Manufacturers should have written agreements with agents and distributors they use to sell outside their home country, whether the home country is the United States or another jurisdiction. Written agreements help communicate expectations at the beginning of a relationship, and, if drafted properly, should help protect the manufacturer’s rights during and at the end of the relationship.
An agreement for international sales can be similar to, but will have important differences from, manufacturer and agent agreements for domestic sales. For instance, international contracts generally should specify:
- The definitive language for interpreting the contract (especially if it is translated)
- The language in which the parties will communicate with each other
- Governing law
- How disputes will be settled (including arbitration and location for any litigation)
- The currency in which the manufacturer will be paid
- Shipping terms (including who pays freight and who is responsible for import and export documentation, taxes and risk of loss)
- Responsibility for translation of advertising materials, technical manuals and other documents
- Compliance with applicable law (including U.S. antiboycott laws and the anticorruption laws of the United States and other applicable jurisdictions)
Dealer Protection Laws & Other Local
Many jurisdictions also limit when a contract with an agent or distributor can be terminated or require indemnity payments on termination. The international contract should seek to eliminate, or at least limit, these restrictions and indemnity payments.
Of course, each jurisdiction will have its own legal requirements. Even if a manufacturer has internationalized its contracts, there are often specific requirements in particular jurisdictions and subtle variations in the laws of each jurisdiction that should be covered by the international contract. Customizing the international contract to each jurisdiction is the best solution to deal with these requirements and variations. However, that can be prohibitively expensive.
First, while a manufacturer might not want to customize its international contract for all jurisdictions, it could particularize the contract for the jurisdictions most important to its business.
Second, the manufacturer should consider regional contracts that have specific provisions for different regions of the world. Regional contracts will not handle every issue perfectly in every jurisdiction, but this approach comes closer than just one form of international contract. Regional distribution agreements covering the Americas, EMEA (Europe, Middle East, Africa) and Asia-Pacific are typical for multinational companies.
- An international distributor for a U.S. manufacturer might not be comfortable agreeing to governing law in the United States, arbitration by the American Arbitration Association in the United States or a location for litigation in the United States. A U.S. manufacturer with plants or significant locations outside the United States might want to consider governing law and location for arbitration and litigation in the area of its international plant or office. For instance, a Chinese distributor may feel more comfortable designating that arbitration takes place at the Singapore International Arbitration Centre, rather than in Ohio or New York.
- Some resale restrictions that may be allowed under U.S. law could violate the laws of other countries. For instance, strict territorial limits on sales and solicitations by distributors will generally be permissible in the United States depending on the circumstances, such as the manufacturer’s market power. However, under EU rules the manufacturer might be able to limit where the distributor may solicit sales but, under EU competition laws, could not limit where sales may actually be made.
- Another example is how warranty disclaimers are handled. In the United States, a manufacturer is likely to give some warranty on its products, but might want to limit its scope and the remedies available to the buyer if the warranty is violated. In the United States this would be worded as a waiver of implied warranties, which should be spelled out in a conspicuous language (e.g., all bold-faced capital letters). The U.S. manufacturer might also want to limit the remedies to repair or replacement and require a local distributor to waive any claims for punitive or consequential damages (such as lost profits). In other regions of the world, the use of “conspicuous typeface” would not be necessary, and the waivers may need to be reworded to clarify their meaning in other jurisdictions.
- Finally, most manufacturers will want their distributors to carry insurance to cover any damages that may arise from the distributor’s actions and the distribution of the product. However, the dollar amount of the insurance requirements in the United States would generally be expected to be higher than in other jurisdictions. Seeking to impose the same insurance requirements in other regions would likely be prohibitively expensive for a local distributor. Insurance requirements in international contracts need to be tailored to the appropriate jurisdiction or country.
How a manufacturer regionalizes its distributor and agent agreements will vary with the circumstances of the manufacturing business. It is one alternative, however, for dealing with the variety of laws and complexities of international distribution.