What should go into a distribution agreement and why ?

The first question that a manufacturer and distributor will have to address when entering into a distribution arrangement is whether to have a written distribution agreement. From the manufacturer’s point of view, it would be bordering on foolhardiness not to have such an agreement. From the distributor’s side of the table, however, the issues are much less clear. If you do not sign a written agreement, your contract will be based on the oral representations and conduct of each side. If there are no oral representations or conduct, and a dispute arises, then the courts will simply employ implied contract theory. What this means, essentially, is that the courts will make their own contract. Often, this approach will be more favorable to the distributor than to the manufacturer. It may also prove more favorable to the distributor than would an agreement, especially one drafted by the manufacturer where the distributor had little or no say as to its content.

By and large, however, a written agreement will be necessary and appropriate for both sides. While we would certainly not push as hard for one if we represented a distributor as we would if we represented a manufacturer, it should be an essential part of any distribution arrangement.

In one seminar we attended, a lawyer for a very large company relayed an interesting story. The company had always entered oral distributorship agreements based on a handshake. It decided to write an agreement to memorialize the exact relationship with its distributors. The lawyer said that the exercise turned out very poorly. The distributors (and even some people in the company) interpreted the company’s desire for a written agreement as an indication of distrust; whereas the parties had built their relationship over many years on the feelings of mutual trust. The company quietly backed off the idea of getting a written agreement because it simply did not work for them. Note, however, that in this situation the parties involved already had a long history of oral deals based on a handshake. That does present a different situation from one where you are starting out with a cleaner slate.

What Should the Written Agreement Say and Why ?

Preliminary Comment

As a preliminary comment, we should note that the overwhelming majority of all litigation in the distribution context will arise when the manufacturer wants to terminate the relationship against the will of the distributor. Therefore, the bottom line of this entire exercise is to do two things. First, spell out the arrangement so that everyone knows what the deal is. In other words, do the same thing you would do in any contract. Second, in negotiating the franchise agreement, whether you represent the manufacturer or the distributor, jockey for position as to who will have the upper hand if the manufacturer ever wants to terminate the agreement.

The interests of the manufacturer and the distributor are both the same and different. They are the same in the sense that both want to sell a lot of the product, and both want the relationship to be mutually profitable.

They are different, however, in the sense that the manufacturer will want to retain the absolute right to realign its distribution, or make whatever other changes in the distribution arrangement that it wants. It may want to substitute distributors at a later time, or it may want to eliminate all distributors and sell direct. It may even want to go out of business in a particular line. The manufacturer will also want to protect its interest in its own trademark so that the distributor does not have any rights in it.

Unfortunately, manufacturers and distributors have not been particularly successful in reaching a common ground on what should happen if the manufacturer wants to terminate the distributor. As a result, there is a tremendous amount of litigation on terminated distributorships. Lawyers spend a lot of time advising manufacturers and distributors of their legal rights, obligations, and potential courses of action to place themselves in the best bargaining position possible.

The very best time to start addressing the issue of what happens on termination is when you draft the agreement in the first place. Therefore, keep in mind that many of the suggestions regarding what should or should not be included in a distribution agreement are based on two factors. One factor is obvious: “Let’s spell it out so that everyone knows what we are supposed to be doing.” The other one is not so obvious: “Let’s realize that manufacturers and distributors have a difference of opinion as to their respective rights and obligations upon termination and try to place ourselves in the best bargaining position should such differences surface.”

The Products

It is important that the distribution agreement spell out the products to be covered. If you are the distributor, it is not a good idea to base the product description on a trademark. What if the manufacturer changes the trademark? Below, we pose some questions that need to be considered when drafting provisions of the agreement concerning products.

Does the distributor have the right to buy the entire line of products or only specific products?

Does the distributor have the right to either expand or restrict the range of products that it will purchase? Does the manufacturer have the right to either expand or restrict the range of products that it will offer, or even require the distributor to buy?

What happens if the manufacturer introduces new or previously unthought-of products that the distributor feels it could sell? Should the distributor have the right of first refusal on the new products? Should the option as to whether to offer them to the distributor be entirely in the hands of the manufacturer?

