Section 6 - Distributing Products Flashcards
agency: how it works
an AGENT promotes the product or service of the principle, but not sell it.
the agent finds a client who is interested in buying, will obtain PURCHASE ORDERS on behalf of the seller in the foreign country and forward those orders to the seller (manufacturer/principle, and the transaction (sale) occurs directly between the PRINCIPAL and the FINAL CLIENT.
There is an agency fee for promotional activity on behalf of the principle (manufacturer).
An AGENT is an entity/individual in a specific area that SOLICITS … (1)
for the goods but does/does not (2) take title to the goods.
The agent does/does not (3) bear the risk that the local buyer will not pay.
Rather, this risk remains with the …. (4)
- orders
- does not
- does not
- seller
does the agent create warehouse or stocks?
The agent won’t create any warehouse or stocks, but maybe just some prototypes.
when an agent becomes a sales representative?
The agent assumes the name of sales representative when, in addition to the promotion of contracts, he also has the power to CONCLUDE them on behalf of the proposer.
in some jurisdictions the agent might have the power to sign the contract in the name and behalf on the principle, to speed up the process, even if it can create some tax issues.
is the agent considered an employee or a service provider?
neither; is in the middle between a third service provider and an employee
does the agent have a stable relationship with the principle?
the agent has a stable relationship to the principal, but it differs from other subordinated auxiliaries/employees.
distributor: how it works
An independent DISTRIBUTOR BUYS the goods from the seller for RESALE in the foreign country As the distributor takes title to the goods, the distributor ASSUMES THE RISK of being unable to resell the goods.
PRINCIPAL VS PRINCIPAL RELATIONSHIP
does the distributor take the risk of the goods if something happens in delivery?
they take the risk of the goods; if something happens during the delivery they must take responsibility
does the distributor arrange storage/warehouse/stocks for the goods and delivery?
yes, the distributor must also arrange storage/warehouse for the goods and delivery and buyers buy DIRECTLY from the distributor
Basic elements of distribution agreement: commitment to purchase
there is a commitment by the distributor to periodically purchase certain minimum quantities at conditions predetermined in the distribution contract
Basic elements of distribution agreement: promotion of resale
undertaking by the distributor to promote, in his own name and on his own behalf, the resale of the products purchased in a given area, in accordance with the terms laid down by the manufacturer himself
which kind of relationship with agent?
PRINCIPLE - AGENT
which kind of relationship with distributor?
PRINCIPLE - PRINCIPLE
What is franchising?
is a contract between legally and economically independent parties whereby the FRANCHISOR (owner of brand) GRANTS TO FRANCHISEE, for consideration, the availability of a set of industrial or intellectual property rights relating to trademarks, signs, utility models, designs, knowhow, patents.
in which sectors is the franchising most common?
f&b, fashion
what does a franchisee must do?
- use the franchisor’s distinguishing MARKS
- use the franchisor’s distinctive SIGNS
- obliged to fully comply with the Franchisor’s BUSINESS MODEL, also technical and commercial practices and approaches
what does the franchisee have to pay to the francisor?
a portion of those profits will go to the franchisor in exchange for running that branch. These are known as franchise ROYALTIES. In other words, the franchisee pays money to the franchisor for the use of their business.
What is a contract of dealership?
it is a type of distribution (because he buys the products and resell in the market using the same brand)
legal contract that outlines the rights and responsibilities of a manufacturer and a dealer
what does the dealer have to do?
- assure efficient organization
- regularly quality control
- purchase of minimum quantities & holding of stocks
- practice of prices & resale conditions
- provision of technical assistance to customers
- organization of the individual outlets/shop
key elements when considering a distribution contract
- control
- competition (anti trust)
- termination issues
- IP issues
- choice of jurisdiction
key elements when considering a distribution contract: CONTROL
- with a distributor, you have less control than an agent
- you are liable for them
- employment risk for agents, since they are quite hybrid between employees and service providers
key elements when considering a distribution contract: COMPETITION (related to the desire of exclusivity by agents and distributors)
commonly, agent & distributors would wish EXCLUSIVE RIGHT for a particular territory (due to the amount of time, effort and resources required).
Exclusivity may create ANTITRUST or COMPETITION law issues because it can reduce competition.
key elements when considering a distribution contract: TERMINATION (related to high penalties for the seller-principal)
either with or without cause, there are big penalties for the principal if he wants to stop the relationship.
- WITH CAUSE (WITH BREACH OF THE AGREEMENT: EX. fail to pay royalties): monetary settlement
- WITHOUT CAUSE = monetary settlement + COMPENSATION for stock, advertising, promotional expenses
key elements when considering a distribution contract: intellectual property (from the principal and the agent/distributor side)
PRINCIPAL=
- ENSURE that trademarks, patents, and copyrights (IP Rights) are registered under local law,
- the seller is the sole and exclusive owner of the intellectual property rights;
- the Agent/Distributor has the right to use the IP for the SCOPE of the agency/distribution agreement (under the authority of the seller)
DISTRIBUTOR SIDE=
- not copy, alter, develop or use IP rights
- not make any claims to the IP
- notify the seller of any violation and assist
