Distribution Agreement Checklist
This distribution checklist covers subjects to consider for including in a distribution agreement. The appointment of a distributor may be the most efficient means of getting your products to new or expanded markets, either within the U.S. or internationally. Here the term “Home Office” refers to the party that is considering the appointment of a distributor.
1. Appointment of the Distributor. Will the appointment be exclusive or non-exclusive? If the distributor is an entity rather than an individual, is there a need for a key individual’s personal guaranty of performance?
2. Defining the Territory. The geographic limitations of the Distributor’s mandate must be set out. Additional questions to consider are whether the distributor is permitted to take orders from outside the defined territory.
3. Products Covered. Are certain products specifically included or excluded from the distribution arrangement? Is the distributor allowed to sell competing products?
4. Term of the Agreement. What is the length of time for the appointment? Does it automatically renew? Is continuation or renewal to be linked to distributor sales?
5. The Distributor’s Sales Efforts. What advertising or marketing is the distributor expected to conduct? How will it be paid for? Does the Home Office wish to control the content, look and feel of advertising materials? Is the distributor required to make minimum purchases from the Home Office? What are the terms for sales by the Home Office to the distributor? Are resale prices to be set? Will the Home Office make direct shipments to the distributor’s customers? What facilities and/or employees does the Home Office require the distributor to maintain? Sales specialists? Installation and service specialists?
6. The Distributor’s Performance. What business structure is the distributor required to have? Is the distributor permitted to have sub-distributors? How often does the Home Office require reports from the distributor? What must those reports contain? What representations from the distributor does the Home Office require as to the distributor’s financial condition? What if that condition changes?
7. Acceptance of Orders and Shipment. When are customer orders deemed accepted? For example, does the distributor have the power to accept orders on behalf of the Home Office, or must the Home Office accept all orders? Does title to goods ordered by the distributor from the Home Office pass to the distributor? If so, when does title pass? Which party bears the risk of loss during shipment? How are defective products, claims about products and returns to be handled? Does the Home Office warrant the products to the distributor and/or end-users?
8. Confidential Information. The distribution agreement must protect the intellectual property (trademarks, patents, copyrights, etc.) of the Home Office, as well as confidential information and trade secrets. If the distributor’s territory is a foreign country, registration of trademarks and patents of the Home Office in that country should be applied for before entering into a distribution agreement. The Home Office should not warrant its intellectual property against infringement.
9. Damages for Breach. The Home Office should not be liable for consequential damages. Breach by the distributor should permit the Home Office to terminate the agreement. Caveat: Some U.S. states and foreign jurisdictions have statutes that may restrict the Home Office’s right to terminate a distributor. These must be checked carefully before entering into a distribution agreement.
10. Rights and Obligations upon Termination. Will there be materials and/or stock to be returned or repurchased by the Home Office? Should there be a non-competition agreement?
11. Miscellaneous. Final matters such as choice of law, dispute resolution, no assignment, etc. must be considered and added.
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