EU law / distribution agreements (IANAL)

I’m trying to sort out a distributor agreement for my business. IANAL, wondered if anyone here was or had experience.

We are working to an exclusive territory agreement where we sell them product and they then sell to the territory at pricing that they set (it’s not a consumer item so no ‘RRP’ or anything – all would be contract basis with negotiated pricing, so if they want to sell at low margins they can, equally if they can negotiate high margins, well done them. We have a price and margin to the distributor, after that it’s their own choice)

The potential partner says that it is illegal for him to share customer volumes and pricing with us, as that could be considered collusion / potentially price fixing.

Is it? i’d consider it market intelligence?

This would be one of those situations where I would get a professional in.

Edit: IANAL (but I am a cheapskate 😉 )

As I am not also, but this sounds like quite important bizznizz. So to take advice from the armchair lawyers on here could be detrimental to your business.

Failing that, put a horses head in their bed until they give you the figures.

From my experience on the supply side, I can certainly see a justification for not discussing anything at all – that would work two ways, both to protect them and prevent you rigging the price you offer it to them at, and to protect you by there being no room for another supplier that you were fixing prices.

At the same time, its perfectly reasonable for you to expect some sort of idea for potential volumes and turnover to set your price – you could approach this by setting different price points dependent on the volume they order (eg. if you order X amount you get Y price) or if its less certain on the potential market, you could adjust the price on the basis of sales achieved (eg. you get the first X items at Y price, the next X items at Z price). I understand its also perfectly fair to write in a clause preventing them engaging in predatory pricing.

Why would they share that detail with you and why would you want to know? If you are happy with what they are paying you then it becomes an irrelevance. Just set a minimum order quantity from you to them and let them get on with it. I assume there are no royalties involved?

As for the legality – sounds like they are politely telling you to do your own research. I suppose that until you sign a contract with them you could just choose to compete rather than using their services. If I were them, I’d not tell you either.

I am a lawyer, but this is a pretty specialised question.

For what my non-specialist opinion is worth, if firm A is permitted to sell firm B’s products in territory X, and the arrangement is exclusive so that firm B is not competing for sales in territory X but is acting only as a supplier to firm A for onward sale it doesn’t sound right that firm A and firm B discussing customer volume and pricing is price-fixing.

I don’t think you can do price fixing unless you are pretending to compete, but aren’t really doing so properly because you are (say) agreeing a price floor below which neither of you will sell.

Look to set baseline prices and then a retrospective discount/rebate once a sales volume target (set by your business based on your own objectives) has been met.

If they then blow this target apart in first 6 months, you know their volume sales exceed initial expectations so you can then revise pricing and growth targets accordingly from a position of knowledge.

Not sure that asking for a non-binding sales forecast could possibly ever be deemed “illegal” as all you are asking for is projection of likely business throughput.

Sounds to me (from a position of some experience of this kind of thing) that the potential distributor is having trouble forecasting and is potentially unsure of their capabilities.

Question – is the exclusive territory within a greater area – eg. exclusive rights to wholesale in Italy?

They may be wary of clashes with (legal) grey imports under EU law. – eg you might negotiate a different price with German wholesaler, and it would be impossible for the italian wholesaler to stop retailers (or customers) buying from Germany, despite their exclusive deal.

However *more likely* I would wonder if they want to keep it all a secret because they’re a bit of a pufferfish – small company pretending they are a lot bigger – in which case the exclusivity deal could be a real millstone round your neck, you’d be limited by their size and market penetration.

maybe only offer them exclusivity (and price breaks) conditional on defined volumes.

IANAL but have set up a number of these sort of arrangements, albeit a few years back now. You need specialist legal advice. Here’s why:

– you need to ensure that this is a distribution agreement and can not be twisted into an agency agreement. If they become agents – EU law makes this a nightmare for you if you try to end the agreement.
– competition law is messy (as you are discovering), and constantly evolving. An experienced lawyer will get you relevant business information legally. e.g. do you need to know future pricing or say just an average price for all sales reported at the end of the year.
– EU free trade rules mean it is very difficult (or impossible) to grant territorial exclusivity in Europe.
– As with any distribution agreement you want something from them in return for the ‘discount’ they get. This might be minimum volumes, it might be a certain level of marketing activity, it might be exclusivity from them not to list/sell any directly competitive product etc.
– Forecast volumes are useless, unless there is a degree of commitment.
– You need suitable exit clauses if e.g. they don’t deliver what you want – be particularly wary of this if the contract doesn’t actually include real numbers over a long term.
– What if someone offered you a good price for a “whole of eu” distribution deal. What if your business was sold? What if their business was sold and their focus shifts or a competitor of yours buys them?

Specialist legal advice is unfortunately expensive – but invaluable.

Thanks all, very helpful comments.

It will absolutely be distribution, I’m aware of the agents vs distributors issue, and we’re coverign that. It’s not a consumer item, it’s B2B stuff (chemical raw materials actually) in a specific territory (specific countries within the EU) and hence most of the issues re web selling, grey imports, etc. are not going to apply.

The nub of the issue comes to whether sharing pricing with us is Illegal. As said before; we will sell to them at agreed contract pricing, what they sell at after is their business – we will not dictate what pricing they offer to go after sales, and hence have no control over their margins. It would be helpful market intell to know pricing – the EU is pretty similar and hence knowing pricing and being able to map p/v enables us to predict and react to market moves.

Notwithstanding what is a good relationship and therefore I hope doesn’t apply (both a colleague and I worked with them previously with a former company, hence we have known them for years) I can see why a distributor might not want to share volumes and prices with us, if they feel in doing so that they are destabilising their position / making it easier for us to terminate them and take over the business – and that comes then down to trust and the relationship.

Nor is it a case of us thinking 😯 – they’re making more than we are, we’d better put our prices up – we’ve been open and said we have set our margins based on our cost and price to them, what they do after is their look out. If they don’t want to, short of not consummating there’s little we can do; it’s whether it is actually illegal.