Should you discuss what happens if another company acquires the manufacturer or the distributor? In one case, for example, a distributor carried a line of farm products from a manufacturer that only manufactured farm products. The distributor also sold tractors made by another manufacturer. A larger multinational company, which also produced a line of tractors, acquired the farm product manufacturer. The company then said that it wanted its distributors to handle a “full line,” including the tractors. That situation is often difficult to deal with in advance in a distributorship, but that case highlights one of the things that can happen to cause a dispute. The end result was that the manufacturer terminated the distributor for not handling a “full line.” The distributor sued on various theories and lost on all of them. (See Smith Machinery Company, Inc. v. Hesston Corporation, 878 F.2d 1290 (10th Cir. 1989) and Continental TV v. GTE Sylvania, Inc., 433 U.S. 36 (1977).)

Territory

Territory and exclusivity are closely related and perhaps the most difficult problems in distributorship arrangements. Following are some options for each side to consider.

Location Clauses

Is the distributor to be limited to a certain location? This is the so-called location clause, which the Supreme Court recently approved in Continental TV v. GTE Sylvania, Inc. Sylvania decided on a marketing strategy whereby it would allow a limited number of franchises in any given territory. In other words, if you were given a franchise for a certain location, you could sell only from that location. Sylvania would have a smaller number of outlets this way, but each would be able to do a better job in terms of marketing and service. The idea was to promote the Sylvania line in competition with that of Zenith, RCA, and others. The plan worked quite well. After Sylvania instituted this location clause restriction, its market share increased appreciably.

Location Clauses

Is the distributor to be limited to a certain location? This is the so-called location clause, which the Supreme Court recently approved in Continental TV v. GTE Sylvania, Inc. Sylvania decided on a marketing strategy whereby it would allow a limited number of franchises in any given territory. In other words, if you were given a franchise for a certain location, you could sell only from that location. Sylvania would have a smaller number of outlets this way, but each would be able to do a better job in terms of marketing and service. The idea was to promote the Sylvania line in competition with that of Zenith, RCA, and others. The plan worked quite well. After Sylvania instituted this location clause restriction, its market share increased appreciably.

Continental TV sued on the theory that Sylvania’s conduct constituted an antitrust violation. Traditional law up to that point had said that a manufacturer was severely limited as to the type of restrictions it could place on a distributor. The idea was that, since the distributor was an independent business, the manufacturer had no right to tell the distributor how to run its business. This applied to the territory in which the distributor could sell, the place that it could operate from, and the prices that it had to charge. Basically, the Sylvania case changed all this — at least from a federal antitrust perspective. The manufacturer is now free to restrict the distributor’s activities in all these areas (except to dictate the price at which the distributor resells) as long as it can justify the restrictions on a “rule of reason” analysis. If the manufacturer has a legitimate business purpose for imposing the restriction (which it almost always has), the courts will not second- guess it.

Area of Primary Responsibility

Should the distributor have an “area of primary responsibility” ? Imposing such a condition is an attempt by the manufacturer to encourage the distributor to get all sales possible out of a given area. Manufacturers are typically concerned about distributors “skimming.” This is where a distributor will take the easy, quick sales, and not seek out new potential buyers. A common and mutually beneficial agreement between distributor and manufacturer might be reached by assigning the distributor an area of primary responsibility for sales, without actually restricting the distributor from going outside that area.

Profit Pass-over Clause

The profit pass-over clause is used to compensate the dealer who spends a lot of money on advertising in one territory, only to have a neighboring dealer sell in that territory at a lower price. The clause says that, if you as a dealer sell outside of your territory, you will have to pay a certain amount to the dealer into whose territory you sell. The idea is to compensate the dealer for the advertising and promotional expenses and effort that it has expended.

Restricted Territory

The most severe situation is where the agreement absolutely prohibits the distributor from selling outside a certain prescribed territory. For example, there could be an agreement which states that the distributor can sell the products only within the city limits of Cleveland, Ohio, and if the distributor were to sell products outside the city limits, the manufacturer would have the right to terminate the distributor.

Exclusivity

A closely related issue is whether a distributor in a given area is “exclusive.” If a manufacturer appoints a distributor to Dade County, Florida, may that manufacturer still either sell the products into Dade County itself, or appoint another distributor to that same location?

One difficulty arises from the meaning of the term, “exclusive.” It has several possible definitions, some of which present more antitrust or legal difficulties than others.

The first meaning of “exclusive” is that the manufacturer, itself, will not appoint another distributor located in the exclusive territory. Returning to our above example, this would mean that the manufacturer would not appoint anyone else as distributor for Dade County, Florida. There are no antitrust problems with this interpretation.

A second possible interpretation is that the manufacturer, itself, will not sell the product directly into the exclusive territory. Here, the manufacturer will not make any direct sales into Dade County, Florida. This interpretation also poses no legal difficulties.

