Patricia Barclay reveals the legal issues surrounding the distribution of scientific products
Legal experts have been observing a number of problems associated with distribution agreements in the scientific sector. These issues generally fall into one of three categories: the contract was unsuitable for the country of distribution; the choice of dispute resolution clause was inappropriate for the parties; or circumstances had changed and the contract no longer covered actual practice.
Problems typically arise when a single contract template is used for every country where the goods are to be distributed. Firstly, there may be issues of language. The words 'agent' and 'distributor' are often used interchangeably, whereas legally they are quite different: a distributor generally buys goods and resells them at his own risk, while an agent identifies customers to whom the manufacturer sells directly, with the agent receiving a commission. Sometimes the lines may get blurred, with the distributor also taking on tasks for the manufacturer such as attending to the product registrations for pharmaceuticals or providing maintenance or product support for equipment. That may lead to problems if local law provides different termination rules or compensation depending on whether the local representative is deemed distributor or agent. The distribution agreement should provide means for mitigating any termination fee.
There may be other local rules that mean a contract is invalid. For example, in some countries the agreement must be registered with a local agency or must be written in the local language. Some countries even require that a certain style of contract is used. Additionally, regulated products such as pharma and medical devices may be subject to further country-specific rules.
Another common problem is enforcement. A standard template will often provide for dispute resolution before the courts of the manufacturer’s home country. This may be overridden by the laws of the distribution country. More commonly, it’s simply impractical if the countries involved do not have a treaty to enforce each other’s judgements and if the defendant does not have assets in the country of the courts then it can be very difficult to enforce that judgement. In these cases it may be better to provide for arbitration, which is often more easily enforceable – however it is important to select a form of arbitration that is affordable for the parties and proportionate to the size of the dispute.
Finally, long-term relationships may be adjusted over time without reference to the underlying contract either in writing or just as a matter of practice and this can make it difficult if the relationship does break down to use the original contract as a basis for resolution.
Ideally you should consider local rules when setting up a distribution agreement, understand what is involved in any arbitration proposal and review your contracts regularly to ensure they reflect reality.
For more information at www.scientistlive.com/eurolab
Patricia Barclay is a life sciences lawyer and the founder of Bonaccord, UK.
