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Legal Issues

Sales Representatives and Distributors in the Export Market - April 5, 2012

Published in Iowa Economic Development Authority, International Update, March/April 2012


When an exporter embarks on an export expansion campaign, it may do so by appointing either a foreign sales representative or a foreign distributor to generate sales in foreign markets. These methods of generating export sales are wonderful tools, but the exporter should be wary of pitfalls that could have detrimental effects on its long-term marketing plans. It is important that the exporter and its advisors and an agent of the exporter for the limited purpose of soliciting orders on behalf of the exporter. Assuming the exporter accepts the order that the sales representative forwards to it, the sales representative receives a commission on the sales amount.


A comprehensive export plan should include a standard agreement for each method. The agreement forms should provide the foundation for negotiations with prospective sales agents or distributors in  various territories. The exporter should request that its US counsel oversee the negotiation of the terms of these agreements and, where appropriate, obtain any necessary advice from local counsel in the  jurisdiction in which the distributor or sales agent will be appointed.  Distributors or agents with a  significant presence in a territory may insist on beginning the negotiation process with their preferred form of agreement. But the exporter should not adopt agreements proposed by prospective agents or  distributors, at least not without substantial review by counsel. 


The standard agreements must adequately address a number of items, and failure to do so can lead to long-term problems. Among other things, the standard agreements must clearly describe the relationship (agent versus distributor); the intellectual property rights of the exporter; performance expectations for the party who is appointed; the scope of appointment (exclusive versus non-exclusive territory); the exporter's right to sell products directly to customers in the territory (if applicable); the term of the agreement (definite term versus indefinite term); each party's termination rights; and each party's obligations when the agreement terminates. If the agreement fails to clearly discuss these items, then the seller's export strategy is at risk. Depending on the jurisdiction, some of these alternatives may not be appropriate.  Moreover, the unwary exporter could limit its ability to further exploit a territory if the scope of appointment is unclear or if its intellectual property rights are not protected properly. The unwary exporter could also find itself obligated to pay a substantial sum of money to a distributor upon termination of the agreement, a problem that might have been avoidable. This sum could even include amounts intended to allow the distributor to recoup its lost investment or collect some lost profits. Therefore, the seller's export plan should include a proper set of agreements and a good understanding of potential risks in each territory.


Jason M. Ross
Davis Brown Law Firm
(515) 288-2500