Another interpretation of the word “exclusive,” which might present legal issues, is that the manufacturer not only agrees not to appoint any other distributor to the territory and not to sell into the territory directly, but also undertakes to use its best efforts to make sure other distributors stay out of the territory. In other words, the manufacturer agrees to police the territory so that every distributor stays in its own backyard. Under current federal antitrust principles, a manufacturer may be able to justify this practice, but it certainly increases the possible antitrust risk from the manufacturer’s point of view. It also increases the possibility of hard feelings between manufacturer and distributor.

Marketing Efforts

The distributor and manufacturer should reach a common understanding on exactly what type of marketing efforts the distributor will be required to undertake. In the “marketing efforts” paragraph, you might also state the required level of inventory to be maintained by the distributor. Inventory is another touchy area because the interests of the manufacturer and distributor are not entirely the same. Although both want the product to be available at the appropriate times and without undue delay to the customers, it is the distributor’s money that will be tied up in that inventory. The manufacturer will typically prefer the inventory to be rather large and extensive, while the distributor will want to carry the fast-moving items, relying on the manufacturer to promptly ship orders for the slower-moving items. You should also, therefore, consider provisions dealing with the amount of lead time the manufacturer will need to fulfill orders.

Another question to consider is whether the distributor should be required to maintain a sales force. If so, at what level, and what type of salespeople should be employed? Should they be required to have any specific technical or other background? What type of training should they be offered, and who should pay for such training?

Some distribution agreements simply call for the distributor to expend its “best efforts” to sell the manufacturer’s product. The distributor should object to such a provision, based on the case of Bloor v. Falstaff, 601 F.2d 609 (2d Cir. 1979), where the court held, essentially, that the phrase, “best efforts,” means just about everything short of bankruptcy. From a distributor’s perspective, you would want the distributorship agreement to read “reasonable efforts” instead of “best efforts.”

If the distributor is to be expected to call on customers with a certain degree of frequency, that should be spelled out also.

Sometimes, the distributorship agreement will state the distributor’s responsibilities either in terms of goals or quotas, or in terms of required purchases. There are pros and cons to each way of stating this. In our judgment, the key is for the manufacturer and the distributor to determine a mutually agreeable “goal.” This makes it more likely that the goal will be met because it makes for mutual involvement and interest.

Most manufacturers that have maintained long and relatively peaceful relationships with their distributors, with very little litigation, use approaches like this. Instead of simply sitting in an office in some distant city dictating “quotas,” they work closely with the distributors to establish mutually agreeable goals, and to develop methods for attaining these goals. They also work together to determine what extra efforts will be expended should the goals not be realized.

From the manufacturer’s point of view, if you impose sales quotas or goals, take care how you enforce them. General legal principles say, in essence, that actions speak louder than words. If you put high goals or quotas in the distributorship agreements, you are advised to enforce them consistently. Otherwise, if you should later try to terminate a distributorship on the grounds that the distributor did not meet its goals, you will be confronted with the argument that, since you never before enforced your goals, you must be enforcing this particular goal against this particular distributor for some malevolent reason — resale price maintenance, for example.

Another rather difficult provision we have seen in some distribution agreements states that distributors will be terminated if they do not conform to some sort of standard which is measured by an “average.” This presents a complex conceptual problem. An average is based upon a spectrum of sales, and the very definition of average means that approximately half of the people are not going to meet it. Thus, unless the manufacturer wants to terminate half of its distributors every year, it will be in the position of consistently waiving the “you must sell at least as much as the average” requirement. It would be far better for both the manufacturer and the distributor to drop the standard to something that both parties felt was respectable — perhaps 10 or 15 percent. If the distributor is consistently in the bottom 10 percent of all performers, the chances are that the relationship is not particularly profitable to either party, or that there are some other severe problems, and that perhaps, the relationship should be terminated.

Reports

The reporting requirement should also be spelled out in the agreement. Exactly what reports does the manufacturer want from the distributors and how often must they be submitted? Does the distributor have to prepare and submit a written sales plan, or will the manufacturer do that? Some state franchise laws say that, if the distributor is responsible for preparing the marketing plan, the franchise law does not apply — the theory being that franchise law applies only where the manufacturer prepares the plan and requires the distributor or the franchisee to follow it. Therefore, from a manufacturer’s point of view, it may be a good idea, at least in those states, to require the distributor to assume the responsibility for preparing a marketing plan.

