Distribution

Distribution

A distribution agreement is an agreement in which the distributor undertakes to purchase products from a supplier and subsequently distribute them to customers. A distribution agreement is a special type of agreement in which very specific arrangements, rights, and obligations can be included. The business relationship between supplier and distributor is typically a long-term matter. Concluding a distribution agreement must therefore be done with care. The distribution team at MKB Juristen has extensive experience in assisting suppliers and distributors during the negotiation and conclusion of distribution agreements.

As with any business relationship, disputes can arise in a distribution relationship. We assist organizations with disputes concerning, among other things:

• Exclusivity clause
• Competition
• Termination and cancellation (whether early or not)
• Customer compensation
• Compensation

We have the knowledge and expertise to assume diverse roles: from advice to dispute resolution. We have an experienced team of lawyers and legal experts in the field of distribution. Contact us to discuss the possibilities.

Exclusive, selective and non-exclusive distribution

Distribution agreements take various forms, each with its own legal considerations. With exclusive distribution, the distributor is granted the sole right to sell the products within a specific territory or to a specific customer group; the supplier does not designate a second distributor for that territory. With selective distribution , the supplier only supplies distributors who meet certain quality or brand criteria, which is common for branded products and luxury goods. With non-exclusive distribution, multiple distributors may carry the same products in the same territory. The chosen form partly determines which exclusivity, territorial, and purchasing conditions are permissible. Our lawyers and in-house counsel help you choose the form that suits your product portfolio and market, whether you are an international group or a local wholesaler.

Termination and notice period of the distribution agreement

A distribution agreement is a long-term contract, and consequently, special rules apply to its termination. In principle, a fixed-term agreement cannot be terminated prematurely without a provision to that effect; the agreed duration must generally be respected. An indefinite-term agreement is generally terminable, but the requirements of reasonableness and fairness (Article 6:248 of the Dutch Civil Code) may entail that a sufficiently weighty ground for termination is required, that a reasonable notice period be observed, or that compensation (for damages) be offered. What constitutes a reasonable period depends on the duration of the relationship, the degree of dependence, and the investments made; in practice, reasonable periods range from a few months to several years. In the event of a serious breach, the agreement may be dissolved pursuant to Article 6:265 of the Dutch Civil Code. We advise suppliers and distributors both preventively (clear termination provisions) and in the event of a conflict regarding a (too) short notice period.

Distribution and competition: the block exemption for vertical agreements

A distribution agreement is a vertical agreement: an agreement between undertakings active at different levels of the production or distribution chain. Consequently, competition law almost always plays a role. The cartel prohibition of Article 101 of the Treaty on the Functioning of the European Union and Article 6 of the Competition Act prohibit agreements restricting competition. However, the European Group Exemption Regulation for vertical agreements (Regulation (EU) 2022/720, in force since 1 June 2022) offers a safe haven: if the market share of both the supplier and the distributor does not exceed 30% and the agreement does not contain so-called hardcore restrictions, agreements regarding exclusivity and territorial protection are in principle permitted. Hardcore restrictions include vertical price fixing (imposing a fixed or minimum selling price) and prohibiting passive sales outside the assigned territory. In this context, online sales are in principle considered passive sales and may not simply be restricted. In principle, a non-compete clause may last a maximum of five years during its term and at most one year after termination, provided it is necessary to protect know-how. We review your distribution agreement against these rules to ensure you do not unintentionally agree to a void and penalty-sensitive clause.

Distribution or agency? The difference and the client compensation

The distribution agreement is often confused with the agency agreement, but the legal consequences differ fundamentally. The distributor purchases the products himself and resells them in his own name and at his own risk; the commercial agent merely mediates in the conclusion of agreements between the principal and his customers. Unlike the agency agreement (Article 7:428 et seq. of the Dutch Civil Code), the distribution agreement is not regulated by law, resulting in considerable contractual freedom. An important consequence is the compensation for customers: at the end of the agreement, the commercial agent has a statutory right to compensation for customers subject to conditions (Article 7:442 of the Dutch Civil Code), whereas the distributor does not, in principle, have that right. Nevertheless, the court sometimes rules that a distribution relationship resembles an agency so closely that the agency rules apply by analogy. We assess whether this classification question could work to your advantage or disadvantage and how you can prepare for it.

International distribution and dispute resolution

Distribution relationships are often cross-border: a Dutch supplier with distributors abroad, or a foreign group marketing its products through a Dutch distributor. In such cases, it is important to establish in advance which law applies and which court or arbitration institution will hear disputes. A sound choice-of-law and forum selection clause prevents unpleasant surprises; for international relations, arbitration is often chosen due to the enforceability of rulings abroad. Our mixed teams of lawyers and in-house counsel advise both international groups and smaller entrepreneurs, from the baker on the corner rolling out his product via a distributor to the importer with a network of resellers.

Distribution within our commercial law

Distribution is part of our broader expertise in Commercial Law. Because a distribution issue often touches upon other commercial law topics – such as general terms and conditions, delivery and payment agreements, agency, and liability – we always look at the bigger picture. This prevents a watertight distribution agreement from failing due to a loosely drafted purchase or sales condition. Do you wish to have a distribution agreement drafted, reviewed, or terminated, or are you in the midst of a dispute? Please contact our distribution team.