Distribution law in France

(Law of 25 June 1991 codified under article L. 134-1 et. Seq. of the French Commercial Code)

Are there any formal requirements on concluding Agency Agreements?

The Agency Agreement can be executed both verbally and in writing. However, if the Agency Agreement is only verbal it might create some evidencing issues.

Each party may request to be provided with a written and signed document mentioning the content of the Agency Agreement and its annexes.

A written agreement is mandatory in some cases, for example in case of post contract non-compete clause.

Under French law, the Commercial Agent must register with a special register held by the Commercial court where the Commercial Agent is located.

Can the Commercial Agent bind the Principal?

The Agency Agreement can grant the Commercial Agent the power to negotiate and conclude agreements in the name and for the account of the Principal.

Pursuant to article 1998 of the French Civil Code, the Principal is bound by the commitments made by the Commercial Agent. The Principal will not, however, be bound by any commitments made by the Commercial Agent outside the scope of the mandate unless it was expressly or tacitly ratified by the Principal.

What are the primary duties of the Commercial Agent?

Key examples of the duties of a Commercial Agent are:

• obligation of loyalty: the Commercial Agent must comply with the Principal's instructions; the Commercial Agent must act with due diligence; the Commercial Agent must keep the information provided by the Principal confidential and the Commercial Agent's acts must not affect the Principal's reputation;
• accountability and transparency obligation: the Commercial Agent must inform the Principal of its management measures and return to the Principal all sums collected on the Principal's behalf;
• non-compete obligation: the Commercial Agent is entitled to represent other and new principal except if the other principal is the Principal's competitor. In such case the Commercial Agent shall obtain the Principal's authorization (the parties may contractually contravene this non-compete obligation).

What are the primary duties of the Principal?

The Principal has the following duties:

• obligation of loyalty: the Principal must ensure the Commercial Agent is able to execute its mandate;
• obligation of information: for example, Principal shall transfer to the Commercial Agent all the documents relating to the products or services which are necessary for the performance of the Agency Agreement;
• obligation to perform the agreements entered into by the Commercial Agent on behalf of and in the name of the Principal;
• obligation to pay the proper remuneration to Commercial Agent.

How is the Commercial Agent paid?

There are no mandatory rules governing the remuneration of the Commercial Agent.

During an Agency Agreement

If the parties do not expressly agree upon remuneration for the services of the Commercial Agent, the court will impose a reasonable sum, based on what is the customary compensation for Commercial Agents for similar products in the region. If there is no such customary practice the Commercial Agent shall be entitled to reasonable remuneration taking into account all the aspects of the transaction.

Duration of the Agency Agreement

Parties are free to decide on the duration of the Agency Agreement. If no term is agreed in writing the Agency Agreement shall be deemed to have been agreed for an indefinite term.

Agreements of definite duration are converted to agreements for indefinite duration if they continue to be performed after the fixed term.

Termination of the Agency Agreement

Where an Agency Agreement is concluded for an indefinite period either party may terminate it by notice.

Notice period

Minimum notice periods must be respected. During the first year of the Agency Agreement, one month's notice must be given, during the second year two months' notice must be given and during the third and any subsequent years a three months' notice must be given.

Goodwill or other compensation

The Commercial Agent is entitled to mandatory compensation for goodwill which usually amounts to two years' remuneration based on the average of last three contract years (or actual term, if shorter).

Unless otherwise agreed, the Commercial Agent is entitled to a commission if the transaction is mainly attributable to the Commercial Agent's efforts during the period covered by the Agency Agreement and if the transaction was entered into within a reasonable period after that Agency Agreement terminated.

In which case does compensation not apply?

No compensation is due when the Principal has terminated the Agency Agreement because of a breach of the contract by the Commercial Agent.

What is the statute of limitation?

The Commercial Agent has one year to claim for the compensation resulting from the termination of the Agency Agreement.

Post-contractual non-compete obligation

The Agency Agreement may expressly provide that the non-compete obligation will also apply after the termination of the Agency Agreement. To be valid, such clause must be established in writing, and be limited to a specific geographic sector, a group of persons entrusted to the Commercial Agent and the type of goods or services which are covered by the Agency Agreement. However, it will only be valid for a period of up to two years after the termination of the Agency Agreement.

Can a del credere clause be inserted into the Agency Agreement?

A del credere clause is only valid if agreed upon in writing. The liability of the Commercial Agent will be limited to the amounts of the Commercial Agent's commission.