Noncompetition Agreements

After termination, will the distributor be allowed to compete with the manufacturer? The general legal principle is that, if a noncompetition agreement is reasonable and ancillary to a business purpose, it will be enforceable. If it is a simple “naked restraint on competition,” or if it is so broad as to be unreasonable, it will not be enforceable. The issues the court will look at are

  • the length of time of the restriction;
  • the geographic area of the restriction;
  • the precise activity that is prohibited;
  • the hardship on the franchisee or the distributor;
  • and any public interest issues that may be involved.

Obviously, the interests differ significantly depending upon which side of the table the parties find themselves. The manufacturer may want at least some type of noncompetition agreement. On the other hand, a noncompetition agreement will hardly ever be in the distributor’s best interest. Noncompetition agreements are one of the most legally sensitive subjective provisions in the contract. Neither side’s lawyer is very likely to be able to say with a high degree of certainty whether or not any given clause is “reasonable,” and therefore, enforceable.

Trade Secrets

Are there any trade secrets involved which the manufacturer must disclose to the distributor? If so, exactly what type of provisions will you need to assure that the distributor takes appropriate care of those trade secrets?

Assignability

Is the distributorship assignable? Again, we often have divergent views on the subject. The manufacturer will say, “I want to know with whom I am doing business.” The distributor, on the other hand, will say, “I have spent a lot of time and energy building up my area, and I want to be able to cash in on that by being able to sell my route or my area to someone else.”

Trademarks

If the goods are trademarked, exactly what right does the distributor have to use the trademark? Can he merely put a sign in his window displaying the trademark? Can he use the trademark on his letterhead or other written documents? Can he use the trademark in his name? If you are the distributor, you want to get all your rights spelled out because without a contract or a trademark license, the general legal rule is that you have no right to use the trademark other than as expressly granted by the trademark owner. From the manufacturer’s point of view, the key is to be certain that you retain all rights to your trademark. It is acceptable for the distributor to be able to use it, but you certainly do not want to lose your exclusive ownership rights in the trademark by granting the distributor those rights.

Supplier’s Specific Duties

Are there any specific duties for which the supplier is to be responsible? Should the supplier be required to do such things as maintain certain delivery schedules, provide support services, provide training, sell the distributor a certain minimal level of product, provide advertising or promotional allowance, or provide information and other reports or data to the distributor?

Termination

As mentioned above, one of the most sensitive points in any distributorship arrangement is how it will be terminated. A manufacturer may want a provision stating that the distributorship agreement can be terminated at any time with very short notice. Another possibility is that the manufacturer will ask that the agreement last one year, with the option to renew it from year to year. The key is that the manufacturer will want as much control as possible over the duration of the distributorship and will want to have a way out, without actually “terminating” the distributorship.

While most courts will view a failure to renew the agreement as essentially equivalent to a termination, the manufacturer will be in a little better arguing position if it does not have to actually write a letter terminating a distributor. It can “terminate” the distributor by merely failing to renew, we hope, pursuant to the terms of the contract.

Another possibly useful provision for the manufacturer would be one that sets out specific grounds for termination. Many state statutes will allow a termination as long as the manufacturer has “reasonable cause” for doing so. Some conditions that can be made part of a distributorship agreement to justify its termination include :

  • the failure of the distributor to meet certain performance standards;
  • any other breaches of contract (i.e., if the distributor does not live up to any term of the contract, that will give the manufacturer cause to terminate);
  • nonpayment of any fees or invoices due from the distributor to the manufacturer;
  • and the distributor’s doing something to injure the supplier’s business reputation (for example, disparaging the supplier’s goods), or the distributor’s violation of any other important law in connection with its business.

The distributorship contract may or may not offer the distributor the right to cure performance of the contract. Our own view is that it is necessary and appropriate to have the right to cure in virtually all contracts. No one should ever be in breach of a contract unless :

  • the breach involves a material or a substantial item of performance;
  • the person who thinks the other side has breached has given notice of that fact to the alleged breaching party;
  • and the alleged breaching party has a reasonable opportunity to cure.

Basically, this is only a fairness standard. Even if, for example, a distributor breaches a contract by failing to pay a bill rendered by the manufacturer, the distributor should be offered the opportunity to cure. The manufacturer should not be able to seize upon an inadvertent nonpayment (perhaps the invoice was lost) and use such unintentional error to cancel a contract.

