Cina – Negoziati contrattuali

26 Luglio 2016

  • Cina
  • Distribuzione
  • Commercio internazionale

Understanding the interplay between federal and state statutory and common law in the US legal system is important to understanding the regulation of exclusive distribution agreements in the US.

Under the US Constitution all power not specifically reserved for the federal government remains with the states. Federal law has exclusive jurisdiction only over certain types of cases (e.g., those involving federal laws, controversies between states and cases involving foreign governments), and share jurisdiction with the states courts in certain other areas (e.g., cases involving parties that reside in different states). In the vast majority of cases, however, state law has exclusive jurisdiction. Similarly, the doctrine of freedom of contract under US law also directly affects how distribution agreements are regulated in the US.

Furthermore, because a distributor is typically an unaffiliated third party acting on its own account rather than on behalf of the supplier as principal, distribution agreements are subject to greater regulation under US federal and state antitrust law. Such law, among other things, (i) regulates whether and the degree to which a supplier in a distribution arrangement may seek in a contract or otherwise to dictate the price at which the distributor will resell products supplied; (ii) imposes restrictions on suppliers that engage in “dual distribution” (selling product directly as well as through a distributor); and (iii) may limit the suppliers’ ability to sell product to different distributors at a different price. Antitrust law also regulates exclusivity and selective distribution arrangements, as well as distribution relationships in certain industries (e.g., federally: automobile manufacturers and petroleum; at the state level, heavy equipment, liquor and farm equipment industries). Furthermore, distribution agreements often may resemble franchise arrangements, subjecting those arrangements to extensive federal and state regulation.

Under the law of most states (including New York), exclusive distribution exists when a supplier grants a distributor exclusive rights to promote and sell the contract goods or services within a territory or to a specific group of customers. Exclusive rights in a distribution arrangement are often granted by the supplier for the distribution of high quality or technically complex products that require a relatively high level of expertise by the distributor, including staff that is specially training to sell the goods or specialized after-sales repair and maintenance or other services. Distribution agreements differ from commercial agency agreements in several respects. In contrast to a distributor, a commercial agent does not take title to product, does not hold inventory and typically has no contractual liability to the customer (including risk of customer non-payment). Conversely, a distributor, in line with the greater risk of its activities, typically can expect greater upside economically in terms of margins on resale relative to an agent’s profit through earned commissions.

Sub-distributors

Under the law of most states (including New York), a distributor may appoint sub-distributors absent any restrictions to the contrary in the agency agreement. Commercially, the appointment of a sub-distributor may have an adverse effect on the supplier by reducing the supplier’s control over its distribution channel activities or increasing the supplier’s potential liability exposure given the increased number of distributors whose actions may be attributed to the supplier. A supplier that does not manage properly the appointment of sub-distributors may also lose valuable product knowledge with respect to the distributed goods (particularly if the goods are novel or complex in nature). Advantages to sub-distributor appointments for the supplier may include a more effective overall marketing presence with enhanced local market knowledge, a broader geographic scope, a potentially lower costs as a result of the sub-distributors’ expertise and efficiencies, etc.

 

————————————-

Need help with your International Distribution Contracts?

Click the button below to Receive Support from our Expert Lawyers thanks to the Online Help Desk

————————————-

Rights and Obligations of the Exclusive Distributor

  • Sales organization: suppliers are not required to establish sales organizations in exclusive distribution agreements.
  • Sales’ target: there are no mandatory rules under federal law or state law (including New York) generally regarding sales targets in exclusive distribution agreements. However, such provisions are common in exclusive distribution agreements.
  • Guaranteed minimum target: minimum sales requirements are common in exclusive distribution agreements. As a commercial matter, a supplier as a requirement to give, or maintain, exclusivity with one distributor, will seek through such requirements to ensure that economically the distributor is performing satisfactorily. Often failure to meet sales targets may entitle a supplier to rescind the exclusivity, terminate the agreement or reduce the portion of the territory to which the exclusivity applies. We note that minimum sales requirements in an exclusive distribution arrangement may, in certain cases, be subject to challenge under antitrust law as having an undue anticompetitive effect by preventing a distributor from purchasing products from a competitive supplier.
  • Minimum stock: there are no mandatory rules in federal law or the law of the majority of states (including New York) regarding minimum stock. A supplier may seek to have the distributor agree, contractually, to maintain adequate levels of stock relative to market demands as well as to store the product properly.
  • After-sales service: the parties to a distribution agreement are generally free to agree as they deem appropriate with respect to after-sale service regarding products.
  • Resale Prices: the Exclusive Distributor is free to fix the resale prices. State law (including New York law) generally does not limit the ability of an exclusive distributor to fix resale prices. […] A supplier’s ability to set resale prices for distributors is subject to limitations under federal and state antitrust law. Many state antitrust laws (including New York’s) closely resemble the federal antitrust laws. However, differences exist such that certain conduct may be found not to violate federal antitrust law but still be found to violate state antitrust law (or vice versa). Because the distributor (contrary to an agent) is acting on its own behalf, an agreement between supplier and distributor to maintain certain prices (or if a distributor is deemed to have been coerced by the supplier to follow certain prices), may be a per se price-fixing violation under federal and state antitrust law. Under federal antitrust law, vertical price-fixing until 2007 had been illegal per se. This per se rule was overturned by the Supreme Court. Horizontal price fixing remains per se illegal under the Sherman Act (see below).

Rights and Obligations of the Supplier

  • Exclusive Distributor undertaking to supply: generally, state statutes do not specifically provide that a supplier in a distribution relationship has a duty to supply specific levels of product to a distributor, with such obligations generally be established by contractual provision. However, a supplier does have an implied covenant of good faith and fair dealing toward the distributor under state law generally, which generally requires that a party to a commercial agreement not do anything which injures the right of the other to receive the benefits of the agreement). Under the foregoing, a supplier may be deemed to have an obligation to supply product to a distributor (or be found to have violated the implied covenant of good faith and fair dealing in the event that the supplier, although able, decided not to provide a distributor with product without any other contractual justification for not doing so). However, even where such a duty were found to exist, the quantity and frequency of product supply and other details often remain unclear. To avoid uncertainty, distributors often seek to have a specific provision included in the distribution agreement, providing at least for the supplier to be required to use some degree of effort (e.g., “best efforts,”, “reasonable best efforts” or “reasonable efforts”) to supply product responsive to distributor’s submitted purchase orders. On a related topic, generally a distributor typically is only required to inform the supplier of lower purchase estimates if the distributor undertakes to do so (or undertakes a more general obligation with respect to the market) in the distribution agreement. However, even if the supplier is not, under an exclusive distribution agreement, required to supply the distributor with product, the supplier may still be subject to a contractual or common law obligation not to sell to third parties in the territory. New York courts held that suppliers that make direct sales to customers in the territory under an exclusive distribution agreement have breached their duties to the exclusive distributor.
  • Retention of title: typically, in sales transactions on credit in the US, title is passed at the moment of initial sale. The buyer typically grants the supplier a security interest in the goods purchased, which if proper perfected under state law, affords the supplier with a priority position relative to other creditors with respect to the products provided (inventory) in the event of non-payment and enforcement.

Construction defects warranty

The law of “products liability” in the US is based on the law of torts. Under New York law, in cases of where an end user is injured by a defective product which was sold by the distributor under a distribution agreement, the end user generally is able to sue the distributor and the supplier of the product under one or more of the following theories: (i) strict liability; (ii) negligence; or (iii) breach of warranty. The usual theory of recovery against a distributor is strict liability. Under a strict liability theory, a supplier or distributor that sells a defective product while engaged in its normal course of business shall be liable for injuries it causes to customers, regardless of privity, foreseeability or the exercise of due care. Product liability cases also are brought under breach of warranty claims. Breach of warranty claims can be based on express warranties (e.g., from advertisement or a product label) and on implied warranties (typically, warranties of merchantability and fitness for a particular purpose under the provisions of the Uniform Commercial Code as adopted by the states). Lastly, negligence claims brought by plaintiffs are based on the improper conduct of the defendant, whether supplier or distributor or other participant in the distribution chain, with respect to the manner of distribution or care of the product sold (examples include improper storage or transport).

Under New York law, exceptions based on misuse, neglect or abuse by the suing party generally apply as defenses against liability under theories of strict liability, negligence or breach of warranty.

The supplier and distributor can allocate third-party liabilities (e.g., potential losses to be paid to plaintiffs in a products liability law suit) and related attorneys fees as between themselves through warranty and other indemnification provisions. Parties to a distribution agreement in the US often seek to put in place such re-allocation provisions not only because of potential liability resulting from a final, unfavorable judgment, but also because of the sizeable legal fees that litigants in the US often incur. In this regard, we note that in the US litigation costs are generally born by all of the litigating parties and not by the losing party as is common in many other countries. Such provisions may include indemnification provisions relating to product liability or trademark infringement claims brought by third parties, limitations on liability provisions (based on monetary caps and exclusions as to the types of damages that may be recovered, such as consequential, punitive, special and indirect damages) and disclaimers in respect of express or implied warranties that may otherwise apply under state law applicable to the distribution agreement.

Exclusivity

Exclusive-dealing provisions – under which the distributor undertakes not to distribute competing products in the territory – are quite common in distribution agreements. However, although it is not easy for a plaintiff to prevail, such a provision may be subject to challenge as an unlawful restriction on competition under federal and state antitrust law, typically under the following federal antitrust laws: (i) section 1 of the Sherman Act, which prohibits contracts “in restraint of trade;”; (ii) section 2 of the Sherman Act, which prohibits “attempt[s] to monopolize” and monopolization; (iii) section 3 of the Clayton Antitrust Act of 1914 […], which prohibits exclusivity arrangements that may “substantially lessen competition” or tend to create a monopoly; and, finally, (iv) section 5 of the Federal Trade Commission Act […], which prohibits “[u]nfair methods of competition.” In deciding these cases, typically courts apply the “rule of reason analysis” under which the exclusive dealing arrangements is analyzed considering a host of factors, including: (a) the defendant’s market power; (b) the degree of foreclosure from the market and barriers to entry; (c) the duration of the contracts; (d) whether exclusivity has the potential to raise competitors’ costs; (e) the presence of actual or likely anticompetitive effects; and (f) legitimate business justifications.

The Court of Justice of the European Union (“CJEU”) has issued a new ruling on the international scope of the Commercial Agency Directive (86/653/EEC of 18 December 1986). The new decision is in line with the rulings of

  1. the CJEU in the Ingmar case (decision of 9 November 2000, C-381/98, goodwill indemnity mandatory where the agent acts within the EU) and Unamar (decision of 17 October 2013, C-184/12, as to whether national agency law is mandatory where exceeding the Commercial Agency Directive’s minimum protection) and
  2. the German Federal Supreme Court of 5 September 2012 (German agency law as mandatory law vis-à-vis suppliers in third countries with choice-of-court clause).

The question

Now, the CJEU had to decide whether a commercial agent acting in Turkey for a supplier based in Belgium could claim goodwill indemnity on the basis of the Commercial Agency Directive. More specifically, the question was whether the territorial scope of the Commercial Agency Directive was given where the commercial agent acts in a third country and the supplier within the EU – hence opposite to the Ingmar case.

The facts

According to the agency contract, Belgian law applied and the courts in Gent (Belgium) should be competent. Belgian law, transposing the Commercial Agency Directive, provides for a goodwill indemnity claim at termination of the contract (and, additionally, compensation for damages). However, the referring court considered that the Belgian Law on Commercial Agents of 1995 was self-restraining and would apply, in accordance with its Art. 27, only if the commercial agent acted in Belgium. Otherwise, general Belgian law would apply.

The decision

The CJEU decided that the parties may derogate from the Commercial Agency Directive if the agent acts in a third country (i.e. outside the EU). This has here been the case since the agent acted in Turkey.

The decision is particularly noteworthy because it – rather by the way – continues the CJEU’s Ingmar ruling under the Rome I Regulation (I.). In addition, it indirectly confirms sec. 92c of the German Commercial Code (II.) – which allows the parties to a commercial agent agreement governed by German law to deviate from the generally mandatory agency law if the commercial agent is acting outside the European Economic Area (“EEA”). Finally, it provides legal certainty for distribution outside the EEA and illustrates what may change after a Brexit as regards commercial agents acting in the United Kingdom (III.) – if the EU and the United Kingdom do not set up intertemporal arrangements for transition.

