The firm has extensive experience in assisting both manufacturers/vendors and marketers, agents and distributors, in international and Israeli marketing agreements, including distribution, agency and franchise agreements.
In distribution agreements, the manufacturer sells its products to a distributor, who in turn sells them to its customers in the permitted field and region. By contrast, in agency agreements, the agent acts according to the manufacturer’s stipulation and authorization in return for a commission in order to bring about transactions between customers and the manufacturer.
Distribution agreements are an effective tool for expanding a business into foreign markets through local business partnerships, while reducing the risks involved to the company, including avoiding tax risks involved when the tax authorities may determine the existence of a “permanent establishment” of the business (“”) as an additional taxable entity. Many considerations are involved in the choice of the appropriate marketing option and the commercial terms involved therein, including the granting of exclusivity (which can take different forms) as opposed to parallel action by different distributors (taking into account competition laws and marketing needs), minimum annual sales quantities (which usually involve exclusivity), determining the applicable law and manner for resolving disputes, use of trademarks and more.
Various pitfalls include the following: Termination of an agency agreement may entail, under mandatory laws in Europe and Israel, an obligation to pay compensation to an agent, similar in essence to the payment of severance pay, and the obligation to provide prior notice. Termination of a distribution agreement for an indeterminate period which does not include a termination date nor termination for convenience clause, may give rise to the obligation to provide lengthy advance notice (which sometimes may be a whole year), which, if not given, will result in the obligation to pay the distributor significant compensation, or alternatively, if given, may result in market damage. Such indefinite period agreements sometimes happens when the parties do not have a detailed written contract or continue to cooperate after the termination date of the contract without formally renewing it. We experienced such situations and have solutions to avoid it in advance or cure it if already happened.
The correctly formulated agreement will be the basis for healthy growth of the business and will make it easier when terminating the relationship. Many clauses that sometimes appear to be “legal or worded by lawyers” have far-reaching significance in their impact and their commercial outcome, and it is difficult to underestimate the importance of legal consultation and support in making the agreement.
We have acquired extensive experience in advising on and drafting various types of distribution and agency agreements, in their negotiations, and in litigation arising from their breach, which usually arises at their conclusion, in the case of an agreement that was valid for an unspecified period. We have the skillset that enable the manufacturer to plan its steps in advance, in order to define the period and reduce its exposure at the time of the termination of the agreement. We are also happy to advise distributors on how to proceed in order to extend the term of the agreement as far as possible and how to receive maximum compensation in the event that the agreement is terminated.
