Distribution law in the US, UK, UAE, Hong Kong and Germany

Post-termination compensation rights of the distributor

There are generally no statutory compensation rights.

A post-termination compensation right may arise where the distributor is integrated into the supplier's sales organisation (e.g. via marketing activities) and transfers a customer base that continues to benefit the supplier after termination (“agent-like”).

Termination rights

Termination for convenience

Fixed-term agreements generally expire automatically at the end of their term, but may be extended expressly or impliedly.

Indefinite-term agreements may be terminated upon reasonable notice, unless a notice period is set out in the agreement.

If the distributor is deemed “agent-like”, there are minimum notice periods prescribed by law depending on the length of the distribution relationship.

Termination for good cause

Termination for good cause is possible (e.g. material breach, insolvency or loss of trust).

Prior notice and an opportunity to cure may be required.

Registration requirements

No specific information obligations or registration requirements for distribution agreements.

Antitrust/Competition issues

Territorial and customer restrictions

Absolute territorial protection is unlawful. It is unlawful to impose restrictions on where or to whom resellers can sell outside of a properly set up exclusive or selective distribution system. It is usually possible to set up an exclusive distribution system prohibiting active sales to reserved territories, but passive sales must be permitted. It is usually possible to set up a selective distribution system whereby distributors may only sell to other authorised distributors or end users.

Information exchange

Distribution arrangements should not facilitate unlawful exchanges of competitively sensitive information. Particular risks to be mindful of:

• Hub-and-spoke arrangements, where a supplier acts as a conduit for information sharing between competing distributors;
• Excessive reporting obligations involving pricing, customer or sales data.
• Dual distribution scenarios require particular care as the supplier also competes with its distributors. There are specific rules on what can and cannot be shared in this context.

Resale price maintenance (RPM)

Fixed or minimum resale prices are considered “hardcore” infringements of competition law. Recommended or maximum resale prices are usually permissible, provided they do not operate as fixed prices in practice through pressure, monitoring or incentives.

Online sales restrictions

Restrictions on online sales are subject to close scrutiny. Proportionate quality requirements may be permitted, and in some cases restrictions on certain third-party platforms may be justifiable. Restrictions eliminating the use of an entire online advertising channel are generally problematic.

MFN / parity clauses

MFN clauses can reduce competition between distribution channels. Wide MFNs (covering third-party channels) generally present greater competition concerns than narrow MFNs (limited to the distributor's own direct channel).

Non-compete obligations

In term non-competes are generally acceptable (provided both parties have below 30% shares on the relevant markets) provided the obligations do not exceed 5 years, but there are specific considerations that need to be taken into account where they exceed 5 years or where market shares are higher. Post-term non-competes require particular scrutiny.

Governing Law, Courts and Arbitration

Will local courts respect foreign governing law?

Foreign governing law generally respected, although mandatory German or EU law will prevail, e.g. antitrust law or, if the distributor is deemed “agent-like” in relation to the post-termination compensation right and notice periods.

Will local courts enforce foreign judgments?

Judgments from EU-countries and those covered by bilateral and multilateral treaties are usually recognised and enforceable, other judgments are scrutinized according to the rules set out in statutory law, e.g. if the foreign court had jurisdiction over the case, if service was proper, if there is no conflict with a prior German court judgment, there is no public policy violation and there is reciprocity regarding German court decisions in the country of the judgment.

Is arbitration preferable?

Arbitration generally regarded as an effective mechanism for resolving international distribution disputes. advantages of arbitration are, e.g., free language choice or confidentiality; advantages of a German court proceeding are lower costs and appeal rights.

Post-termination compensation rights of the distributor

No statutory compensation rights post termination.

Any right to compensation / indemnity would need to be contractually agreed by the parties.

Termination rights

The parties can contractually agree on the grounds on which any party can terminate the distribution agreement. In addition, common law rights of termination may be relied on.

Common termination grounds include change of control, non-compliance with applicable law, liquidation/insolvency, breach of ABAC provisions, material breach (eg breach of payment obligations).

Registration requirements

No requirement to register distribution agreements or to register the status of acting as a commercial agent or distributor.

Customary company registration apply to Hong Kong companies and separate licensing or regulatory requirements may apply depending on the particular product being distributed.

Antitrust/Competition issues

Territorial and customer restrictions

Exclusive distribution: Granting a distributor exclusivity within a defined territory or customer group is generally permissible, taking into account the extent and prevalence of the exclusivity in the market, its effect on intra-brand and inter-brand competitions and, where applicable, any resulting benefits to overall economic efficiency.

