Distribution Agreement

A distribution agreement is a contractual arrangement between a manufacturer or supplier and a distributor, specifying the terms and conditions under which the distributor is authorised to sell, promote, and distribute the supplier’s products or services. This legal document establishes the rights and responsibilities of both parties involved in the distribution process. The agreement outlines crucial aspects such as the geographic territories in which the distributor can operate, the duration of the agreement, pricing and payment terms, marketing and promotional activities, intellectual property rights, termination conditions, and dispute resolution mechanisms. It plays a vital role in defining the parameters of the business relationship, ensuring clarity, and providing a framework for the smooth distribution of goods or services between the manufacturer or supplier and the distributor.

This agreement is utilised to establish a mutually beneficial relationship between a manufacturer or supplier and a distributor, whether for products or services. It provides numerous advantages for both parties involved.

Overall, utilising the agreement helps establish a solid foundation for a successful and collaborative business relationship between the manufacturer or supplier and the distributor, be it for products or services.

Clearly identify and provide the legal names and contact information of the manufacturer or supplier and the distributor.

Define the specific products or services covered by the agreement and outline any exclusivity or non-exclusivity arrangements.

Specify the geographic regions or territories in which the distributor is authorised to sell and distribute the products or services.

Detail the agreed-upon pricing structure, payment methods, and terms, including any discounts, rebates, or incentives.

Address the protection and usage of intellectual property, including Trademarks, Copyrights, Patents, and trade secrets.

Outline the responsibilities and expectations regarding marketing campaigns, advertising materials, branding, and sales support.

Specify the duration of the agreement and the conditions under which either party can terminate the agreement, including any notice periods and termination rights.

Define the performance metrics, sales targets, and minimum order quantities expected from the distributor.

Include provisions to protect sensitive information shared during the agreement and prevent the distributor from engaging in competing activities during the agreement’s term and after termination.

Establish mechanisms for resolving disputes, such as negotiation, mediation, or arbitration, and specify the jurisdiction or governing law for any legal proceedings.

ℹ️ By incorporating these key elements, an agreement provides a comprehensive framework that sets clear expectations and responsibilities for both the manufacturer or supplier and the distributor, ensuring a smooth and mutually beneficial distribution arrangement.

The agreement plays a crucial role in addressing intellectual property rights between the manufacturer or supplier and the distributor. It typically includes provisions that define and protect the intellectual property associated with the products or services being distributed. These provisions may cover trademarks, copyrights, patents, trade secrets, and other intellectual property assets. The agreement may specify that the distributor is authorised to use the manufacturer’s or supplier’s intellectual property solely for the purpose of promoting, marketing, and selling the products or services within the agreed-upon territories. It may also outline restrictions on the use of intellectual property beyond the scope of the agreement. Additionally, it may require the distributor to take appropriate measures to protect and safeguard the manufacturer’s or supplier’s intellectual property, including provisions on marking, labelling, and record-keeping.

ℹ️ By addressing intellectual property rights in the agreement, both parties can ensure the proper use, protection, and enforcement of valuable intellectual property assets, promoting a secure and trusted distribution relationship.

A Supply Agreement and a distribution agreement are both legal contracts that outline the terms and conditions of a business relationship, but they have distinct differences in their focus and purpose. A supply agreement typically governs the purchase and sale of goods or products between a supplier and a buyer. It establishes the obligations, responsibilities, and rights of both parties regarding the production, quality, and delivery of the goods. On the other hand, a distribution agreement primarily pertains to the marketing and sale of products. It is a contractual arrangement between a manufacturer or supplier and a distributor, outlining the rights and obligations related to the distribution, promotion, and sale of the products within a specific territory or market. While a supply agreement mainly addresses the procurement of goods, a distribution agreement focuses on the commercialisation and reach of those goods to end consumers through a distribution network.

In Indonesia, the termination of a Distribution Agreement is governed by several regulations, including Government Regulation No. 29 of 2021 on Operation of the Trade Sector (GR 29/2021), which is an implementing regulation of Law No. 11 of 2020 on Job Creation (Job Creation Law). This regulation provides further elaboration on the amendments to Law No. 7 of 2014, concerning Trade (Law 7/2014) stipulated under the Job Creation Law.

According to GR 29/2021, the appointment of a distributor must be made for a period of minimum 5 years and must be extended for 1 time. The termination of a distribution/agency agreement must be followed by a complete settlement, also known as a “clean break”, which may be signified by written evidence that the existing distributor/agent does not object to the termination of the agreement and appointment of a new distributor/agent.

If both parties fail to reach a clean break within 3 months after the termination date, the registration letter (Surat Tanda Pendaftaran – STP) becomes invalid, and the principal may appoint a new distributor or sole distributor

ℹ️ By including clear and comprehensive termination conditions, the agreement ensures that both parties understand their rights and responsibilities in the event of termination and helps minimise disputes or uncertainties that may arise during the termination process.

If you don’t have an agreement in place, it can lead to various challenges and potential risks. Without it, the rights, responsibilities, and expectations of both parties may be unclear, resulting in misunderstandings or disagreements. Important aspects such as pricing, territory, marketing activities, and intellectual property rights may be subject to interpretation or dispute. Additionally, there may be limited protection for confidential information shared between the manufacturer or supplier and the distributor. However, even in the absence of a distribution agreement, it is advisable to have a Non-Disclosure Agreement (NDA) in place. An NDA helps protect the confidential information shared during the course of discussions and negotiations between the parties. It establishes obligations to maintain confidentiality and restricts the disclosure or use of confidential information by either party. While an NDA alone does not provide a comprehensive framework for the distribution relationship, it offers a certain level of protection for sensitive information. Nevertheless, having a properly drafted and executed distribution agreement remains crucial for establishing clear rights, obligations, and legal protection for both parties involved in the distribution process.

A well-drafted agreement takes into account and helps ensure compliance with relevant legal requirements. It incorporates provisions that address legal obligations and restrictions related to the distribution of products or services. These provisions may include adherence to local, national, and international laws, regulations, and standards governing the industry or market in which the distribution takes place. The agreement may cover aspects such as product labelling, packaging, safety standards, import/export regulations, customs duties, and any applicable industry-specific regulations. By explicitly addressing legal requirements, the agreement helps both the manufacturer or supplier and the distributor to understand and fulfil their obligations, minimising the risk of non-compliance and potential legal consequences. It demonstrates a commitment to conducting business in a lawful and responsible manner and promotes a culture of compliance within the distribution relationship.