Description

Distribution Agreement (Pro-Seller, Short Form)

Distribution Agreement (Pro-Seller, Short-Form) Preparation Form.  We recommend that you gather the information in this form prior to accessing the online questionnaire.  Doing so will help you efficiently create your custom short form Pro-Seller Distribution Agreement.

Summary

This Distribution Agreement applies to the sale of tangible goods by the manufacturer or producer (seller) to the distributor for sale to:

• Other distributors or resellers
• End users (which are businesses) for consumption or incorporation into another product.

The authors have drafted this Agreement in the seller’s favor. However, it aims to be reasonable and includes some provisions (often presented in brackets as optional provisions) that address some of the distributor’s high-level concerns.

Details

When preparing or reviewing a distribution agreement, the parties should consider adjusting the operative provisions to account for business factors specific to the transaction, including:

• The relationship and negotiating leverage between the parties.
• The deal size.
• The parties’ creditworthiness.
• The allocation of warranty and other responsibilities.

Consistent with common practice, this Distribution Agreement is a master agreement under which the distributor buys goods from time to time by issuing purchase orders.

Distribution Versus Product Reseller Agreements

Distributors and product resellers typically perform similar activities. For example, they each purchase goods for resale to third parties. However, distributors and resellers occupy different positions and serve slightly different functions in the supply chain. Common examples include where:

• A reseller buys goods from suppliers (typically manufacturers or distributors) with the intent to resell them to end users for consumption or incorporation into another product.
• A distributor (a middleman sometimes called a wholesaler) purchases goods from the supplier (typically manufacturers) for resale to:
  • other distributors;
  • resellers, such as retailers; or
  • end users, such as consumers or companies.

Therefore, while most distribution and reseller agreements’ terms and conditions are fairly similar, for the purposes of this Agreement, they differ in several ways. For example, compared to a reseller under a standard product reseller agreement, the distributor under this Agreement has fewer and less onerous obligations to:

• Maintain the appearance and condition of its retail locations, outlets, and product displays.
• Provide end user support.

Assumptions

This Distribution Agreement assumes the following:

The deal is not large enough to warrant a long-form agreement.

• The parties may decide to negotiate a long-form distribution agreement in order to save time and money if the deal is relatively large.

This agreement is based on the model Uniform Commercial Code (UCC).

• Agreements for the sale of goods are typically governed by UCC Article 2, as enacted by the relevant state whose law applies to the transaction. All states (except Louisiana), the District of Columbia, the Commonwealth of Puerto Rico, Guam and the US Virgin Islands have enacted some form of UCC Article 2. Unless noted otherwise, all references to the UCC in the drafting notes to this document refer to the pre-2003 model code. Parties should consult the version of the UCC enacted in the state where the law applies to the transaction. This version may be different from the model code.

The agreement contemplates the domestic sale of goods from a US seller to a US distributor.

• If either party organizes in, operates in, or any part of the transaction takes place in a foreign jurisdiction, the parties may need to modify these terms in order to comply with applicable laws in the relevant foreign jurisdiction.

There are a single seller and a single distributor.

• The parties must make adjustments if there are additional sellers or distributors. For example, if there are multiple sellers or distributors, the agreement must be drafted to reflect whether their obligations are joint, several, or joint and several.

The seller is a merchant selling durable goods.

• The seller is a merchant in the business of manufacturing or selling durable goods of the type that are sold under the agreement. If the seller sells customized or nondurable (consumable) the parties must revise this agreement. Due to the fact that many UCC provisions apply only to merchants these revisions are necessary.

The distributor purchases and takes title to the goods from the seller.

• The parties must revise this agreement if the distributor acts as the seller’s sales representative or agent without taking title. For example, where the distributor acts as an intermediary that closes the transaction on the seller’s behalf rather than on its own.

This is a non-exclusive transaction.

• The seller is not providing the distributor with:
  • exclusive rights to market, promote, or resell the goods; or
  • assurances on what price the seller may charge the distributor relative to the distributor’s competitors. To obtain these assurances, a most favored customer (MFC) clause should be included. Individuals also refer to these clauses as a most favored nations provision. If the parties agree to include an MFC clause, however, the parties should be careful to comply with US antitrust law.

The seller does not give the distributor a patent license to sell the goods.

• If there is a patent on the goods, the parties must revise the agreement. If the parties sign the agreement before filing a patent on the goods, the seller may forfeit the right to obtain a patent on those goods.

The manufacturer does not require a separate license.

• Any manufacturer or other third-party use restrictions or requirements (including any software license) imposed on a good are accompanied by or are embodied in the good.

This agreement does not contemplate full-line forcing.

• The seller is not requiring the distributor to buy and keep a full stock of each good. If parties agree to use full-line forcing, the parties must revise the agreement. While making these revision the parties must be careful to comply with US antitrust law.

The resale territory does not include countries outside of the US.

• If the seller allows the distributor to export goods or products incorporating goods outside of the US, the seller should consider including export-specific representations and warranties and covenants.

The distributor is not going to resell the goods to a government entity.

• In the US, the government regulates contracts with the government more heavily than non-government contracts. US government procurement laws and regulations cover some subcontracting agreements. These laws and regulations may indirectly impact the relationship between the seller and the distributor. Therefore, if the parties agree to give the distributor the right to resell the products to a government entity, the parties may have to revise this agreement.

The distributor purchases the goods without accompanying services.

• The parties must revise this agreement if a services agreement covers the goods. For example, to require the distributor to flow down the services terms and conditions to its customers.

These terms are being used in a business-to-business transaction.

• This Agreement should not be used for providing goods to individual consumers. Consumer contracts may involve legal and regulatory requirements and practical considerations that are beyond the scope of this resource.

These terms are not industry-specific.

• These provisions do not account for any industry-specific federal or state laws, rules, or regulations that may apply to certain transactions. For example, many states have statutes regulating the distribution relationship in certain industries, including heavy equipment, liquor and farm equipment.