For details, please see the article by Benedikt Rohrßen, Zeitschrift für Vertriebsrecht 2017, 186 et seq. (“Ingmar reloaded – Handelsvertreter-Ausgleich bei umgekehrter Ingmar-Konstellation nicht international zwingend”).

Manufacturers of brand-name products typically aim to ensure the same level of quality of distribution throughout all distribution channels, offline and online. To achieve this aim, they provide criteria how to resell their products. With the increase of internet sales, the use of such criteria has been increasing as well.

A total ban of online sales to end consumers within the EU is, however, hardly valid because online sales are considered as passive sales (cf. Guidelines on Vertical Restraints 2010, para. 52). Restrictions below a total ban are, however, commonplace (for examples, see the post “eCommerce: restrictions on distributors in Germany”). Yet, it is still not clear how far such restrictions are permissible.

For example, the luxury perfume manufacturer Coty’s German subsidiary Coty Germany GmbH has set up a selective distribution network and its distributors may sell via the Internet, under the following conditions. They shall

  • use their internet store as “electronic store window” of their brick and mortar store(s), thereby maintaining the products’ character as luxury goods, and
  • abstain insofar from engaging third parties as such cooperation is externally visible.

The court of first instance decided that tsuch ban of sales via third party platforms was an unlawful restriction of competition under art. 101 Treaty on the Functioning of the European Union (“TFEU”), namely a hardcore restriction under article 4 lit. c Regulation (EU) No. 330/2010 (Vertical Block Exemptions Regulation or “VBER”). The court of second instance, however, does obviously not see the answer that clear. Instead, the court requested the Court of Justice of the European Union (CJEU) to give a preliminary ruling on how European antitrust rules have to be interpreted, namely article 101 TFEU and article 4 lit. b and c VBER (decision of 19.04.2016, ref. no. 11 U 96/14 [Kart]) – see the previous post “eCommerce: restrictions on distributors in Germany”.

On 30 March 2017, the hearing took place before the CJEU:

  • Coty defended its platform ban, arguing it aimed at protecting the luxury image of brands such as Marc Jacobs, Calvin Klein or Chloe.
  • France – seat of several luxury brands such as Louis Vuitton, Chanel and Christian Dior –supported Coty.
  • The distributor instead argued that established platforms such as Amazon and eBay already sold various brand-name products, e.g. of L’Oréal. Accordingly, there was no reason for Coty to ban the resale via these marketplaces. Germany also supported this view by emphasizing the importance of online platforms for small and medium-sized enterprises (where, however, the share of distributors using online marketplaces is 62% much higher than in all other Member States, see the Staff Working Document, „Final report on the E-commerce Sector Inquiry“, para. 452).
  • Luxembourg – the seat of Amazon – considers a general platform ban to be disproportionate and therefore as anti-competitive (cf. Reuters’ article here).

Interest in the outcome of the Coty case is widespread, as the active participation of the various EU Member States illustrates (in addition to the abovementioned countries, also Italy, Sweden, the Netherlands and Austria). Simply put, the question is whether owners of luxury brands may generally or at least partially ban the resale via internet on third-party platforms.

Indications on how the court may decide have just appeared on 26 July 2017, with the Advocate General giving his opinion. The Advocate General proposes that the CJEU answers the questions referred to the court as follows:

“(1) Selective distribution systems relating to the distribution of luxury and prestige products and mainly intended to preserve the ‘luxury image’ of those products are an aspect of competition which is compatible with Article 101(1) TFEU provided that resellers are chosen on the basis of objective criteria of a qualitative nature which are determined uniformly for all and applied in a non-discriminatory manner for all potential resellers, that the nature of the product in question, including the prestige image, requires selective distribution in order to preserve the quality of the product and to ensure that it is correctly used, and that the criteria established do not go beyond what is necessary.

(2) In order to determine whether a contractual clause incorporating a prohibition on authorised distributors of a distribution network making use in a discernible manner of third-party platforms for online sales is compatible with Article 101(1) TFEU, it is for the referring court to examine whether that contractual clause is dependent on the nature of the product, whether it is determined in a uniform fashion and applied without distinction and whether it goes beyond what is necessary.

(3 The prohibition imposed on the members of a selective distribution system who operate as retailers on the market from making use in a discernible manner of third undertakings for internet sales does not constitute a restriction of the retailer’s customers within the meaning of Article 4(b) of Commission Regulation (EU) No 330/2010 of 20 April 2010 on the application of Article 101(3) on the Treaty of the Functioning of the European Union to categories of vertical agreements and concerted practices.

(4) The prohibition imposed on the members of a selective distribution system, who operate as retailers on the market, from making use in a discernible manner of third undertakings for internet sales does not constitute a restriction of passive sales to end users within the meaning of Article 4(c) of Regulation No 330/2010.”

The Advocate General’s complete opinion can be found at CJEU’s website here.

The updated overview of the procedure can be found at CJEU’s website here.

Practical Conclusions

  1. The Coty case is extremely relevant to distribution in Europe because more than 70% of the world’s luxury items are sold here, many of them online now.
  2. The general ban to use price comparison tools shall be anti-competitive – according to the Bundeskartellamt, as confirmed by the Higher Regional Court of Düsseldorf on 5 April 2017. The last word is, however, still far from being said – see the post “Asics’ Distribution of Sporting Goods: Ban of Price Comparison Tools anti-competitive & void?!?”. Besides, also the Coty case’s outcome may influence how to see such bans.
  3. The Coty case is setting the course for future Internet sales. Depending on the decision of the CJEU, manufacturers of luxury or brand-name products can continue to ban the use of marketplaces like Amazon or eBay for the distribution of their products – or not any more or only under certain conditions. If the court follows the Advocate General’s conclusions, such platform bans appear possible, provided that the platform ban depends “on the nature of the product, whether it is determined in a uniform fashion and applied without distinction and whether it goes beyond what is necessary” (see above).
  4. For further trends in distribution online, see the EU Commission’s Final report on the E-commerce Sector Inquiry and details in the Staff Working Document, „Final report on the E-commerce Sector Inquiry“.
  5. For details on distribution networks and antitrust, please see my article „Plattformverbote im Selektivvertrieb – der EuGH-Vorlagebeschluss des OLG Frankfurt vom 19.4.2016“, in: Zeitschrift für Vertriebsrecht 2016, p. 278–283.

Companies can sell their products worldwide directly – through branches, subsidiaries or e-commerce – or indirectly – through agents, distributors, franchisees or commission agents.

The German Federal Court of Justice now ruled for the first time that commission agents may also claim indemnity at terminination of their contract (decision of 21 July 2016, ref. no. I ZR 229/15).

What are Commission Agents?

Commission agents are self-employed business persons who are constantly entrusted with the task of concluding transactions in their own name for the account of another company, i.e. the supplier. They differ from distributors insofar as distributors buy and sell products on their own behalf and consequently bear distribution risks themselves (for details, see the Legalmondo post on Distribution Agreements in Germany and the Legalmondo post on “German” Distributor Indemnity – How to avoid it).

What is new for Commission Agents?

The Federal Court of Justice has clarified that – as is settled case law for distributors – also Commission Agents can claim indemnity at termination if two analogy requirements are met, namely if the commission agent

  • (i) is integrated into the supplier’s sales organization like a commercial agent; and
  • (ii) has to provide the customer data to the supplier so that the supplier continues to derive substantial benefits from the business with such customers after termination of the contract.

With regard to the second requirement (provision of customer data), the Federal Court points out that the prerequisite is – as a general rule – fulfilled because statutory law obliges the commission agent to provide the customer data (sec. 384 para. 2 German Commercial Code). As a result, the customers “belong” to the supplier by law, without any specific contractual obligation.

If distribution concerns “anonymous mass business” (i.e. where customers pay cash and the sales intermediary does not know customer names because of any CRM measures), it may be impossible for the commission agent to provide respective customer data. In such case, it shall according to the Federal Court suffice if the commission agent provides data “on the sale process per se” – so that the supplier can estimate which type of goods is in demand where (quite different from the requirements regarding distribution of high-quality products such as cars, fashion or electronics).

Can the parties contract out?

Yes, the obligation to provide customer data can be contracted out. Nevertheless, indemnity claims can currently not 100% safely excluded by doing so because the Federal Court leaves explicitly open whether commission agents may also claim indemnity if the supplier has the mere factual chance to use the customer data. Hence, to be on the safe side, one has to exclude also the chance to use the data (see “Practical information” below).

What about franchisees?

As regards franchisees as sales intermediaries, the Federal Court confirms that mere factual continuity of the customer base does not suffice to result into an indemnity claim (thus confirming the decision against the franchisee of the traditional bakery chain “Kamps” of 5 February 2015, ref. no. VII ZR 315/13).

Practical tips 

The provisions protecting self-employed commercial agents may apply analogously to commission agents.

As regards existing agreements under German law: if the two analogy requirements are met, indemnity claims at termination are quite likely.

As regards future agreements under German law:

  • In general, the claim for indemnity can likely be avoided by excluding the commission agent’s obligation to provide the customer data. Such exclusion should, however, be clearly formulated. Alternatively – or, to be on the safe side, additionally –, the supplier may oblige himself to block and or delete the customer data at terminaton of the contract with the commission agent.
  • Alternatively, the right to indemnity can be avoided by choosing another law and jurisdiction (taking into account the risk that the “German” indemnity claim might nevertheless be applied by as overriding mandatory provision in the sense of Article 9 of the Rome I Regulation).
  • Finally, if the commission agent acts outside the European Economic Area, the indemnity claim can be excluded by a simple waiver (according to analogue application of sec. 92c German Commercial Code).

In distribution contracts, manufacturers and suppliers tend to restrict distributors in selling the goods online (I.). Though this practice is quite common, there is no clearly established rule if and which restrictions are allowed by antitrust law (II.), especially in case of luxury goods within selective distribution networks (III.).

Now, it is up to the Court of Justice of the European Union (CJEU) to give a preliminary ruling on the internet sales restrictions (IV.). In the meantime, the question is: how to deal with resale restrictions now (V.).

Resale Restrictions in E-Commerce

E-Commerce keeps growing – worldwide and also in Germany, where it accounts for about 10% of total retail turnover (according to the 2016 figures from “Handelsverband Deutschland” [Trade Association of Germany]). Also manufacturers of renowned brands try to take advantage of the market opportunities of e-commerce, and at the same time try to preserve their brand’s image. Consequently, manufacturers have imposed several kinds of restrictions on their distributors, in particular:

  • total ban of internet sales,
  • prohibition of sales via third parties’ online platforms (especially “marketplaces”),
  • operation of a brick and mortar shops as a prerequisite for internet sales,
  • dual pricing, or
  • quality criteria for internet sales.

Antitrust limits to online resale restrictions 

Antitrust authorities, however, however, have lately put such restrictions under scrutiny and enforce antitrust rules in e-commerce as well. Accordingly, there have been quite a few court judgments and antitrust authorities’ decisions, both in favour of and against such restrictions, e.g. on:

  • bags (“Scout” re third party platforms),
  • sportswear (“Asics”re price comparisons, logo clause, “Adidas” re third party platforms),
  • electronics (“Sennheiser” and “Casio”both re third party platforms),
  • luxury cosmetics / perfumes (“Coty” re price comparisons, third platforms), or
  • software (“Google” requiring manufacturers of to pre-install apps, cf. European Commission’s press release of 20 April 2016).

Now, the luxury cosmetics case of Coty Germany has reached the European level.

The current Coty Case 

Facts of the case are as follows: The supplier (Coty Germany GmbH) has set up a selective distribution network. Distributors may sell via internet, under the following restrictions. They shall

  • use their internet store as “electronic store window” of their brick and mortar store(s), thereby maintaining the products’ character as luxury goods, and
  • abstain insofar from engaging third parties as such cooperation is externally visible.

The parties’ intentions: The supplier wants to enforce especially the last restriction, stopping a distributor (Parfümerie Akzente GmbH) from selling supplier’s products via Amazon’s marketplace. The distributor, obviously, intends to be free from such restrictions.

