TERRY BEHRMAN | 312.882.9014 | terry@behrmangroup.com

Certified Professional Coach

Oct 17, 2021 | Post by: admin Comments Off on You Are Entering Into A Distributorship Agreement. You Will Consult In This Matter

You Are Entering Into A Distributorship Agreement. You Will Consult In This Matter

The ease and benefits of such an agreement are one of the reasons why tens of thousands of merchants exist in California just and it is also a common method of doing business abroad. However, a very experienced distributor who had long been represented by this company, who had earned several million dollars in his company and was considered one of the outstanding experts in his field, once commented to this author that he would never advise his son to become a distributor. “You can`t win in the long run. If you`re not good at selling, they end up firing you. If you are good and build their name and reputation, they think it is cheaper to enter the house once you have established the market and are licensed. You have to be good – but not too good. Sooner or later, you and the manufacturer will separate and all the efforts you have put into creating goodwill will go entirely to the manufacturer. As a starting point, international distribution agreements usually include details about the specific products and the territory covered by the contract. While most courts essentially equate a failure to renew the agreement with a termination, the manufacturer will be in a slightly better position to argue if they don`t have to write a letter of termination from a distributor. He can “terminate” the distributor by simply not renewing, as we hope, according to the terms of the 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 enforceability of various provisions of a distribution agreement, with the non-compete agreement 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.

Limitation of Liability: In most jurisdictions, liability for damages caused by the use of the products rests with the manufacturer. Some agreements attempt to transfer this responsibility to the merchant, but if they are tested by the courts, they are unlikely to apply. Therefore, the right way to deal with liability risk is to formulate an effective indemnification mechanism that limits the scope of your liability. Such a mechanism should limit your liability both in terms of amount and time and be supported by adequate insurance coverage. Some distribution agreements only require the distributor to use their “best efforts” to sell the manufacturer`s product. The trader should object to such a provision on the basis of Bloor v. Falstaff, 601 F.2d 609 (2d Cir. 1979), where the court essentially concluded that the term “best efforts” means almost everything but bankruptcy. From a distributor`s perspective, you want the distribution agreement to include “reasonable efforts” instead of “best efforts.” Therefore, it is crucial for the distributor to target an exclusive territory, exclusively to the point where even the manufacturer or owner of the product is not allowed to sell in the territory. Is the dealer allowed to compete with the manufacturer after termination? The general legal principle is that an appropriate non-competition agreement adapted to a commercial object is enforceable.

If it is a mere “naked restriction of competition” or if it is so broad that it is inappropriate, it will not be enforceable. The issues the court will address are that in some states, including California, there are some legal protections against non-compete obligations, but these generally only apply to former employees and appropriate restrictions to protect trade secrets are allowed. This area is important to negotiate carefully at the beginning of the relationship, and the key question is which products “compete,” what happens when the product line changes, and how long and in what physical area a restriction of competition will last. .