Guidance For Negotiating Distribution Agreements

A distributor purchases the goods or services of a manufacturer or seller (known as the principal) and resells them to its own customers. Unlike in an agency relationship, the contract for sale to the end customer is between the end customer and the distributor, not the principal. The distributor will own the goods (having already purchased them, or agreed to purchase them, from the principal) before they pass to the end customer. Distributors are sometimes referred to as ‘resellers’. 

It is important to ensure that any distribution agreement you enter into includes all those terms and conditions which are required to meet the needs of your business. These will often include: appointment provisions (including the scope of the agreement, the territory and the duration/term of the agreement); the obligations of each party, any conditions of supply or sale; price and payment terms; any provisions (or restrictions) relating to the promotion and marketing of goods; anti-bribery provisions; protection of intellectual property rights (including any trade marks) and the right to use the brand name; limitations of liability; termination provisions and the consequences of any such termination; and dispute resolution provisions.

Competition law is designed to stop companies in a dominant position in any given market from abusing that position and to prevent anti-competitive behaviour that distorts, restricts or prevents competition/trade.

In the UK, anti-competitive behaviour which affects trade (in the UK) is prohibited by both the Competition Act 1998 and the Enterprise Act 2002. In addition, if either party is situated in an EU member state, then the EU competition policy set out in Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU) (formerly Articles 81 and 82 of the treaty establishing the European Community) will apply. However, it is often possible to draft a distribution agreement so that it falls within an exemption (known as a vertical block exemption) and so that a specific exemption for the agreement/relationship is not required from the relevant competition authorities.