Agency, Distributorship & Licensed Manufacture

The manufacture and sale of goods can be undertaken through other persons or entities under agency, distributorship and licensed manufacturer relationships (representation). Whilst each type of representation has tax and legal implications, you should identify your long-term business objectives at the outset as they will be a significant influence on the type of representation selected. If you are intending to establish representation overseas, locations can have unusual laws. Understanding the issues and the risks and clearly defining each party’s rights and obligations in writing can be important. The termination of international agents/distributors are two of the most regulated and contested areas of international agency and distribution law.

Practice area overview

The distinction between an agent and a distributor in some locations can be material and should be checked. Marketing or selling goods and/or services involves legal issues as diverse as special contract terms, anti-competitive conduct, labelling, product liability, tax and privacy laws. Also taxation, intellectual property and competition law issues may impact on the choice between distributorship, agency or licensed manufacturing.

Distribution

Distribution arrangements can be an important part of any business involved in distribution of products domestically or internationally. A distributor:

• Purchases products from the exporter and then resells them.
• Effects a sale in its own name and for its own account.
• Is usually (though not always) given an exclusive or preferential right in a particular geographic area or other defined market.

A distributor agreement will contain the terms that govern the sale of products by the exporter to the distributor. This is not necessary in an agreement appointing an agent as the contract is

• effected between the exporter and the third party purchaser although the accepted terms of sale can be agreed between the exporter and the agent.
• A distributor has two invoices; one to purchase the products from the exporter and one to sell the products to the customers.

Agency

Distribution arrangements can be an important part of any business involved in distribution of products domestically or internationally. A distributor:

• Acts as an intermediary between its principal (i.e. the exporter) and the purchasing third party (i.e. the customer) so that the agency agreement should set out the nature and extent of the agent’s authority to bind the exporter and to receive payment on behalf of the exporter (or alternatively the exporter’s right to accept/reject orders).
• However, that may have taxation implications as to the existence of a permanent establishment or it should contain a denial of authority.
• Should specify whether the agent will be authorised or not to receive payments as in some international locations an agent may establish a contract for its principal but not deal with payments.
• May or may not be given possession of the exporter’s goods.
• An agent has one invoice between the exporter and the third party purchaser.

Manufacturing under licence: Appointment for the manufacture of a product under licence can involve many issues and significant risk for both the manufacturer and the licensor (of the product and the associated intellectual property rights). It involves diverse legal issues including contract terms, intellectual property law, international trade law, anti-competitive conduct, labelling, product liability, tax and privacy laws.

 

What we do:

We prepare, and provide, advice on contracts for distribution, agency and manufacturing relationships.

If you want to appoint a distributor, agent or licensed manufacturer we can:

• Advise you on the steps you should take in preparation of the appointment.
• Give you advice on the contract documentation for the appointment and changes that you may need to them.
• Assist you in your negotiations with the appointee both before and during the relationship.
• Help you modify your agency/distribution terms if you have experienced problems with the other party to them.

If you are to be appointed as a distributor, agent or licensed manufacturer we can:

• Advise you on the steps you should take in preparation the appointment.
• Give you advice on the contract documentation and changes that you may need to then as your interests will not coincide with those of the appointor.
• Assist you in your negotiations with the appointor both before and during the relationship.
• Help you modify your agency/distribution terms if you have experienced problems with the other party to them.