Appointment of overseas distributor with exclusive rights
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Appointment of overseas distributor with exclusive rights
Appointment of Overseas Distributor with Exclusive Rights
The model contract accessed on www.LawyersEzyFind.co.za provides for the appointment of an overseas distributor with sole or exclusive rights, which will be explained further.
The purpose of an international distribution contract is to establish one or more sales points within a geographical area in a foreign country from
which goods and services can be offered to a specific clientele.
This type of contract enables suppliers or manufacturers of different products to benefit from existing commercial facilities and to select their
trading partners. This commercial contract model also has the advantage of enabling suppliers to impose sales methods and practices
associated with their products or brands.
The international distribution contract is a framework agreement, which means that it establishes general obligations for each of the parties over
a lengthy period and is supplemented by general conditions of sales, which are often annexed to the contract in order to specify the products
and/or services in question, prices, delivery arrangements, and so on.
There are different models of international distribution contracts made by different companies and organizations whose purpose is to ease the
negotiation and agreement between suppliers and distributors.
An international distribution agreement is essentially a contract that creates a framework for a business relationship between global parties.
To ensure effective and efficient transactions, an international distribution agreement should be comprehensive.
Among other things, some of the main clauses that you typically will find in an international distribution contract include products and territory,
obligations of the parties, exclusivity provisions, renewal/termination, and dispute resolution.
Products and Territory
As a starting point, international distribution agreements will generally provide details regarding the specific products and the specific territory that will be covered by the contract.
Obligations of the Parties
Similar to other commercial agreements, it is imperative that an international distribution contract clearly outlines the responsibilities of
each party. Both the supplier and the distributor must have clarity regarding their duties to perform under the terms of the deal.
Exclusivity Provisions
Some international distribution agreements include exclusivity provisions. While not all of these agreements are exclusive, this is an
issue that should be addressed within the contract negotiations.
Renewal/Termination
The agreement should also define the length of the commercial relationship. In addition, procedures should be created to deal with issues related to renewal and termination.
Dispute Resolution
Finally, distributor agreements should include dispute resolution provisions. No matter how good the relationship between the supplier
and the distributor, there is always a risk of dispute.
With international business contracts, it is often advisable to include an
arbitration provision. Arbitration offers many advantages compared to handling disputes under local laws.
It is important to note that this list is just a brief sampling of the important contract terms that you will find in an international distributor agreement.
These agreements should always be customized to meet the unique needs of each party.
Exclusive Distribution
In terms of this type of distribution the distributor is given the exclusive right to sell the products in a stated territory. This means that the supplier or manufacturer may not sell the products itself.
The main advantages of sole / exclusive distribution from the supplier’s perspective is that the distributor may have a higher incentive to allocate
resources toward development of sales and marketing.
There are also a few disadvantages from the supplier’s/manufacturer’s perspective which should be taken into consideration:
• eliminating intra-brand competition through an exclusivity may give distributor too much comfort to intensify sales;
• can lead to loss of control and flexibility;
• may lead to problems in MA transactions of supplier’s business.
Consequences of exclusivity from the supplier’s/manufacturer’s perspective
• if sole/exclusive contracts are entered into, additional contractual measures must be taken, such as:
- non-compete obligation of distributor;
- no long term contracts;
- clear definition: what is exclusive (territory, products, sale channels).
Exclusivity: Antitrust considerations
The supplier/manufacturer may have an interest to keep territorial markets separate and therefore to prevent sales into other territories (for example, because of price differences).
It is important to check the antitrust compliance of respective clauses. The supplier/manufacturer may only prevent the distributor from actively
promoting sales into territories reserved exclusively for himself or other distributors. This further entails that:
- passive sales must remain allowed;
- the distributor cannot be prevented from selling in territories which have not been granted to others on an exclusive basis.
Price fixing
The distributor must remain free to fix the minimal resale price of a product.
Parallel trade
There is a prohibition against a distributor passively selling to customers outside the territory if distributor knows that the customer intends to
resell the products back into the territory.
Non-compete obligation of distributor
A non-competition clause shall not last for more than 5 years and not exceed one year after termination.
As the clause is essential for the contract, the term of contract shall be limited to 5 years (there will be no automatic renewal).
Sell-off Period; Repurchase of Inventory
In the agreement, it is important to decide what should happen with the products which the distributor has in stock at the time of the cessation of the collaboration.
A frequently used model is for the distributor to be allowed to sell the products after the termination of the agreement, but on the terms and conditions set out in the agreement.
Governing law
What rules are relevant in relation to the agreement may vary from country to country. If you enter into an agreement with a foreign partner,
it is therefore a good idea to ensure that it is valid under and complies with the governing law agreed upon, and that the agreement is
enforceable against your partner, if necessary.
it is important to remember that, depending on the circumstances, a delivery agreement may violate national or EU competition law if it
contains provisions restricting competition.
