When distribution agreements are terminated, a delicate issue often arises that is closely related to the need of the supplier to ensure continuity of business thereby preserving the goodwill acquired on the market for the products by the earlier distributor. In these cases, while the distributor’s list of clients may be protected as a trade secret, it cannot be held as such against the supplier.
The relevant case for this situation in Italy is Kinesio Italia S.r.l. (Kinesio Italia) against Kinesio Holding Corporation (KHC), the manufacturer of the Kinesio tapes. These elastic strips are applied (usually by a physical therapist) with the aim of treating pain and disability from athletic injuries and a variety of other physical disorders (Court of Milan, July 13, 2015).
Kinesio Italia had been the distributor of KHC for the Italian market (and also for other European countries) since 2007. KHC terminated the distribution agreement in 2011. Further to the termination, KHC directly contacted Kinesio Italia’s clients, informing them that a new distributor was appointed. Kinesio Italia claimed that KHC had unlawfully used its list of clients, which should have been regarded under Italian law as a trade secret. Hence, it alleged that such behaviour would have amounted to an act of unfair competition.
The court of Milan dismissed Kinesio Italia’s claims. With regard to the alleged unfair competition, the court of Milan held that, in principle, the list of clients may be regarded as a trade secret. However, the distributor cannot oppose the secret neither to the supplier of the products nor to the new distributor. On the contrary, there is an obligation of the former distributor to cooperate with the new distributor as well as with the supplier. The latter should be provided with the list of the clients so as to allow a smooth and seamless transition in the best interest of the clients. Indeed, the court goes on, once the distribution agreement with Kinesio Italia had been terminated, KHC had not only the right but also the obligation to inform its clients. As such, the case sets this as a legitimate interest that is protected under Italian law.
From a practical standpoint, in distribution agreements, suppliers should always consider introducing provisions that oblige the distributor to provide updated information on the list of clients as, once the relationship between the parties is terminated, it may have become difficult to obtain such information.