27 Jul How to navigate your distributor contracts

When negotiating distribution contracts, overly long and complicated terms and conditions that vary from country to country can see potential partnerships breakdown at the final hurdle. With our experience working with distributors across many different markets, we have developed the knowledge to understand what they need and want within a contract – and how to get the best out of your agreement for both parties.

Our legal team have put together some frequently asked questions that are regularly put to us by clients looking for support drafting, varying and executing their contracts. These FAQ’s specifically relates to UK and EU jurisdictions. Local laws may apply in other jurisdictions.

What is the difference between an agent and a distributor?

There are several key differences between a distributor and an agent, such as:

1. A distributor will enter into a distributor agreement with the supplier, whereas an agent enters into an agency agreement with its principal.
2. A distributor purchases products from a supplier and will independently resell such products to its customers. Thus, it is the distributor and not the supplier that has a contractual relationship with the customer. By contrast, an agent will locate customers for suppliers, and will often negotiate and conclude contracts with the customers on behalf of its principal.
3. An agent is usually paid in commission, whilst a distributor will make their profit on selling the products purchased from the supplier.
4. A distributor will make decisions with regards to pricing, marketing, publicity and terms of supply to its customers, however where an agent is concerned such provisions are controlled by the principal under an agency agreement.

Can a supplier control the prices at which its distributors resell its products?

Unlike an agency arrangement, a supplier cannot impose fixed or minimum pricing for the products its distributor resells, either directly or indirectly. Any supplier that intends to do so will most likely be deemed to have infringed the UK and/or EU competition law. A supplier may, however, impose maximum pricing or recommend resale prices. 

Can a supplier restrict a distributor from selling into territories that have been reserved for other exclusive distributors?

A supplier may legally prevent a distributor from actively selling to territories that have been reserved exclusively for the supplier or to another distributor (also known as active selling). However, the supplier cannot restrict a distributor’s ability to make passive sales (i.e. sales in response to unsolicited demands) into such reserved areas. Non-exclusive territories that have not been reserved for the supplier or another distributor cannot be protected either from active or passive sales.

If you would like to learn more about distributor contracts and how our legal team can assist you, please contact us here.

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