Legal link: Robust distribution agreements
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For many businesses in the supply chain, success depends on the efficient distribution of the products/goods or services, and on a clear, well-drafted, and enforceable distribution agreement.
Negotiating and drafting an enforceable agreement relating to the distribution of products/goods or services from a supplier to market can be complicated. Each clause in the agreement must contribute to a clear, fair and comprehensive contract. Mistakes can be costly, wasting valuable time, financial resources, and requiring the involvement of lawyers, mediators, arbitrators, and courts. Every effort must therefore be made to strengthen business relationships and to avoid disputes and potential litigation. This necessarily involves creating a robust distribution agreement.
A distribution or distributor agreement is a contract usually between a manufacturer or vendor and a distributor, such as a retailer, a value-added reseller, or a system integrator in the distribution channel or supply chain.
The distribution agreement is critically important to the establishment and maintenance of the relationship between a distributor and a supplier. The words and phrases used in the distribution agreement should be so clear and unambiguous that its plain meaning and effect can be discovered within “the four corners” of the document.
A distribution agreement commonly contains terms and conditions pertaining to: the appointment of the distributor, the territory and markets, the term of the agreement (including pricing, payment, condition of sale, shipping and delivery terms), obligations of the distributor and the supplier, intellectual property (trademark, copyright and confidential information) rights, obligations and remedies, procedures to terminate the agreement, non-competition and non- solicitation agreements, risk allocation, limitations of liability, indemnification, choice of legal jurisdictions, dispute resolution options, and general/standard contractual provisions.
When relationships breakdown and disputes arise, they often involve complex issues such as whether:
The court action should be stayed on the grounds that the claim is subject to a binding arbitration clause in the distribution agreement.
Do not sign a distribution agreement until you have:
In this way, a robust distribution agreement can be created which will help you strengthen your business relationship with the other contracting party to that agreement and will assist in avoiding costly mistakes that may result in harmful disputes and potential litigation.
For a comprehensive checklist of items that should included in a distribution agreement, see Distribution Checklist.
Marvin Huberman, LLM, is a Toronto lawyer, mediator and arbitrator.