If your company is considering an international distribution agreement, it is important that you take professional advice. Should you discuss what happens when another company buys the manufacturer or distributor? In one case, for example, a trader was transporting a line of agricultural products from a producer who only made agricultural products. The dealer also sold tractors from another manufacturer. A large multinational company, which also manufactured a number of tractors, acquired the agricultural products manufacturer. The company then said it wanted its distributors to run a “complete line,” including tractors. This situation is often difficult to manage in advance in a distribution company, but this case highlights one of the things that can happen to create a dispute. The end result was that the manufacturer terminated the distributor because it did not treat a “complete line.” The distributor complained of different theories and lost on each of them. (see Smith Machinery Company, Inc. v. Hesston Corporation, 878 F.2d 1290 (10. Cir. 1989) and Continental TV v.
GTE Sylvania, Inc., 433 U.S. 36 (1977).) Distribution agreements are an integrated instrument for establishing a relationship between a distributor and a supplier. A well-written agreement can help develop this relationship. The agreement cannot extend the life of a relationship as soon as the relationship expires. A poorly written agreement often results in legal litigation, which in turn consumes management time, financial resources and the involvement of lawyers, courts and arbitration proceedings. A well-written agreement can eliminate resource expenditures for these non-productive activities and encourage the distributor and manufacturer to do their business at the end of the relationship. The agreement should also specify the duration of trade relations. In addition, procedures should be put in place to address renewal and shutdown issues.
Problems with distribution agreements are often identified after negotiations and agreements have been signed, even if agreements have been verified by corporate or outside lawyers. How did we get to this point? Too often, lawyers remove incriminating clauses, but are simply not aware of industry standards. They do not understand the most common agreement problems. It is a good practice to have the agreement verified by a lawyer and an industry professional. If your company lacks an industry expert who knows the distribution agreements, such support should be sought. A legal technical review is necessary for the creation of a large distribution agreement, but it is never sufficient. With the exception of a developer distribution agreement, which is a separate type of agreement, a basic distribution agreement should include a specific language to make it legally binding. Among this information is the fact that the manufacturer will often want to choose a particular national right to govern the contract.
Sometimes that is the state the manufacturer is in, and sometimes it will be another state. The manufacturer will also want a provision stating that whenever a distributor wants to assert a right against the manufacturer, the distributor must do so in the manufacturer`s home Member State.