One frequently litigated issue is whether a distribution agreement — with a termination clause — is a complete, integrated agreement, or whether parol evidence should be allowed to explain what it means. The usual facts are that the distributorship agreement contains a rather cryptic termination clause — perhaps something like, “the manufacturer reserves the right to terminate the distributorship at any time with [some amount of] notice.” The manufacturer exercises that right. The distributor then counters in litigation by saying that, during negotiations and through the relationship, the parties understood that, while the agreement said the manufacturer could terminate it at any time for any reason, the parties really contemplated a long- term relationship that the manufacturer would not terminate except for good cause. The legal issue that often needs to be resolved is whether that evidence is admissible. If the court holds that the distributorship agreement is a complete, integrated writing and the termination clause is clear, it should apply the parol evidence rule to exclude the oral evidence. On the other hand, experience teaches us that courts often find that the parties never intended for the agreement to be the complete integrated document and will allow parol evidence in that type of a situation. There is no clear way to deal with this, but if you represent the manufacturer, it is necessary to consider going even a little overboard in writing your distributorship agreements on this point. You might want to expressly state that the parties agree that the distributorship agreement is the complete written, integrated agreement and nothing else will be legally binding on the parties. You might want to also elaborate and expressly state that the parties agree that no cause need be shown for the termination. Admittedly, that may create problems in negotiation of the agreement and in your relationships with the distributor. It is a business tradeoff that really cannot be avoided. Management has to take a business risk and decide whether they want to “turn the lawyers loose” to write an agreement that will mean what it says, or whether they want to soft-pedal on some of the key issues of termination and hope for the best if there is a dispute later on.

Financial Instability

The federal bankruptcy law permits a company that goes bankrupt to affirm or disavow any ongoing contracts. If a distributor goes bankrupt, the distributorship agreement may be its principal asset. As such, the distributor may want to affirm that contract. If so, the manufacturer will have no option, under federal bankruptcy law, but to go along with the affirmation. We note, however, that this is not as bad as it might seem at first. While the manufacturer does have the obligation to continue to perform the contract, there are also obligations imposed upon the distributor/bankrupt.

Nevertheless, manufacturers typically feel that the best approach to take in the event of the bankruptcy of its distributor is simply to write off that distributor and move on to the next one. One possible method of providing the manufacturer the opportunity to get out of a distributorship agreement and still remain in compliance with federal bankruptcy law is to insert a provision in the agreement requiring the distributor to maintain a certain degree of financial stability, stating that failure to maintain such financial stability would justify termination on the part of the manufacturer. As long as the manufacturer is able to monitor the financial condition of the distributor and actually accomplish the termination before the distributor files for bankruptcy, the manufacturer would avoid legal difficulties. The problem, of course, is the practicality of actually monitoring the distributor and terminating it in time.

Another suggestion is to have a short cancellation notice in the contract. The general law is that a bankruptcy trustee or a “debtor in possession” steps into the same shoes as the distributor, with the contract reaffirmed as the original contract. If the original contract was canceled with thirty days’ notice, then the new contract will terminate when thirty days expire even though the distributor filed for bankruptcy. Note again, however, that the notice must be given before the distributor files its bankruptcy petition.

Notice

The notice provision is particularly important in a termination agreement. Exactly how much notice will be required before the termination takes effect must be clearly spelled out in the agreement. A manufacturer will typically want a short notice period; a distributor a much longer one.

Merger Clause

Both sides will probably want a “merger clause” or an “entire agreement” clause. These simply say that the contract is the entire agreement between the parties, and that neither party can thereafter assert that the terms of the contract are different, based on oral conversations, correspondence, file memorandums, etc. Basically, the “entire agreement” clause is good contract practice. After all, if two people sit down and negotiate a contract, that should be the contract, and its terms should not be subject to alteration by conversations, telephone calls, letters, etc.

Blue Pencil Clause

Most lawyers, particularly those representing a manufacturer, will also want what is called a “blue pencil clause.” This clause provides that, if one provision of the agreement is illegal or unenforceable, it will not affect the enforceability of the remainder of the contract. Lawyers often doubt the enforceability of various provisions of a distributorship agreement, the noncompetition agreement being the clearest example. Inclusion of a “blue pencil clause” will, hopefully, ensure that if an unenforceable clause is inserted in the agreement, only that clause will fail, and the rest of the contract will remain as negotiated.

