As distribution agreement lawyers, we have observed that there are many matters to consider and then properly document.
Some of these are:
Are distribution rights to be given to certain products or the whole range? Are there options if the whole range is not included?
Are there different prices for different volumes?
Is there a discount off the standard retail / wholesale prices?
Modification of Products:
Is the distributor authorised to alter the products?
Are sub-distributors allowed? What are the rules that relate to them?
How is the distribution territory to be defined? The territory may be as small as a few suburbs or as a big as a country or even a continent.
Are there minimum sales targets?
When will payment be due? What security is required to ensure payment?
This is quite critical so that a manufacturer can match demand with production – by producing enough to keep up with distributor demand while not overproducing unnecessarily. This can be a delicate balance and requires careful thought when drafting the agreement.
Is the distributorship an exclusive one? If so, for how long? For all or some products? Distributors of course want maximum exclusivity while manufacturers like to keep their options open with minimum exclusivity. Getting this right is very important.
Packing, delivery and transit:
Whose responsibility is this? Typically, the manufacturer will pack the items to the distributor’s specifications. International transit will often mean different packaging, which comes with different costs. What are the distributors expectations? What type of packing will be required?
A manufacturer has a duty to supply goods of “merchantable quality”. How will control be managed? Is there a possibility of deterioration in quality during transit? How can quality be controlled best? Who is responsible if there is a problem with quality?
Intellectual property rights:
What rights does the distributor have in relation to the goods? What brand will the products bear? Is any modification allowed? Is product licensing allowed?
Who can terminate and what triggers give rise to the right to terminate?
Is there a “run in” period, when parties are still getting to know each other? Distributors often want a manufacturer to be locked in while manufacturers tend to like more flexibility to end the relationship if something is not working – or if a better offer comes up. Sometimes, it is the other way around, whereby the manufacturer wants to lock down a distributor for a period of time with guaranteed order volumes and the distributor may want to road test the success of a product before being committed long term. All such things are negotiable but require considered thought and careful drafting. Experienced lawyers will negotiate the best outcome for you with minimal fuss.
Rights that survive the termination of the agreement:
When the agreement is over, there will be a run-off period. What happens in relation to such things as outstanding payment or defective products complaints that arise post-conclusion of the relationship?
Permitted marketing activities:
To whom may the distributor market the goods? Some manufacturer companies will want strict control to ensure consistency in a large market. Smaller manufacturers will often be more flexible – but will depend on individual circumstances.