One of the problems that a person willing to expand his business throughout Europe will face is the difficult choice among the different options related to the business relationship that he can develop in order to achieve the aforementioned purpose.

This is a problem that the investor will face in Germany too. In that regard, one the most common ways to access to a foreign market involves concluding a distributor agreement. In this article, we will explain the main aspects of this figure and its sometimes-difficult distinction from the commercial agent figure, especially regarding the point of the possible application of the German regulation concerning the agent, taking into consideration that the distribution agreement lacks statutory guidance.

According to German practice, it is possible to define basically two different forms of distributors, the “Kommissionsagent” and the “Vertragshändler”.

The Kommissionsagent concludes the contracts in his own name but on account of the principal. He acts in his own name when dealing with third parties, but following the instructions given by the principal. Acting in his own name, he does not have the obligation to reveal the business of the principal. Although his position is different from that of the agent, taking into consideration the fact that while the Komissionsagent acts in his own name, the actual agent is an employee of the principal, in this case, appliance by analogy to the “Kommissionsagent” of the right to indemnity in case of contract termination, recognized to the commercial agent under Art. 89 b of the German Commercial Code, has been approved by the German Supreme Court.

On the other hand, the “Vertragshändler” is an independent trader whose mission is to distribute the products of another business in his own name and on his own account. He is also obliged to further the product’s sale and distribution. Appliance by analogy to the “Vertragshändler” of the above mentioned right to indemnity in case of contract termination is approved by the German Supreme Court only if he is performing functions similar to those of a commercial agent, he is integrated into the distribution organization of the principal similar to a commercial agent and has to be obliged to leave the data of the customers to the principal at the end of the contract. Otherwise, if these requirements are not met, and the analogy with the agent cannot be justified, we will be in the presence of the figure of the actual distributor in the way that we usually understand it, as an independent business man who buys the goods from the manufacturer and resells them on a regular basis, independently from the manufacturer enterprise organization. In this case, the German Supreme Court denies the appliance by analogy of the right to indemnity of the commercial agent under Art. 89 b of the German Commercial Code to the “Vertragshändler”.

Accurately speaking, if we focus on the actual distributor, a distribution agreement may be described as a binding arrangement by which the distributor undertakes to sell goods in the distributor’s own name and on the distributor’s own account, having previously acquired those products at a discounted rate from the supplier. As we said before, the agent acts on behalf of the principal when concluding contracts with the ultimate purchaser of the goods. By contrast, the distributor buys goods from the manufacturer and then sells them on to the customers. The relationship between manufacturer and distributor is a relationship of seller and buyer, the same as the relationship the distributor has when he resells the products to the public. In this case he would have to assume the dangers derived from the liability that he is to bear, being liable to customers for performance of the contract of sale.

As a consequence of buying and selling products on their own behalf, distributors bear distribution risk. This is compensated by the profits they earn with the difference between the acquisition price and the resale price. The main obligations of the distributor involve marketing and distributing the supplier’s products, and safeguarding the supplier’s interests. On the other hand, the obligations of the supplier involve assisting the distributor, fulfilling the rest of the contractual obligations that he assumed in the distribution agreement in order to make possible contract compliance by both parties.

As we said, German law does not regulate distribution agreements. Due to this lack of statutory guidance, it may be difficult to decide which regulation is going to be applied, and it will depend on the particular circumstances to be faced.

The legal protection of the distributors is not as powerful as that of the commercial agents. Agency law applies by analogy if:

  • There is an integration of the distributor into the supplier organization; and
  • The keeping of customer data during or at termination of the contract is forbidden for the distributor.

So, in conclusion, we can affirm that the commercial agent regulation will be applied by analogy to the distributor if his situation is comparable to the former, which will depend on the integration level into the principal enterprise, his freedom of action, his obligations toward the manufacturer or supplier, the liability assumed to be borne in the agreement, etc. If these requirements are met, this would lead to the application of all the rules referred to the agent.