Cross-‐Border Distribu/on and Agency Agreements ACC International
Legal Affairs Committee
Quick Hit: May 10, 2012
James L. (Jay) Rogers
Womble Carlyle Sandridge &
Distribu/on and Agency Agreements Generally § Distinguishing Distribution from Agency
§ Local jurisdiction legal treatment of sales
§ Focus today on out-bound Distribution
Agreements (U.S. supplier selling into overseas
market via distributor)
What is diﬀerent about Interna/onal Distribu/on/Agency Agreements? § Many issues in common with their domestic
§ Key issues are defining territory, term of
agreement, performance metrics, exclusivity vs.
non-exclusivity, defining/protecting intellectual
§ But treatment of certain issues can be quite
different when cross-border issues are involved
Territorial Restric/ons and Exclusivity § Territorial restrictions are generally okay, but within the
EU exclusivity may be a necessary quid pro quo in
order to restrict distributor s territory.
§ Why? EU has strong bias in favor of a single European
market. Territorial restrictions are viewed as
antithetical to single market and so are looked upon
Termina/on of Agreement and Local Dealer Protec/on Statutes § Some jurisdictions have minimum terms, as well as
onerous termination provisions, as part of a so-called
dealer protection statute.
§ Rationale behind dealer protection statutes: need to
protect local distributors/agents who build a new
market for foreign company and are then discarded in
favor of foreign company s own, proprietary distribution
channel or sales force.
§ Dealer protection statute may override the parties
agreement on grounds of public policy.
Termina/on of Agreement (cont d) § Punitive aspects of dealer protection statutes typically
triggered by termination without cause. So, define
what constitutes cause in your agreement with
reference to performance metrics; ie. minimum sales
goals, minimum marketing/promotional spend, etc.
§ Termination without cause may lead to liability for
lost profits of distributor for term of agreement, or five
years, or the like.
§ If distributor fails to meet contractual requirements but
supplier does not terminate the agreement, be careful
to document that failure to enforce contract terms does
not constitute a waiver of termination rights for cause.
Risk of Loss and Title Passage § Agreement should address when title/risk of loss
passes to distributor; who is responsible for insuring
product in transit; use of Incoterms (published by the
International Chamber of Commerce,
http://www.iccwbo.org/incoterms/) or simply spell it out
in the agreement.
§ Title passage issue can also impact responsibility for
VAT tax in local jurisdiction and foreign source
income for U.S. supplier.
Dispute Resolu/on § Choice of Forum: here, there, or at some neutral
§ Litigation vs. Arbitration; U.N. Convention on
Arbitration a/k/a the 1958 New York Convention
frequently makes arbitration the most attractive option
due to enhanced enforceability of award.
§ Which is the binding language of agreement?
§ Governing law; again, ours, theirs, or law of some
perceived neutral body such as UN Convention on
Contracts for the International Sale of Goods
Trap for the Unwary: Failure to Speciﬁcally Disclaim the UNCISG Means It Will Govern the Agreement §
If the parties are resident in countries which are signatories to
the UNCISG (the U.S. is a signatory along with 77 other
countries), and the agreement involves the sale of goods
(not services), the UNCISG automatically governs the
Agreement unless it is specifically disclaimed. Easom
Automation Systems, Inc. v. Thyssenkrupp Fabco, Corp.,
2007 U.S. Dist. LEXIS 72461 (E.D. Mich. 2007). Merely
stating that the law of a particular jurisdiction governs the
agreement is insufficient to disclaim the UNCISG. For a list of
UNCISG signatories see:
Other Bear Traps: An/trust and Local Franchise Law § Antitrust Issues
§ Territorial restrictions esp. in EU;
§ Resale Price Maintenance (as of 2007 Leegin
decision no longer per se illegal in U.S. but
E.U. takes a more skeptical line)
§ Loyalty rebates
§ Accidental Franchisor: e.g. Article 142 of
Mexico s Industrial Property Law
Contact Informa/on James L. (Jay) Rogers
Womble Carlyle Sandridge & Rice, LLP
550 South Main Street, Suite 400 (Zip 29601)
P.O. Box 10208 (Zip 29603)
Greenville, South Carolina
Email: [email protected]