Distribution agreements and agency agreements in France
Please note that the information herein is of a general nature and you should not act or refrain from acting on it without professional advice on the specific facts of your case. No liability is accepted by the author or Sykes Anderson Perry Limited in respect of this article. Commercial law is a complex subject and the above is a basic outline only and is intended only as a general guide. Nothing herein constitutes financial advice.
The Treaty on the Functioning of the European Union (TFEU), allows a supplier from any EU state to trade anywhere in the EU. This article deals with a UK company selling goods in France through (1) a French distributor and (2) a French Commercial Agent.
The freedom for UK suppliers to sell their products freely in Europe in this way may be affected by Brexit. You may consider it prudent to review contracts now.
If you wish to sell goods with a low risk, a distribution agreement may be the best option. A “distribution agreement" is a contract concluded with an intermediary who sells products or services for you. There are 3 types of distribution agreements: (1) the exclusive agreement “distribution exclusive”, (2) the selective agreement “distribution selective” and (3) the franchise agreement “contrat de franchise”.
1. Exclusive agreement
An exclusive agreement gives a single distributor exclusivity for the distribution of the supplier's products. This must be limit to a specified territory with a limited duration.
For example, Apple has an exclusive distribution deal with AT&T to provide the iPhone to consumers.
2. Selective agreement
The selected agreement is a contract by which a supplier gives a non-exclusive right to a distributor selected according to criteria determined by the supplier to ensure the proper distribution of its products. A selective distribution system is used where the preservation of the image, brand and positioning of products is important.
For example the distribution of luxury items such as those made by Rolex and Hermes.
3. Franchise agreement
Franchise agreements allow a company to exploit a concept and to benefit from the know-how of a company which has already developed a proven business model.
For example, McDonalds
General terms and conditions
Article L.330-3 of the French Commercial Code, requires that before a distribution agreement is concluded, a specific document must be signed by the supplier so that the distributor knows what he is entering into. This document must specify the experience of the supplier, the condition and the development of the market, the importance of supplier’s network, the duration, the conditions of renewal, termination and transfer of the contract as well as specifying what is to be treated as exclusive.
This pre-contractual information document must be provided to the distributor at least 20 days before the signature of the contract.
In addition to the basic legal requirements, you should also have in the distributorship agreement:
the territory covered by the distribution agreement,
product warranties, the responsibility of the supplier for example, late deliveries,
a licence, by the supplier to the distributor, of a trademark or other intellectual property rights relating to the products,
assistance by the supplier of the distributor in obtaining the marketing authorizations required for the distribution of the products in the territory,
According to the article L.134-1 of the French Commercial Code, a commercial agent is a professional representative who negotiates and eventually concludes contracts in the name of and on behalf of his principal. A written agency agreement is not mandatory but recommended.
The commercial agent must be independent and must be registered with the Registry of Commercial Agents at the competent commercial court. Commercial agents established outside France are not obliged to register, provided that they do not have permanent representation in France. Failure to register may be sanctioned by a fine up to €1.500.
There are a number of French statutory and regulatory provisions which protect commercial agents. Care should be taken in the drafting of the initial agreement with the agent concerning:
Duration: for a fixed period or indefinite,
Fee: freely defined between the parties,
Territory: you must define the territory with precision and avoid wide generic clauses such as “the world”.
Exclusive: the agent may not represent a competing principal without first obtaining the consent of the principal it already represents,
Notice of withdrawal: 1 month for the first year, 2 months for the second year, 3 months thereafter. In case of early termination of the agency agreement, the agent is entitled to compensation for the damage suffered.
Non-competition clause: prevents the agent from competing with the principal after the termination of the agency agreement. Must be in writing, time and territory limited.
Solicitor-Advocate and Chartered Tax Adviser