Drafting an Exclusive Distribution Agreement

Note: Want to skip the guide and go straight to the free templates? No problem - scroll to the bottom.
Also note: This is not legal advice.

Introduction

Exclusive distribution agreements are essential documents for businesses looking to protect their interests and build relationships with distributors. Such agreements are complex, so it’s important for businesses to ensure they understand all the implications before drafting one that meets their specific needs. The Genie AI team, a global open source legal template library, provides free exclusive distribution agreement templates and step-by-step guidance to help businesses get started.

An exclusive distribution agreement is created when one party grants another party the sole right to distribute or sell its products or services in a specific geographic area. This is an important document as it outlines the respective responsibilities of all parties involved, including payment terms, delivery terms and any other conditions that must be met in order for the agreement to be valid. Dispute resolution should also be addressed in an agreement - this section outlines how any disputes between parties will be handled (e.g., through arbitration or mediation).

The importance of an exclusive distribution agreement goes beyond just legal protection - it can also help businesses prevent third-party distributors from competing with them and ensure they receive fair compensation for their products or services. Therefore, it’s vital that both parties understand the scope of the relationship outlined in such an agreement before signing anything into law.

When drafting your own exclusive distribution agreement with Genie AI’s free templates and step-by-step guidance, make sure you take your time - clarity is key! It’s important that both parties are aware of their respective obligations so that any disputes that arise can be resolved fairly and equitably according to what has been agreed upon by both sides.

When done properly, an exclusive distribution agreement can be a powerful tool for protecting a business’s interests - if you’re considering creating one yourself then make sure you read on below for our step-by-step guidance and information on how to access our template library today without needing a Genie AI account!

Definitions (feel free to skip)

Scope: The range or area of something, such as an agreement, that it applies to.
Duration: The length of time that something lasts.
Identifying: To recognize or establish who or what something is.
Rights: The legal power or ability to do something.
Purchase: To acquire something by paying money or its equivalent.
Compensation: Payment or reward given for a service performed or loss incurred.
Intellectual property: Ideas or expressions created by the mind, such as patents, trademarks, and copyrights.
Warranties: A guarantee given, especially with a product, that it is of good quality.
Commissions: A fee charged for services, such as selling a product.
Terms: The conditions of an agreement or arrangement.
Timeline: A sequence of events or a plan, often shown as a chart or diagram.
Deposits: Money paid as a partial payment.
Refunds: Money that is paid back to a customer.
Liability: The state of being legally responsible for something.
Non-compete: An agreement between an employee and employer stating that the employee will not directly compete with the employer.
Non-disclosure: An agreement that prohibits someone from disclosing confidential information.
Confidential: Belonging to or shared only between a few people and not to be revealed to others.

Contents

• Defining the scope and duration of the agreement
• Identifying the exclusive distributor and their rights
• Establishing rights to the products and services
• Establishing rights to the payment and compensation
• Specifying the products and services to be distributed
• Outlining the terms of compensation and payment
• Establishing the payment timeline
• Drafting the payment terms and conditions
• Establishing the terms of the distributor’s liability
• Identifying and outlining liabilities
• Determining and setting limitations of liability
• Establishing the terms of non-compete clauses
• Defining what constitutes a violation of the non-compete clause
• Specifying the duration of the non-compete clause
• Establishing the terms of any non-disclosure agreements
• Defining what qualifies as confidential information
• Establishing the duration of the non-disclosure agreement
• Establishing the terms of any dispute resolution
• Specifying the process for resolving disputes
• Establishing the terms of any arbitration
• Assigning ownership rights and intellectual property
• Determining who owns the rights to any intellectual property
• Establishing the terms of ownership for any developed products or services
• Drafting the agreement and obtaining signatures
• Writing and formatting the agreement
• Obtaining the signature of both parties

Get started

Defining the scope and duration of the agreement

• Identify the geographic area and type of products or services that are subject to the exclusive distribution agreement
• Determine the length of time the agreement will remain in effect
• Consider the possibility of renewing or extending the agreement
• Specify the start date of the agreement
• Include a termination clause that outlines the circumstances under which the agreement may be terminated
• Outline the governing law and jurisdiction for the agreement

• Identify the geographic area and type of products or services that are subject to the exclusive distribution agreement
• Determine the length of time the agreement will remain in effect
• Consider the possibility of renewing or extending the agreement
• Specify the start date of the agreement
• Include a termination clause that outlines the circumstances under which the agreement may be terminated
• Outline the governing law and jurisdiction for the agreement

When all of the above items have been addressed in your agreement, you have successfully completed this step and can move on to the next step, which is ## Identifying the exclusive distributor and their rights.

