A distribution agreement is basically a contract between suppliers and distributors of a product. Such agreements are also called “distributor agreements”, though they may involve other parties such as manufacturers.
Distribution agreements between suppliers and distributors will be very different according to the needs and goals of the distributor-supplier partnership. They usually revolve around the supply and distribution of a specific product.
Distribution agreements can cover a diverse range of business and legal matters, including:
- The different parties involved in the agreement, including their respective representative agents
- Specific business details for the supply-distribution arrangement (i.e. shipment quantities, delivery dates, payment provisions, etc.)
- How long the relationship will last
- Renewal terms, if any
- Termination provisions, including no-litigation clauses or arbitration agreements
In many cases (but not all), distribution agreements can also be classified as “exclusive dealing contracts”. This means that the supplier and distributor agree to work only with one another and not any other parties. This may be desirable depending on the business aims of the parties.
Distribution agreements can cover some fairly complex interactions, and can give rise to many different legal issues. Some common legal issues associated with distribution agreements can include:
- Inequalities and Imbalance in the Contract: It may happen that one party seeks to gain advantage over the other by “drafting inequality or imbalance into the agreement”. Unfair pricing clauses, economic pressure, or differences in resources may lead to imbalances in negotiations
- Premature Termination of the Relationship: This may occur if the parties get involved in a major dispute, or if they are constantly engaging in legal skirmishes. Dissatisfied parties may seek to legally end the relationship through a court proceeding or lawsuit
Generally speaking, inequality in the contract is one of the more common types of legal issues that can arise. Engaging in unfair or unequal tactics is often counter-intuitive, since both the distributor and the supplier may share similar business goals. This emphasizes the need for clear, direct communication during negotiations and during the contract drafting stage.
Other legal issues that can arise include the existence of fraud in the distribution contract, or various types of misrepresentation.
Distributor agreements are subject to contract laws. Thus, a violation of a distributor agreement is usually processed under breach of contract laws. Breaches of contract may lead to legal remedies such as a monetary damages award to compensate the non-breaching party for their losses.
Other remedies may include contract rescission (cancellation of the contract) or contract reformation (re-writing a portion of the contract to reflect the parties’ needs). The type of remedy prescribed by the court will depend on the type of violation involved. For example, monetary damages are only available for certain types of breaches, while rescission may only be prescribed for other types of breaches.
Distribution agreements are often necessary for the supplier-distributor relationship to succeed. It is best to hire an experienced business lawyer before the relationship begins, so that they can assist with drafting and reviewing the distribution contract. In the event that a lawsuit arises, the representation and counsel of an attorney becomes indispensable during court proceedings.