The court of first instance, the district court of Frankfurt, decided that the ban of sales via third party platforms is an unlawful restriction of competition under article 101 Treaty on the Functioning of the European Union (“TFEU”), namely a hardcore restriction under article 4 lit. c Regulation (EU) No. 330/2010 (Vertical Block Exemptions Regulation or “VBER”). The court of second instance, the Higher Regional Court of Frankfurt, however, does obviously not see the answer that clear. Therefore, the court has requested the Court of Justice of the European Union (CJEU) to give a preliminary ruling on how European antitrust rules have to be interpreted, namely article 101 TFEU and article 4 lit. b and c VBER (decision of 19.04.2016, ref. no. 11 U 96/14 [Kart]).

Questions referred to the CJEU

The CJEU has filed the case as “Coty Germany” (reference no. C-230/16). These are the four questions on which the CJEU is requested to answer:

  1. Do selective distribution systems that have as their aim the distribution of luxury goods and primarily serve to ensure a ‘luxury image’ for the goods constitute an aspect of competition that is compatible with Article 101(1) TFEU?

If the first question is answered in the affirmative:

  1. Does it constitute an aspect of competition that is compatible with Article 101(1) TFEU if the members of a selective distribution system operating at the retail level of trade are prohibited generally from engaging third-party undertakings discernible to the public to handle internet sales, irrespective of whether the manufacturer’s legitimate quality standards are contravened in the specific case?
  1. Is Article 4(b) of Regulation (EU) No 330/2010 to be interpreted as meaning that a prohibition of engaging thirdparty undertakings discernible to the public to handle internet sales that is imposed on the members of a selective distribution system operating at the retail level of trade constitutes a restriction of the retailer’s customer group ‘by object’?
  1. Is Article 4(c) of Regulation (EU) No 330/2010 to be interpreted as meaning that a prohibition of engaging third-party undertakings discernible to the public to handle internet sales that is imposed on the members of a selective distribution system operating at the retail level of trade constitutes a restriction of passive sales to end users ‘by object’?

How to deal with Restrictions now

There is quite some case law in Germany about the ban on online sales, some decisions in favour, some against. Online sales restrictions have lately also been under scrutiny of the German Bundeskartellamt (federal antitrust authority), which in general rather takes a critical position against such restrictions, including restrictions on selling via third-party platforms.

A decision of the highest German court is, however, still missing. Still missing is therefore also a clear answer to the question which restrictions suppliers and distributors can validly agree upon, especially in case of luxury goods. The CJEU’s preliminary ruling should provide such clarity.

Until the CJEU’s preliminary ruling, the current legal situation should be as follows – based especially on the Guidelines on Vertical Restraints 2010 (which do not have the quality of a law and do not bind the courts, but set out the principles which guide the European Commission’s assessment of vertical agreements and thus in principle bind the European Commission itself):

  1. A total ban of online sales is hardly valid because online sales are considered as passive sales (cf. Guidelines on Vertical Restraints 2010, para. 52). Hardly an option either is restricting the webstore’s language options because it does not change the passive character of such selling (cf. Guidelines on Vertical Restraints 2010, para. 52). The same goes for restrictions on the turnover made by sales via the internet.
  1. Allowed should, however, especially be
  • qualitative requirements for the design of e-commerce platform (without resulting in a total ban and without restricting the use of languages),
  • the restriction of active sales into the exclusive territory or to an exclusive customer group reserved to the supplier or allocated by the supplier to another buyer (article 4 lit. b (i) VBER), e.g. territory-based banners on third party websites, cf. Guidelines on Vertical Restraints 2010, para. 53),
  • general qualitative restrictions for becoming a member of the supplier’s selective distribution system, e.g. requiring that distributors have one or more brick and mortar shops or showrooms (Guidelines on Vertical Restraints 2010, para. 54, 176).

The CJEU’s decision will bring more clarity – Legalmondo will keep you updated on the Coty Case and possible implications on online distribution.

“E-commerce and omni-channel distribution in China: everyone talks about it, no one knows how it really works” (@Stevie Kim, Vinitaly International)

Assistiamo in questi tempi ad un proliferare di iniziative dedicate allo sbarco delle imprese italiane sulle principali piattaforme di e-commerce cinesi, ma la conoscenza di chi sono i protagonisti, come funziona questo nuovo mercato, con quali regole e costi, e soprattutto, qual è il segreto per avere successo, è ancora molto limitata.

Omni-channel, cross-channel, online to offline (“O2O”) sono termini inflazionati, che vengono spesso usati a sproposito: per iniziare, dunque, di cosa stiamo parlando?

Secondo Wikipedia “Omnichannel is a cross-channel business model that companies use to increase customer experience (…) including channels such as physical locations, FAQ webpages, social media, live web chats, mobile applications and telephone communication. Companies that use omnichannel contend that a customer values the ability to be in constant contact with a company through multiple avenues at the same time”.

Possiamo sintetizzare dunque il concetto di omni-channel o cross channel come la creazione di un sistema di promozione e vendita dei prodotti attraverso diversi canali, tra loro integrati, con l’obiettivo di raggiungere il consumatore/cliente e di consentirgli un passaggio senza soluzione di continuità tra sito web aziendale, piattaforme di e-commerce specializzate su una certa tipologia di prodotti (c.d. “verticali”) o generaliste (“orizzontali”), punti vendita fisici, social media, campagne di marketing ed eventi di promozione tradizionali e/o digitali.

multi-omni channel distribution

Omni-channel, dunque, non è un sinonimo di e-commerce ma descrive un sistema molto più complesso, che richiede una chiara strategia di comunicazione, promozione e vendita dei prodotti, che non può prescindere da un’azione integrata su vari canali, tra i quali è fondamentale quello “tradizionale” o fisico.

Aprire un virtual store o riuscire ad avere una presenza dei prodotti su Tmall o JD.com, senza aver elaborato una strategia omni-channel spesso comporta costi altissimi di start up e gestione, che l’impresa straniera non può sostenere nel medio termine, specie se le vendite dei prodotti, come spesso accade, fanno fatica a decollare.

Basti pensare, a questo proposito, che solo su Tmall Global sono presenti 14.500 brand stranieri, l’80% dei quali si affaccia per la prima volta al mercato cinese (fonte CBN Data and Alibaba Group Holding Ltd): la concorrenza è altissima e attrarre traffico e ottenere visibilità è molto costoso e richiede una grande esperienza di marketing sul mercato cinese.

Testimone del trend sempre più spinto Online to Offline è la recente acquisizione da parte di Alibaba Group Holding della catena di department stores Intime Retail Group Co. per 2,6 mld di dollari, operazione che fa seguito ad altri rilevanti investimenti nel settore della distribuzione tradizionale (Suning e Haier).

È imprescindibile, dunque, avere le idee chiare e una solida strategia, che si traduca in un business plan focalizzato sulla distribuzione omni-channel, messo a punto con consulenti esperti del mercato cinese nelle diverse aree di attività coinvolte: con un po’ di semplificazione il quadro potrebbe essere rappresentato così:

componenti distribution agreement

Gli aspetti da considerare sono molteplici: tutela del marchio, import dei prodotti, magazzino e logistica, accordi contrattuali con il gestore del virtual store e con i distributori online e offline, gestione dell’attività di promozione su internet e social media, customer care.

Tratteremo in una serie di articoli i punti principali per preparare in modo professionale e completo una strategia efficace di distribuzione omni-channel in Cina:

  • Marchio, dominio web, account social media: la protezione della proprietà intellettuale
  • L’import dei prodotti in Cina
  • Come scegliere il distributore
  • Adempimenti e costi di apertura e gestione di un virtual store
  • Come si concilia la distribuzione tradizionale con quella e-commerce on shore e off shore
  • Come negoziare e redigere un contratto di vendita e di distribuzione in Cina
  • La normativa a tutela del consumatore
  • La gestione dei contenziosi

Agency agreements

Agency Agreements are regulated by the Agency Agreements Law 12/1992 (which has transposed Directive 86/653/EEC into Spanish law).

The main characteristic of the agency agreement is that through this an individual or a legal entity (the Agent) agrees with the Principal on a continuous or regular basis and against payment of a consideration to be agreed, to promote commercial acts or transactions for the account of such Principal not assuming the risk and hazard of such transactions, unless otherwise agreed.

Commercial relationship: Agents are independent intermediaries who do not act in their own name and behalf, but rather for and on behalf of one or more Principals.

There is no labour but commercial relationship between the Principal and the Agent.

It is presumed that the agency relationship is as a matter of fact. On the contrary, there is a labour relationship when the agent in not entitled to organize by his own his business activity nor to fix its own timetable.

Agents Obligations: Agents must, on his own or through his employees, negotiate and, if required by contract, conclude on behalf of the Principal, the business and transactions he is instructed to handle. Agents are subject to a number or obligations, including the following:

  • An agent cannot outsource his activities unless expressly authorized to do so.
  • An agent is authorized to negotiate agreements or transactions included in the agency agreements, but can only conclude them on behalf of its principal when expressly authorized to do so.
  • An agent may act on behalf of several principals, unless the related goods or services are similar or identical, in which case express consent is required.

Main obligations of the Principal are:

  • To act loyally and in good faith in its relations with the agent.
  • To provide the agent with all the documentation and the information which he may need to develop his activity.
  • To pay the agreed consideration.
  • To accept or reject transactions proposed by the agent.

The agency agreement must always be remunerated/paid. The consideration may consist of a fixed amount, a commission or a combination of both.

Indemnity: the agent is entitled to:

  1. A damages and prejudices indemnity if the contract is terminated by the Principal without cause (not to apply when the termination takes place at the end of the agreed Term).
  2. A compensation for clientele/goodwill if the contract is terminated without cause or terminated through expiration of the agreed term provided the agent has contributed with new clients to the Principal business or increased the transactions with the Principal client portfolio and provided that the Principal can benefit in the future of such activity from the agent. Such compensation cannot exceed the average of the payments/commissions received by the agent throughout the last five years or throughout the contract effectiveness if the duration has been below five years.

Non Competition:  non-competition provisions (i.e., provisions restricting or limiting the activities that can be carried out by the agent once the agency agreement has been terminated) have a maximum duration of two years from the termination of the agency agreement and must be: agreed in writing, limited to the geographical area where the agent has been trading and related to goods or services object of the agency agreement.

 

————————————-

Need help with your International Distribution Contracts?

Click the button below to Receive Support from our Expert Lawyers thanks to the Online Help Desk

————————————-

Distribution / Concession agreements

There is not a specific regulation for distribution agreements; therefore the Civil Code general contract regulation applies. Through this type of contract the Distributor undertakes toward the Principal – on a continuous or regular basis and against payment of a consideration to be agreed – to promote commercial acts or transactions for the account of such Principal, but assuming the risk and hazard of such transactions.

In practice, distribution agreements are often confused with agency agreements. Nevertheless, they are different and have distinct regulations and characteristics.

  1. Under a distribution agreement, the distributor undertakes to purchase goods belonging to the other party for resale. While under the agency agreement the agent is paid a commission but not purchases and resales.
  2. Under the distribution agreement the Distributor assumes the entire risk of the transaction while under the agency agreement the risk remains with the Principal.

Commercial relationship: under the distribution agreement the link is completely commercial; the risk of a labour relationship being declared is much lower than under the agency agreement due to the fact of the Distributor higher independency and autonomy.

The distribution agreement may be granted under an exclusive or non-exclusive basis. The exclusive may work on both sides: the distributor could be contractually liable to only work with the principal (or not) and the Principal could be contractually bound to only work with the distributor on a given territory.

Parties Obligations: while the Agency Agreement is governed through the Agency Agreements Law (which includes mandatory rules), Distribution Agreements are subject to the Civil Code and therefore the “freedom principle” applies in order to set forth the parties obligations regime.

The Distributor is not paid by the Principal. He makes his benefit through the difference between purchase and sale price.

Indemnity: although the clientele/goodwill indemnity only applies to the agency agreements, the Supreme Court has in various sentences decided that the Distributor could have the right to be paid such an indemnity provided similar provisions as those stated at the Agency Agreements law (see above) where met on an analogy basis.