Arbitration may be used as an alternative to national courts of law, and if the parties want to use arbitration proceedings, Clause 15 must be amended accordingly.
The model contract accessed on www.LawyersEzyFind.co.za provides for the appointment of an overseas distributor with sole or exclusive rights, which will be explained further.
The purpose of an international distribution contract is to establish one or more sales points within a geographical area in a foreign country from
which goods and services can be offered to a specific clientele.
This type of contract enables suppliers or manufacturers of different products to benefit from existing commercial facilities and to select their
trading partners. This commercial contract model also has the advantage of enabling suppliers to impose sales methods and practices
associated with their products or brands.
The international distribution contract is a framework agreement, which means that it establishes general obligations for each of the parties over
a lengthy period and is supplemented by general conditions of sales, which are often annexed to the contract in order to specify the products
and/or services in question, prices, delivery arrangements, and so on.
There are different models of international distribution contracts made by different companies and organizations whose purpose is to ease the
negotiation and agreement between suppliers and distributors.
An international distribution agreement is essentially a contract that creates a framework for a business relationship between global parties.
To ensure effective and efficient transactions, an international distribution agreement should be comprehensive.
Among other things, some of the main clauses that you typically will find in an international distribution contract include products and territory,
obligations of the parties, exclusivity provisions, renewal/termination, and dispute resolution.
Products and Territory
As a starting point, international distribution agreements will generally provide details regarding the specific products and the specific territory that will be covered by the contract.
Obligations of the Parties
Similar to other commercial agreements, it is imperative that an international distribution contract clearly outlines the responsibilities of
each party. Both the supplier and the distributor must have clarity regarding their duties to perform under the terms of the deal.
Exclusivity Provisions
Some international distribution agreements include exclusivity provisions. While not all of these agreements are exclusive, this is an
issue that should be addressed within the contract negotiations.
Renewal/Termination
The agreement should also define the length of the commercial relationship. In addition, procedures should be created to deal with issues related to renewal and termination.
Dispute Resolution
Finally, distributor agreements should include dispute resolution provisions. No matter how good the relationship between the supplier
and the distributor, there is always a risk of dispute.
With international business contracts, it is often advisable to include an
arbitration provision. Arbitration offers many advantages compared to handling disputes under local laws.
It is important to note that this list is just a brief sampling of the important contract terms that you will find in an international distributor agreement.
These agreements should always be customized to meet the unique needs of each party.
Exclusive Distribution
In terms of this type of distribution the distributor is given the exclusive right to sell the products in a stated territory. This means that the supplier or manufacturer may not sell the products itself.
The main advantages of sole / exclusive distribution from the supplier’s perspective is that the distributor may have a higher incentive to allocate
resources toward development of sales and marketing.
There are also a few disadvantages from the supplier’s/manufacturer’s perspective which should be taken into consideration:
• eliminating intra-brand competition through an exclusivity may give distributor too much comfort to intensify sales;
• can lead to loss of control and flexibility;
• may lead to problems in MA transactions of supplier’s business.
Consequences of exclusivity from the supplier’s/manufacturer’s perspective
• if sole/exclusive contracts are entered into, additional contractual measures must be taken, such as:
- non-compete obligation of distributor;
- no long term contracts;
- clear definition: what is exclusive (territory, products, sale channels).
Exclusivity: Antitrust considerations
The supplier/manufacturer may have an interest to keep territorial markets separate and therefore to prevent sales into other territories (for example, because of price differences).
It is important to check the antitrust compliance of respective clauses. The supplier/manufacturer may only prevent the distributor from actively
promoting sales into territories reserved exclusively for himself or other distributors. This further entails that:
- passive sales must remain allowed;
- the distributor cannot be prevented from selling in territories which have not been granted to others on an exclusive basis.
Price fixing
The distributor must remain free to fix the minimal resale price of a product.
Parallel trade
There is a prohibition against a distributor passively selling to customers outside the territory if distributor knows that the customer intends to
resell the products back into the territory.
Non-compete obligation of distributor
A non-competition clause shall not last for more than 5 years and not exceed one year after termination.
As the clause is essential for the contract, the term of contract shall be limited to 5 years (there will be no automatic renewal).
Sell-off Period; Repurchase of Inventory
In the agreement, it is important to decide what should happen with the products which the distributor has in stock at the time of the cessation of the collaboration.
A frequently used model is for the distributor to be allowed to sell the products after the termination of the agreement, but on the terms and conditions set out in the agreement.
Governing law
What rules are relevant in relation to the agreement may vary from country to country. If you enter into an agreement with a foreign partner,
it is therefore a good idea to ensure that it is valid under and complies with the governing law agreed upon, and that the agreement is
enforceable against your partner, if necessary.
it is important to remember that, depending on the circumstances, a delivery agreement may violate national or EU competition law if it
contains provisions restricting competition.
Arbitration may be used as an alternative to national courts of law, and if the parties want to use arbitration proceedings, Clause 15 must be amended accordingly.
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