Distribution Agreement Pitfalls

"We see that customers who want to market and sell pharmaceuticals and medical products abroad, through distributors who buy their products and resell them in their own territory, want to choose the right path to the market," Cheema said. But how do you find the right distributor, keep them motivated and handle potential problems that may arise? Successful distribution requires a network that provides excellent geographic coverage and ensures a good fit between your business and the distributors you work with. A distribution agreement, formalized in a clear written contract, is the key to solving these problems. Most distribution agreements involving experienced dealers and manufacturers allow termination for reasons and conveniences (or not at all). Less experienced partners sometimes try to allow the dismissal of a limited number of specific cases. Termination for reasons is sometimes simple and undisputed, such as when a partner declares bankruptcy. However, partners sometimes disagree on the presence of the cause. Partners often disagree on the responsibility of the cause. Second, use your network of friends in the industry. While it is unlikely that your direct competitor will lend a copy of its distribution agreement, friends of indirect competitors may not be afraid to share a deal that has proven to be smooth over time.

There are several pitfalls when terminating a distribution contract. However, careful wording of the treaty provisions, including regulatory considerations, can help to avoid further litigation on destitution issues. In addition, the parties deliberately opt for litigation or arbitration proceedings before disputes arise, ideally in a clear contractual settlement clause. One of the peculiarities of regulated products is that they have a limited shelf life and must be stored under certain conditions. Distributors often rely on third parties to ensure that products are properly stored and that only non-outdated and traceable products are marketed. If these third parties are not contracting parties to the distribution contract concerned, they are not directly bound by a dispute settlement clause. In addition, the manufacturer regularly and transparently ensures that the distribution chain is a contractual obligation under a distribution contract, ensures that, at the time of termination, it is familiar with all the details of the product logistics and that it can contact any supplier of the former distributor at any time; it is a question of ensuring a good transition from distribution activities to the new distributor (which is often unaware of the specific needs of the market, its overstocking or its sub-period), thus limiting its responsibility as a producer and possible market disruptions. Finally, storage and IT agreements must be transferred to the new distributor. Think about territorial coverage: the territorial scope of your distribution agreement is not just a matter of geography.

For example, if exclusive rights are granted for the marketing of a particular product on the east coast of the United States, it should be noted that those rights are not infringed if the same product can enter the territory through an OEM partner incorporated into another product.