Our attorneys at Hayes & Simon see too many international distribution agreements, agent agreements and franchise agreements that are mere spun U.S. or European distribution agreements. These agreements are utilized for matters concerning the distribution of a products, systems or services abroad and should be based, in most cases, based on the law, realities and jurisprudence of jurisdiction where the product, service or system is sold.
Please have these foreign distribution agreements, franchise and agent agreements drafted by an experienced and proactive international attorney that has on-the-ground experience in the country you wish to enter via a distributor, agent or franchisee. We see too many issues that could have been easily resolved by a carefully drafted agreement, a little due diligence and strategy.
If you are looking to distribute products, services, systems into North America please see our article entitled: Distributing your products via a distributor in New York or Definition of a Franchise in New York.
Jurisdiction Clauses in International Distribution & Agent Agreements
Please, save yourself headaches, grey hair and litigation fees (much more than mere consulting fees) and do not, simply, have your local lawyer spin a local agreement. Many lawyers do not understand, fully, that jurisdiction clauses specifying your home jurisdiction, in many jurisdictions, is trumped by local law and these jurisdictions, often, mandate compensation or make it near impossible to terminate a distribution agreement without certain formalities and a carefully drafted agreement.
Reality is that freedom of contract is a term that we hear a great deal about in the United States, but Civil Law jurisdictions, Asian countries and less developed nations place enormous powers into the hands of regulatory agencies. These nations, often, rely on the guidance of these agencies to develop, in short, jurisprudence. Overwhelming, in these jurisdictions – your jurisdiction clause shall be useless. Simply, your choice of New York Law shall, in many cases, be trumped by the foreign law, if the distributed product or system is utilized in the foreign jurisdiction. For example, here is an article from our sister blog on termination of distribution agreements in Korea.
Additionally, judgments abroad can be enforced in courts in North America and throughout most of the world. Yes, your assets in New York may be at risk.
Questions to Consider Prior to Execution of your International Distribution, Agency or Franchise Agreement:
- Will your international “distributor” be your agent or your distributor? If this international distributor is an agent, generally, you will, only, be paying this agent for commissions and you shall directly invoice the buyer (end user). In some cases, this is a more beneficial relationship. Consider the benefits of having a distributor, agent and/or franchisee.
- Will you international distributor be your exclusive distributor in the territory? How long will the relationship last? How can the relationship be terminated? Territory? Scope?
- What occurs after termination of the relationship with the distributor? Return of products, buy back inventory, compensation paid etc.?
- Dispute resolution mechanisms? Venue? Arbitration?
- Have you created a franchise? If so, we have some more talking to do. The requirements for franchising is much more cumbersome than a mere distribution relationship, however, in many cases a franchise is necessary and obvious under the circumstances. Don’t try to avoid franchise law by mere terminology. Calling something a license agreement does not make the relationship not under franchise law.
- Have you registered your trademarks? Many countries are first-to-file nations. If you have an agreement with a distributor – you may be protected even without registering your trademarks – however- register and avoid issues.
- Did you conduct a thorough due diligence on the distributor? Did you read our article on Vetting your distributor (while these articles are tailored to Korea – the articles are still useful)?
- Who handles warranty claims, logistics, support, marketing etc.?
- Is the party signing the agreement authorized to sign the agreement? Additionally, sign the agreement with a company that has assets. If it does, obtain a personal guarantee from the main shareholders.
- Do you have an understanding of the distribution law (franchise law/agency law) of the jurisdiction that you are intending to enter via an international distribution agreement? Termination? Compensation for termination? Anti-trust issues?
- Shall you have access to the data, books, customers lists etc. of the distributor, agent, franchisee?
- Shall the counter party, via know-how anticipated obtained via the relationship, allow the distributor to compete against you.
- Do the courts in the jurisdiction of the distributor, enforce restrictive covenants/non-compete clauses?
- Does the distributor, agent, franchisee have experience working with other international companies?
- Have you completed a background check on the distributor, agent and/or franchisee?
As noted above, we see too many distribution, agency and franchise relationships with foreign parties mere spun U.S. agreements. Please have your distribution agreement drafted by an experienced and proactive attorney that has on-the-ground experience in the jurisdiction that your are entering.
For a consultation with Sean Hayes, please contact us at: Schedule a Call with Sean Hayes.
- Restrictive Covenants in New York Franchise Agreements: Strategic Use of Restrictive Covenants by Franchisors
- Definition of a Franchise in New York State: New York Franchise Law Basics
- Terminating A Franchise Agreement In New York: NY Franchise Law Basics
- NY Agency Law Basics: Obtaining an agent to distribute your products in New York
- Enforcing a New York Judgment Abroad: Service under the Hague Service Convention
- Recognition and Enforcement of Foreign Arbitral Awards in New York Courts