Presenting a live 90-minute webinar with interactive Q&A Distribution and Sales Agent Contracts: Drafting Provisions on Exclusivity, Territory, Sales Support, Trade Secrets and More THURSDAY, JUNE 2, 2016 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Matthew E. Liebson, Partner, Thompson Hine , Cleveland Jennifer S. Roach, Partner, Thompson Hine , Cleveland Darcy M. Brosky, Attorney, Thompson Hine , Cleveland The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
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Distribution and Sales Representative Agreements Matthew E. Liebson Jennifer S. Roach Darcy M. Brosky ATLANTA | CINCINNATI | CLEVELAND | COLUMBUS | DAYTON | NEW YORK | WASHINGTON, D.C.
Today’s Topics Sales Representative Versus Distributor Difference Between Distribution and Sales Representatives The U.C.C. and Product Distribution Agreements Antitrust Issues Relating to Distribution State Statutory Landscape International Considerations Key Provisions and Best Practices ATLANTA | CINCINNATI | CLEVELAND | COLUMBUS | DAYTON | NEW YORK | WASHINGTON, D.C. 6 6
DISTRIBUTOR VERSUS SALES REPRESENTATIVE ATLANTA | CINCINNATI | CLEVELAND | COLUMBUS | DAYTON | NEW YORK | WASHINGTON, D.C. 7 7
The Typical Distributor Distributor purchases products from a manufacturer at wholesale prices Distributor obtains title and physical custody of products Distributor maintains retail location or showroom Distributor is responsible for maintaining and storing inventory May or may not carry competing brands May or may not be required to pay a fee ATLANTA | CINCINNATI | CLEVELAND | COLUMBUS | DAYTON | NEW YORK | WASHINGTON, D.C. 8 8
Distributor’s Relationship with Manufacturer Manufacturer may provide technical support, advertising materials or an advertising allowance, product training Distributor’s performance evaluated based on: Volume of products purchased from manufacturer; Customer Service; Knowledgeable employees; Facility; Inventory Control In-store and local promotion ATLANTA | CINCINNATI | CLEVELAND | COLUMBUS | DAYTON | NEW YORK | WASHINGTON, D.C. 9 9
Distributor Terminations Many jurisdictions have distributor termination statutes to prevent manufacturers from terminating distributor’s without cause Why? Distributors invest in selling products Leases for retail and storage Building upgrades Employee training Products in Inventory ATLANTA | CINCINNATI | CLEVELAND | COLUMBUS | DAYTON | NEW YORK | WASHINGTON, D.C. 10 10
The Typical Sales Representative Independent marketing resource Sales representative typically does not typically take title to merchandise or maintain inventories or retail locations Pass orders along to manufacturer to accept and fulfill Paid commission on orders Sales Representatives typically do not have power to complete orders or otherwise bind manufacturer Sales Quotas may be part of Agreement ATLANTA | CINCINNATI | CLEVELAND | COLUMBUS | DAYTON | NEW YORK | WASHINGTON, D.C. 11 11
What is a Franchise? Three main elements of the definition of a franchise under federal law and most state franchise laws Substantial Association with Trademark The business must be substantially associated with the franchisor's trademark Often interpreted broadly Payment of a Fee May be indirect such as consulting fees, training fees, etc, are sufficient if required; many statutes have de minimis exemption Does not include bona fide payments for purchase of goods for resale Marketing Plan/Community of Interest/Significant Control Variation amongst the state statutes (written agreement, specific industry) ATLANTA | CINCINNATI | CLEVELAND | COLUMBUS | DAYTON | NEW YORK | WASHINGTON, D.C. 12 12
Sales Representative or Distribution Appointments May Constitute Franchises A Sales Representative Agreement or a Distribution Agreement may constitute a franchise if the requirements are met State franchise statutes may prohibit termination of a franchise without cause or impose other requirements on a franchise relationship Consider ways to minimize risk that relationship constitutes a franchise ATLANTA | CINCINNATI | CLEVELAND | COLUMBUS | DAYTON | NEW YORK | WASHINGTON, D.C. 13 13
THE U.C.C. AND PRODUCT DISTRIBUTION AGREEMENTS ATLANTA | CINCINNATI | CLEVELAND | COLUMBUS | DAYTON | NEW YORK | WASHINGTON, D.C. 14 14
Is a Distribution Agreement one for the sale of goods? Predominance Outcomes are fact specific D on’t leave it to chance! ATLANTA | CINCINNATI | CLEVELAND | COLUMBUS | DAYTON | NEW YORK | WASHINGTON, D.C. 15 15
Written Requirement / Statute of Frauds § 2-201 A contract for the sale of goods for the price of $500 or more is not enforceable by way of action or defense unless there is some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought or by his authorized agent or broker. ATLANTA | CINCINNATI | CLEVELAND | COLUMBUS | DAYTON | NEW YORK | WASHINGTON, D.C. 16 16
Warranties 2-313 – Express warranties 2-314 - Merchantability 2-315 – Fitness for a Particular Purpose ATLANTA | CINCINNATI | CLEVELAND | COLUMBUS | DAYTON | NEW YORK | WASHINGTON, D.C. 17 17
UCC “gap filler” provisions 2-305 – Open Price Terms 2-308 – Undefined Place of Delivery 2-309 – Undefined Time of Delivery 2-310 – Time for Payment ATLANTA | CINCINNATI | CLEVELAND | COLUMBUS | DAYTON | NEW YORK | WASHINGTON, D.C. 18 18
Performance and Termination Adequate Assurances of Performance § 2-609(1) “A contract for sale imposes an obligation on each party that the other's expectation of receiving due performance will not be impaired. When reasonable grounds for insecurity arise with respect to the performance of either party the other may in writing demand adequate assurance of due performance and until he receives such assurance may if commercially reasonable suspend any performance for which he has not already received the agreed return” ATLANTA | CINCINNATI | CLEVELAND | COLUMBUS | DAYTON | NEW YORK | WASHINGTON, D.C. 19 19
Covenant of Good Faith § 1-304 “Every contract or duty within the Uniform Commercial Code imposes an obligation of good faith in its performance and enforcement .” “Good faith” . . . “ means honesty in fact and the observance of reasonable commercial standards of fair dealing” § 1-201(b)(20) ATLANTA | CINCINNATI | CLEVELAND | COLUMBUS | DAYTON | NEW YORK | WASHINGTON, D.C. 20 20
ANTITRUST ISSUES RELATING TO DISTRIBUTION ATLANTA | CINCINNATI | CLEVELAND | COLUMBUS | DAYTON | NEW YORK | WASHINGTON, D.C. 21 21
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