US Distribution Agreement template

Overview

A distribution agreement governs a supplier's sale of goods to a distributor who resells them, typically within a defined territory, buying and reselling the goods for its own account (unlike a sales representative, who solicits orders on the supplier's behalf without taking title to the goods). Because a distributor takes title and resells, its purchases from the supplier are governed by Article 2 of the Uniform Commercial Code, adopted (with local variations) in every US state, which supplies default rules on delivery, risk of loss, warranties, and remedies for breach unless the contract displaces them. Two US-specific legal issues deserve particular attention. First, pricing: the federal Robinson-Patman Act restricts a supplier from charging different distributors different prices for goods of like grade and quality where the effect may be to injure competition — a supplier with multiple distributors in overlapping or competing territories should structure pricing carefully to avoid Robinson-Patman exposure, particularly if volume discounts aren't offered on proportionally equal terms. Second, franchise characterization: if the distribution relationship involves the distributor paying a fee for the right to distribute, operating under the supplier's trademark, and receiving significant operational control or assistance from the supplier, it may be deemed a "franchise" under the FTC Franchise Rule (and parallel state franchise statutes, several of which are stricter, like California, New York, and Illinois), triggering mandatory pre-sale disclosure document requirements and, in some states, registration and termination-restriction obligations that do not apply to an ordinary distribution relationship. A number of states also have dealer or distributor termination statutes for specific industries (notably motor vehicle, farm equipment, and beer/alcohol distribution), which impose good-cause and notice requirements on termination that override contrary contract language — these are industry-specific and should be checked if the distributed goods fall into a regulated category. When to use it: for a supplier appointing an independent distributor to purchase and resell goods in a defined territory. Key clauses: appointment and territory; exclusivity (if any) and any territorial or customer restrictions, drafted to avoid antitrust exposure; pricing and payment terms, including a note on Robinson-Patman compliance if multiple distributors exist; minimum purchase or performance requirements; ordering and delivery, incorporating UCC Article 2 defaults where not displaced; warranties and disclaimers; trademark and branding usage; franchise-avoidance language (confirming the distributor does not pay a franchise fee and is not granted the level of control that would trigger FTC Franchise Rule coverage, or flagging that it does); term and termination, including notice periods and any state-specific dealer termination statute that may apply; and governing law. Pitfalls to avoid: setting different net prices for competing distributors without a defensible cost or volume justification, risking Robinson-Patman exposure; structuring the relationship with franchise-like features (initial fee, significant operational control, trademark licensing) without recognizing that FTC Franchise Rule disclosure obligations may apply; and terminating a distributor in a regulated industry (vehicles, farm equipment, alcohol) without checking whether a state dealer-termination statute requires good cause or a specific notice period regardless of what the contract says.