Selective distribution: Restricting sales to authorised distributors on the basis of qualitative criteria meeting certain conditions is generally permissible. Beyond this (including where quantitative criteria are used), the effects on competition of the selective distribution system must be considered.

Exclusivity and foreclosure

Exclusive dealing is typically permitted provided there is no substantial market power, in which case restrictions could raise concerns about market foreclosure (restricting competitors’ access to inputs or distribution channels) and the effects on competition must be assessed.

The competitive impact of an exclusive dealing arrangement also hinges upon factors such as the resulting consumer benefit, and the extent and duration of the exclusivity.

Information Exchange

Whilst the exchange of information between supplier and distributor is typically not problematic, distribution arrangements should not facilitate the exchanges of competitively sensitive information between competitors (i.e. a hub and spoke arrangement, such as a supplier passing information between competing distributors). Such an information exchange arrangement may amount to a concerted practice contravening Hong Kong competition law.

Dual distribution is not explicitly considered under Hong Kong’s competition law and guidance. However, as the exchange of competitively sensitive information between competitors is prohibited, suppliers operating this system must take care not to share or request such information from distributors.

Tying and Bundling

In distribution agreements, making the sale of the tying product conditional upon purchase of the tied product or bundling two or more products at a discount in distribution agreements are generally permissible, unless the supplier has a substantial degree of market power.

Resale price maintenance (RPM)

Fixed or minimum resale prices are prohibited, whether achieved directly or indirectly, where the pricing restrictions have the object and effect of restricting competition. If this is not the case, such restrictions may be permitted (e.g. pricing restrictions on franchisees where the franchisor has low market power).

Recommended or maximum resale prices are usually permissible, provided they do not operate as fixed or minimum prices in practice through pressure, monitoring or incentives, considering factors including the market position of the supplier.

Online restrictions

Online sales restrictions are not expressly considered. However, the object and effect any such restrictions would need to be assessed. Restrictions would be prohibited where this prevents, restricts, or distorts competition in Hong Kong.

Most Favoured Nation (MFN) / Parity Clauses

MFN clauses, which require a distributor to offer the supplier’s products on terms no less favourable than those available through other distribution channels, may reduce price and other aspects of competition between those channels. Wide MFN clauses (covering all channels) are likely to attract more scrutiny than narrow MFN clauses (confined to the distributor’s own direct channel).

Non-competes

Whether a non-compete restriction is permissible will depend on whether the object and effect any such restrictions prevents, restricts, or distorts competition in Hong Kong.

Governing Law, Courts and Arbitration

Will local courts respect foreign governing law?

Hong Kong courts will generally uphold a clear choice of law made by parties in an agreement.

Will local courts enforce foreign judgments?

Hong Kong courts can enforce overseas judgments. The statutory regime under recognizes judgments from 15 jurisdictions including Austria, Belgium, France, Germany, Italy and the Netherlands. Mainland China judgments are subject to separate statutory arrangements. For other jurisdictions, enforcement is available via common law.

Is arbitration preferable?

Similar to the UK, the benefits of resolving disputes using arbitration are not unique to distribution agreements. Hong Kong is a party to the New York Convention.

Post-termination compensation rights of the distributor

If the Agency Law applies (essentially, if (i) the distributor or agent is a UAE citizen or a company wholly owned by UAE citizens and (ii) the agreement is registered by the distributor/agent), compensation is payable for any damage suffered as a result of the expiry or termination by the principal of the agreement. This is subject to contrary agreement in the case of expiry. In the case of termination, compensation is also payable if the distributor/agent has achieved significant success for the principal's products and the termination of the agreement has deprived the distributor/agent of the related returns.

Termination rights

Governed by the terms of the distribution agreement. If the agreement is registered under the Agency Law, at least 12 months’ notice (or half the contractual term, if shorter) must be given unless the contract provides otherwise. For agreements registered under the Agency Law before 2014, transitional provisions may mean that the agreement will not expire and cannot be terminated until 2033, unless the parties agree to terminate the agreement.

Registration requirements

Under the Agency Law, commercial agency (defined as the representation of a principal by an agent under a contract of agency, distribution, sale, offer or concession, or the provision of goods or services in the UAE in exchange for a commission or profit) may be practised only by registered agents/distributors and so would be limited to UAE citizens or a company wholly owned by UAE citizens. However, unregistered distribution agreements are common and are in practice enforced by the UAE courts, applying the general law set out in the Civil Code and Commercial Transactions Law.

