The Distribution Agreements in the U.S.

The distribution agreement is an agreement between two parties, one party usually called the supplier and the other distributor. Distribution contracts are regulated in each state by the UCC (Uniform Commercial Code), a law that each state, based on a common model for the United States, issued to regulate the legal aspects of trade, and which provides that the company manufacturer, for example, an Italian company (the supplier), sells its products to another party (the distributor), which in turn will promote and sell products, not in the name and on behalf of the producer, but in name and on their own.

There are many reasons that argue in favor of the choice towards a type of contract such as this . The distribution agreement is, in fact, an optimal choice for companies who would like to maximize the penetration of the American market and that operate in a specific sector of the market, they want to keep costs to sell very low or even eliminate them, while simultaneously ensuring at the same time collaboration of a counter party expert of the specific sector of the market.

In addition to these advantages of type purely practical, there are multiple advantages of an economic / commercial. A distribution agreement provides for, in general, the shift in chief distributor of several obligations related to the conduct of the business in question. For example, the distributor will have to plan their campaigns advertising or promotion of the products, such as participation in Expo or trade fairs ; will always be the distributor to take care of any type of license or permit required, both at the federal level (ie legislation FDA – Food and Drugs Administration), both at the state level.

MAIN POINTS OF DISTRIBUTION AGREEMENT

1. Exclusivity An important element of the distribution contract is the exclusivity of the business relationship. Since the nature of the contract result of negotiations between the two parties, this item if deemed necessary by the manufacturer, must be included in the contractual clauses. The element of exclusivity may, in some cases, be inferred from the conduct of the parties; the American Commercial Code (UCC) requires that the parties behave fairly and producing the highest commitment in the implementation of the contractual relationship . From this general provision can therefore be concluded that the exclusivity is an intrinsic element of this type of contract.

2. Channels of distribution Another key element of the contract is the choice and mention the contractual provisions of which distribution channels will be maintained directly by the supplier. An example for this is the Internet sales : the vendor who wants to reserve the right to sell the goods covered by the contract via the Internet, you must satisfy itself that the contract allows it to him, so as not to broke the rights of the distributor. Another example is the direct sales to selected customers who are in the territory’s exclusive distributor; also in this case, an express clause of the contract is required to limit the range of action of the distributor.

3. Products As with any contract, the definition of the object of the same well of great importance in the distribution contracts . A supplier that is able to produce a range of different products, would do well to select different vendors for each product line that is not part of a joint production . This is because the choice of a distributor expert in the specific field and with a network of contacts and knowledge already entrenched in the market, can guarantee success in sales more than they could make a general distributor that deals promote and sell different product lines .

4. The duration and renewal The distribution agreement will have a duration that the parties have freely agreed between them ; if the contract is of limited duration, we must pay attention to the tacit renewal clauses and any changes in the price of purchase by the distributor. With regard to the open-ended contracts, the contractual freedom that characterizes the United States, however, guarantee to each party the right to terminate the contractual relationship and trade freely, while respecting the characteristics of loyal behavior indicated by the UCC. Still on the subject of termination of the contract, it should be added that it is still common practice to indicate a range of situations to ensure the parties the option of termination without just cause, because in some legislation, such termination is not always allowed. A guarantee of the efforts that each party agrees to lavish in the project business, there are some situations in which the distributor is protected against a supplier who, after a short time since onset of the contract, you agree to terminate the relationship, leaving the distributor the burden to pay the costs incurred.

5. The effects of termination The terms of the distribution agreement must, in general, also contain provisions governing the status of the parties and, above all, the condition of the goods covered by the contract. The agreement must state exactly what the duties of the parties in the event of termination of the contract. For example, if the distributor has bought a large quantity of goods, the contract must be clear on what behavior the distributor will be required to take in the event of termination of the contract. For example, if the same can sell the remaining goods at cost or whether it should instead return to the supplier any leftover of stock at the time of termination of the contract.

6. Objectives of sale and acquired a minimum Another aspect that we believe is necessary to emphasize is the faculty that the supplier should always reserve the right to refuse orders it deems not in line with the objectives of the market. In addition, the vendor should always be able to refuse to process more orders in case there was doubt that the distributor instead of promoting and selling products, the limits to accumulate a large amount without making access to the market of the product and market development .