Non Competition:  non-competition provisions (i.e., provisions restricting or limiting the activities that can be carried out by the distributor once the distributor agreement has been terminated) are valid provided that they are expressly agreed through the agreement and its reasonability can be defended and sustained (in terms of territory, term and consideration).

Commission agency agreements

Through this type of contract, the commission agent undertakes to perform or to participate in a commercial act or agreement on behalf of the Principal.

Commission agents may act:

  • In their own name, acquiring rights against the contracting third parties and vice versa or
  • On behalf of their principal, who acquires rights against third parties and vice versa

Obligations of commission agents:

  1. To protect interests of the Principal as if they were their own and to perform their engagement personally. Commission agents may delegate their duties if authorized to do so and may use employees at their own liability.
  2. To account for amount that they have received as commission, to reimburse any excess amount and to return any unsold merchandise.
  3. Commission agents are barred from buying for their own account or for the account of others, without the consent of their principal, the goods that they have been instructed to buy.

Commission: The principal undertakes to pay a commission to the commission agent, usually linked and only accrued if the Transaction is closed.

Differences and similarities between agency agreements and commission agency agreements.

  • Main similarity: In both cases, and individual or legal entity undertakes to pay another compensation for arranging a business opportunity for the former to conclude a legal transaction with a third party, or for acting as the former’s intermediary in concluding the transaction.
  • Main difference: Agency agreements involve an engagement on a continuous or regular basis, whereas commission agency agreements involve occasional engagements.

Franchise Agreements

Franchise Agreements are governed through (i) the Law 7/1996, of January 15, regulations retail trade, regarding the basic conditions for the franchise activity and creating the Register of Franchisors; (ii) Royal Decree 201/2010, of February 26, regulating the exercise of the commercial activity under a franchise arrangement and the communication of information to the Register if Franchisors; and (iii) Royal Decree 378/2003, which refers to Regulations (EC) No. 2790/1999, of December 22, 1999, relating to the application of Article 81(3) of the Treaty to certain categories of vertical agreements. Through the Franchise Agreement the franchisor grants a right to, and imposes an obligation on, its individual franchisees, for a specific market, to pursue the business or commercial activity (sale of goods, services or technology) previously carried out by the Franchisor with sufficient experience and success, using the knowhow, system, trademarks, IP rights etc. defined by the Franchisor.

The Franchise Agreement entitles and obliges the Franchisee to use the brand name and/or trade or service mark for the goods and/or services, the know-how and the technical and business methods, which must be specific to the business, material and unique, the procedures and other intellectual property rights of the Franchisor, backed by the ongoing provision of commercial and technical assistance under, and during the term of, the relevant franchising agreement between the parties, all of the above regardless of any supervisory powers conferred on the Franchisor by contract.

Formalities: In Spain, prior to start franchising activities, Franchisors must register in a public administrative Register of Franchisors.

Although the very short regulation of the Franchise Agreement leaves ground for the freedom principle, usually the franchisee pays a royalty to the Franchisor (commonly linked to the volume of sales but could also be a fix royalty), and a publicity royalty (so as to contribute to the Principal publicity cost of which the franchisee benefits).

Non Competition: throughout the life of the agreement, non-competition clauses (reciprocally) are common and admissible; after the termination of the contract, the Spanish Court usually admits the validity of the one year non-competition clause but limited to the location where the franchise had been working.

There are two ways to enter and do business in the Dominican Republic: By establishing a separate Dominican business entity (“subsidiary”) or by registering a branch of a foreign company (“branch”). In addition, business relationships may be set up under a commercial contract in form of a joint venture, agency, distribution or similar agreements that comply with Dominican Republic legal and regulatory requirements, for the recognition and validity of business entities and commercial agreements.

Another option consists of a Consortium agreement between foreign and Dominican companies intended to execute projects in which the Dominican State participates.

ESTABLISHING A DOMINICAN SUBSIDIARY

Usually start-up and medium business entities in the Dominican Republic are incorporated as a Limited Liability Company or Sociedad de Responsabilidad Limitada (S.R.L.). The Sociedad de Responsabilidad Limitada or S.R.L. is the most common and efficient form of organizing a company in the Dominican Republic and is often chosen by large foreign companies as the legal form for their subsidiaries.

S.R.L.’s offer the following advantages: The partners receive limited liability, meaning that they only respond for company debts up to the limit of their contributed capital. Shareholders can be legal persons or individuals. SRL’s is manager managed with no board of directors required; managers must be individuals, and can be Dominicans or foreigners. Company can attract capital through the issuing of new shares which may be ordinary or preferred shares.

SRL’s may effectuate any type of activities that are legal in trade and there are no restrictions in the Dominican Republic on the legal currency. The United States Dollar is exchanged freely with the Dominican Peso, as well as any other currency.

SRL’s also serve as a holding company and may keep assets as their property, contributed by the partners or acquired by the same, both national and international, movable and real estate properties.

SRL can outlive their founders. Their quotas may be freely transferred among partners, by way of succession, in case of liquidation of marital community assets, among ascendants and descendants under the rules established in the By Laws.

The main steps in establishing a Dominican Limited Liability Company (SRL) are the following:

  1. Make a search before the Dominican Trademark Office, draft and file the request registration to obtain a trade name for the Dominican Company.
  2. Draft by-laws, minutes of incorporation meeting and related incorporation documents. These may be drafted as private documents or as a notary public act for signing by the partners and managers for legalization by notary public;
  3. Pay the incorporation taxes of one percent (1%) of the company’s registered capital before the corresponding Dominican Tax Administration (DGII);
  4. Prepare the business register application and file it along with the corresponding company incorporation documents after payment of business registration fee to obtain the company’s business registration certificate;
  5. Prepare and file the request to obtain the company’s Tax Identification Number (RNC);
  6. Register at DGII’s web page to obtain access and request fiscal invoice numbers (NCF);
  7. Enroll employees before the treasury of social security (TSS) and the ministry of labor.

The following schedule serves as a guidance of the time required to form a new Dominican Company:

Register of company trade name 5 to 7 days
Drafting incorporation documents plus 2 to 5 days
annexes (Incorporation Meeting, By-laws, Business Register application)
Paying incorporation taxes on capital less than 1/2 day
Incorporation Meeting of shareholders less than 1/2 day
Legalizations by Notary Public less than 1/2 day
Registration in Business Register 2 to 5 days
Registration as Tax Contributor (RNC) 10 to 15 days

The following founding documents are needed to form the company:

  1. Business Register request of registration form for Dominican Company, duly signed by the person that is authorized by the company or by an empowered attorney, for which a copy of the power of attorney shall be provided.
  2. By- Laws/Articles of Incorporation in private or notary act form containing the details required in legislation (including company name, registered domicile and purposes.
  3. Attendance List and Minutes of the Incorporation Meeting.
  4. Updated List of Partners/ Shareholders
  5. Report of the Commissary of Contributions, if applicable.
  6. Receipt of payment of the tax on the incorporation of legal entities.
  7. Photocopies of the Dominican Identity and Electoral Card and if foreign, Passport photo page or other official document with visible photo from the country of origin for the partners, managers and account commissary.
  8. Copy of the Trade Name Certificate issued by the Dominican Trademark Office.
  9. Declaration of acceptance of the appointments by the managers if this is not apparent from the by-laws and minutes of the incorporation meeting.

REGISTERING A DOMINICAN BRANCH

Foreign companies interested in doing business in the Dominican Republic (DR) may register a branch in the DR. Under Dominican law, a registered foreign company branch office can enter into contracts and execute and settle transactions in its own name, and can sue and be sued at its place of business.

In order to successfully complete a DR branch registration, the foreign company documents shall prove its valid incorporation and existence, contain all general and specific information as well as proper authorizations; corporate documents shall be certified, notarized and duly legalized by all applicable foreign and local authorities according to local and international law. The Dominican Republic is a member of the 1965 convention of The Hague or Apostille.

The registration of a foreign company branch before local authorities will enable the owners of the foreign entity to conduct business in a similar way and equal rights as a DR business entity.

Branches of foreign corporations are in general treated the same way as legal entities for tax purposes. They are however not subject to issuance stamp tax upon formation. Profits of a Dominican branch office are exempt from taxation (Dominican withholding tax) in the partner-nation under the double-taxation agreements which Dominican Republic has signed.

To register a branch in the DR, it is necessary to provide certified company incorporation, shareholder and manager verification and a power of attorney to qualified attorneys who will draft, prepare and file the request of branch registration at the business register and request a Taxpayer Identification Number (TIN) in the Dominican Republic.

Usually, the registration of a branch to pursue general, unregulated and taxed commercial activities may be accomplished by pursuing the following:

  1. a) Business Registry: The Company should be registered in the Business Registry of the Chamber of Commerce where its local domicile will be located. A registration fee is calculated based on the authorized capital. In order to obtain this registry, the company must file all documents which evidence its proper incorporation in the home country and that representatives are fully authorized to register the foreign company branch.
  2. b) TIN: Issued by the Tax Administration. It is a number that shall serve for identifying the business’s taxable activities and for the control of the duties and obligations derived therefrom. To obtain such registration, the company shall file copy of the Business Registry and the corporate documentation that may be required by such Tax Administration. It shall also present a valid corporate domicile in the DR which may be subject to verification.

USING DOMINICAN COMMERCIAL AGENTS AND DISTRIBUTORS

A foreign supplier of goods and services may choose to enter the Dominican market by selling his/her products through Dominican agents and distributors or representatives. The different channels of selling are subject to different legal frameworks.

Contracts involving Dominican agents and distributors are generally governed by the Civil Code of the Dominican Republic, whose freedom of contract principle allows the parties to choose freely the form, terms and conditions of their agreement as well as by the Code of Commerce and general commercial practices and rulings interpreting the scope of agency, unless said agreement is registered under Law 173 Protecting Importing Agents of Merchandises and Products of April 6, 1966, as amended (“Law 173”).

Local agents and distributors often want to register their Agreements with foreign enterprises under Law 173, while foreign companies that do not have a free trade agreement with the Dominican Republic, are often unaware of this possibility and without adequate previous legal counsel, may later find out a Law 173 registration has been made.

Once registration has been obtained, the relationship of the local licensee (a.k.a. “concessionaire”) with its grantor becomes governed by the provisions of Law 173 of 1966, which provides the local concessionaire with the following rights:

  • The right to initiate legal actions against the grantor or a third party for the purpose of preventing them from directly importing, promoting or distributing in Dominican Territory the registered products or services of the grantor;
  • The right to file suit for damages against both the grantor and any new appointee for substitution of the local concessionaire, including the right to be indemnified for unjust termination in accordance with the formula and for the concepts provided by Article 3 of Law 173.
  • The right to an automatic renewal of the contract or a mandate of continuation of the relationship existing thereof, even if the termination clause of a registered contract provides otherwise.
  • Unilateral termination by the grantor of the local concessionaire’s rights under Law 173 of 1966 is only possible if made for a “just cause”, pursuant to the definition of just cause provided by Law 173 of 1966.
  • The Law provides exclusive jurisdiction to the courts of the Dominican Republic.

Law 173 protects Dominican agents and distributors of foreign enterprises. Its objective is to protect exclusive and non-exclusive agents, distributors and representatives from being unilaterally substituted or terminated without just cause by foreign entities, after favorable market conditions have been created for them in DR.

Law 173 defines as grantor the individuals or legal entities who the Dominican agents and distributors (i.e. concessionaires) represent, who conduct business activities in the interest of the grantor or of its goods, products or services, whether the contract is granted directly by grantor, or by means of other persons or entities, acting in grantor’s representation or in their own name but always in its interest or of their goods, products or services.

The author of this post is Felipe Castillo.

Roberto Luzi Crivellini

Aree di attività

  • Arbitrato
  • Distribuzione
  • Commercio internazionale
  • Contenzioso
  • Real estate
Contatta Roberto

Scrivi a Roberto





    Leggi la privacy policy di Legalmondo.
    Questo sito è protetto da reCAPTCHA e si applicano le Norme sulla privacy e i Termini di servizio di Google.

