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Distribution Contracts

There are many ways for a supplier to bring its products or services to market. It may sell directly through employees to the ultimate user. It may sell through commission sales agents who do not take title. It may sell to independent wholesalers or distributors. It may establish franchises that operate semi-independently under the supplier's trademarks. The alternative methods are limited only by the supplier's imagination and business and legal practicalities. However, once the channel of distribution is selected, other issues remain. For example, the supplier may license manufacturing methods or other technology to the distributor for a royalty, allowing the distributor to produce the product. The supplier may allow the distributor to use the supplier's trademarks, or require the distributor to develop its own marks.
This outline does not provide a detailed analysis of the special concerns raised by franchise agreements, trademark and technology licenses, protection of trade secrets and the like, but serves instead as a checklist which outlines the issues to be considered in the preparation of a basic distribution agreement. One other caveat is in order. To properly prepare an effective distribution contract, a thorough understanding of the business mechanics of the client's distribution operation is critical. Counsel must understand not only the legal environment in which the client will operate, but also how the product will flow from the supplier to the ultimate consumer, how payment will flow back, what the salesmen actually will do, how returns of defective or unsold goods will be dealt with, the roles to be played by supplier, distributor and retailer in marketing, advertising and service, and the myriad other details which are critical to the distribution of products and services and which, therefore, must be addressed in the distribution contract. The careful practitioner should beware of "form" agreements, for there are no "form" clients. Different products, different services, different suppliers, and perhaps even different markets, all must be dealt with in different ways.
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