What Restrictions Can Be Placed on the Resale of Goods?Many manufacturers or distributors place restrictions on the resale of their goods when selling to a distributor. Generally, these restrictions will be found legal if there is a reasonable business objective and there is no adverse affect on competition. Some examples of restrictions that are usually upheld are:
- A requirement that the distributor sell or not sell to certain customers;
- A requirement that the distributor conduct business only in certain areas;
- A requirement that the distributor sell only at certain specific locations.
These restrictions will usually be a part of the distributorship agreement and will be enforced by cutting off supplies of the manufacturers goods or terminating the distributorship contract. Since many distributorship contracts may include covenants not to compete which may limit the ability of the distributor to work for a competitor, this can be a significant punishment.
Are There Any Restrictions That Are Not Allowed?The main restriction that is not legal is resale price maintenance, which is a requirement that the distributor sell the product at a minimum set price level. This requirement prevents resellers from competing too fiercely and driving down profits. The Supreme Court has ruled that this practice is a violation of competition and antitrust laws since it reduces the ability of buyers to choose from sellers with independent prices.
Do I Need a Lawyer?The laws regarding distributorships can be complex and difficult to understand. When setting up a distributorship agreement, it is important not to create any arrangement that could be considered either a direct or indirect price fixing plan. An experienced business lawyer can help you in creating a distributorship agreement and advise you on what restrictions are allowed and whether they can be enforced. A lawyer can also advise you regarding existing agreements and restrictions, as well as represent you in court if needed. |
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