Many manufacturers or distributors place restrictions on the resale of their goods. 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.
The most common restriction that is not enforceable is a restriction on resale price maintenance. This restriction 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 since this practice reduces the ability of buyers to choose from sellers with independent prices, it is a violation of competition and antitrust laws.
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. A 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, and represent you in court if necessary.