Distribution Agreements in General

The purpose of sales agency and distribution or reseller agreements is to discover new, effective distribution channels for a product. Contractually, however, the agreements differ. Whereas a distributor or reseller acts in its own name, an agent acts on behalf of and in the name of the principal. It is appropriate to enter into an agency agreement when the objective is to exercise tighter control over distribution of the product. On the other hand, if the objective is to have a more independent relationship between the parties, with the distributor or reseller representing the product independently within a precisely limited geographical territory, a distribution agreement would be the better alternative.

In this Chapter, a distribution agreement is used to describe an agreement where a distributor undertakes to distribute items manufactured by the principal acting on its own behalf and in its own name. Sales within the distributor’s contractually defined territory are concluded by the distributor, and the principal is usually not in direct contact with the customers. Distributors are also independent in respect of suppliers. The distributor carries the risk of selling the products and services. Distribution agreements are rarely based on close co-operation, however, marketing materials, for instance, are often provided by the principal.

As a rule, neither Finland nor other countries have legislation directly applicable to distribution agreements. Therefore, the distribution agreement to be concluded is of great significance. The terms of the distribution agreement can be agreed upon relatively freely. However, national and European Union competition legislation must be taken into account in the agreements. In particular, if the distribution agreement includes provisions regarding restrictions on competition, exclusivity or pricing by the distributor, attention must be paid to the prohibitions and restrictions imposed by national and EU competition law.