Distribution agreements in a globalised Distribution agreements in a globalised

world and the goodwill compensationworld and the goodwill compensation

Javier Fontcuberta

Distribution agreements

1.- Introduction.

2.- Importance of distribution agreements:

- Basis.

- Distribution structures and basis for the election.

3.- Goodwill compensation:

- European regulations.

- Goodwill compensation and costs.

Importance of distribution agreements

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20 transactions

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9 transactions

S+C

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20 transactions

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9 transactions

S+C

1.- Number of transactions is reduced

A.- From the market prospective

Importance of distribution agreements

2.- Supplies fit market necessities:

Information flows bottom up

3.- Product porfolio is wider:

Even sale of products manufactured by competitors may be promoted

Importance of distribution agreements

Official distributors Free riders

Importance of distribution agreements

1.- Promote investment in markets where supplier does nothave any particular knowledge.

2.- Reduce supplier costs

3.- Reduce supplier risks:

- Transport

- Stock

- others

B.- From the manufacturer prospective:

Distribution structures

Manufacturer

Direct

Subsidiaries&/or

Branches

Agents&/or

Commission

Auxiliary

Indirect

OfficialFree

Circular VerticalHorizontal

Simple Integrated

Selective

Exclusive

Qualitative Quantitative

Non- exclusive

Manufacturer

Direct

Subsidiaries&/or

Branches

Agents&/or

Commission

Auxiliary

Indirect

OfficialFree

Circular VerticalHorizontal

Simple Integrated

Selective

Exclusive

Qualitative Quantitative

Non- exclusive

Goodwill compensation: regulations

1.- Belgium: Law relative à la résiliation unilatérale des

concessions de vente exclusive à durée indéterminée (HenkaerstLaw -1961 amended in 1971).

“The purpose of the regulation is to protect the distributor, who often has made

large investments in setting up his sale organisation, and who after termination,

might see his efforts benefiting the producer or importer, who takes over the

distributionship for his own account.”

2.- Germany: Article 89 HGB.

3.- Italy: Supply agreements.

4.- France: Partially

Goodwill compensation: Basis

1.- Unfair enrichment.

2.- Deferred remuneration.

3.- Social approach.

4.- Analogy –agency-.

Goodwill compensation: Basis

1.- Unfair enrichment:

• Is goodwill an asset?

• How is it created?

• Set of obligations of parties in the agreement.

• Who is the “owner” of such an asset?

• Supplier

• Distributor

• Both

• Rules for liquidation of such an asset

Goodwill compensation: Basis

2.- Deferred remuneration:

• Is the distribution remunerated?

• Set of obligations of parties in the agreement (promotion and resale)

• Consequences for promotion and resale: Goodwill.

• Consequences if promotion and resale are not executed: grounds for

termination

• Are there sales objectives defined and remunerated?

• Sales structure –exclusive distribution and monopoly-

Goodwill compensation: Basis

3.- Social approach:

• Distributors are not always the weak party in the agreement.

• Why should not other sectors be covered?

• How does the structure affect this thesis:

• Makro, Carrefour…

• Cash and carry, rack jobbers…

Goodwill compensation: Basis

4.- Analogy

• Distributors and agents are not analogous:

• Risk

• Competition regulation

• Resale vs promotion

• Warranty obligations

• “remuneration” system

• Their position from the economic prospective is different