Distribution agreements contain standard terms and conditions, which relate, inter alia, to:
- the appointment of the distributor as such and the territory covered by the distribution agreement,
- the obligations of the parties regarding the distribution of the products, such as the provision, by the distributor, of sales forecasts and periodic sales reports, the implementation of marketing plans and actions, etc.
- the placement, acceptance and cancellation of orders, the terms of delivery
- product warranties, the responsibility of the supplier as regards product defects, late deliveries, etc.
- a license, by the supplier to the distributor, of a trademark or other intellectual property rights relating to the products,
- assistance by the supplier of the distributor in obtaining the marketing authorizations required for the distribution of the products in the territory,
- etc.
While the commercial terms and conditions of a distribution agreement depend more on the commercial practices admitted in the concerned industry sector and the parties’ negotiations rather than on applicable law, attention should be paid to certain mandatory requirements set forth by French or EU law intended to protect competition.
Selective distribution
A selective distribution system allows a supplier – willing to preserve the image, brand and positioning of its products – to supply such products only to selected (or “approved”) distributors, that is, to distributors who meet the criteria set forth by the supplier to ensure the proper distribution of its products. While a selective distribution system may be advantageous for both the supplier and the distributor, the parties should ensure that their agreement does not violate French and EU free competition rules. Such rules require, inter alia, that:
- the criteria relating to the approval of the distributors by the supplier should be objective and non-discriminatory. In particular, the supplier may not discriminate against specific forms of distribution, such as mass-market retailing, in the absence of valid reasons
- the distributor should be free to use sales methods of its choosing. Thus, a supplier may not prohibit internet sales unless such restriction are justified
- the distributor should be free to determine its resale prices
- etc.
Exclusive distribution
An exclusive distribution system reserves to the distributor exclusivity for the distribution of the supplier’s products on a specified territory. To be valid, an exclusivity provision must be limited as regards its duration and the territory on which it applies. It must furthermore be compatible with free competition rules.
Exclusive supply
An exclusive supply system obliges a distributor to buy exclusively from the supplier certain products. To be valid, such exclusivity must, inter alia, not exceed a period of 10 years.
Distribution agreements must comply with French and EU rules on competition, which are a complex area of the law. Violation of competition rules may be sanctioned by the nullity of the distribution agreement (or some of its clauses) and the imposition of penalties or fines. Prior to drafting a distribution agreement, a detailed analysis of the distribution system which the parties intend to put in place is necessary to ensure that it complies with French and EU rules on free competition.
