Local distributors and commercial agents

Distribution relationships

What alternative distribution relationships are available to a supplier?

There is a wide range of options available for a supplier that intends to enter the Swedish market. There is a limited number of statutory requirements for distributions relationships, and a supplier who wants to distribute its product in Sweden therefore has the opportunity to choose between several different options and is free to negotiate the terms of the distribution.

The most common way to distribute products or services is through commercial agents, who represents the supplier (principal) and buys or sells the product in the principal’s name against commission payment; or distributors, who purchase the supplier’s product and sell it at their own price and in their own name to the end costumer. Private label, franchising and trademark licensing are also common. There is also an alternative that in many ways are similar to commercial agent; a commissioned agent. A commissioned agent is a person who has agreed with a principal to sell or purchase goods on the principal’s behalf but in its own name.

Legislation and regulators

What laws and government agencies regulate the relationship between a supplier and its distributor, agent or other representative? Are there industry self-regulatory constraints or other restrictions that may govern the distribution relationship?

The Commercial Agents Act, based on the European Union’s Commercial Agents Directive from 1986, regulates the relationship between commercial agents and their principals. The Commercial Agents Act sets up certain minimum requirements regarding notice periods and commission for the agent. There is also a requirement for a supplier to compensate its agent upon termination of the agreement. The compensation is limited to one year’s commission, calculated on the average commission during the agent’s last five financial years.

The Commissioned Agents Act regulates the relationship between a commissioned agent and its principal. The Act is similar in many ways to the Commercial Agents Act but there are substantial differences; for example, a commissioned agent acts in its own name and that the commissioned agent has certain rights against third parties.

There are no similar statutory requirements for distributor. Distribution agreements with distributors are therefore in general more comprehensive as there are no mandatory provisions to consider.

All types of distribution must consider relevant competition regulation. Non-compete clauses for agents are only valid if agreed in writing and limited to a specific area and product. However, distribution agreements between suppliers and distributors are governed by both the Swedish Competition Act and European Union’s antitrust directives. Non-compete clauses are under any circumstances hard to enforce in Sweden for a longer period than two years. The Swedish Competition Authority offers guidance on what should be stated in distribution agreements.

Contract termination

Are there any restrictions on a supplier’s right to terminate a distribution relationship without cause if permitted by contract? Is any specific cause required to terminate a distribution relationship? Do the answers differ for a decision not to renew the distribution relationship when the contract term expires?

There are mandatory requirements in the Commercial Agents Act and the Commissioned Agents Act restricting a supplier’s right to terminate a distribution agreement. Agreements that have not been entered for a certain period may be terminated by the supplier after the following notice periods: one month during the first year, two months after the second year, etc, until the notice period reaches six months. It is not possible for a commercial agent to waive these rights and agree to shorter notice periods for the supplier. However, it is possible for the agent and supplier to agree to shorter notice periods for the commercial agent; for example, that the commercial agent may terminate the agreement with one month’s notice.

Agency agreements with fixed terms may not be terminated until the contract’s term expires.

Either party has the right to immediately terminate the agreement if the counterparty does not fulfil any of its substantial obligations.

There are no mandatory requirements regarding notice periods for other types of distributors. However, it is important to include a notice period for contracts with indefinite terms in order to avoid uncertainties regarding how and when termination will take place.

Is any mandatory compensation or indemnity required to be paid in the event of a termination without cause or otherwise?

As a general rule, commercial and commission agents are entitled to both commission and severance compensation for contracts concluded after expiry or termination of the agency agreement.

The agent is entitled to commission even after the agency agreement’s term if:

  • such contract was concluded owing to an offer obtained or negotiations initiated during the agency agreement’s term and if the agent would have received commission for the subsequent contract if concluded under the agency agreement’s term; or
  • such contract is a result of the agent’s efforts under the agency agreement’s term and if the contract was concluded within a reasonable time after expiry or termination of the agency agreement.

 

In addition to commission for concluded contracts, the agent may also be entitled to severance payment. Severance payment could be relevant if the agent has introduced new customers to the principal or has acted in a way that substantially increased the principal’s business. Any severance payment is limited to agency agreement’s average annual remuneration (calculated on the average of the agent’s last five financial years).

Indemnity payment could be relevant if the principal or agent fails to perform their duties as agreed in the agency agreement and such actions cause the other party damage.

The principal is not obligated to pay an indemnity payment if the agreement is terminated with immediate effect owing to the agent’s breach of contract or, if the agency agreement is transferred, with the principal’s consent, to a new agent.

An agent acting as a sole trader or private individual may also be entitled to indemnity if the agency business cannot continue owing to the agent’s illness, age or other personal circumstance.

There are no statutory requirements regarding compensation or indemnity for other types of distributors.

Transfer of rights or ownership

Will your jurisdiction enforce a distribution contract provision prohibiting or restricting the transfer of the distribution rights to the supplier’s products, all or part of the ownership of the distributor or agent, or the distributor or agent’s business to a third party?

There are no statutory requirements regarding transfer of rights or ownership. Therefore, the parties are free to negotiate and enter into such arrangements as they see fit.

Law stated date

Correct as of

Give the date on which the information above is accurate.

2 December 2020.