Contracts with distributors –
the critical issues
Marco Hero
Rome, May 30 2015
Rechtsanwalt Marco Hero, CFE
hero@pfp-legal.de
Folie 1
A. Distributorship vs. sales agreement
What differences are there between distributorship and “simple”
sales agreement?
Distributor
•Supplier sells products to distributor for resale purposes
• Customer group of supplier: distributor only, not end customer
•No direct contractrual relationship between supplier and customer,
eventually relationship by law (e.g.product liability)
•Supplier negotiates and contracts on B2B level only
• Distributor may agree to a variety of obligations (market exploration,
brand communication, non-compete vs. exclusivity, sufficient stock,
specific sales and after sales services etc.)
Rechtsanwalt Marco Hero, CFE
hero@pfp-legal.de
Folie 2
A. Distributorship vs. sales agreement
What differences are there between distributorship/sales
agreement?
Direct Sales
88.128.80.143
- 2 customer groups: B2B – B2C
- terms of agreements vary due to consumer protection
- general terms and conditions may apply vs. negotiated framework
agreement: rules on general terms and conditions e.g. in Germany, apply
to standard agreements
- less or no obligations on customer re. brand or market development
- restrictions apply re. e.g. limitation of liability
- battle of forms in direct B2B sales
Rechtsanwalt Marco Hero, CFE
hero@pfp-legal.de
Folie 3
A. Distributorship v. sales agreement
Advantages of Distributorship (from Suppliers perspective)
•Because the end costumer´s contract does not effect the supplier, risk
associated with the sale is shifted towards the distributor
•Limited liability of the supplier for the activities of the distributor
• No B2C contact in the target market
• Costs, interest and risks of successful target market development shifted
to distributor
• Clear definition of distributor's responsibility e.g. re. market development,
(minimum) sales targets, brand strategy, customer satisfaction, corporate
identity and communication, territory, exklusivity etc.
• No battle of forms
Rechtsanwalt Marco Hero, CFE
hero@pfp-legal.de
Folie 4
A. Distributorship v. sales agreement
Disadvantages of Distributorship (from Suppliers perspective)
•An adaquate distributor must be found and the distribution agreement
must be negotiated.
•A distributorship arrangement is likely to be governed EU and/or national
legislation on competition, restrictions apply.
•Distributor has to be financially sound, because the entire risk in respect
of sales in the given territory is shifted towards distributor.
• Limited control over Distributor.
•Sharing of margin.
Rechtsanwalt Marco Hero, CFE
hero@pfp-legal.de
Folie 5
A. Distributorship v. sales agreement
Sales Cycle and the Internet:
- Supplier's needs to adapt sales strategy to customer behaviour
- classic dealmeaking vs. global connectivity and visibility
- implementing of online sales strategies needs be mirrored in sales and
distribution agreements
- „classic“ territorial restrictions vs. freedom of passive sales through the internet
- role and effects of online platforms (e.g. Amazon, eBay, Priceline etc.)
- role and effects of social media
- brand control and control of reputation
- compliance: end-customer data in the brand network
Rechtsanwalt Marco Hero, CFE
hero@pfp-legal.de
Folie 6
B. Issues to be covered in distributorship contract
Standard issues to be covered in a distribution agreement:
•
Precise order and delivery procedures
•
Minimum sales targets and consequences of failure
•
Duration and termination of agreement and consequences of
termination (ex.: disposal of stock upon termination)
•
Specific obligation of disributor (ex: after sales services, maintenance
service, spare parts to be stocked by distributor)
•
Territory, exlusivity, non-compete
•
Sales channel(s): on- and/or offline
•
Brand presentation on the internet
•
Data protection
Rechtsanwalt Marco Hero, CFE
hero@pfp-legal.de
Folie 7
B. Issues to be covered in distributorship contract
Payment issues
•
(partial) pre-payment
•
Timeline for (rest-) payments
•
Currency and exchange rate definition
•
Consequences of default/late payment (withholding of further
deliveries, set-off, termination, post-termination consequences)
•
Guarantees / letter of credit
•
Retention of title
Rechtsanwalt Marco Hero, CFE
hero@pfp-legal.de
Folie 8
Thank you!
Rechtsanwalt Marco Hero, CFE
hero@pfp-legal.de
Folie 9