Distribution Contracts: Overview from a European Perspective

Transcription

1 Distribution Contracts: Overview from a European Perspective ACC International Legal Affairs Committee Legal Quick Hit: December 11, 2014 Presented by: Salvo Arena Chiomenti Studio Legale

2 Main Legal Sources Governing EU Distribution Agreements European law does not provide a uniform definition nor legislation applicable to Distributorship The relationship between Distributor and Supplier is governed by (i) General principles of law and (ii) specific statutes governing typical contractual relationships (such as purchase and sale, agency and, in certain cases, employment) Additionally, EU competition laws may have a material impact on the distribution arrangements in that they impede certain agreements which may have adverse effect on competition 2

3 General Considerations on Distribution Agreements No registration requirement to conduct Distribution activities No specific form to be adopted even though it is preferable to draft the Distribution Agreement in writing Examples of specific provisions to be included in Distributorship Agreements: a) Definition of Products/Services and any reservation of rights thereto connected b) Territory - channels of distribution c) Term d) Intellectual Property Rights e) Terms of payment and of delivery f) Post termination stock management clauses 3

4 Termination Rights The validity of termination provisions in Distribution Agreements varies depending on the term of the agreement Certain European Courts may require a materiality threshold for the validity of certain termination clauses Particular attention must be given to the identification of termination events In the event of termination at will adequate prior notice to be provided to Distributor is advisable 4

5 Indemnification Rights upon Termination (if any) Distribution Agreements generally include provisions aiming at excluding compensation or indemnity in favor of Distributors in the event of termination Certain European jurisdictions (such as Belgium, Portugal, Germany and Spain) may provide for mandatory indemnification rights upon termination independently of the language of the agreement An example of such mandatory indemnification is Belgian Law as amended by Law

6 Specific Aspects of EU Anti-competitive Laws Applicable to Distribution Agreements The Treaty on the Function of the European Union (Articles ) is the main legal source with reference to European competition policy Restrictions in Distribution Agreements that affect competition are unlawful Several risks arise in the event of non-compliant agreements breaching EU competition laws 6

7 Vertical Agreements Distributorships among Suppliers and Distributors (such as wholesalers or retailers) fall within the definition of vertical agreements and therefore may be subject to Article 101 of the Treaty on the Function of the European Union ( TFEU ) Overview of Article 101 of TFEU The analysis on whether a vertical agreement restricts competition mostly depends on the targeted market structure and requires a case per case assessment The Vertical Agreement Block Exemption Regulations

8 Vertical Agreements (Cont.) Prerequisites of applicability of the Block Exemption are: Market thresholds: both parties do not exceed a 30% market share of the relevant market in the EU Absence of hard core restrictions: the agreements must not contain a hard core restriction Focus on hard core restrictions aiming at allowing Supplier to dictate the resale price of the goods to their Distributor 8

9 Consequences of Breaches re Vertical Agreements Vertical agreements breaching EU laws: Are void May trigger fines (percentages of annual worldwide turnover) Negative impact on public opinion Claims for damages under national law Potential collective actions and investigations 9

10 Facing Parallel Import Issues Parallel import is generally allowed within Member States based on free movement of goods principles. TFEU prohibits agreements restricting the latter Exception to the general principle: the Selective Distribution Network Overview of Selective Distribution Agreements that may be considered lawful as opposed to provisions that remain unlawful 10

11 Final Considerations - What to Avoid when Drafting a Distribution Agreement Be aware of local legislation that may apply in connection with a distribution agreement given the lack of a uniform set of rules applicable to EU distributorship It is preferable to draft a written distribution agreement containing certain specific provisions Specifically identify termination clauses with a reasonable prior notice as well as cure periods in the event of breach by the distributor Be aware that certain jurisdictions may apply goodwill indemnities in the event of termination by the supplier 11

12 Final Considerations - What to Avoid when Drafting a Distribution Agreement (Cont.) Competition rules must be taking into serious account when structuring an agreement with distributors and with competitors Vertical agreements have to comply with Art. 101 (1) TFEU or fall within the Block Exemption (provided that certain restraining clauses are never exempt) Agreements involving pricing are generally in breach of EU laws (no fixing minimum resale prices nor identifying indirect measures to pursue similar results) Opt for selective distribution network (available only for certain categories of products) if the supplier wishes to control the quality of distributors in order to avoid resale of products at lower prices (parallel imports) 12

13 Questions 13

14 Contact Information Salvo Arena Managing Partner Chiomenti Studio Legale [Lex Mundi member firm for Italy] One Rockefeller Plaza, Suite 2404 New York, New York Tel: Mobile: