Commercial agency and exclusive distribution are among the most common distribution systems for products and services.
Who is considered a commercial agent?
According to Article 1 par. 2 of Decree 219/1991 ‘On commercial agents’, a commercial agent is defined as an independent intermediary who is entrusted on a permanent basis (for a fixed or indefinite period of time), for a fee (commission) and usually for a specific territory, either to negotiate on behalf of another person, i.e. the principal, the sale or purchase of goods, or to negotiate and conclude such contracts on behalf of and in the name of the principal.
Who is considered to be an exclusive distributor:
Unlike a commercial agent, an exclusive distributor acts in the name of and on behalf of the agent, i.e., he buys and sells the goods himself.
As accepted by case law ( 674/2021 CP ), an exclusive distribution contract is a continuous commercial cooperation contract under which one party (producer or wholesaler) is obliged to sell the goods exclusively in a certain territory to the other party (distributor), which have been agreed in relation to a certain geographical area and which the latter (distributor) then resells to third parties in his own name, for his own account and at his own business risk, i.e. he acts as an independent professional intermediary in trade.
That is, in a distribution contract, the distribution of the products belongs to the distributor and not to the producer, whereas in a commercial agency contract, both the production and the distribution of the products belong to the producer, and the agent’s activity consists in creating a contractual relationship between the producer-seller of the products and the buyer.
What are the obligations of commercial agents?
The obligations of commercial agents, as derived from the provisions of Article 4(1) of Decree 219/1991, are mainly the following:
(a) to refrain from competitive acts against their principal, during and after the termination of their contract; (b) to observe professional secrecy; (c) to continuously and exclusively promote their principal’s products in their contractual area of responsibility, subject, in fact, to his control as to the development of sales or, as the case may be, purchases; (d) to advertise the products sold, even at their own expense; and (e) to disclose to their principal their clientele.
What are the obligations of exclusive distributors?
Under the exclusive distribution agreement, the distributor assumes several obligations vis-à-vis the producer. The most common obligations are:
– an obligation to follow the producer’s instructions as to the appearance and quality of the products sold,
– to employ staff to resell the products to third parties, although it is possible that maximum or minimum price limits for the products sold may be contractually agreed.
In particular, the concept of exclusivity in the distribution of certain products is that the producer commits himself under the contract not to deliver goods to third party competitors of the exclusive distributor within the area of distribution and, conversely, the exclusive distributor is, as a general rule, obliged not to distribute directly competing products in the same area.
Where there is a fixed-term contract, it is terminated either at the end of the agreed period or by extraordinary termination by the party who has a right to terminate for cause.
In such a contract, good cause is, in principle, a necessary precondition for the consequences of termination, which would otherwise not occur. In any event, a serious reason justifying the extraordinary termination of a commercial agency or exclusive distribution contract is, in principle, the culpable breach of contractual obligations by one of the parties, but also the breach of the franchisor’s more general obligation, deriving from objective commercial good faith and the nature of the contract in question, to integrate and support the franchisee.
There is also good cause where, in the circumstances of the particular case, it becomes, in good faith, onerous and intolerable, either for both parties or for only one of them, to continue to be bound by the contractual obligation under that continuing contractual relationship.
A claim for client compensation is an extremely complex case that requires both specialist legal knowledge and commercial knowledge so that the solicitor who will be instructed understands your relationship with the represented party, your business model and your fees and together you can calculate the compensation you are entitled to claim.
Under the Presidential Decree on Commercial Agents, a commercial agent is entitled to compensation after termination of a commercial agency agreement if during the course of the agreement the agent brought in new clients or significantly advanced business with existing clients. It is also required that the principal retains substantial benefits arising from business with these customers. Finally, in the light of all the circumstances, and in particular the commissions lost by the agent from business with the same customers, together with any non-compete clause, it must be considered fair to pay the compensation.
The amount of the customer indemnity may not exceed an amount equivalent to the annual average of the fees received by the commercial agent over the last five years, and if the contract has lasted less than five years, the indemnity shall be calculated on the basis of the average of that period.
Finally, the criteria for determining the amount of the customer allowance are the size of the customer base remaining with the producer after the termination of the agency agreement, the corresponding benefit to the producer and the profit generated for the agent if the agreement were to continue.
Franchising or franchising is one of the most common systems of distribution of products and services. Our law firm has provided legal support for the establishment of franchise networks of many companies, gaining vast experience.
We have handled cases and litigation of franchisees in many different areas. Typical examples are the problems of many franchisees – franchisees of secondary education and foreign language schools, well-known catering companies – bakeries and fast food restaurants, super – markets, automatic washing machines, hairdressing salons, mobile telephony and many others.
WHAT IS A FRANCHISE
A franchise agreement (commonly known as a franchise) is a cooperation agreement between two independent companies, under which one company (franchisor or franchisor) grants the other (franchisee or franchisee), for direct or indirect financial consideration, the right to operate a so-called “franchise package” or “package” for the purpose of selling a specific type of product or service.
As in any contract, both parties have obligations and rights.
What are the obligations of the franchisor towards the franchisee?
The franchise – franchise agreement includes the following obligations for the franchisor or grantor: a) the grant to the transferee of the right to use and exploit the franchise “package”. (b) the integration of the franchisee into the system by providing him with the necessary technical and organisational infrastructure and the appropriate training; (c) the supply of raw materials, finished or semi-finished products, in particular when these are produced by the donor; (d) the ongoing support of the franchisee in organisational, technical, financial or other matters, the obligation to advertise the products of the system and the maintenance of the machinery and equipment of the franchisee’s shop.
What are the obligations of the franchisee
The franchisee has the following obligations: (a) the payment of an entry fee for the grant by the donor of the use and exploitation of the know-how and industrial property rights; (b) the periodic payment to the donor of a certain percentage of the sales receipts throughout the term of the contract (royalties); (c) the active promotion of sales by making the best possible use of the personal labour and other means at the disposal of the recipient, (e) compliance with the organisational principles of the franchise system, in particular respect for the principle of uniformity (f) the obligation on the licensee not to sell competing products for the entire duration of the agreement.
What is the entry fee?
It is the initial amount sometimes requested by the franchisor of the franchise system to give the franchise package to the franchisee.
Depending on the visibility of the network these amounts can range from 0 to hundreds of thousands of euros. In essence, it is the <<air>>> that is paid for the franchisor to give you a store in his chain.
What are Royalties
Royalties are an amount paid by the franchisee to the franchisor, usually annually. It can be a fixed amount or a percentage of the store’s turnover or profits. Obviously, when the percentage is on turnover, this can mean that the franchisee can pay high amounts to the franchisor even if the franchisor is loss-making.
Compensation at the end of the contract
According to the prevailing case law, customer compensation is due on termination of the franchise agreement in the same way as in the case of a commercial agency.