Distribution Agreement
Written by:
Hein Kernkamp
What is a distribution agreement?
A distribution agreement is an agreement between a principal and a distributor, whereby the distributor buys products from the principal in order to sell them in the territory agreed by the parties. The distributor is therefore essentially a reseller of the principal's products. The principal can be a manufacturer or a supplier, but also a distributor himself, who in turn appoints a distributor.
What is the purpose of a distribution agreement?
A distribution agreement allows a principal to sell his products in a territory where he himself is not active. Distribution agreements are usually vertical in nature, that is - between two companies at different levels in the same supply chain. For the principal, the main benefits of using a distributor are:
- A new market is being developed
- The distributor often has knowledge of local market conditions and regulations
- Less mandatory legal provisions such as those in agency agreements
Which is the applicable law to distribution agreements?
The question of which law applies to a distribution contract is governed by Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I).
In many cases, the distribution contract is governed by the law chosen by the parties. Article 4 1. (f) of the Rome I Regulation provides that, in the absence of a choice of law, the contract is governed by the law of the country where the distributor has his habitual residence.
How do I terminate a distribution agreement in the Netherlands?
The main rule of Netherlands contract law is that the distribution agreement can in principle be terminated. It can often be canceled with due observance of the agreed cancellation period and, if no period has been agreed, a reasonable period. This does not alter the fact that there may be circumstances in which cancellation cannot take place, or in which additional compensation will have to be paid. You will find more information in our article about termination of contracts of long duration.
Competition law
Under European competition law as well as under the Dutch Competition Act, agreements that restrict competition, such as the granting of exclusive territories, are prohibited. The content of distribution agreements is therefore often contrary to the main rules of competition law. But because a distribution system without exclusivity or agreements about purchasing obligations cannot actually function properly, there are a number of exceptions to this main rule, of which the European Block Exemption Regulation (BER) for vertical agreements is the most important.
EU Block Exemption Vertical Agreements
With the vast majority of distribution agreements, it is possible to arrange them so that they fall within the block exemption for vertical agreements, so that they are automatically exempted. Two important requirements apply:
- The market share of the principal and of the distributor is less than 30%
- The agreement contains no hardcore restrictions
Hardcore restrictions
Hardcore restrictions include setting minimum prices or fixed selling prices for the distributor or restrictions on the areas or customers to which the distributor can passively sell (for example, general and non-targeted marketing or advertising on the internet). On the other hand, a restriction on "active sales" is allowed, so that working with an exclusive territory that fits within the limits of the block exemption can be used.
Submit your question to us
Do you have questions about Netherlands contract law, like drawing up a distribution agreement subject to Dutch law, or about the extension or termination thereof? We will be happy to discuss your case with you without obligation. Our motto is not for nothing: "Your problem, our concern."
More information?
Hein Kernkamp will gladly help you further.
