Distribution Agreement Exclusive Territory

Third, if you are trying to sign a distribution agreement in a foreign country, use the foreign network. The U.S. Chambers of Commerce are located in most countries of the world (American Chamber of Commerce in Hong Kong, American Chamber of Commerce in the Netherlands, American Chamber of Commerce in Egypt, etc.). If your foreign branch is not yet connected to the local Chamber of Commerce, launch it immediately. The cost of joining these organizations is low and the benefits go far beyond learning how to negotiate a balanced allocation agreement. However, exclusivity does not limit the direct sale of the supplier. A supplier may also decide not to use distributors in a particular territory or for a particular block of customers, but to keep that territory or block of customers to itself, even if it is not (yet) present in that territory or in relation to that block of customers. The supplier can do this because it has not (yet) found a suitable distributor or because it already has an appropriate distribution system in this area. It also means that in addition to a distributor, a supplier can start selling and compete directly with a distributor. Please note that in this case, there is not only a vertical relationship, but also a horizontal relationship between the supplier and the distributor. They become competitors to each other and must therefore be cautious, especially with regard to the information they exchange within the distribution system: the exchange of economically sensitive information would quickly lead to suspicions of violation of the prohibition of cartels.

An efficient and/or high-quality distribution system has many advantages. For example, the supplier is assured that its products will be delivered in the manner necessary to end-users. B for example with a high level of service, a short delivery time and/or a low price. A distributor protected to some extent by the supplier is able to invest in its service, which makes its operation more efficient or improves the service to the user (final). Often, it is the (final) user who benefits the most. This is why many distribution agreements based on EUROPEAN legislation are exempted in advance from the ban on cartels. Nevertheless, there are still a number of competitive risks. That is the case, for example. B, when a supplier assigns exclusively geographic areas or customer blocks to distributors and those distributors are protected from other distributors to an (excessive) extent. This limits competition between distributors and consumer freedom of choice, which will ultimately have more negative than positive effects. The absolute protection of the customer or territory by the supplier is not exempted in advance from the prohibition of agreements and therefore quickly conflicts with it.

Inexperienced parties in distribution agreements sometimes try to minimize the possibility of termination. The requirement for an annual termination and a semi-automatic extension is a routine procedure among experienced players. In these cases, the agreement provides for a provision requiring termination of the contract at the end of the first full calendar year after the agreement enters into force and each year after the agreement enters into force. The terms and conditions allow each party to submit a letter of intent that will not be renewed 30 days before the end of the calendar year. The distributor sets the selling price and royalties to which supplier products are sold or conceded in the country. The distributor is solely responsible for the costs associated with the distribution of supplier products, including distribution fees, import duties, all bank fees, shipping and processing fees, installation or other operating costs, borrowing charges, transfer fees and other payment and tax charges, but which are determined, except that the distributor is not responsible for taxes based on the supplier`s revenues.