Are the parties free to agree on the scope of the Distribution Agreement?
In general, the Principal and the Distributor are free to agree on the scope of a Distribution Agreement.
However, certain limitations regarding vertical restrictions are set out in the Serbian block exemption regulation for vertical agreements:
- Exclusivity arrangements such as exclusive supply, exclusive distribution and exclusive purchasing, as well as selective distribution, are covered by the block exemption if the market share of each of the parties is below 25%.
- Non-compete obligations are covered by the block exemption If the market shares of each of the parties is below 25% and the duration of non-compete clause is limited to a period of 5 years.
- The post-contractual non-compete obligations are block exempted provided that the market shares of each of the parties is below 25%, the post-contractual non-compete obligations do not exceed one year, are limited to the premises and land from which the Distributor has operated during the contract period and are indispensable for protecting the know-how transferred by the Principal to the Distributor.
If the afore-mentioned conditions are not fulfilled, the said vertical restraints are not block exempted and the parties are required to obtain a prior clearance (so called “individual exemption”) by the Serbian Commission for Protection of Competition.
In addition, the Serbian block exemption regulation for vertical agreements provides a list of hard-core restrictions such as resale price maintenance or restriction of territories into which or customers to whom a Distributor may resell the goods supplied by the Principal that fall outside of the block exemption (even if market shares of the parties are below 25%). However, the Principal may impose maximum resale prices or suggest recommended resale prices provided that they do not amount to a fixed or minimum resale price as a result of pressure from, or incentives offered by the Principal.
Minimum Sales Quotas can be imposed on the Distributor. However, if the Minimum Sales Quotas amount to a non-compete obligation, the rules applicable to non-compete obligations have to be observed. This would be the case if the Minimum Sales Quotas lead to the Distributor covering all or at least 80% of its total requirements for products belonging to the same product market with the Principal’s products, since the Distributor may have to abstain from purchasing competing products in order to meet the Minimum Sales Quota obligation.
What are the primary obligations of the Distributor and the Principal?
Although there are no statutory provisions that regulate rights or obligations of the Principals or the Distributors under a Distribution Agreement the Distributor has typically following duties:
- to make reasonable efforts to promote the sales of the products;
- to provide the Principal with relevant information regarding the market, any claims brought or threatened by third parties in relation to the Principal’s intellectual property rights, any infringements by third parties of the Principal’s intellectual property rights, etc.
- to safeguard the interest of the Principal;
- not to disclose confidential information to third parties.
On the other hand, the Principal generally has the following primary obligations:
- to apply reasonable efforts to deliver all products ordered by the Distributor;
- to support the Distributor with respect to the Principal's business (for example in providing advertising material, etc.).
How is the Distributor paid?
The parties are free to negotiate the method of remuneration (e.g. rebates, rebates plus monthly payments, etc.).
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