing as originally envisaged. The distributor will want as long a contract as possible with no requirement for it to purchase a minimum amount of the products.
Competition Law: it is clearly in the distributor’s interests to restrict any competition but where there is exclusion of competitors this may raise competition law issues and these should be considered carefully prior to entering into any distribution agreement. It is important to look at the relevant laws of the jurisdictions which are covered by “the territory”, the length of any non-compete obligation and any restrictions on the persons to whom products can be sold. Any contract drafted in breach of competition law rules could result in the contract being void and the parties being fined significant sums of money.
Trade marks: will the distributor be able to re-brand the products as its own or must the original marks of the supplier/manufacturer be maintained?
Support: will the supplier be expected to provide support services for the products? This may be particularly important to maintain the reputation of the product in the territory. In addition, the supplier may look for the distributor to supply regular lists of the end-users and sub-distributors so that if the distribution agreement terminates the supplier is still able to provide its products to the end-users. If training is required then the parties will need to agree who pays for that.
Marketing: the supplier should set out the obligations of the distributor to promote the products and possibly set a minimum amount which should be spent on marketing. From the supplier’s perspective, it would be prudent for it to approve promotional material.
Confidentiality: given that the parties will be passing information to each other then there should be a restriction on public disclosure.
A well written distribution agreement will clearly set out the agreement of the parties from the outset which will reduce the risk of a future dispute.
For further information please contact Angus McGuire on 0131 226 8207
or email angus.mcguire@mbmcommercial.co.uk