While exclusive distribution contracts are not controlled by laws or rules with the law of made by a government, they are noticeable legal documents of the commercial life and take a part of competition practice law within its feature of exclusive right to sell. For that reason, exclusive distribution agreements are considered as vertical arrangements in terms of competition law and are subject to many different restrictions.

THE EXPLANATION AND CHARACTERISTICS OF EXCLUSIVE DISTRIBUTION AGREEMENT

The exclusive distribution agreement is a specific type of distribution agreement and the real diversity between these contracts are that the supplier (a person, company, or country that provides goods of a particular kind)  provides the specific right to sell to the exclusive distributor in an appropriated territory. In this part, first distribution agreements will be explained, and then the characteristics of exclusive distribution agreements will be described.

EXPLANATION

DISTRIBUTION AGREEMENT

The distribution agreement is the supplier continuously undertakes to provide its goods or products, completely or not completely, to the distributor (a person or organization that supplies goods to shops and companies) for reselling and in return, the distributor undertakes to engage in transactions that would increase the requisition of the supplier’s goods or products by selling them on its own behalf and account. Like contracts do not regulate all the details of the relationship between the parties, however, state the general responsibilities undertaken by them and set up a structure for the agreements to be made in the future. The principal characteristic of the distribution agreements is that the distributor acts on its own behalf while fulfilling its obligations regulated under such contract. In the same way, the distributor is an unaffiliated merchant and hence, bears personally the expenditures and risks which arise from every sort of investments and organizations which he carries out to increase the sales of goods.

EXCLUSIVE DISTRIBUTION AGREEMENT

This agreement to let to distributors to sell specific goods or products in a special region through specific right to sell that is earned in him, and to become the exclusive distributor of the provided goods in that territory, in the form of active sales. Within the specific region that is appropriated to the exclusive distributor, the supplier is under the necessity to prevent sending such products to a third party, who is in its chain of distribution.

As the mentioned before, this situation can provide an economic advantage for both exclusive distributor and the supplier. Supplier’s advantage for rising up the sales of the produced or provided goods directs him to associate with the exclusive distributors. Suppliers have the opportunity to assure the rise in long-term sales of its goods through the exclusive distribution contracts and that goal can be achieved via the continuous relationship with exclusive distributors. Continuity of the relationship between the exclusive distributor and the supplier moreover obtains in the concept of agency. Despite, most of the time, it is easier and practical both economically and legally for the suppliers to sell the products through dependable customer portfolio of the exclusive distributor, instead of entering into agreements personally with each a person who buys goods or a service provided by mercantile agents. For this reason, not only main and powerful industrial producers furthermore small-sized companies as well as prefer to market their products through exclusive distributorship. Hence, small-sized enterprises can carry out the distribution of their goods by making acceptable amounts of expense.

CHARACTERISTIC FEATURES OF EXCLUSIVE DISTRIBUTION AGREEMENT

EXCLUSIVE RIGHT TO SELL

Which is the major feature distinguishing regular distribution contract allows a person or an enterprise to succeed commercial activities in a specific region or for a specific client group. Exclusive right to sell has to be limited in terms of duration, region and the goods that are subject to agreement. Granting such rights for a long-term should not be deemed as the depraved constraint of the economic freedom of the supplier. Yet the exclusive distributor’s necessity to increase the sales of the goods requires long-term planning, investment and organization. The exclusive distributor gets the opportunity to sell the goods provided or produced by the supplier with an exclusive necessity not to compete with other sellers in a specific territory. On the other hand, the supplier has the opportunity to commercialize its goods and to set up a network of sales and customer services without making any investment or expense. In this way, the supplier can make long-term manufacturing and sales plans and decrease the marketing risks of its business. Meanwhile, the supplier holds the power of disposition of the goods for distribution and transfers the distribution risk to the exclusive distributor.

NON- COMPETITION NECESSITY OF THE EXCLUSIVE OF DISTRIBUTOR

Whether the exclusive distributor is permitted to sell the products competing with the products subject to contract and/or products produced by another supplier constitutes the subject matter of non-competition necessity. The exclusive distributor will be subject to non-competition necessity because of the correlative interest of the parties within the exclusive distribution agreement. The products of the supplier will only and exclusively be sold by the exclusive distributor in the separated place even the supplier will deem that the exclusive distributor shows the maximum effort in order to increase the sales of the goods that are provided by him. In the event that the exclusive distributor undertakes the sale of the similar products, he will not only be engaged in activities to increase the sales of products subject to the contract, in addition to in the other products which are supplied by other producers or suppliers. Withal, the exclusive distributor will hold the necessities to strengthen the market value of the products and provide pre-sale and post-sale services, as well. Under this circumstance, the capacity of the exclusive distributor may not be adequate to increase the sales of goods to the ideal level. Due to the exclusive distributor is subject to the non-competition rule. Though, the parties may have the same opinion on various provisions within an agreement, as a principle.

Attorney Alper ÇETİN (alper@cetinavukatlik.com)

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