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China Distribution Agreement

As a China contract lawyer, although I enjoy the day-to-day challenges of China litigation, I’m often called upon to structure international business deals, including drafting China distribution agreement. These are fun too, as I get an inside look at the business side of many different kinds of industries.

Lately, I’ve seen a considerable increase in the number of distribution deals being forged. Distribution agreements are simply contracts to distribute a product made by Company X to the dealers and remarketers of the product.

The distributor assures Company X that it has the facilities, personnel, and technical expertise necessary to market the specified product in a given territory.

At minimum, an international distribution agreement should contain the following terms:

1. This clause sets the duration of the agreement and should specify whether it’s automatically renewed after the term expires or whether the parties intend to re-negotiate terms after the term expires. Duration can vary widely depending on your industry.
2. Products: You should specifically describe and identify the product developed or owned by a company along with all options to the products; all future versions of the products; and all enhancements, revisions, or modifications made to the products by company.
3.Territory: Be sure to always indicate the specific geographic areas where the product(s) will be distributed. Also be sure to include terms of exclusivity to keep your channel clear of competitors.
4. End-User: Identify all persons or entities that will obtain the product(s).
5. Intellectual Property Rights: This provision is immensely important. Always identify the intangible legal rights or interests that cover any idea, design, concept, technique, invention, discovery, or improvement. This extends to any work of authorship and any other similar rights. I’ll be covering international intellectual property protection in a future post.
6. Quota: Be sure to specify minimum quantities of the products. The quota will consist of an initial purchase order and a continual minimum monthly volume commitment.
7. Termination: All good things come to an end. Be sure to carefully articulate the terminating conditions of the agreement. The more thorough you make it, the better off you’ll be. To guide you along, I’ve embedded a sample international distribution agreement below: (solely for illustrative purposes):

Marketing and Distribution Agreement


This Marketing And Distribution Agreement (the "Agreement") is made this __________ day of __________, __________, by and among __________, a __________ corporation, ("Distributor") and __________, a __________ corporation ("Owner").

RECITALS:

1. The owner owns the exclusive rights to market, sell, and distribute __________ (the "Product").

2. The Distributor is in the business of and the expertise in marketing, distributing, and selling items similar to the Product.

3. The Owner desires to grant to the Distributor the non-exclusive right to market, sell and distribute the Product in the area set forth below: __________ (the "Territory").

4. The Distributor agrees to market, sell, and distribute the Product during the Term (as defined below) pursuant to the terms and conditions of this Agreement.

NOW THEREFORE, in consideration of the foregoing premises, the mutual covenants and agreements contained herein, and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows:

AGREEMENT:

5. Marketing and Distribution Rights. The Owner grants to the Distributor the non-exclusive right to market, sell, and distribute in the Territory the Product.

6. Term of Agreement. The initial term of this Agreement shall be for a period of __________, commencing on __________ __________, __________ and ending on __________ __________, __________. This Agreement may be extended by mutual written consent of the parties. The initial term of this Agreement together with any extension terms thereafter initiated by the Distributor are hereinafter collectively referred to as the "Term."

7. Termination of Agreement. Notwithstanding anything to the contrary in Section 2, the rights granted to the Distributor under this Agreement shall terminate upon the occurrence of any the following events: 1) the Distributor fails to sell a minimum of __________ of Product annually during the first __________ of the Term ("Initial Minimum Sale Period"); or 2) the Distributor fails to increase the sale of the Product by a minimum of __________ percent each year after the Initial Minimum Sale Period.

8. Price of Product. The Distributor and Owner have established a base net sales price for the Product to be marketed, sold and distributed by the Distributor. A copy of the agreed base net sales price list ("Base Price List") is attached hereto as Exhibit A. The Base Price List may be amended from time to time upon mutual agreement of the parties in writing.

9. Royalty and Commission Payments. In exchange for the rights granted herein, the Distributor agrees to pay royalties equal to: __________ percent of the Base Price List. The payments to the Owner required in this Section 5 shall be made by the Distributor within __________ days after the end of every month for any sales of Product for which payment was received by the Distributor in the preceding month.

10.Marketing Assistance from Owner. The Owner agrees to utilize its best efforts to actively assist the Distributor in the development, promotion, and marketing of the Product throughout the Territory. Such assistance shall include, but not be limited to, participating in good faith in the establishment of new accounts, identifying new markets, maintaining existing accounts, and assisting in the coordination of promotional activities and resolution of customer disputes.

11. Proprietary Marks. The Owner shall retain control over packaging, design, and use of its names, marks, symbols, and labels on the Product, provided however, that during the Term of this Agreement, the Distributor, under the direction of the Owner, is authorized to use the names, marks, symbols, and labels of the Owner in the marketing, distribution, and sale of the Product.