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Are there any formal requirements upon concluding Distribution Agreements?

Pre-contractual stage

Under French law, the Principal must provide to the Distributor at least 20 days before the signature of the Distribution Agreement all relevant information enabling the Distributor to commit itself with full knowledge of the facts.

This obligation only applies when (i) the Principal provides to the Distributor a corporate name, trademark or trade name to carry out its activity and (ii) the Distribution Agreement is exclusive or quasi-exclusive.

It applies essentially to exclusive Distribution Agreements, (‘concession exclusive de vente') contracts and franchise agreements.

Upon request, the Principal must also provide the Distributor with the price list, the rebates and the terms and conditions of sale.

Additional and specific information must be provided by a service provider.

Contractual stage

Under French law, a Distribution Agreement must be executed in writing.

This Distribution Agreement must include both the terms and conditions for the sales of products as well as the terms and conditions of any service that can be provided by the Distributor in order to promote the contractual goods.

The Distribution Agreement must be finalized every year before March 1st.

However according to the French Commercial Practices Board (Commission d'Examen des Pratiques Commerciales), this obligation doesn't apply to long term relationships such as franchise or selective distribution agreements.

Can exclusivities be granted?

Exclusivity can be granted, subject to the EU regulations on vertical restraints.

Is a contractual non-competition clause enforceable?

Non-compete clauses are valid subject to EU Competition law.

If the market shares of both parties are below 30%, non-compete clauses are valid provided that they do not exceed five years and are geographically limited and proportional to the rights and interests of the Principal.

Post contractual non-compete clauses are allowed if they are limited to one year, to the contractual products and to activity performed within the same premises, and are necessary to protect the know-how of the Principal. However, even if those conditions are not fulfilled, parties may still prove that the post-contractual non-compete clauses does not have an effect on competition.

Can Distribution Agreements include Minimum Sales Quotas?

Minimum Sales Quotas are valid provided that the targets are reasonable, i.e. realistic. The clause must define clearly and objectively the settings and must not be discretional compared to the targets established with the other Distributors. The targets must not be imposed on the Distributor or disproportionate in consideration of the importance of the territory conceded.

Can the Principal influence resale price of the Distributor?

Principals may not impose a minimum resale price on the Distributor. Maximum price fixing and recommended price are accepted although the parties must be confident that the maximum or recommended price will not operate as a disguised fixed price. This point is important in all cases, but above all where the Principal's or Distributor's market share is over 30%.

French case law is more severe than in most of the other EU Member States.

Is a notice period necessary?

Distribution Agreements providing for a definite duration without the possibility of an early termination end upon the expiration of their term, without prior notice, unless agreed otherwise in writing in the Distribution Agreement.

Distribution Agreements providing for an indefinite duration where no notice period was agreed upon, may only be terminated with a reasonable notice period.

Moreover, article L.442-1 of the French Commercial Code sanctions the abrupt termination of an ‘established business relationship’ when the notice period is not sufficient. The notice period must take into account several criteria such as the length of the relationship, the economic dependency existing between the parties, a non-competition clause, the existence of a cycle of production, financial investments made by the terminated party for the performance of the contract and not depreciated at the time of the termination, etc..

Even if the parties have contractually agreed on a prior notice, it does not bind the judge who is always free to decide what is a "reasonable prior notice" in his/her opinion.

However, it is commonly considered as reasonable, a notice period calculated as follows: one year of relationship = one month of period notice

In any case, a period notice of 18 months shall always be considered as reasonable under French law.

Formal requirements for terminating Distribution Agreements?

Distribution Agreements providing for an indefinite duration must be terminated in writing.

Is there any kind of compensation or goodwill indemnity to be paid to Distributor?

There is no statutory right to goodwill compensation.

Upon expiration of the term of a Distribution Agreement of definite duration, no compensation is due.

In case of abrupt termination of an established business relationship, even if the contractual notice period was observed, compensation for insufficient notice will be due, calculated based on the gross margin that would have been made during the reasonable notice period.

Is bankruptcy a reason for termination?

There is no automatic termination of the Distribution Agreement in the case of bankruptcy.

A contractual provision allowing to terminate in the case of bankruptcy will not be enforceable.

What is the statute of limitations?

A statute of limitation of five years applies to all claims regarding the performance of a Distribution Agreement.

May parties choose litigation or arbitration?

The parties are free to choose jurisdiction as well as opt for arbitration.

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