The legal framework of distribution

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How your product reaches your customer

The relevant legal requirements and considerations differ depending on the exact structure of your distribution set-up.

1. What does this mean?

If you distribute your product or services directly through your company, compliance with competition law and data protection provisions is very important. In addition, general contract law plays an important role, such as in the formulation of your General Terms and Conditions / Terms of Supply. In the case of direct sales via the internet, an ever increasingly significant form of distribution, there are specific laws in relation to distance selling that must be observed. This also applies to other forms of direct marketing, such as mail-order sales. You may also choose to distribute your product through a subsidiary company (Tochtergesellschaft).

Your product can also be sold through an independent third party as distribution agent (Vertriebsmittler). Depending on the extent to which the agent is involved in your own sales structure, different legal provisions and considerations are relevant:

The independent broker (Makler) procures the en-try into the contract and receives a provision for the brokerage. The broker is normally not involved to any significant degree in your own organization.

The independent commercial agent (Handelsvertreter) not only procures the entry into the contract, but also represents your company in so doing. The commercial agent is therefore integrated into your distribution organization. It is, however, important to comply with constraints arising from the independence of the commercial agent as well as relevant anti-trust / competition law provisions; otherwise, the agent would simply be an employee of your company. Upon termination of the relationship, the commercial agent has a right to compensation for generated business, provided the company will continue to benefit from such business.

The independent authorized dealer ((Vertrags-) Handler) distributes your products or services in his own name and on his own account. The authorized dealer is, however, often involved in your distribution structure through trainings, stipulations for advertising and product presentation as well as design of premises, and potentially also through limitations imposed on the sale of other products. In this context, the restrictions imposed by antitrust competition law are of particular relevance. In addition, upon termination of such an intensive business relation-ship, the authorized dealer may under certain circumstances have a right to compensation for generated business, similar to that of the commercial agent.

The independent (in any event formally) franchisee (Franchisenehmer) also acts in his own name and on his own account. The franchisee is granted a li-cense from you to operate a certain ‘system’, which has been developed and is centrally promoted by you. In return, the franchisee pays to you a franchise fee. The extent of contractual restrictions that the franchisee is subject to is relevant for the purposes of anti-trust / competition law. In the event of comprehensive restrictions, there is a risk that the formally independent franchisee will be regard-ed as your employee.

2. What can you do?

When you make your deci-sion as to how to structure (or restructure) your distribution network, the legal issues that have been outlined above in simple form should be included in your considertions. If sales are to be effected through a distribution agent, the proper structuring of the relevant contract is crucial. In addition to the details of the relationship, it is important to ensure that the legal restrictions imposed by anti-trust / competition law are observed, and that the agent is not considered to be an employee as a result of the imposition of too great a limitation on the agent’s independence. In addition, your own con-tracts with customers need to be structured, which includes the General Terms and Conditions / Terms of Supply that are to be used.

3. How can we help you?

We have long-term experience in the legal set-up and support of a variety of forms of distribution systems, whether directly through an enterprise, through subsidiary corporations (domestically and also, in particular, inter-nationally), or through independent agents.

We would be very pleased to be of support to you and your business.

Please contact us if you have any questions.

SCHUBERT Rechtsanwälte

+49 221 1602200