Choice of Law and Choice of Forum

The manufacturer will often want to choose a particular state law to govern the contract. Sometimes it will be the state in which the manufacturer is located, and sometimes it will be some other state. The manufacturer will also want a provision which states that any time a distributor wants to assert a legal claim against the manufacturer, the distributor must do so in the manufacturer’s home state. In Burger King v. Rudzewicz, 105 S. Ct. 2174 (1985), the Supreme Court held that, at least where the distributor is a sophisticated businessperson, a “choice of law/choice of forum” clause was enforceable. Manufacturers, therefore, can be expected to ask for such a clause. From a distributor’s point of view, the choice of law clause will rarely cause much trouble because the applicable law of most states is quite similar. There may be important reasons to object to the choice of law clause, particularly if the distributor is located a substantial distance from the manufacturer’s home jurisdiction.

Arbitration Clause

Recent court cases have held that a manufacturer can enforce an arbitration clause in a distributorship contract even if the basic claim of the distributor involves federal antitrust laws. To some extent, this is a departure from previous law which said that federal antitrust claims could not be arbitrated. It was previously thought that because the antitrust laws are part of our public policy, the distributor must have the right to have such a claim litigated in a federal court, and that the courts must enforce these laws, regardless of the existence of an arbitration agreement. Now, however, the law seems to be that, as long as the distributor’s antitrust claim (usually based upon some resale price maintenance theory) either does not permeate the whole dispute or so overshadow the whole dispute as to make it unreasonable, the arbitration clause in the contract can be enforced. In other words, the manufacturer can insist that the distributor arbitrate the disputes between them. In general, the arbitration clause will favor the manufacturer, since it will take away the distributor’s biggest club, that being the antitrust claim in which the distributor, if successful, can recover treble damages and attorneys’ fees. Indeed, recent comments from lawyers at continuing legal education programs have indicated that they now almost universally favor including arbitration clauses in distributorship agreements. From the point of view of the distributor, it is probably not particularly advantageous to have such a clause in the contract but, then again, it may not be all that bad either. After all, if the distributor takes the point of view that all it wants is fair treatment on the part of the manufacturer, and not a “pound of flesh” based upon treble damages and attorneys’ fees, the arbitration proceeding may be one way of getting this kind of “rough justice,” should the manufacturer not offer it voluntarily.

Liquidated Damages Clause

The word, “liquidated,” simply means “fixed” or “agreed upon.” The amount of money that the distributor is entitled to from the manufacturer, should a termination occur, is stated in the liquidated damages clause in the contract itself rather than left up to negotiation at some future date. As long as these liquidated damages are reasonable, they will be enforced. The liquidated damages clause would probably not take away the distributor’s claim for an antitrust violation, however, since antitrust is a matter of public policy, and there is really nothing the manufacturer can do to deprive the distributor of its right to assert such a claim.

Distributor Represented by Counsel

The manufacturer may want a clause in the contract that says the distributor has been represented by counsel. Some rather harsh provisions have been enforced against a distributor when the distributor was a knowledgeable businessperson represented by counsel. Some lawyers for manufacturers conclude from this that a clause stating that the distributor has been represented by counsel is desirable. Of course, a distributor should obtain counsel to represent it. A distributorship agreement is one of the most important documents a distributor will ever sign. It may, indeed, be the basis of his entire business. The same is true for the manufacturer. Therefore, from each side’s perspective, representation by competent and experienced counsel is essential.

Summary and Conclusions

This overview briefly highlights some of the more important questions to ask yourself when you are either drafting or reviewing a distributorship agreement. It is not a complete checklist, since distributorship agreements can range all the way from a very short letter form agreement, which merely allows a company to sell your products, to multi-page, complex, international arrangements. We also note that distributorship agreements in the context of software involve some additional considerations. We have, therefore, included separate software distribution forms (see “Software Distribution Agreement” and Section XI). Those generally take the form of a license with the right to sublicense and, in fact, they are sometimes called that rather than a distributorship agreement.

The remainder of this section contains sample distributorship agreements ranging from very short agreements to more complex ones. In our experience, the most typical agreement is a four-page typeset agreement done on 11 x 17 paper so that the full agreement is contained on a single sheet. The printing is generally easy to read — using fairly large type, in contrast to what you might see on a purchase order or an agreement containing sales terms and conditions.

We also feel that, in most distributorship arrangements that are intended to last over a period of time, the parties need to “go with the flow.” Products change, management changes, trademarks change, market tastes change and, indeed, almost everything in the commercial setting in which the manufacturer and distributor operate can be virtually guaranteed to be substantially different ten years after the agreement is signed. Most distributorship agreements do last a long time, and we, therefore, think that the writing embodying those agreements should be flexible enough to meet the changing environment without requiring the parties to constantly amend the agreement.

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