Antitrust/Competition issues

The Competition Law applies to “restrictive agreements” the subject, purpose or effect of which is to distort, lessen, prevent or restrict competition. There are no exemptions for e.g. exclusive distribution agreements. The Competition Law is relatively new and it is not yet clear how it will be enforced in relation to distribution agreements.

Governing Law, Courts and Arbitration

Will local courts respect foreign governing law?

UAE courts are likely to apply UAE law to agreements which are being litigated before them, even if those agreements provide for other governing law. The only effective method of avoiding this is to have an arbitration clause as discussed below.

Will local courts enforce foreign judgments?

UAE courts can in principle enforce foreign judgments, subject to their being no conflict with UAE pubic policy.

Is arbitration preferable?

Arbitration is preferable for disputes involving complex or technical issues.

So far as arbitration is concerned, the UAE is a signatory to the New York Convention and the UAE courts should not accept jurisdiction of any dispute which is subject to arbitration. (This is subject to the jurisdiction of the court being challenged at the first hearing.) The choice of arbitration for dispute resolution rather than courts should therefore be effective in ensuring a higher quality resolution of complex disputes or technical issues and that the choice of governing law, if it is not UAE law, is effective.

Post-termination compensation rights of the distributor

No automatic right to compensation or an indemnity on termination (unlike certain commercial agents, who may have a statutory right to a termination payment).

Any right to compensation / indemnity would need to be contractually agreed by the parties.

Termination rights

Governed by the express terms of the distribution agreement (e.g. specific termination procedures and notice periods) and general principles of contract law.

Contractual termination rights commonly arise for convenience, breach, or default by a party.

Registration requirements

No specific information obligations or registration requirements for distribution agreements.

Antitrust/Competition issues

While the UK and EU competition law regimes remain broadly aligned following Brexit, there are a number of important differences between them. In some areas the UK rules provide greater flexibility than the EU rules, whereas in other areas the EU approach can be more permissive. Businesses operating distribution arrangements in both jurisdictions should therefore seek specialist advice to ensure compliance with the specific requirements of each regime and to take advantage of any available flexibilities.

Territorial and customer restrictions

Absolute territorial protection is unlawful. It is unlawful to impose restrictions on where or to whom resellers can sell outside of a properly set up exclusive or selective distribution system. It is usually possible to set up an exclusive distribution system prohibiting active sales to reserved territories, but passive sales must be permitted. It is usually possible to set up a selective distribution system whereby distributors may only sell to other authorised distributors or end users.

Information exchange

Distribution arrangements should not facilitate unlawful exchanges of competitively sensitive information. Particular risks to be mindful of:

• Hub-and-spoke arrangements, where a supplier acts as a conduit for information sharing between competing distributors;
• Excessive reporting obligations involving pricing, customer or sales data.
• Dual distribution scenarios require particular care as the supplier also competes with its distributors. There are specific rules on what can and cannot be shared in this context.

Resale price maintenance (RPM)

Fixed or minimum resale prices are considered “hardcore” infringements of competition law. Recommended or maximum resale prices are usually permissible, provided they do not operate as fixed prices in practice through pressure, monitoring or incentives.

Online sales restrictions

Restrictions on online sales are subject to close scrutiny. Proportionate quality requirements may be permitted, and in some cases restrictions on certain third-party platforms may be justifiable. Restrictions eliminating the use of an entire online advertising channel are generally problematic.

MFN / parity clauses

MFN clauses can reduce competition between distribution channels. Wide MFNs (covering third-party channels) generally present greater competition concerns than narrow MFNs (limited to the distributor's own direct channel).

Non-compete obligations

In term non-competes are generally acceptable (provided both parties have below 30% shares on the relevant markets) provided the obligations do not exceed 5 years, but there are specific considerations that need to be taken into account where they exceed 5 years or where market shares are higher. Post-term non-competes require particular scrutiny.

Governing Law, Courts and Arbitration

Will local courts respect foreign governing law?

Domestic courts will generally uphold a clear choice of foreign governing law in an agreement.

Will local courts enforce foreign judgments?

English and Welsh courts can enforce recognised overseas judgements; the particular procedure depends on the other jurisdiction concerned, the date and nature of proceedings, and any relevant contractual jurisdiction clauses.

Is arbitration preferable?

