Designing distribution contracts with legal certainty

Distribution law deals with the distribution of goods and services. In particular, it regulates the relationships between manufacturers, suppliers, dealers and end customers as well as the drafting of distribution agreements.

Distribution agreements are a means for companies to define the conditions under which their goods and services are to be distributed and to regulate the relationship with distribution partners. Companies can use distribution agreements to ensure that their own interests are protected.

For companies that sell goods and services, it is essential to address the following issues in particular:

How should your own goods and services be distributed? What forms of distribution are there and which form of distribution is the most suitable?

This requires an analysis of the various forms of distribution. A distinction is primarily made between in-house and external distribution. In the case of own distribution, goods and services are sold directly to end customers, whereas in the case of third-party distribution, an (independent) third party is involved in the sale of goods and services to end customers. Third-party distribution typically involves the use of commercial agents, authorised dealers and commission agents or franchising. It is advisable to familiarise yourself with the various forms of distribution and their respective advantages and disadvantages as early as possible in order to choose the right form of distribution. The form of distribution is sometimes a decisive factor in how successful the distribution of your own goods and services is. It is possible and sometimes necessary to change the form of distribution at a later date, but it saves a lot of time and effort if you manage to choose the right form of distribution from the outset.

Under what conditions should companies sell their own goods and services?

Companies should determine the conditions under which their own goods and services are to be sold at an early stage. These conditions include, in particular, delivery terms, which include regulations regarding shipping costs and transport and packaging provisions, price and payment provisions, cancellation and contract term provisions, remuneration provisions with regard to sales partners and dispute resolution provisions. If third-party distribution is chosen as the form of distribution, it is also advisable to expressly agree the mutual rights and obligations as well as the responsibilities with commercial agents, authorised dealers, commission agents or franchisees.

These conditions, under which the goods and services are to be sold, can be laid down in a binding manner, particularly in distribution agreements. It is possible to renegotiate these conditions individually each time a contract is concluded or, if they are to apply to several contracts, to include them in general terms and conditions (GTC) that are incorporated into the respective contractual relationship. If any conditions are included in general terms and conditions, attention must be paid not only to the effective content of the individual general terms and conditions provisions, but also to the effective inclusion of the general terms and conditions in the respective contractual relationship.

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What liability risks and responsibilities exist? How can these be excluded or at least limited?

Under the law, companies can be exposed to considerable liability risks and claims from customers and sales partners. These include, in particular, warranty claims with regard to goods and services sold, liability under more specialised laws such as the Product Liability Act and/or laws relating to specific goods or services, as well as compensation or indemnification claims from sales partners. Possible claims and any liability risks should be contractually excluded or at least limited as far as possible.

What legal regulations and requirements must be observed when goods and services are sold in Germany and perhaps also abroad?

It should be noted that some goods and services must fulfil certain requirements in order to be sold at all. These requirements result from product-specific laws or product safety legislation, among other things. European Union regulations and directives that impose special obligations on companies with regard to the sale of certain goods and services, such as labelling requirements, must also be observed. The provisions of antitrust and competition law are also of great importance in the distribution of goods and services. Companies must ensure that free competition is guaranteed and cartels are prevented, that market power is not abused and that consumer interests are protected. These provisions of competition and antitrust law must be observed in particular when drafting distribution agreements. Violations of competition and antitrust law can occur in the case of price agreements, exclusivity agreements, non-competition clauses or agreements on the division of sales territories, for example between suppliers and their sales partners. If goods and services are not only to be distributed domestically, the legal requirements of the respective target country must also be observed. Distribution law may differ from country to country.With regard to the respective target country, the applicable competition and antitrust law, customs and tax regulations as well as the legal provisions on intellectual property must also be observed.

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