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The minefield of channel management

June 17, 2013

International business opportunities lead a growing number of companies to develop their routes to market around the world. For many, this means forming distribution networks, often using agents and remarketers.

Many are not aware of the very different rules that apply to such relationships in overseas jurisdictions. These range from issues under competition law to more specific regulations that are designed to protect the local entity. In Europe, for example, companies encounter not only the EU laws and regulations, but also a raft of local provisions that focus especially on rights of termination.

When I met recently with lawyers from one of the top French law firms, they mentioned that disputes with a local distribution partner had become the most common area of commercial litigation in the Paris courts. Now comes an interesting example from Germany. In a case which has gone all the way to the German Supreme Court, a company based in Virginia, USA has been successfully challenged over its choice of law and jurisdiction provision. Essentially, the German courts have decided that the US court cannot be trusted to apply agency terms that are mandatory under German law and which safeguard the rights of the German sales agent. Therefore they have overturned the choice of law provision and deem the US principal to be answerable to the German court.

This determination means that a company must carefully study the local provisions relating to distribution channels and perhaps use these in determining its route to market decisions. It can no longer assume that local legal or statutory provisions can be eliminated simply by relying on an alternative jurisdiction or choice of law.

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