Distribution Agreements

We provide expert legal advice and support for UK businesses entering into distribution agreements. Whether you are a manufacturer, supplier, or distributor, our team can help you navigate the complexities of these agreements to protect your interests and promote your business objectives.

What Are Distribution Agreements?

A distribution agreement is a legally binding contract between a supplier and a distributor. It governs the relationship, setting out the terms under which the distributor purchases goods from the supplier and sells them to customers. These agreements are essential for defining the rights and obligations of both parties and ensuring compliance with applicable laws.

Distribution agreements are particularly beneficial for expanding into new markets without the need for a supplier to establish a physical presence, allowing businesses to leverage the expertise and networks of distributors.

Key Terms to Consider in a Distribution Agreement

When drafting or reviewing a distribution agreement, it is crucial to include clear and comprehensive terms. Key points to consider include:

1. Territory: Define the geographical area where the distributor is authorized to sell the products.
2. Exclusivity: Specify whether the agreement grants exclusive rights or allows multiple distributors within the territory.
3. Products: Clearly outline the goods covered by the agreement, including quality standards and specifications.
4. Pricing and Payment: Include terms on pricing, payment methods, credit terms, and any volume-based discounts.
5. Obligations of the Parties: Detail the responsibilities of both the supplier (e.g., product availability) and the distributor (e.g., marketing and sales targets).
6. Term and Termination: Set the duration of the agreement and the conditions under which it can be terminated.
7. Intellectual Property (IP): Ensure protection of trademarks and other IP rights, including restrictions on misuse.
8. Confidentiality: Include clauses to safeguard sensitive business information.
9. Liability and Indemnity: Define the scope of liability for both parties and indemnification provisions.
10. Dispute Resolution: Establish mechanisms for resolving disputes, such as arbitration or litigation.

Types of Distribution Agreements

There are several types of distribution agreements, each suited to different business needs:

1. Exclusive Distribution:
   • Grants the distributor exclusive rights to sell products in a defined territory.
   • Often used to build strong relationships and incentivise high performance.
2. Sole Distribution:
   • Similar to exclusive distribution but allows the supplier to sell products directly in the territory.
3. Non-Exclusive Distribution:
   • Permits multiple distributors in the same territory.
   • Provides flexibility for the supplier but may lead to competition among distributors.
4. Selective Distribution:
   • Allows the supplier to appoint distributors based on specific criteria (e.g., expertise or location).
   • Common in luxury or high-end markets where brand image is critical.

Competition Law and Regulatory Issues

Distribution agreements must comply with UK and EU competition laws to avoid anti-competitive practices. Key considerations include:

• Resale Price Maintenance (RPM): Suppliers cannot dictate the resale price, as this may breach competition laws.
• Territorial Restrictions: Avoid absolute bans on cross-border sales within the EU, as these are generally prohibited.
• Exclusivity Clauses: Ensure exclusivity arrangements do not excessively restrict competition.
• Market Sharing: Avoid agreements that divide markets or customers between distributors in ways that limit competition.

What Is the Difference Between a Distribution Agreement and an Agency Agreement?

The key distinction lies in the nature of the relationship and responsibilities:

• Distribution Agreement: The distributor purchases goods from the supplier and resells them to customers, taking ownership of the goods and bearing the risk of resale.
• Agency Agreement: The agent acts on behalf of the supplier to negotiate and conclude sales but does not take ownership of the goods. The supplier retains control and bears the risk of sale.

Distribution agreements provide independence and flexibility to distributors, while agency agreements offer the supplier more control over sales.

Frequently Asked Questions About Distribution Agreements

Contact The Jonathan Lea Network today to discuss your distribution agreement needs. Our expert team provides tailored advice to ensure your agreements are robust, compliant, and aligned with your business objectives.