    Germany – Distribution agreements

    24 Maggio 2016

    • Germania
    • Distribuzione

    Understanding the interplay between federal and state statutory and common law in the US legal system is important to understanding the regulation of exclusive distribution agreements in the US.

    Under the US Constitution all power not specifically reserved for the federal government remains with the states. Federal law has exclusive jurisdiction only over certain types of cases (e.g., those involving federal laws, controversies between states and cases involving foreign governments), and share jurisdiction with the states courts in certain other areas (e.g., cases involving parties that reside in different states). In the vast majority of cases, however, state law has exclusive jurisdiction. Similarly, the doctrine of freedom of contract under US law also directly affects how distribution agreements are regulated in the US.

    Furthermore, because a distributor is typically an unaffiliated third party acting on its own account rather than on behalf of the supplier as principal, distribution agreements are subject to greater regulation under US federal and state antitrust law. Such law, among other things, (i) regulates whether and the degree to which a supplier in a distribution arrangement may seek in a contract or otherwise to dictate the price at which the distributor will resell products supplied; (ii) imposes restrictions on suppliers that engage in “dual distribution” (selling product directly as well as through a distributor); and (iii) may limit the suppliers’ ability to sell product to different distributors at a different price. Antitrust law also regulates exclusivity and selective distribution arrangements, as well as distribution relationships in certain industries (e.g., federally: automobile manufacturers and petroleum; at the state level, heavy equipment, liquor and farm equipment industries). Furthermore, distribution agreements often may resemble franchise arrangements, subjecting those arrangements to extensive federal and state regulation.

    Under the law of most states (including New York), exclusive distribution exists when a supplier grants a distributor exclusive rights to promote and sell the contract goods or services within a territory or to a specific group of customers. Exclusive rights in a distribution arrangement are often granted by the supplier for the distribution of high quality or technically complex products that require a relatively high level of expertise by the distributor, including staff that is specially training to sell the goods or specialized after-sales repair and maintenance or other services. Distribution agreements differ from commercial agency agreements in several respects. In contrast to a distributor, a commercial agent does not take title to product, does not hold inventory and typically has no contractual liability to the customer (including risk of customer non-payment). Conversely, a distributor, in line with the greater risk of its activities, typically can expect greater upside economically in terms of margins on resale relative to an agent’s profit through earned commissions.

    Sub-distributors

    Under the law of most states (including New York), a distributor may appoint sub-distributors absent any restrictions to the contrary in the agency agreement. Commercially, the appointment of a sub-distributor may have an adverse effect on the supplier by reducing the supplier’s control over its distribution channel activities or increasing the supplier’s potential liability exposure given the increased number of distributors whose actions may be attributed to the supplier. A supplier that does not manage properly the appointment of sub-distributors may also lose valuable product knowledge with respect to the distributed goods (particularly if the goods are novel or complex in nature). Advantages to sub-distributor appointments for the supplier may include a more effective overall marketing presence with enhanced local market knowledge, a broader geographic scope, a potentially lower costs as a result of the sub-distributors’ expertise and efficiencies, etc.

     

    ————————————-

    Need help with your International Distribution Contracts?

    Click the button below to Receive Support from our Expert Lawyers thanks to the Online Help Desk

    ————————————-

    Rights and Obligations of the Exclusive Distributor

    • Sales organization: suppliers are not required to establish sales organizations in exclusive distribution agreements.
    • Sales’ target: there are no mandatory rules under federal law or state law (including New York) generally regarding sales targets in exclusive distribution agreements. However, such provisions are common in exclusive distribution agreements.
    • Guaranteed minimum target: minimum sales requirements are common in exclusive distribution agreements. As a commercial matter, a supplier as a requirement to give, or maintain, exclusivity with one distributor, will seek through such requirements to ensure that economically the distributor is performing satisfactorily. Often failure to meet sales targets may entitle a supplier to rescind the exclusivity, terminate the agreement or reduce the portion of the territory to which the exclusivity applies. We note that minimum sales requirements in an exclusive distribution arrangement may, in certain cases, be subject to challenge under antitrust law as having an undue anticompetitive effect by preventing a distributor from purchasing products from a competitive supplier.
    • Minimum stock: there are no mandatory rules in federal law or the law of the majority of states (including New York) regarding minimum stock. A supplier may seek to have the distributor agree, contractually, to maintain adequate levels of stock relative to market demands as well as to store the product properly.
    • After-sales service: the parties to a distribution agreement are generally free to agree as they deem appropriate with respect to after-sale service regarding products.
    • Resale Prices: the Exclusive Distributor is free to fix the resale prices. State law (including New York law) generally does not limit the ability of an exclusive distributor to fix resale prices. […] A supplier’s ability to set resale prices for distributors is subject to limitations under federal and state antitrust law. Many state antitrust laws (including New York’s) closely resemble the federal antitrust laws. However, differences exist such that certain conduct may be found not to violate federal antitrust law but still be found to violate state antitrust law (or vice versa). Because the distributor (contrary to an agent) is acting on its own behalf, an agreement between supplier and distributor to maintain certain prices (or if a distributor is deemed to have been coerced by the supplier to follow certain prices), may be a per se price-fixing violation under federal and state antitrust law. Under federal antitrust law, vertical price-fixing until 2007 had been illegal per se. This per se rule was overturned by the Supreme Court. Horizontal price fixing remains per se illegal under the Sherman Act (see below).

    Rights and Obligations of the Supplier

    • Exclusive Distributor undertaking to supply: generally, state statutes do not specifically provide that a supplier in a distribution relationship has a duty to supply specific levels of product to a distributor, with such obligations generally be established by contractual provision. However, a supplier does have an implied covenant of good faith and fair dealing toward the distributor under state law generally, which generally requires that a party to a commercial agreement not do anything which injures the right of the other to receive the benefits of the agreement). Under the foregoing, a supplier may be deemed to have an obligation to supply product to a distributor (or be found to have violated the implied covenant of good faith and fair dealing in the event that the supplier, although able, decided not to provide a distributor with product without any other contractual justification for not doing so). However, even where such a duty were found to exist, the quantity and frequency of product supply and other details often remain unclear. To avoid uncertainty, distributors often seek to have a specific provision included in the distribution agreement, providing at least for the supplier to be required to use some degree of effort (e.g., “best efforts,”, “reasonable best efforts” or “reasonable efforts”) to supply product responsive to distributor’s submitted purchase orders. On a related topic, generally a distributor typically is only required to inform the supplier of lower purchase estimates if the distributor undertakes to do so (or undertakes a more general obligation with respect to the market) in the distribution agreement. However, even if the supplier is not, under an exclusive distribution agreement, required to supply the distributor with product, the supplier may still be subject to a contractual or common law obligation not to sell to third parties in the territory. New York courts held that suppliers that make direct sales to customers in the territory under an exclusive distribution agreement have breached their duties to the exclusive distributor.
    • Retention of title: typically, in sales transactions on credit in the US, title is passed at the moment of initial sale. The buyer typically grants the supplier a security interest in the goods purchased, which if proper perfected under state law, affords the supplier with a priority position relative to other creditors with respect to the products provided (inventory) in the event of non-payment and enforcement.

    Construction defects warranty

    The law of “products liability” in the US is based on the law of torts. Under New York law, in cases of where an end user is injured by a defective product which was sold by the distributor under a distribution agreement, the end user generally is able to sue the distributor and the supplier of the product under one or more of the following theories: (i) strict liability; (ii) negligence; or (iii) breach of warranty. The usual theory of recovery against a distributor is strict liability. Under a strict liability theory, a supplier or distributor that sells a defective product while engaged in its normal course of business shall be liable for injuries it causes to customers, regardless of privity, foreseeability or the exercise of due care. Product liability cases also are brought under breach of warranty claims. Breach of warranty claims can be based on express warranties (e.g., from advertisement or a product label) and on implied warranties (typically, warranties of merchantability and fitness for a particular purpose under the provisions of the Uniform Commercial Code as adopted by the states). Lastly, negligence claims brought by plaintiffs are based on the improper conduct of the defendant, whether supplier or distributor or other participant in the distribution chain, with respect to the manner of distribution or care of the product sold (examples include improper storage or transport).

    Under New York law, exceptions based on misuse, neglect or abuse by the suing party generally apply as defenses against liability under theories of strict liability, negligence or breach of warranty.

    The supplier and distributor can allocate third-party liabilities (e.g., potential losses to be paid to plaintiffs in a products liability law suit) and related attorneys fees as between themselves through warranty and other indemnification provisions. Parties to a distribution agreement in the US often seek to put in place such re-allocation provisions not only because of potential liability resulting from a final, unfavorable judgment, but also because of the sizeable legal fees that litigants in the US often incur. In this regard, we note that in the US litigation costs are generally born by all of the litigating parties and not by the losing party as is common in many other countries. Such provisions may include indemnification provisions relating to product liability or trademark infringement claims brought by third parties, limitations on liability provisions (based on monetary caps and exclusions as to the types of damages that may be recovered, such as consequential, punitive, special and indirect damages) and disclaimers in respect of express or implied warranties that may otherwise apply under state law applicable to the distribution agreement.

    Exclusivity

    Exclusive-dealing provisions – under which the distributor undertakes not to distribute competing products in the territory – are quite common in distribution agreements. However, although it is not easy for a plaintiff to prevail, such a provision may be subject to challenge as an unlawful restriction on competition under federal and state antitrust law, typically under the following federal antitrust laws: (i) section 1 of the Sherman Act, which prohibits contracts “in restraint of trade;”; (ii) section 2 of the Sherman Act, which prohibits “attempt[s] to monopolize” and monopolization; (iii) section 3 of the Clayton Antitrust Act of 1914 […], which prohibits exclusivity arrangements that may “substantially lessen competition” or tend to create a monopoly; and, finally, (iv) section 5 of the Federal Trade Commission Act […], which prohibits “[u]nfair methods of competition.” In deciding these cases, typically courts apply the “rule of reason analysis” under which the exclusive dealing arrangements is analyzed considering a host of factors, including: (a) the defendant’s market power; (b) the degree of foreclosure from the market and barriers to entry; (c) the duration of the contracts; (d) whether exclusivity has the potential to raise competitors’ costs; (e) the presence of actual or likely anticompetitive effects; and (f) legitimate business justifications.

    The Court of Justice of the European Union (“CJEU”) has issued a new ruling on the international scope of the Commercial Agency Directive (86/653/EEC of 18 December 1986). The new decision is in line with the rulings of

    1. the CJEU in the Ingmar case (decision of 9 November 2000, C-381/98, goodwill indemnity mandatory where the agent acts within the EU) and Unamar (decision of 17 October 2013, C-184/12, as to whether national agency law is mandatory where exceeding the Commercial Agency Directive’s minimum protection) and
    2. the German Federal Supreme Court of 5 September 2012 (German agency law as mandatory law vis-à-vis suppliers in third countries with choice-of-court clause).

    The question

    Now, the CJEU had to decide whether a commercial agent acting in Turkey for a supplier based in Belgium could claim goodwill indemnity on the basis of the Commercial Agency Directive. More specifically, the question was whether the territorial scope of the Commercial Agency Directive was given where the commercial agent acts in a third country and the supplier within the EU – hence opposite to the Ingmar case.

    The facts

    According to the agency contract, Belgian law applied and the courts in Gent (Belgium) should be competent. Belgian law, transposing the Commercial Agency Directive, provides for a goodwill indemnity claim at termination of the contract (and, additionally, compensation for damages). However, the referring court considered that the Belgian Law on Commercial Agents of 1995 was self-restraining and would apply, in accordance with its Art. 27, only if the commercial agent acted in Belgium. Otherwise, general Belgian law would apply.

    The decision

    The CJEU decided that the parties may derogate from the Commercial Agency Directive if the agent acts in a third country (i.e. outside the EU). This has here been the case since the agent acted in Turkey.

    The decision is particularly noteworthy because it – rather by the way – continues the CJEU’s Ingmar ruling under the Rome I Regulation (I.). In addition, it indirectly confirms sec. 92c of the German Commercial Code (II.) – which allows the parties to a commercial agent agreement governed by German law to deviate from the generally mandatory agency law if the commercial agent is acting outside the European Economic Area (“EEA”). Finally, it provides legal certainty for distribution outside the EEA and illustrates what may change after a Brexit as regards commercial agents acting in the United Kingdom (III.) – if the EU and the United Kingdom do not set up intertemporal arrangements for transition.

