This clause gives one distributor the sole right to sell your product in a specific area or market, preventing you from selling to competitors or other distributors there. For example, "ABC Company is the exclusive distributor of our widgets in the UK." This matters because it restricts your freedom to do business, but it also incentivizes the distributor to invest in marketing and support. In the EU, exclusive distribution agreements are generally legal under competition law if they don't completely block market access for competitors. The risk is low because these clauses are common and well-understood, but they can still trap you if the distributor underperforms.
Include performance targets—for example, "exclusivity continues only if the distributor sells at least 5,000 units per year"—so you can exit if they're not pulling their weight. Set a defined term (typically 2-5 years) rather than "forever," with a renewal option so you can renegotiate. Add a clause allowing you to sell directly to very large customers (like national retailers) or to use other channels if the distributor can't meet demand within 60 days.
Frequently Asked Questions
What does this clause mean in simple terms?
This clause gives one distributor the sole right to sell your product in a specific area or market, preventing you from selling to competitors or other distributors there.
Why should I care about this clause?
For example, "ABC Company is the exclusive distributor of our widgets in the UK." This matters because it restricts your freedom to do business, but it also incentivizes the distributor to invest in marketing and support.
What are my options?
In the EU, exclusive distribution agreements are generally legal under competition law if they don't completely block market access for competitors.
How does this affect small businesses?
The risk is low because these clauses are common and well-understood, but they can still trap you if the distributor underperforms.