Us Distribution Agreement

December 19, 2020

It is shared among foreign producers that the law governing a distribution agreement with a U.S. trading partner should be that of their country. However, the prosecution of a U.S. accused in the supplier`s home country does not make much legal and practical sense. There are many reasons for this. The agreement should also specify the duration of trade relations. In addition, procedures should be put in place to address renewal and shutdown issues. Exclusive provisions – under which the distributor undertakes not to market competing products in the territory – are very common in distribution agreements. While it is not an easy one for an applicant to argue, such a provision can be challenged as an unlawful restriction of competition under federal and state rules on cartels and abuse of dominance, generally under federal cartel laws: (i) Section 1 of the Sherman Act, which prohibits “commercially restricted” contracts; (ii) Section 2 of the Sherman Act, which prohibits “attempts at monopolization” and monopolization; (iii) Section 3 of the Clayton Antitrust Act of 1914, which prohibits exclusivity agreements that “significantly affect competition” or tend to create a monopoly; and (iv) Section 5 of the Federal Trade Commissions Act […], which prohibits “competition methods,” To rule on these cases, courts generally apply the “rules analysis” where that exclusive trade agreements are analyzed taking into account a large number of factors, including: (a) the defendant`s market power; (b) the degree of expulsion and barriers to entry; (c) the length of the contracts; (d) whether exclusivity has the potential to increase competitors` costs; (e) the existence of actual or probable anti-competitive effects; and (f) legitimate business justifications. Similarly, it is essential to define the conditions for terminating the contract due to the distributor`s failure. For example, if the distributor does not operate sufficiently, sells competitive products despite a non-compete clause, declares bankruptcy or does the business of another insolvency procedure, etc., the supplier should have the opportunity to terminate the contract.

Because these are complex agreements, there are a number of unique issues that need to be addressed. I will ensure that the agreement is drafted correctly and that it protects the rights and business interests of your business. For this reason, it is essential to regulate the relationship with the distributor through a written agreement detailing the rights and obligations of the parties and the remedies available in the event of a delay. This seems all the more necessary since the United States does not have a civil code to rely on in the event of deficiencies in the rules in force between the parties. Signing a distribution contract with a local distributor in the United States of America is one of the most common opportunities for foreign companies to enter the U.S. market.

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