    For details, please see the article by Benedikt Rohrßen, Zeitschrift für Vertriebsrecht 2017, 186 et seq. (“Ingmar reloaded – Handelsvertreter-Ausgleich bei umgekehrter Ingmar-Konstellation nicht international zwingend”).

    Manufacturers of brand-name products typically aim to ensure the same level of quality of distribution throughout all distribution channels, offline and online. To achieve this aim, they provide criteria how to resell their products. With the increase of internet sales, the use of such criteria has been increasing as well.

    A total ban of online sales to end consumers within the EU is, however, hardly valid because online sales are considered as passive sales (cf. Guidelines on Vertical Restraints 2010, para. 52). Restrictions below a total ban are, however, commonplace (for examples, see the post “eCommerce: restrictions on distributors in Germany”). Yet, it is still not clear how far such restrictions are permissible.

    For example, the luxury perfume manufacturer Coty’s German subsidiary Coty Germany GmbH has set up a selective distribution network and its distributors may sell via the Internet, under the following conditions. They shall

    • use their internet store as “electronic store window” of their brick and mortar store(s), thereby maintaining the products’ character as luxury goods, and
    • abstain insofar from engaging third parties as such cooperation is externally visible.

    The court of first instance decided that tsuch ban of sales via third party platforms was an unlawful restriction of competition under art. 101 Treaty on the Functioning of the European Union (“TFEU”), namely a hardcore restriction under article 4 lit. c Regulation (EU) No. 330/2010 (Vertical Block Exemptions Regulation or “VBER”). The court of second instance, however, does obviously not see the answer that clear. Instead, the court requested the Court of Justice of the European Union (CJEU) to give a preliminary ruling on how European antitrust rules have to be interpreted, namely article 101 TFEU and article 4 lit. b and c VBER (decision of 19.04.2016, ref. no. 11 U 96/14 [Kart]) – see the previous post “eCommerce: restrictions on distributors in Germany”.

    On 30 March 2017, the hearing took place before the CJEU:

    • Coty defended its platform ban, arguing it aimed at protecting the luxury image of brands such as Marc Jacobs, Calvin Klein or Chloe.
    • France – seat of several luxury brands such as Louis Vuitton, Chanel and Christian Dior –supported Coty.
    • The distributor instead argued that established platforms such as Amazon and eBay already sold various brand-name products, e.g. of L’Oréal. Accordingly, there was no reason for Coty to ban the resale via these marketplaces. Germany also supported this view by emphasizing the importance of online platforms for small and medium-sized enterprises (where, however, the share of distributors using online marketplaces is 62% much higher than in all other Member States, see the Staff Working Document, „Final report on the E-commerce Sector Inquiry“, para. 452).
    • Luxembourg – the seat of Amazon – considers a general platform ban to be disproportionate and therefore as anti-competitive (cf. Reuters’ article here).

    Interest in the outcome of the Coty case is widespread, as the active participation of the various EU Member States illustrates (in addition to the abovementioned countries, also Italy, Sweden, the Netherlands and Austria). Simply put, the question is whether owners of luxury brands may generally or at least partially ban the resale via internet on third-party platforms.

    Indications on how the court may decide have just appeared on 26 July 2017, with the Advocate General giving his opinion. The Advocate General proposes that the CJEU answers the questions referred to the court as follows:

    “(1) Selective distribution systems relating to the distribution of luxury and prestige products and mainly intended to preserve the ‘luxury image’ of those products are an aspect of competition which is compatible with Article 101(1) TFEU provided that resellers are chosen on the basis of objective criteria of a qualitative nature which are determined uniformly for all and applied in a non-discriminatory manner for all potential resellers, that the nature of the product in question, including the prestige image, requires selective distribution in order to preserve the quality of the product and to ensure that it is correctly used, and that the criteria established do not go beyond what is necessary.

    (2) In order to determine whether a contractual clause incorporating a prohibition on authorised distributors of a distribution network making use in a discernible manner of third-party platforms for online sales is compatible with Article 101(1) TFEU, it is for the referring court to examine whether that contractual clause is dependent on the nature of the product, whether it is determined in a uniform fashion and applied without distinction and whether it goes beyond what is necessary.

    (3 The prohibition imposed on the members of a selective distribution system who operate as retailers on the market from making use in a discernible manner of third undertakings for internet sales does not constitute a restriction of the retailer’s customers within the meaning of Article 4(b) of Commission Regulation (EU) No 330/2010 of 20 April 2010 on the application of Article 101(3) on the Treaty of the Functioning of the European Union to categories of vertical agreements and concerted practices.

    (4) The prohibition imposed on the members of a selective distribution system, who operate as retailers on the market, from making use in a discernible manner of third undertakings for internet sales does not constitute a restriction of passive sales to end users within the meaning of Article 4(c) of Regulation No 330/2010.”

    The Advocate General’s complete opinion can be found at CJEU’s website here.

    The updated overview of the procedure can be found at CJEU’s website here.

    Practical Conclusions

    1. The Coty case is extremely relevant to distribution in Europe because more than 70% of the world’s luxury items are sold here, many of them online now.
    2. The general ban to use price comparison tools shall be anti-competitive – according to the Bundeskartellamt, as confirmed by the Higher Regional Court of Düsseldorf on 5 April 2017. The last word is, however, still far from being said – see the post “Asics’ Distribution of Sporting Goods: Ban of Price Comparison Tools anti-competitive & void?!?”. Besides, also the Coty case’s outcome may influence how to see such bans.
    3. The Coty case is setting the course for future Internet sales. Depending on the decision of the CJEU, manufacturers of luxury or brand-name products can continue to ban the use of marketplaces like Amazon or eBay for the distribution of their products – or not any more or only under certain conditions. If the court follows the Advocate General’s conclusions, such platform bans appear possible, provided that the platform ban depends “on the nature of the product, whether it is determined in a uniform fashion and applied without distinction and whether it goes beyond what is necessary” (see above).
    4. For further trends in distribution online, see the EU Commission’s Final report on the E-commerce Sector Inquiry and details in the Staff Working Document, „Final report on the E-commerce Sector Inquiry“.
    5. For details on distribution networks and antitrust, please see my article „Plattformverbote im Selektivvertrieb – der EuGH-Vorlagebeschluss des OLG Frankfurt vom 19.4.2016“, in: Zeitschrift für Vertriebsrecht 2016, p. 278–283.

    Companies can sell their products worldwide directly – through branches, subsidiaries or e-commerce – or indirectly – through agents, distributors, franchisees or commission agents.

    The German Federal Court of Justice now ruled for the first time that commission agents may also claim indemnity at terminination of their contract (decision of 21 July 2016, ref. no. I ZR 229/15).

    What are Commission Agents?

    Commission agents are self-employed business persons who are constantly entrusted with the task of concluding transactions in their own name for the account of another company, i.e. the supplier. They differ from distributors insofar as distributors buy and sell products on their own behalf and consequently bear distribution risks themselves (for details, see the Legalmondo post on Distribution Agreements in Germany and the Legalmondo post on “German” Distributor Indemnity – How to avoid it).

    What is new for Commission Agents?

    The Federal Court of Justice has clarified that – as is settled case law for distributors – also Commission Agents can claim indemnity at termination if two analogy requirements are met, namely if the commission agent

    • (i) is integrated into the supplier’s sales organization like a commercial agent; and
    • (ii) has to provide the customer data to the supplier so that the supplier continues to derive substantial benefits from the business with such customers after termination of the contract.

    With regard to the second requirement (provision of customer data), the Federal Court points out that the prerequisite is – as a general rule – fulfilled because statutory law obliges the commission agent to provide the customer data (sec. 384 para. 2 German Commercial Code). As a result, the customers “belong” to the supplier by law, without any specific contractual obligation.

    If distribution concerns “anonymous mass business” (i.e. where customers pay cash and the sales intermediary does not know customer names because of any CRM measures), it may be impossible for the commission agent to provide respective customer data. In such case, it shall according to the Federal Court suffice if the commission agent provides data “on the sale process per se” – so that the supplier can estimate which type of goods is in demand where (quite different from the requirements regarding distribution of high-quality products such as cars, fashion or electronics).

    Can the parties contract out?

    Yes, the obligation to provide customer data can be contracted out. Nevertheless, indemnity claims can currently not 100% safely excluded by doing so because the Federal Court leaves explicitly open whether commission agents may also claim indemnity if the supplier has the mere factual chance to use the customer data. Hence, to be on the safe side, one has to exclude also the chance to use the data (see “Practical information” below).

    What about franchisees?

    As regards franchisees as sales intermediaries, the Federal Court confirms that mere factual continuity of the customer base does not suffice to result into an indemnity claim (thus confirming the decision against the franchisee of the traditional bakery chain “Kamps” of 5 February 2015, ref. no. VII ZR 315/13).

    Practical tips 

    The provisions protecting self-employed commercial agents may apply analogously to commission agents.

    As regards existing agreements under German law: if the two analogy requirements are met, indemnity claims at termination are quite likely.

    As regards future agreements under German law:

    • In general, the claim for indemnity can likely be avoided by excluding the commission agent’s obligation to provide the customer data. Such exclusion should, however, be clearly formulated. Alternatively – or, to be on the safe side, additionally –, the supplier may oblige himself to block and or delete the customer data at terminaton of the contract with the commission agent.
    • Alternatively, the right to indemnity can be avoided by choosing another law and jurisdiction (taking into account the risk that the “German” indemnity claim might nevertheless be applied by as overriding mandatory provision in the sense of Article 9 of the Rome I Regulation).
    • Finally, if the commission agent acts outside the European Economic Area, the indemnity claim can be excluded by a simple waiver (according to analogue application of sec. 92c German Commercial Code).

    In distribution contracts, manufacturers and suppliers tend to restrict distributors in selling the goods online (I.). Though this practice is quite common, there is no clearly established rule if and which restrictions are allowed by antitrust law (II.), especially in case of luxury goods within selective distribution networks (III.).

    Now, it is up to the Court of Justice of the European Union (CJEU) to give a preliminary ruling on the internet sales restrictions (IV.). In the meantime, the question is: how to deal with resale restrictions now (V.).

    Resale Restrictions in E-Commerce

    E-Commerce keeps growing – worldwide and also in Germany, where it accounts for about 10% of total retail turnover (according to the 2016 figures from “Handelsverband Deutschland” [Trade Association of Germany]). Also manufacturers of renowned brands try to take advantage of the market opportunities of e-commerce, and at the same time try to preserve their brand’s image. Consequently, manufacturers have imposed several kinds of restrictions on their distributors, in particular:

    • total ban of internet sales,
    • prohibition of sales via third parties’ online platforms (especially “marketplaces”),
    • operation of a brick and mortar shops as a prerequisite for internet sales,
    • dual pricing, or
    • quality criteria for internet sales.

    Antitrust limits to online resale restrictions 

    Antitrust authorities, however, however, have lately put such restrictions under scrutiny and enforce antitrust rules in e-commerce as well. Accordingly, there have been quite a few court judgments and antitrust authorities’ decisions, both in favour of and against such restrictions, e.g. on:

    • bags (“Scout” re third party platforms),
    • sportswear (“Asics”re price comparisons, logo clause, “Adidas” re third party platforms),
    • electronics (“Sennheiser” and “Casio”both re third party platforms),
    • luxury cosmetics / perfumes (“Coty” re price comparisons, third platforms), or
    • software (“Google” requiring manufacturers of to pre-install apps, cf. European Commission’s press release of 20 April 2016).

    Now, the luxury cosmetics case of Coty Germany has reached the European level.

    The current Coty Case 

    Facts of the case are as follows: The supplier (Coty Germany GmbH) has set up a selective distribution network. Distributors may sell via internet, under the following restrictions. They shall

    • use their internet store as “electronic store window” of their brick and mortar store(s), thereby maintaining the products’ character as luxury goods, and
    • abstain insofar from engaging third parties as such cooperation is externally visible.