Identifying the exclusive distributor and their rights

• Identify who will be the exclusive distributor in the agreement
• Specify the rights and roles of the exclusive distributor
• Include a clause that outlines the exclusive distributor’s liability and responsibility
• Set the length of the agreement
• Outline the exclusive distributor’s exclusivity rights
• Include a clause that outlines the exclusive distributor’s compensation
• Include a clause that outlines how the exclusive distributor will be paid

Once you have identified the exclusive distributor and their rights, you can move on to the next step of establishing rights to the products and services.

Establishing rights to the products and services

• Define the products or services that are to be distributed exclusively.
• Identify the extent of the exclusive distribution to be provided.
• Outline any restrictions on the sale or distribution of the products or services.
• Specify the geographic area in which the exclusive distributor is entitled to distribute the products or services.
• Include any other terms or conditions that apply to the exclusive distribution agreement.

Once all of these points have been included in the agreement, you can move on to the next step: establishing rights to the payment and compensation.

Establishing rights to the payment and compensation

• Clarify who is responsible for collecting payment for the products and services being distributed (e.g. will the distributor collect payment or will the supplier collect payment?)
• Determine whether the distributor will receive a fee or a commission for the products and services they distribute
• Specify whether the distributor will receive payment on a monthly basis or a per-sale basis
• Specify any limits or restrictions on the amount of payment or compensation the distributor will receive
• Outline any additional bonuses or incentives the distributor may receive
• Specify the payment methods that can be used for payment

Once these terms and conditions have been established, the step can be marked as complete and the next step of specifying the products and services to be distributed can begin.

Specifying the products and services to be distributed

• Clearly define the products and/or services that are being distributed and make sure both parties agree to them
• Identify the products and services in detail, including any modifications that may be necessary
• Provide a list of the products and services that will be subject to the distribution agreement
• Discuss the scope of the distribution agreement, and make sure the scope of the agreement is in line with the products and services being distributed
• Note any and all exclusions that may be applicable to the products and services being distributed
• Make sure both parties agree to the products and services to be distributed

You can check this step off your list and move on to the next step once both parties have agreed to and written down the products and services to be distributed in the agreement.

Outlining the terms of compensation and payment

• Decide who is responsible for any associated costs of the distribution agreement and how they will be allocated
• Determine the payment terms and whether it will be a fixed fee, a commission, or a combination of both
• Specify which party will be responsible for any taxes associated with the agreement
• Set the sale price of the product or service
• Outline any discounts that may be granted, such as volume discounts

Once all of the above points have been established, the step can be marked as completed and the next step can begin.

Establishing the payment timeline

• Decide on the payment terms that will be included in the agreement - i.e. payment due date and payment frequency
• Determine the payment method - i.e. check, credit card, or bank transfer
• Add a clause to the agreement that outlines any late payment fees or penalties
• Specify the currency and exchange rate of the payments
• Determine the payment timeline - i.e. when payments are due, when payment is required to be received, etc.

Once you have established the payment timeline, you can move on to the next step of drafting the payment terms and conditions.

Drafting the payment terms and conditions

• Determine what type of payment terms are acceptable to both the distributor and the supplier
• Outline when payments are due, including any payment schedule details
• Specify the currency or currencies to be used for payments
• Consider whether payment should be made in advance, upon delivery or upon receipt
• Identify any additional fees that may apply
• Include any other payment-related details that are important for the agreement

When you have drafted the payment terms and conditions, you can check this off your list and move on to the next step of establishing the terms of the distributor’s liability.

Establishing the terms of the distributor’s liability

• List down the specific liabilities of the distributor
• Determine the type of liability the distributor will bear
• Discuss the limits of the distributor’s liability, e.g. financial penalties, contractual breaches, etc.
• Draft the clauses that outline the liabilities of the distributor in the agreement
• Make sure to include clauses that require the distributor to keep confidential any confidential information they may obtain
• Review the entire agreement and make sure the liabilities of the distributor are clearly defined

When you have listed down the specific liabilities of the distributor, determined the type of liability, discussed the limits of the distributor’s liability, drafted the clauses that outline the liabilities of the distributor and reviewed the entire agreement, you can check this step off your list and move on to the next step.

