Dealing with a Distributor
Role of a Distributor
A distributor will buy your goods from you, as opposed to a sales or commercial agent who simply obtains orders for you to fulfil. Appointing a distributor may be particularly suitable if you deal in low value, high volume goods. A full-service distributor can carry out a wide range of services for you, including stockholding; sales forecasting, promotion, sales, after-sales and sales reporting.
The advantages of using a distributor over an agent include fewer credit risks and less need for supervision. Possible drawbacks include the effect on your margins and reduced control over the distributor's local market.
Terms of a Distribution Agreement
Key provisions in a distribution agreement include the following:
- whether the distributorship is exclusive within the territory;
- the goods involved;
- the distributor's rights to repackage or alter the goods;
- the distributor's performance criteria including any minimum purchase obligations;
- the price to the distributor and payment terms;
- the territory (e.g. part of the UK or an overseas territory);
- the duration of the appointment;
- the services to be performed by the distributor;
- the parties' respective product promotion obligations;
- the supplier's responsibilities for the goods (warranties, quality, delivery, etc.);
- the distributor's confidentiality obligations and any restrictions on his dealings with competitors;
- termination provisions and rights on termination;
- the law applicable to the contract and dispute resolution issues.
For template distribution agreement templates, see under "Related Documents" below.
Exclusive Distribution and Competition Law Restrictions
Where a distributorship is exclusive, it can fall foul of competition law if it is an agreement which prevents, restricts or distorts competition and affects trade within the UK or part of it.
As exclusive distribution agreements are very common, "block exemption" regulations allow many such arrangements. If the supplier's and distributor's shares of the relevant market do not exceed the relevant percentage threshold, and the arrangements are kept within the "white list" terms of the block exemption, you are not likely to fall foul of competition law but you will need to take legal advice in each case as to whether the block exemption actually applies.
Breach of competition law can result in fines, claims for compensation by those affected by the anti-competitive arrangements or actions, and the relevant agreement may be held to be void and unenforceable wholly or in part.
The competition law regime regulating anti-competitive agreements substantially remains in place in the UK following Brexit.
This is not an area for 'do-it-yourself' and it is therefore important to discuss at the outset any distribution agreement with your lawyers to confirm that it does not need to be notified to the competition authorities and how competition law can affect its intended terms.