    The parties’ intentions: The supplier wants to enforce especially the last restriction, stopping a distributor (Parfümerie Akzente GmbH) from selling supplier’s products via Amazon’s marketplace. The distributor, obviously, intends to be free from such restrictions.

    The court of first instance, the district court of Frankfurt, decided that the ban of sales via third party platforms is an unlawful restriction of competition under article 101 Treaty on the Functioning of the European Union (“TFEU”), namely a hardcore restriction under article 4 lit. c Regulation (EU) No. 330/2010 (Vertical Block Exemptions Regulation or “VBER”). The court of second instance, the Higher Regional Court of Frankfurt, however, does obviously not see the answer that clear. Therefore, the court has requested the Court of Justice of the European Union (CJEU) to give a preliminary ruling on how European antitrust rules have to be interpreted, namely article 101 TFEU and article 4 lit. b and c VBER (decision of 19.04.2016, ref. no. 11 U 96/14 [Kart]).

    Questions referred to the CJEU

    The CJEU has filed the case as “Coty Germany” (reference no. C-230/16). These are the four questions on which the CJEU is requested to answer:

    1. Do selective distribution systems that have as their aim the distribution of luxury goods and primarily serve to ensure a ‘luxury image’ for the goods constitute an aspect of competition that is compatible with Article 101(1) TFEU?

    If the first question is answered in the affirmative:

    1. Does it constitute an aspect of competition that is compatible with Article 101(1) TFEU if the members of a selective distribution system operating at the retail level of trade are prohibited generally from engaging third-party undertakings discernible to the public to handle internet sales, irrespective of whether the manufacturer’s legitimate quality standards are contravened in the specific case?
    1. Is Article 4(b) of Regulation (EU) No 330/2010 to be interpreted as meaning that a prohibition of engaging thirdparty undertakings discernible to the public to handle internet sales that is imposed on the members of a selective distribution system operating at the retail level of trade constitutes a restriction of the retailer’s customer group ‘by object’?
    1. Is Article 4(c) of Regulation (EU) No 330/2010 to be interpreted as meaning that a prohibition of engaging third-party undertakings discernible to the public to handle internet sales that is imposed on the members of a selective distribution system operating at the retail level of trade constitutes a restriction of passive sales to end users ‘by object’?

    How to deal with Restrictions now

    There is quite some case law in Germany about the ban on online sales, some decisions in favour, some against. Online sales restrictions have lately also been under scrutiny of the German Bundeskartellamt (federal antitrust authority), which in general rather takes a critical position against such restrictions, including restrictions on selling via third-party platforms.

    A decision of the highest German court is, however, still missing. Still missing is therefore also a clear answer to the question which restrictions suppliers and distributors can validly agree upon, especially in case of luxury goods. The CJEU’s preliminary ruling should provide such clarity.

    Until the CJEU’s preliminary ruling, the current legal situation should be as follows – based especially on the Guidelines on Vertical Restraints 2010 (which do not have the quality of a law and do not bind the courts, but set out the principles which guide the European Commission’s assessment of vertical agreements and thus in principle bind the European Commission itself):

    1. A total ban of online sales is hardly valid because online sales are considered as passive sales (cf. Guidelines on Vertical Restraints 2010, para. 52). Hardly an option either is restricting the webstore’s language options because it does not change the passive character of such selling (cf. Guidelines on Vertical Restraints 2010, para. 52). The same goes for restrictions on the turnover made by sales via the internet.
    1. Allowed should, however, especially be
    • qualitative requirements for the design of e-commerce platform (without resulting in a total ban and without restricting the use of languages),
    • the restriction of active sales into the exclusive territory or to an exclusive customer group reserved to the supplier or allocated by the supplier to another buyer (article 4 lit. b (i) VBER), e.g. territory-based banners on third party websites, cf. Guidelines on Vertical Restraints 2010, para. 53),
    • general qualitative restrictions for becoming a member of the supplier’s selective distribution system, e.g. requiring that distributors have one or more brick and mortar shops or showrooms (Guidelines on Vertical Restraints 2010, para. 54, 176).

    The CJEU’s decision will bring more clarity – Legalmondo will keep you updated on the Coty Case and possible implications on online distribution.

    “E-commerce and omni-channel distribution in China: everyone talks about it, no one knows how it really works” (@Stevie Kim, Vinitaly International)

    Assistiamo in questi tempi ad un proliferare di iniziative dedicate allo sbarco delle imprese italiane sulle principali piattaforme di e-commerce cinesi, ma la conoscenza di chi sono i protagonisti, come funziona questo nuovo mercato, con quali regole e costi, e soprattutto, qual è il segreto per avere successo, è ancora molto limitata.

    Omni-channel, cross-channel, online to offline (“O2O”) sono termini inflazionati, che vengono spesso usati a sproposito: per iniziare, dunque, di cosa stiamo parlando?

    Secondo Wikipedia “Omnichannel is a cross-channel business model that companies use to increase customer experience (…) including channels such as physical locations, FAQ webpages, social media, live web chats, mobile applications and telephone communication. Companies that use omnichannel contend that a customer values the ability to be in constant contact with a company through multiple avenues at the same time”.

    Possiamo sintetizzare dunque il concetto di omni-channel o cross channel come la creazione di un sistema di promozione e vendita dei prodotti attraverso diversi canali, tra loro integrati, con l’obiettivo di raggiungere il consumatore/cliente e di consentirgli un passaggio senza soluzione di continuità tra sito web aziendale, piattaforme di e-commerce specializzate su una certa tipologia di prodotti (c.d. “verticali”) o generaliste (“orizzontali”), punti vendita fisici, social media, campagne di marketing ed eventi di promozione tradizionali e/o digitali.

    multi-omni channel distribution

    Omni-channel, dunque, non è un sinonimo di e-commerce ma descrive un sistema molto più complesso, che richiede una chiara strategia di comunicazione, promozione e vendita dei prodotti, che non può prescindere da un’azione integrata su vari canali, tra i quali è fondamentale quello “tradizionale” o fisico.

    Aprire un virtual store o riuscire ad avere una presenza dei prodotti su Tmall o JD.com, senza aver elaborato una strategia omni-channel spesso comporta costi altissimi di start up e gestione, che l’impresa straniera non può sostenere nel medio termine, specie se le vendite dei prodotti, come spesso accade, fanno fatica a decollare.

    Basti pensare, a questo proposito, che solo su Tmall Global sono presenti 14.500 brand stranieri, l’80% dei quali si affaccia per la prima volta al mercato cinese (fonte CBN Data and Alibaba Group Holding Ltd): la concorrenza è altissima e attrarre traffico e ottenere visibilità è molto costoso e richiede una grande esperienza di marketing sul mercato cinese.

    Testimone del trend sempre più spinto Online to Offline è la recente acquisizione da parte di Alibaba Group Holding della catena di department stores Intime Retail Group Co. per 2,6 mld di dollari, operazione che fa seguito ad altri rilevanti investimenti nel settore della distribuzione tradizionale (Suning e Haier).

    È imprescindibile, dunque, avere le idee chiare e una solida strategia, che si traduca in un business plan focalizzato sulla distribuzione omni-channel, messo a punto con consulenti esperti del mercato cinese nelle diverse aree di attività coinvolte: con un po’ di semplificazione il quadro potrebbe essere rappresentato così:

    componenti distribution agreement

    Gli aspetti da considerare sono molteplici: tutela del marchio, import dei prodotti, magazzino e logistica, accordi contrattuali con il gestore del virtual store e con i distributori online e offline, gestione dell’attività di promozione su internet e social media, customer care.

    Tratteremo in una serie di articoli i punti principali per preparare in modo professionale e completo una strategia efficace di distribuzione omni-channel in Cina:

    • Marchio, dominio web, account social media: la protezione della proprietà intellettuale
    • L’import dei prodotti in Cina
    • Come scegliere il distributore
    • Adempimenti e costi di apertura e gestione di un virtual store
    • Come si concilia la distribuzione tradizionale con quella e-commerce on shore e off shore
    • Come negoziare e redigere un contratto di vendita e di distribuzione in Cina
    • La normativa a tutela del consumatore
    • La gestione dei contenziosi

    Agency agreements

    Agency Agreements are regulated by the Agency Agreements Law 12/1992 (which has transposed Directive 86/653/EEC into Spanish law).

    The main characteristic of the agency agreement is that through this an individual or a legal entity (the Agent) agrees with the Principal on a continuous or regular basis and against payment of a consideration to be agreed, to promote commercial acts or transactions for the account of such Principal not assuming the risk and hazard of such transactions, unless otherwise agreed.

    Commercial relationship: Agents are independent intermediaries who do not act in their own name and behalf, but rather for and on behalf of one or more Principals.

    There is no labour but commercial relationship between the Principal and the Agent.

    It is presumed that the agency relationship is as a matter of fact. On the contrary, there is a labour relationship when the agent in not entitled to organize by his own his business activity nor to fix its own timetable.

    Agents Obligations: Agents must, on his own or through his employees, negotiate and, if required by contract, conclude on behalf of the Principal, the business and transactions he is instructed to handle. Agents are subject to a number or obligations, including the following:

    • An agent cannot outsource his activities unless expressly authorized to do so.
    • An agent is authorized to negotiate agreements or transactions included in the agency agreements, but can only conclude them on behalf of its principal when expressly authorized to do so.
    • An agent may act on behalf of several principals, unless the related goods or services are similar or identical, in which case express consent is required.

    Main obligations of the Principal are:

    • To act loyally and in good faith in its relations with the agent.
    • To provide the agent with all the documentation and the information which he may need to develop his activity.
    • To pay the agreed consideration.
    • To accept or reject transactions proposed by the agent.

    The agency agreement must always be remunerated/paid. The consideration may consist of a fixed amount, a commission or a combination of both.

    Indemnity: the agent is entitled to:

    1. A damages and prejudices indemnity if the contract is terminated by the Principal without cause (not to apply when the termination takes place at the end of the agreed Term).
    2. A compensation for clientele/goodwill if the contract is terminated without cause or terminated through expiration of the agreed term provided the agent has contributed with new clients to the Principal business or increased the transactions with the Principal client portfolio and provided that the Principal can benefit in the future of such activity from the agent. Such compensation cannot exceed the average of the payments/commissions received by the agent throughout the last five years or throughout the contract effectiveness if the duration has been below five years.

    Non Competition:  non-competition provisions (i.e., provisions restricting or limiting the activities that can be carried out by the agent once the agency agreement has been terminated) have a maximum duration of two years from the termination of the agency agreement and must be: agreed in writing, limited to the geographical area where the agent has been trading and related to goods or services object of the agency agreement.

     

    ————————————-

    Need help with your International Distribution Contracts?

    Click the button below to Receive Support from our Expert Lawyers thanks to the Online Help Desk

    ————————————-

    Distribution / Concession agreements

    There is not a specific regulation for distribution agreements; therefore the Civil Code general contract regulation applies. Through this type of contract the Distributor undertakes toward the Principal – on a continuous or regular basis and against payment of a consideration to be agreed – to promote commercial acts or transactions for the account of such Principal, but assuming the risk and hazard of such transactions.

    In practice, distribution agreements are often confused with agency agreements. Nevertheless, they are different and have distinct regulations and characteristics.

    1. Under a distribution agreement, the distributor undertakes to purchase goods belonging to the other party for resale. While under the agency agreement the agent is paid a commission but not purchases and resales.
    2. Under the distribution agreement the Distributor assumes the entire risk of the transaction while under the agency agreement the risk remains with the Principal.

    Commercial relationship: under the distribution agreement the link is completely commercial; the risk of a labour relationship being declared is much lower than under the agency agreement due to the fact of the Distributor higher independency and autonomy.

    The distribution agreement may be granted under an exclusive or non-exclusive basis. The exclusive may work on both sides: the distributor could be contractually liable to only work with the principal (or not) and the Principal could be contractually bound to only work with the distributor on a given territory.

    Parties Obligations: while the Agency Agreement is governed through the Agency Agreements Law (which includes mandatory rules), Distribution Agreements are subject to the Civil Code and therefore the “freedom principle” applies in order to set forth the parties obligations regime.

    The Distributor is not paid by the Principal. He makes his benefit through the difference between purchase and sale price.