Identifying and outlining liabilities

• Understand and analyze the scope of the distributor’s liabilities.
• Identify and outline any potential liabilities associated with the distribution agreement.
• Make sure that any liabilities identified are addressed in the agreement.
• Make a note of any additional liabilities that may arise in the future.

Once you have identified and outlined all potential liabilities associated with the distribution agreement, you can move on to the next step.

Determining and setting limitations of liability

• Identify what kind of limitations should be set in the distribution agreement
• Create a list of limitations that should be included in the agreement, such as liabilities for product-related damages and general contractual obligations
• Consider any industry-specific regulations or laws that should be taken into account when setting limitations
• Discuss the limitations with the other party and come to an agreement on what should be included in the distribution agreement
• Once both parties are in agreement on the limitations, draft them into the distribution agreement
• Make sure to include a clause outlining the limitations of liability and have both parties sign off on it

You’ll know when you can check this off your list and move on to the next step when both parties have agreed on the limitations of liability and they are included in the distribution agreement.

Establishing the terms of non-compete clauses

• Review the limitations of liability that have been established and decide if a non-compete clause should be included in the agreement
• If so, determine the scope of the non-compete clause, including geographic area and duration
• Draft the clause and include it in the agreement
• When the clause is finalized and included in the agreement, you can check this step off your list and move on to the next step.

Defining what constitutes a violation of the non-compete clause

• Identify what behavior would be considered a violation of the non-compete clause, including but not limited to:
• Selling the same products or services as the supplier, in the same geographic region
• Competing with the supplier in any way that could cause financial loss
• Interfering with the supplier’s existing customers or business relationships
• Make sure the definition is clear and specific, as to avoid any potential ambiguity
• Once the definition is established, you can move on to the next step: specifying the duration of the non-compete clause.

Specifying the duration of the non-compete clause

• Decide on a specific time frame for the non-compete clause and include that in the agreement. This should be a reasonable amount of time that allows your distributor to profit from the agreement, without giving them too much of an advantage.
• Make sure to include a start and end date for the non-compete clause so that there is no confusion about when it begins and when it ends.
• Make sure to include a clause that outlines any potential renewals of the clause. This will give you the option to extend the agreement if both parties are in agreement.
• When all of the details have been finalized, you can check this step off your list and move on to establishing the terms of any non-disclosure agreements.

Establishing the terms of any non-disclosure agreements

• Draft the terms of any non-disclosure agreements between the parties to the exclusive distribution agreement.
• Ensure the terms of the non-disclosure agreement are clear and unambiguous and cover all confidential information shared between the two parties.
• Negotiate the terms of the non-disclosure agreement to ensure both parties are adequately protected.
• Once the terms of the non-disclosure agreement have been finalized, document the agreement in writing.
• Check off this step when the non-disclosure agreement has been documented and signed by both parties.

Defining what qualifies as confidential information

• Define the confidential information that is being shared by both parties, such as business plans, customer lists, pricing information, and other data.
• Make sure the definition is broad enough to encompass the type of information that is being shared.
• Identify any exceptions to the definition, such as information that is already publicly available or that may be shared by another source.
• Update the definition as needed if more information is shared.

How you’ll know when you can check this off your list and move on to the next step:

• When the definition of confidential information has been agreed upon by both parties, this step is complete.

Establishing the duration of the non-disclosure agreement

• Specify the start date of the exclusive distribution agreement.
• Decide on the length of the agreement.
• Include provisions relating to renewal and termination.
• Determine any conditions that will result in automatic termination of the agreement.
• Include any notice requirements in the event of termination.
• Specify the effective date of the agreement.
• Sign and date the agreement.

Once all of these items have been addressed, you can move on to the next step in the drafting process.

Establishing the terms of any dispute resolution

• Identify the language or clause that will be used to settle any disputes that may arise from the agreement
• Decide which governing law will be applicable to any disputes
• Determine the parties’ agreement on whether or not to use arbitration for any disputes
• Specify the venue for dispute resolution
• Determine the details of any mediator that may be necessary to resolve a dispute
• Outline any other methods of dispute resolution that the parties may agree to

Once you have established the terms of any dispute resolution and included them in the agreement, you can check this step off your list and move on to the next step.