12. Assignment. This Agreement, and the rights, remedies and obligations provided herein, may not be transferred or assigned by either party without the express written consent of the other party hereto, which consent shall not be unreasonably withheld or delayed. This Agreement shall inure to the benefit of, be binding upon, and enforceable by and against, the parties hereto and their respective legal representatives, heirs, executors, administrators, personal representatives, successors, and assigns.

13.Indemnification. Each party hereto (the "Indemnifying Party") shall indemnify and hold harmless the other party, and its employees, shareholders, officers, directors, agents and other affiliates (collectively, an "Indemnified Party"), to the fullest extent permitted by law, against any and all claims, actions, demands, losses, costs, expenses, damages and claims of any kind whatsoever which an Indemnified Party may sustain or incur, including reasonable legal fees and costs, as a result of or arising from the Indemnifying Parties failure to fulfill its obligations provided herein or the negligent, willful or intentional action or omission to act by the Indemnifying Party, or by the employees, shareholders, officers, directors, agents and other affiliates of the Indemnifying Party.

14. Insurance. During the term of this agreement, the Owner and the Distributor shall each maintain $__________ in general liability insurance coverage, naming the other party as an additional insured insuring against any loss occasioned by events or circumstances for which either party may be liable to the other party, including insurance for products liability and similar claims.

15. Force Majeure. In the event either party is prevented from performing its obligations hereunder due to an act of God, accident, fire, flood, earthquake, storm, riot, war, sabotage, explosion, strike, labor disturbance, national defense requirement, change in governmental law, ordinance, rule or regulation, inability to obtain electricity, fuel, labor, equipment or transportation, or any other contingency beyond such party_s reasonable control, the equipment or transportation, or any other contingency beyond such party_s reasonable control, the term of this agreement shall be suspended for so long as performance is so delayed or prevented. The party which is prevented will use its best effort to give the other party the maximum advance notice of any shutdown and to restore service as soon as possible. If service is or will be interrupted for more than one hundred eighty (180) days, either party may terminate this agreement by notice to the other party.

16. Counterparts. This Agreement may be executed in two (2) or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.

17. Entire Agreement. This Agreement contains the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements and understandings.

18. Notices. All notices required or permitted to be given under this Agreement shall be in writing and shall be given by United States Mail or by United States Express Mail or other established express delivery service (such as Federal Express), postage or delivery charge prepaid, return receipt requested, and addressed to the persons and addresses designated below their signature. The person and address to which notices are to be given may be changed at any time by the Owner or the Distributor by written notice to the other. All notices given pursuant to this Agreement shall be deemed given upon receipt by the party to whom such notice is delivered whether accepted or not.

19. Amendment. This Agreement cannot be changed except by an instrument in writing signed by both parties.

20. Waiver. The failure of a party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver or deprive the party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. Any waiver must be in writing.

21. Governing Law. This Agreement shall be construed in accordance with the laws of the State of __________, regardless of conflicts of law principles. Venue for any action involving this Agreement shall be in __________ County, __________.

22. Non-Disclosure. All confidential or proprietary information provided by a party hereto to the other shall be kept by such party in strictest confidence. It is the intent of the parties that each shall be protected in that information that is unique to its systems, products, ideas, marketing activities, and strategies. Nothing in this provision shall be construed as to limit either parties ability to transact business subsequent to the termination of this Agreement. However, the parties agree that proprietary information shall not be disclosed to any third parties absent the express written consent of the non-disclosing party, and all proprietary information disclosed to either party shall be designated as proprietary at the time that it is forwarded to the other party. If not disclosed in writing at the time of disclosure, proprietary information shall specifically be defined and handled as follows:

Information that would otherwise be available to the parties through investigative efforts in the public domain through no fault of their own, shall not be protected under this confidentiality provision.
All confidential information shared by the parties, shall, to the extent feasible, be returned to the other party upon termination of this Agreement, and shall be returned to other party upon demand.

23. Rights of Parties Cumulative. The rights and remedies of the parties hereto are in addition to any and all other rights and remedies which parties may have at law or in equity, and the exercise of any right hereunder is not intended to preclude the exercise of any other such right by the parties hereto.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered as of the date first written above.

OWNER:

By:________________________________

Name: __________

Title: __________

Address: __________

__________, __________ __________


DISTRIBUTOR:

By:________________________________

Name: __________

Title: __________

Address: __________

__________, __________ __________

The agreement above should give you a pretty good idea of what an international distribution agreement should look like. Of course, every situation is different. Be sure to contact an attorney to structure a distribution agreement that satisfies your particular needs.

 
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China Lawyer BLog AuthorPeter Zhu, an experienced China attorney licensed to practice law for more than ten years, the author of this China Lawyer blog, welcomes any enquiry or consultation related to Chinese law.