Distribution agreements, agency agreements and franchising agreements are three very common types of commercial agreement entered into by companies and individuals.
It is important to recognise the differences.
All three agreements are, from a competition law perspective, known as vertical agreements.
When entering into these types of agreements the key considerations to be factored in include
- Normal commercial considerations between the contracting parties
- Competition law in terms of the restrictions placed on one of the parties by the agreement
- Agency agreements need additional consideration as there is an EU Commercial Agents Directive and Commercial Agents Regulations to consider.
Elsewhere on our site you can read more about franchise agreements. This piece will focus on distribution agreements and we will deal with agency agreements separately on our site.
The key difference between a distribution agreement and an agency agreement is that in a distribution agreement title to the goods passes from the supplier to the reseller. (In an agency agreement title does not pass)
(This is part of the small business law series of articles)
Distribution agreements
Distribution agreements are generally for 5 years or less and are agrements between suppliers and resellers.
There are three types of distribution agreement:-
- Selective agreements
- Exclusive agreements
- Non-exclusive agreements.
Selective agreements
Selective agreements are where the supplier has applied some selective criteria in choosing a distributor. They are commonly used in the supply of luxury goods and allow the supplier have some control over how the goods are sold.
Exclusive agreements
Exclusive agreements are where the reseller has exclusive distribution rights in a geographical area and the supplier is restricted from supplying other distributors.
Non-exclusive agreements
Non-exclusive agreements arise where the supplier is not restricted from supplying other resellers.
Key considerations
Some considerations to keep in mind when entering into a distribution agreement, apart from the normal commercial factors, include
- The territory covered in the agreement
- The use of the intellectual property rights of the supplier by the reseller
- The terms and conditions concerning purchase and sale of the goods
- The selection criteria in selective agreements together with any training/support to be given, any sales targets/criteria and the restriction on the distributor from supplying unauthorised distributors
- The restrictions on the supplier from supplying other distributors in exclusive distribution agreements.
This is not an exhaustive list and if entering or negotiating a distribution agreement the normal commercial negotiating should take place to ensure that you get the best deal.
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