Specifying the process for resolving disputes

• Review and discuss any dispute resolution process that will be incorporated in the agreement.
• Discuss any applicable law that may be used to resolve the dispute.
• Determine whether the dispute shall be settled by a court or an arbitration process.
• Specify the process for dispute resolution if you and the other party decide to settle the dispute out of court.
• Draft the dispute resolution provisions (including any applicable arbitration clauses) into the agreement.
• Once the dispute resolution process is specified in the agreement, both parties can then sign it.

Establishing the terms of any arbitration

• Decide if arbitration is a preferred option for resolving disputes
• Determine the location of any arbitration
• Select the rules and regulations that will apply to the arbitration process
• Establish any exclusions or limits on damages or other forms of relief that may be available
• Agree on the fees and costs associated with arbitration

Once you have decided on the terms of any arbitration, you can move on to the next step of assigning ownership rights and intellectual property.

Assigning ownership rights and intellectual property

• Establish who owns the intellectual property used in the agreement
• Decide whether the rights are exclusive or non-exclusive
• Determine if the ownership rights are transferable
• Specify the ownership rights for any modifications or improvements to the intellectual property
• Define any restrictions on the use of the intellectual property

Once you have completed the above points, you’ll have assigned the ownership rights and intellectual property in your exclusive distribution agreement.

Determining who owns the rights to any intellectual property

• Review any existing agreements to determine who owns the rights to any intellectual property used in the distribution agreement
• Identify any new intellectual property that will be created or developed during the term of the agreement
• Consult with legal counsel to confirm who will own the rights to the intellectual property
• Update the agreement to clarify who owns the rights to the intellectual property
• Once the rights to the intellectual property have been established and updated in the agreement, you can check this step off your list and move on to the next step.

Establishing the terms of ownership for any developed products or services

• Set out the details of the parties involved, including their legal names, addresses, contact information and any other necessary details
• Clearly define the product or services to which the agreement applies
• Define the duration of the distribution agreement
• Identify the type of distribution agreement, e.g. exclusive or non-exclusive
• Outline the territories in which the product or services may be distributed
• Establish the responsibilities of each party with regards to the product or services
• Identify the payment structure and any other financial considerations
• Detail the required reporting obligations of each party
• Specify the termination clause
• State any other applicable conditions

You will know that you have completed this step when you have established the terms of ownership for any developed products or services, as outlined in the agreement.

Drafting the agreement and obtaining signatures

• Draft the agreement using a template and fill in all relevant sections
• Have the documents reviewed by an attorney to ensure accuracy
• Obtain necessary signatures from parties involved in the agreement
• Confirm that all parties have received a copy of the agreement
• When all parties have signed and received a copy of the agreement, you can move on to the next step.

Writing and formatting the agreement

• Outline the agreement in a logical and easy-to-understand format
• Use a font size that is easy to read and large enough to be legible
• Make sure the language is clear, concise and unambiguous
• Include a table of contents to make it easier to find the different parts of the agreement
• Make sure all parties have read and understood the agreement before signing
• Include a signature page where both parties can sign and date the agreement
• Check that all required fields are filled in, including the date
• Once all the details have been included and checked, the agreement is ready to be signed by both parties.

Obtaining the signature of both parties

• Request that both parties review and sign the agreement.
• Ensure that both parties are aware of the terms of the agreement, as well as any legal implications.
• Provide both parties with a hard copy of the agreement, as well as a digital copy.
• Ensure that each party signs and dates the agreement.
• Obtain original copies of the signatures for your records.

When you have both parties signatures, you can confirm that the agreement is officially in place and check this step off your list.

FAQ:

Q: What are the differences between an exclusive distribution agreement and a standard distribution agreement?

Asked by Sarah on the 6th of April 2022.
A: An exclusive distribution agreement is a contract between two parties (usually a supplier and a distributor) that grants the distributor exclusive rights to distribute the supplier’s products or services within a designated area or market. This means that the distributor has the sole right to distribute the supplier’s products in that area or market, without any competition from other distributors.

In contrast, a standard distribution agreement is one in which the supplier gives permission to multiple distributors to distribute their products or services in an area or market. The suppliers can also set minimum purchase requirements, pricing rules and other terms for each distributor. There are also different types of standard distribution agreements, such as exclusive-territorial agreements (where a single distributor has exclusive rights to a certain region) and non-exclusive agreements (where multiple distributors share the same market).

When drafting an exclusive distribution agreement, it is important to consider the specific needs of both parties, as well as relevant laws and regulations in the jurisdiction where the agreement will be enforced. It is also important to make sure that both parties are aware of their rights and obligations under the agreement.

