Will the dealer be allowed to compete with the manufacturer after termination? The general principle of law states that a non-compete obligation is enforceable if it is reasonable and contributes to a commercial purpose. If it is a mere «naked restriction of competition» or if it is so broad as to be unreasonable, it will not be enforceable. The issues that the court will address are that both parties to the agreement can use an exclusive distribution agreement in different ways. Sometimes the distributor is the sole distributor of the supplier`s product in a particular geographical area. In other exclusivity agreements, the merchant has the exclusive power to sell the product to certain customers, which means that no other reseller can sell to those customers. Exclusivity agreements are often used when the product is expensive or when it is clear and technical, which requires special knowledge of the goods and the market. A distribution contract is a commercial contract between a supplier of goods and a distributor of goods. The supplier can be a manufacturer or reseller of the products. In the modern business world, more and more companies are involved in distribution agreements that cross international borders. According to the World Bank, international trade accounted for nearly one-third of U.S. gross domestic product (GDP) in 2017. Companies engaged in this type of cross-border activity need well-structured international distribution agreements.
Key Clauses of an International Distribution Agreement An international distribution agreement is essentially a contract that creates a framework for a business relationship between global parties. In order to ensure effective and efficient transactions, an international distribution agreement should be comprehensive. Some of the key clauses you usually find in an international distribution agreement include, but are not limited to, products and territories, obligations of the parties, exclusivity provisions, renewal/termination, and dispute resolution. Products and territory As a starting point, international distribution agreements usually include details about the specific products and the territory covered by the contract. Obligations of the parties Like other trade agreements, it is imperative that an international distribution agreement clearly defines the responsibilities of each party. The Supplier and the Distributor must have clarification of their obligations to comply with the terms of the transaction. Exclusivity provisions Some international distribution agreements contain exclusivity provisions. While not all of these agreements are exclusive, this is an issue that should be addressed in contract negotiations.
Renewal/termination The contract must also determine the duration of the business relationship. In addition, procedures should be put in place to address renewal and termination issues. Finally, distribution agreements should contain provisions on dispute settlement. Regardless of the quality of the relationship between the supplier and the dealer, there is always a risk of litigation. In the case of international commercial contracts, it is often advisable to include arbitration regulations. Arbitration offers many advantages over handling disputes under local law. Of course, this list is just a short selection of important contractual terms that you will find in an international distributor agreement. These agreements must always be tailored to the individual needs of each party.
Get help from an international business lawyer today If your company is considering signing an international distribution agreement, it`s important that you seek professional advice. As these are complex agreements, there are a number of unique issues that need to be addressed. I will ensure that the agreement is properly drafted and that it protects the rights and business interests of your company. I often represent U.S. clients doing business abroad and German-speaking clients doing business in the United States. If you have any questions about international dealer contracts, I will be happy to help you. To arrange a fully confidential consultation, please contact me today. The distribution contract may offer the Distributor the right to remedy or not the performance of the contract. In our view, it is necessary and appropriate to have the right to healing in virtually all contracts. No one should ever violate a contract unless: The distribution agreement contains the agreement between the manufacturer and the distributor, as well as the terms of the distribution. issues such as remuneration to be paid, insurance; Transport and associated risk, travel time, legal issues: all are mentioned in a distribution contract. Most lawyers, especially those representing a manufacturer, will also want a so-called «blue pencil clause.» This clause provides that if any provision of the Agreement is unlawful or unenforceable, it will not affect the enforceability of the rest of the Agreement.
Lawyers often question the applicability of various provisions of a distribution agreement, with the non-compete clause being the clearest example. The inclusion of a «blue pencil clause» will hopefully ensure that if an unenforceable clause is inserted into the agreement, only that clause will fail and the rest of the contract will remain as negotiated. But assuming that the manufacturer sells directly to the customer, the dealer must negotiate and obtain good contractual terms so that the customer cannot buy directly from the manufacturer and thus eliminate the dealer. Often, unscrupulous manufacturers offer customers a special low discount (which leads to the failure of the dealer in the markup) and the customer will be happy to buy directly. This must be prohibited in the Treaty. If your company is considering using an exclusive distribution agreement, you should consult a lawyer to ensure that your company does not violate antitrust laws for free competition. Should you discuss what happens if another company acquires the manufacturer or distributor? In one case, for example, a merchant operated a line of agricultural products from a manufacturer who produced only agricultural products. The dealer also sold tractors from another manufacturer.
A larger multinational, which also produced a number of tractors, acquired the agricultural products manufacturer. The company went on to say it wanted its dealers to run a «complete line,» including tractors. This situation is often difficult to deal with in advance in a distribution store, but this case highlights one of the things that can happen to cause a dispute. The end result was that the manufacturer fired the dealer because they did not manage a «complete line». The distributor sued various theories and lost against all of them. (See Smith Machinery Company, Inc. v. Hesston Corporation, 878 F.2d 1290 (10th Cir.
1989) and Continental TV v. GTE Sylvania, Inc., 433 U.S. 36 (1977).) This article briefly describes the basic contractual guarantees that any distributor in the United States should strive to achieve when negotiating a new distribution relationship. Manufacturers, of course, have their own criteria and should check out the separate article on this site to find out which contract they want to create. Determine the duration of the agreement: Flexibility in terminating the distribution contract is crucial. Take, for example, a case where your company is about to make an acquisition and the acquirer binds the purchase to the termination of the distribution agreement. In this case, your exit will depend on your distributor`s consent to compensate you for the agreement. This issue also occurs when «change of control» provisions are included, according to which your business partner can terminate the contract in the event of a change of control in your business. So, if your buyer`s proposal depends on continuing your relationship with the merchant, you are at their mercy.
Therefore, set final and short initial periods, which can be repeatedly extended by mutual agreement. .
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