7 Warranties One of the elements covered by the UCC is that of warranties for products sold in the United States. These provisions may not be waived and are subject to particular scrutiny by consumer protection associations and the same . The supplier must ensure that the product sold meets the specifications of features of that specific product category (for example, who provides a computer, ensure that the machine has the features that consumers expect to receive when buying the computer). In addition to this general warranty, there is a guarantee even more specific, the so-called implied warranty for a particular purpose, according to which each product placed on the market has the characteristics related to the specific purpose for which the product was purchased. These guarantees, being implied, are already part of the baggage of guarantees under which the product Vieno placed on the market ; is therefore suggested to insert specific clauses in the distribution agreement outlining clearly the limitations and scope of other product warranties.

8. Intellectual Property In many cases, the products covered by the distribution agreement are goods covered by trademarks and / or patents. And necessary for the provider who wants to distribute its products in Florida, or in the United States, is adequately protected from the risks of counterfeit. Register your brand and / or its patent in the United States, the supplier guarantees the certainty of being able to exert force on the character of Federal legislation that protects intellectual property with the utmost rigor. This protection will be effective against any third parties who want to take ownership of the mark or patent, that against the distributor itself, which may not register the trademark and / or patent in his name and exploit such intellectual efforts of the supplier. Assuming that the trademark and / or patent has been duly registered in the USA, it is important that the contract stipulates the procedures, usually through licensing contracts, through which the distributor can use the trademark and / or patent. In turn, the dealer will take special care to include in the agreement a clause that raises from liability in the case, for carelessness or bad faith of the supplier, products are marketed using a counterfeit trade mark or registered trademarks of other manufacturers; This clause makes the supplier directly responsible for violations of the legislation for the protection of intellectual property.

9. Non-competition The non- competition is a provision that each supplier should enter into distribution agreements ; the inclusion ensures a more stable relationship with the distributor and it protects from business practices that could jeopardize the success of market entry of a specific category of USA market. Although, as mentioned, the contract is the result of the negotiation of the parties, there are state laws that regulate such occurrences ; therefore it is advised to consult a lawyer of the state chosen for the distribution of the product and in this way ensure that you comply with local laws.

10. Confidentiality As noted above in the section on intellectual property, it is necessary that the contract outlining clearly what are the obligations of the parties, and especially the distributor, with respect to the confidentiality of the information received during the business relationship. The supplier must guard against the possibility that all business information, market strategy, and any other aspect related to the uniqueness of the products or services being disclosed to outside parties to the contract. If the supplier has development plans more than the market covered by the distributor, it is necessary that the same obligations to maintain strict confidentiality about the products and technologies offered. It’ also necessary that this obligation of confidentiality has a duration longer than the duration of the contract. The distributor will work in this way obligated to maintain the confidentiality of the information received for a period, even if left to negotiation between the parties, usually never less than one or two years.

11. Jurisdiction As a final aspect to consider is the choice of jurisdiction to rule on any dispute between the parties. The parties are free to agree on a specific office responsible for the judicial resolution of disputes that may arise from the contractual relationship. It’s important to pay special attention not only to the law under which the contract will be interpreted and analyzed, but especially the place and the court will be called upon to decide in cases of dispute the courts. It’s good that the Italian supplier is aware that a contract of this type is recognized by the American courts, and if not carefully analyzed could one day lead to legal costs of a major character and not easy administration if the Italian company does not have a corresponding local cure the interests of itself in American soil.

DISCLAIMER

This document was produced in 2011 by Studio Legale Tosolini, Lamura, Rasile & Toniutti LLP, based in New York, Miami, Rome and a subsidiary office in Milan. This document and its contents are the exclusive property of Tosolini, Lamura, Rasile & Toniutti LLP and may not be reproduced or copied in any form or manner.
This document does not constitute legal advice. The information contained herein may be incomplete and / or inaccurate. This document is purely informative nature and is subject to the laws of the State of Florida. If, in the course of this document, there are indications related to results obtained with other customers, these results depend on the circumstances of each customer, therefore, results previously obtained can not be guaranteed. This document is representable as advertising’ for lawyers ( em>attorney advertising).

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