Q: How important is it to include dispute resolution measures in an exclusive distribution agreement?

Asked by Matthew on the 14th of January 2022.
A: It is very important to include dispute resolution measures in any contract, including an exclusive distribution agreement. Dispute resolution measures are necessary in order to provide clarity and certainty should a dispute arise between the parties involved in the contract.

Including dispute resolution measures in an exclusive distribution agreement helps to ensure that any issues that may arise during the course of the contract can be resolved quickly and efficiently, without having to resort to costly and time consuming litigation. These measures can include arbitration, mediation or other forms of alternative dispute resolution.

For example, if there is a disagreement between the parties regarding pricing or other terms of the agreement, it is important for both parties to agree on an appropriate way of resolving this issue before any legal action is taken. This way, both parties can avoid unnecessary delays and expenses associated with litigation, while still ensuring that their rights under the contract are being respected.

Q: What kind of restrictions should be included in an exclusive distribution agreement?

Asked by Holly on the 22nd of August 2022.
A: Restrictions included in an exclusive distribution agreement should be tailored to meet the needs of both parties involved in the contract. Generally speaking, restrictions should relate to how products are distributed and sold; who has access to them; how they are advertised; what prices they can be sold at; how long they can be sold for; how they must be stored; who owns any intellectual property associated with them; and what warranties are available for them.

It is also important for both parties involved in an exclusive distribution agreement to consider any applicable laws when drafting these restrictions. For example, if either party is operating within the European Union, then restrictions must comply with EU competition law (which prohibits agreements that restrict competition). In addition, any restrictions must also comply with local laws regarding consumer protection, labor rights and environmental protection.

Q: What should I consider when drafting an exclusive distribution agreement for a SaaS company?

Asked by Jessica on the 1st of December 2022.
A: When drafting an exclusive distribution agreement for a SaaS company, there are several considerations which must be made. Firstly, it is important to consider what services will be provided by each party under the agreement – such as who will be responsible for customer support and billing systems – as well as any additional terms which may need to be included in order for each party’s interests to be protected.

It is also critical for all parties involved in an exclusive distribution agreement for a SaaS company to consider applicable data privacy laws – including GDPR – when drafting this type of contract. This means that all personal data collected from customers must be handled securely and processed according to applicable legal requirements. Additionally, it may be necessary for both parties involved in this type of agreement to agree on indemnification measures (such as insurance policies) which protect each party from potential legal liabilities associated with data privacy breaches.

Q: How do I determine which jurisdiction’s laws apply when drafting an exclusive distribution agreement?

Asked by Richard on the 9th of July 2022.
A: When drafting an exclusive distribution agreement, it is important to consider which jurisdiction’s laws will apply – as this will determine how certain provisions within the contract are interpreted and enforced. Generally speaking, if two parties have agreed upon which jurisdiction’s laws will apply before signing a contract, then those laws will take precedence over any other applicable laws – including those from other jurisdictions which may have conflicting provisions or regulations.

When determining which jurisdiction’s laws should apply when drafting an exclusive distribution agreement, it is important for all parties involved in this type of contract to consider factors such as where each party resides/operates; where customers reside/operate; where goods/services are delivered/received; and where payment transactions take place – as well as any applicable international treaties or conventions which may affect how certain provisions within this type of contract are interpreted and enforced. Depending on these factors, different jurisdictions’ laws may apply – so it is essential that all parties involved take these considerations into account when selecting which jurisdiction’s laws will ultimately apply when drafting this type of contract.

Example dispute

Suing Over a Breach of an Exclusive Distribution Agreement

• Plaintiff must prove that there was an exclusive distribution agreement in place between the two parties
• Plaintiff must provide evidence of the agreement being breached by the defendant
• Plaintiff must demonstrate that they have suffered a financial loss as a result of the breach
• Plaintiff can use evidence such as emails, contracts, financial statements, and any other relevant documents
• Plaintiff must provide evidence of the damages they have incurred as a result of the breach
• Plaintiff may seek damages in the form of lost profits, lost opportunities, or other monetary remedies
• Plaintiff may be able to seek an injunction against the defendant to prevent them from further breaching the agreement
• Settlement may be reached through negotiation or mediation outside of court, or through a trial
• If damages are awarded, the court will determine the amount of damages based on the evidence presented by both parties

Templates available (free to use)

Helpful? Want to know more? Message me on Linkedin