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What Should be in Your San Diego Distribution Agreement?
If your San Diego business produces goods, then you likely need help with distribution. Many businesses handle distribution and sales in-house, but distribution can be done through agents, resellers, distributors, and other business partners who help get your goods to your customers. If you have distributors or are thinking of adding distributors to your sales/marketing structure, you need to have well-drafted distribution agreements. A good San Diego corporate attorney can help. Here are a few tips on what should be included.
San Diego Distribution Agreements: Identify the Products and Prices
First and foremost, when drafting a distribution agreement, it is important to be clear on what products are authorized for distribution and at what prices. Remember that a distributor is an agent of your business, so there are circumstances in which your agent can bind your business. So, identify the products that can be sold and at what prices/discounts. You do not want a legal fight over a price or product that your agent promised, but that you cannot deliver.
Consider Exclusivity
Some products and distributors lend themselves to exclusivity; but others do not. If you create and sell comic books, for example, it is very unlikely that you will find a distributor/reseller who will agree to only distribute your books. More to the point, sometimes it can be good for sales if a variety of similar products are concentrated in one commercial location (such as a comic book store).
Identify the Territory/Channel
If you have more than one distributor, it is important to delineate the various territories and/or distribution channels. Territory, of course, is physical; distribution channels are methods of distribution such as internet, door-to-door, etc. Well-written distribution agreements save you the hassle of mediating between your distributors about who has the right to make certain sales in what territories/channels.
Detail the Sales Targets and Payment Agreements
This almost goes without saying, but a good agreement details the sales targets and payment structure. One of the most important functions of a written agreement is to avoid litigation. A well-drafted, well-thought-out agreement makes the expectation and obligations of the parties clear. This avoids arguments and lawsuits.
Detail the Distributor’s Duties and Limitations
Related to the first point about products and prices, a good distribution agreement details the duties and obligations of the distributor. Those should include duties such as:
- Use of best efforts
- Loyalty and non-disparagement
- Exclusivity (or impartiality — if the distribution is not exclusive)
- Maintenance of insurance and indemnities
- And more
Just as important are clear limits on the authority granted to distributor. As noted, the first and more important limit relates to pricing, but other limits might relate to volume, timing, continuing nature of any agreement, limits on rights to use intellectual property, and more.
Identify the Term and Termination
A term is important for many reasons, in particular defining the length of the agreement or relationship and providing for renewal options. Likewise, it is important that various methods be established for termination of the agreement in order to best protect the interests of your business.
Post-Termination Issues
A good distribution agreement should also cover post-termination issues including the following:
- Return of product in possession of distributor
- Return of marketing or other property containing/using intellectual property (such as trade secrets)
- Confidentiality and nondisclosure
- Post-termination commissions/payments
- Handling continuing obligations to end-users/customers
- And more
Contact San Diego Corporate Law
For further information, please contact Michael Leonard, Esq. of San Diego Corporate Law. Mr. Leonard’s law practice is focused on business, transactional, and corporate matters, and proudly serves business owners in San Diego and the surrounding communities. Contact Mr. Leonard by email or by calling (858) 483-9200.
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