    Indemnity: although the clientele/goodwill indemnity only applies to the agency agreements, the Supreme Court has in various sentences decided that the Distributor could have the right to be paid such an indemnity provided similar provisions as those stated at the Agency Agreements law (see above) where met on an analogy basis.

    Non Competition:  non-competition provisions (i.e., provisions restricting or limiting the activities that can be carried out by the distributor once the distributor agreement has been terminated) are valid provided that they are expressly agreed through the agreement and its reasonability can be defended and sustained (in terms of territory, term and consideration).

    Commission agency agreements

    Through this type of contract, the commission agent undertakes to perform or to participate in a commercial act or agreement on behalf of the Principal.

    Commission agents may act:

    • In their own name, acquiring rights against the contracting third parties and vice versa or
    • On behalf of their principal, who acquires rights against third parties and vice versa

    Obligations of commission agents:

    1. To protect interests of the Principal as if they were their own and to perform their engagement personally. Commission agents may delegate their duties if authorized to do so and may use employees at their own liability.
    2. To account for amount that they have received as commission, to reimburse any excess amount and to return any unsold merchandise.
    3. Commission agents are barred from buying for their own account or for the account of others, without the consent of their principal, the goods that they have been instructed to buy.

    Commission: The principal undertakes to pay a commission to the commission agent, usually linked and only accrued if the Transaction is closed.

    Differences and similarities between agency agreements and commission agency agreements.

    • Main similarity: In both cases, and individual or legal entity undertakes to pay another compensation for arranging a business opportunity for the former to conclude a legal transaction with a third party, or for acting as the former’s intermediary in concluding the transaction.
    • Main difference: Agency agreements involve an engagement on a continuous or regular basis, whereas commission agency agreements involve occasional engagements.

    Franchise Agreements

    Franchise Agreements are governed through (i) the Law 7/1996, of January 15, regulations retail trade, regarding the basic conditions for the franchise activity and creating the Register of Franchisors; (ii) Royal Decree 201/2010, of February 26, regulating the exercise of the commercial activity under a franchise arrangement and the communication of information to the Register if Franchisors; and (iii) Royal Decree 378/2003, which refers to Regulations (EC) No. 2790/1999, of December 22, 1999, relating to the application of Article 81(3) of the Treaty to certain categories of vertical agreements. Through the Franchise Agreement the franchisor grants a right to, and imposes an obligation on, its individual franchisees, for a specific market, to pursue the business or commercial activity (sale of goods, services or technology) previously carried out by the Franchisor with sufficient experience and success, using the knowhow, system, trademarks, IP rights etc. defined by the Franchisor.

    The Franchise Agreement entitles and obliges the Franchisee to use the brand name and/or trade or service mark for the goods and/or services, the know-how and the technical and business methods, which must be specific to the business, material and unique, the procedures and other intellectual property rights of the Franchisor, backed by the ongoing provision of commercial and technical assistance under, and during the term of, the relevant franchising agreement between the parties, all of the above regardless of any supervisory powers conferred on the Franchisor by contract.

    Formalities: In Spain, prior to start franchising activities, Franchisors must register in a public administrative Register of Franchisors.

    Although the very short regulation of the Franchise Agreement leaves ground for the freedom principle, usually the franchisee pays a royalty to the Franchisor (commonly linked to the volume of sales but could also be a fix royalty), and a publicity royalty (so as to contribute to the Principal publicity cost of which the franchisee benefits).

    Non Competition: throughout the life of the agreement, non-competition clauses (reciprocally) are common and admissible; after the termination of the contract, the Spanish Court usually admits the validity of the one year non-competition clause but limited to the location where the franchise had been working.

    There are two ways to enter and do business in the Dominican Republic: By establishing a separate Dominican business entity (“subsidiary”) or by registering a branch of a foreign company (“branch”). In addition, business relationships may be set up under a commercial contract in form of a joint venture, agency, distribution or similar agreements that comply with Dominican Republic legal and regulatory requirements, for the recognition and validity of business entities and commercial agreements.

    Another option consists of a Consortium agreement between foreign and Dominican companies intended to execute projects in which the Dominican State participates.

    ESTABLISHING A DOMINICAN SUBSIDIARY

    Usually start-up and medium business entities in the Dominican Republic are incorporated as a Limited Liability Company or Sociedad de Responsabilidad Limitada (S.R.L.). The Sociedad de Responsabilidad Limitada or S.R.L. is the most common and efficient form of organizing a company in the Dominican Republic and is often chosen by large foreign companies as the legal form for their subsidiaries.

    S.R.L.’s offer the following advantages: The partners receive limited liability, meaning that they only respond for company debts up to the limit of their contributed capital. Shareholders can be legal persons or individuals. SRL’s is manager managed with no board of directors required; managers must be individuals, and can be Dominicans or foreigners. Company can attract capital through the issuing of new shares which may be ordinary or preferred shares.

    SRL’s may effectuate any type of activities that are legal in trade and there are no restrictions in the Dominican Republic on the legal currency. The United States Dollar is exchanged freely with the Dominican Peso, as well as any other currency.

    SRL’s also serve as a holding company and may keep assets as their property, contributed by the partners or acquired by the same, both national and international, movable and real estate properties.

    SRL can outlive their founders. Their quotas may be freely transferred among partners, by way of succession, in case of liquidation of marital community assets, among ascendants and descendants under the rules established in the By Laws.

    The main steps in establishing a Dominican Limited Liability Company (SRL) are the following:

    1. Make a search before the Dominican Trademark Office, draft and file the request registration to obtain a trade name for the Dominican Company.
    2. Draft by-laws, minutes of incorporation meeting and related incorporation documents. These may be drafted as private documents or as a notary public act for signing by the partners and managers for legalization by notary public;
    3. Pay the incorporation taxes of one percent (1%) of the company’s registered capital before the corresponding Dominican Tax Administration (DGII);
    4. Prepare the business register application and file it along with the corresponding company incorporation documents after payment of business registration fee to obtain the company’s business registration certificate;
    5. Prepare and file the request to obtain the company’s Tax Identification Number (RNC);
    6. Register at DGII’s web page to obtain access and request fiscal invoice numbers (NCF);
    7. Enroll employees before the treasury of social security (TSS) and the ministry of labor.

    The following schedule serves as a guidance of the time required to form a new Dominican Company:

    Register of company trade name 5 to 7 days
    Drafting incorporation documents plus 2 to 5 days
    annexes (Incorporation Meeting, By-laws, Business Register application)
    Paying incorporation taxes on capital less than 1/2 day
    Incorporation Meeting of shareholders less than 1/2 day
    Legalizations by Notary Public less than 1/2 day
    Registration in Business Register 2 to 5 days
    Registration as Tax Contributor (RNC) 10 to 15 days

    The following founding documents are needed to form the company:

    1. Business Register request of registration form for Dominican Company, duly signed by the person that is authorized by the company or by an empowered attorney, for which a copy of the power of attorney shall be provided.
    2. By- Laws/Articles of Incorporation in private or notary act form containing the details required in legislation (including company name, registered domicile and purposes.
    3. Attendance List and Minutes of the Incorporation Meeting.
    4. Updated List of Partners/ Shareholders
    5. Report of the Commissary of Contributions, if applicable.
    6. Receipt of payment of the tax on the incorporation of legal entities.
    7. Photocopies of the Dominican Identity and Electoral Card and if foreign, Passport photo page or other official document with visible photo from the country of origin for the partners, managers and account commissary.
    8. Copy of the Trade Name Certificate issued by the Dominican Trademark Office.
    9. Declaration of acceptance of the appointments by the managers if this is not apparent from the by-laws and minutes of the incorporation meeting.

    REGISTERING A DOMINICAN BRANCH

    Foreign companies interested in doing business in the Dominican Republic (DR) may register a branch in the DR. Under Dominican law, a registered foreign company branch office can enter into contracts and execute and settle transactions in its own name, and can sue and be sued at its place of business.

    In order to successfully complete a DR branch registration, the foreign company documents shall prove its valid incorporation and existence, contain all general and specific information as well as proper authorizations; corporate documents shall be certified, notarized and duly legalized by all applicable foreign and local authorities according to local and international law. The Dominican Republic is a member of the 1965 convention of The Hague or Apostille.

    The registration of a foreign company branch before local authorities will enable the owners of the foreign entity to conduct business in a similar way and equal rights as a DR business entity.

    Branches of foreign corporations are in general treated the same way as legal entities for tax purposes. They are however not subject to issuance stamp tax upon formation. Profits of a Dominican branch office are exempt from taxation (Dominican withholding tax) in the partner-nation under the double-taxation agreements which Dominican Republic has signed.

    To register a branch in the DR, it is necessary to provide certified company incorporation, shareholder and manager verification and a power of attorney to qualified attorneys who will draft, prepare and file the request of branch registration at the business register and request a Taxpayer Identification Number (TIN) in the Dominican Republic.

    Usually, the registration of a branch to pursue general, unregulated and taxed commercial activities may be accomplished by pursuing the following:

    1. a) Business Registry: The Company should be registered in the Business Registry of the Chamber of Commerce where its local domicile will be located. A registration fee is calculated based on the authorized capital. In order to obtain this registry, the company must file all documents which evidence its proper incorporation in the home country and that representatives are fully authorized to register the foreign company branch.
    2. b) TIN: Issued by the Tax Administration. It is a number that shall serve for identifying the business’s taxable activities and for the control of the duties and obligations derived therefrom. To obtain such registration, the company shall file copy of the Business Registry and the corporate documentation that may be required by such Tax Administration. It shall also present a valid corporate domicile in the DR which may be subject to verification.

    USING DOMINICAN COMMERCIAL AGENTS AND DISTRIBUTORS

    A foreign supplier of goods and services may choose to enter the Dominican market by selling his/her products through Dominican agents and distributors or representatives. The different channels of selling are subject to different legal frameworks.

    Contracts involving Dominican agents and distributors are generally governed by the Civil Code of the Dominican Republic, whose freedom of contract principle allows the parties to choose freely the form, terms and conditions of their agreement as well as by the Code of Commerce and general commercial practices and rulings interpreting the scope of agency, unless said agreement is registered under Law 173 Protecting Importing Agents of Merchandises and Products of April 6, 1966, as amended (“Law 173”).

    Local agents and distributors often want to register their Agreements with foreign enterprises under Law 173, while foreign companies that do not have a free trade agreement with the Dominican Republic, are often unaware of this possibility and without adequate previous legal counsel, may later find out a Law 173 registration has been made.

    Once registration has been obtained, the relationship of the local licensee (a.k.a. “concessionaire”) with its grantor becomes governed by the provisions of Law 173 of 1966, which provides the local concessionaire with the following rights:

    • The right to initiate legal actions against the grantor or a third party for the purpose of preventing them from directly importing, promoting or distributing in Dominican Territory the registered products or services of the grantor;
    • The right to file suit for damages against both the grantor and any new appointee for substitution of the local concessionaire, including the right to be indemnified for unjust termination in accordance with the formula and for the concepts provided by Article 3 of Law 173.
    • The right to an automatic renewal of the contract or a mandate of continuation of the relationship existing thereof, even if the termination clause of a registered contract provides otherwise.
    • Unilateral termination by the grantor of the local concessionaire’s rights under Law 173 of 1966 is only possible if made for a “just cause”, pursuant to the definition of just cause provided by Law 173 of 1966.
    • The Law provides exclusive jurisdiction to the courts of the Dominican Republic.

    Law 173 protects Dominican agents and distributors of foreign enterprises. Its objective is to protect exclusive and non-exclusive agents, distributors and representatives from being unilaterally substituted or terminated without just cause by foreign entities, after favorable market conditions have been created for them in DR.

    Law 173 defines as grantor the individuals or legal entities who the Dominican agents and distributors (i.e. concessionaires) represent, who conduct business activities in the interest of the grantor or of its goods, products or services, whether the contract is granted directly by grantor, or by means of other persons or entities, acting in grantor’s representation or in their own name but always in its interest or of their goods, products or services.

    The author of this post is Felipe Castillo.

    Benedikt Rohrssen

    Aree di attività

    • Agenzia
    • Distribuzione
    • e-commerce
    • Franchising
    • Investimenti
    Contatta Benedikt