CMS Expert Guide to Distribution

Introduction

Companies put their products and services on the market in many different ways. Generally, the company may decide between (1) distributing the products and services itself via its own sales force or (2) distributing the products and services via third parties (sales intermediaries).

The cooperation with sales intermediaries may be established in various ways, depending on the depth of the level of cooperation. In summary, the possible ways of cooperation range from (1) entering into a "normal" framework sales agreement, (2) instructing Distributors or (3) Commercial Agents to (4) instructing of Franchisees. When talking about distribution cooperation, generally, only Distributors, Commercial Agents and Franchisees are of principal interest as "normal" framework sales agreements are subject to "normal" sales law.

This Guide will focus on Commercial Agents and Distributors as they constitute the two most tried and tested ways of selling products and services via third parties. Franchising will be addressed in a separate CMS Guide.

The terms "Commercial Agent" and "Distributor" are often used interchangeably. However, there are important legal and practical distinctions between the two.

  • Commercial Agents are independent sales intermediaries who, on a permanent basis (i.e. the Agency Agreement), acquire contracts between the company (i.e. the Principal) and the customer who buys the Principal's products or services. Commercial Agents do not themselves become a party to the contract under which the product is sold to the customer. Instead, they typically receive a renumeration from the Principal which is based on the business/turnover they acquire.
  • Distributors are independent sales intermediaries who, on a permanent basis (i.e. the Distribution Agreement), in their own name and for their own account, sell the Principal's products or services to customers. With this form of cooperation, the Principal does not become a party to the contract under which the Principal's products or services are sold to the customer; the Distributor is the selling party. Therefore, as a starting point, the role of a Distributor equals the role of a "normal" purchasing party, however, the cooperation is much closer than in case of a mere seller/buyer relationship.

Within the European Union, the applicable law on Commercial Agents is – to a large extent – harmonised based on the Commercial Agents Directive (Council Directive No 86/653/EEC). Still, important differences exist which should be borne in mind and which could be costly to ignore. When it comes to Distributors, there is no harmonised law and the rules strongly deviate within the various countries.

We hope you find this overview helpful. Please do not hesitate to contact us in case of any questions or comments.