Getting your products out there

• What kind of appointment is it?

  Be clear on the type of appointment the distributor will take on, as this will shape the relationship. Each type affects your rights, obligations and risks. Here’s a quick summary:

  1. • Exclusive – you’re the only distributor and the supplier won’t sell directly in your territory
  2. • Sole – you’re the main distributor but the supplier can still sell direct too
  3. • Non-exclusive – Other distributors can be appointed in the same area

  

• Watch out for restrictions

  Distribution agreements often limit where and how you can sell. That’s normal – but be careful. Too many restrictions (especially in exclusive deals) on the distributor’s freedom to sell can land you in hot water under competition law. Take extra care when it comes to restrictions on territorial scope, customers and permitted uses

• Non-compete

  Distribution agreements can also contain non-compete provisions, stopping a distributor from selling similar products and/or the supplier from supplying products to other distributors. Make sure any non-compete provisions are fair and reasonable in terms of duration and scope

• Don’t over commit on volumes

  Suppliers may ask for minimum order levels – especially in an exclusive arrangement – requiring a distributor to achieve certain levels of sales within a year. It’s critical not to over commit, to assess the commercial practicality and pare back if unreasonable (for the distributor). Also consider, what happens if you don’t hit the minimum volumes? Will you lose exclusivity or face penalties?

• Who’s in charge of marketing?

  If you’re the supplier, you will want to keep a tight control on how your brand is used by those in your distribution chain. Conversely, if you’re the distributor, you’ll want some freedom to promote products in your territory without having every piece of promotional material approved by the supplier.

  Ownership and use of intellectual property rights and goodwill is also something to be addressed. Will the supplier be granting a license to the distributor over trademarks for example? Your distribution agreement should agree upfront, who can do what marketing and how, and who owns what IP

• Know your way out

  Make sure you understand what happens on termination. Consider:

  1. • When and how can the deal be terminated (watch for the right to terminate for convenience on short notice)
  2. • What happens to leftover stock (will the distributor have a right to sell-off or will the supplier buy-back?)
  3. • Any post-termination restrictions

• Are there local laws you need to know about?

  In the UK, distributors generally don’t get compensation on the termination of the distribution agreement (unless the agreement is deemed a commercial agent relationship). But that’s not true everywhere. In several European jurisdictions, distributors may be entitled to compensation by law. So, if you are planning to set-up a distribution network overseas, it’s a good idea to take local legal advice

• Alternative approaches

  It’s worth mentioning that distributors aren’t your only route to market. You could also work with:

  1. • Sales agents
  2. • Wholesalers
  3. • Value-added resellers (VARs)

  Each has pros and cons and it is worth considering each option before choosing the approach that is right for your product and business as you scale

A strong distribution agreement is more than a legal formality – it’s a blueprint for a successful long-term strategic partnership. If you’re putting one in place (or thinking about it), please feel free to get in touch. We’re here to help make the process simple, commercial and stress free