The benefits of resolving disputes using arbitration are not unique to the context of distribution agreements; arbitration awards can be enforced relatively easily across countries which are party to the New York Convention.

Post-termination compensation rights of the distributor

US law does not provide a general statutory right to post-termination goodwill indemnity or compensation for distributors. In practice, any compensation upon termination is a matter of contract. Parties will commonly negotiate inventory buyback obligations, wind-down periods, and transition assistance as part of the distribution agreement itself.

Certain industry-specific state statutes (e.g., automobile dealer franchise acts, beer and wine distributor protection laws, farm equipment dealer acts) do impose mandatory compensation or buyback rights that cannot be contracted away.

Termination rights

US distribution agreements are generally terminable in accordance with their contractual terms, and it is standard practice to include express provisions on term, renewal, and termination for cause and for convenience. Common contractual provisions include defined cure periods for breach (typically 30–60 days), termination for convenience with advance written notice (often 60–180 days), and automatic renewal with opt-out windows.

Where the agreement is silent on duration or termination, courts will generally require “reasonable” notice before termination. An implied duty of good faith and fair dealing applies under the common law of most states, meaning even a contractually permitted termination may be challenged if exercised in bad faith.

Several states have enacted dealer or distributor protection statutes for certain industries that require “good cause” for termination or non-renewal and mandate minimum advance notice periods; these statutes may override contrary contractual provisions and apply regardless of the governing law chosen by the parties.

Registration requirements

There is no general federal or state registration requirement for distribution agreements as such. However, franchise law is the key risk area in the US: if the distribution arrangement meets the definition of a “franchise” (generally involving a trademark license, payment of a fee, and significant control or assistance), there will likely be disclosure and registration requirements before the agreement is signed and/or before any sales activity. In practice, parties routinely structure distribution agreements to avoid franchise classification (e.g., by limiting the degree of operational control, avoiding required fees tied to the right to distribute, and carefully managing trademark licensing provisions).

Certain industries also have their own registration or licensing requirements at the state level (e.g., alcohol distribution, pharmaceutical distribution, firearms), which should be assessed on a case-by-case basis.

Antitrust/Competition issues

Territorial and customer restrictions

Vertical territorial and customer restrictions in distribution agreements are analyzed under the rule of reason, which involves assessing the procompetitive and anticompetitive effects. Given that territorial and customer restrictions can be efficiency enhancing, such restrictions are generally permissible under US law provided they do not foreclose competition or facilitate horizontal collusion.

Information exchange

Sharing competitively sensitive information between firms at different levels of the supply chain generally is less problematic than horizontal exchanges between competitors. However, hub-and-spoke arrangements — in which a supplier facilitates the sharing of competitively sensitive information among competing distributors — can give rise to antitrust liability. Additionally, care should be taken in dual distribution scenarios where the supplier also competes with its distributors.

Resale price maintenance (RPM)

Following the US Supreme Court’s decision in Leegin Creative Leather Products, Inc. v. PSKS, Inc. (2007), RPM is analyzed under the rule of reason at the federal level. However, a number of states continue to treat RPM as per se unlawful under their own antitrust statutes, creating compliance complexity for multi-state distribution. Maximum and recommended resale prices are generally permissible provided they do not operate as fixed prices in practice.

Online restrictions

Restrictions on online sales by distributors are assessed under the rule of reason and thus are viewed more leniently by US authorities than in other jurisdictions. There are no special rules in the US for digital markets and, as a result, vertical restrictions of online sales will be viewed as permissible so long as the procompetitive effects are not outweighed by the anticompetitive effects.

MFN / Parity clauses

MFN clauses, which, like other vertical agreements, are assessed under the rule of reason, are generally permissible in the US. Indeed, MFNs have historically been viewed as having a number of procompetitive benefits, including reducing uncertainty about potential price fluctuations, transferring the risk of opportunism, and reducing transaction costs. These clauses only become problematic if the party imposing the MFN has a significant market share and a material portion of transactions in the relevant market would be covered by the MFN.

Non-competes

A noncompete obligation in the context of a distribution agreement often has procompetitive business justifications, including protecting distribution networks and incentivizing distributor investments. Accordingly, such a restraint would be permissible so long as it the restraint is reasonable in geographic scope and duration.

Governing Law, Courts and Arbitration

Will local courts respect foreign governing law?

US courts generally respect the parties’ contractual choice of governing law, and it is standard practice to include a governing law clause in distribution agreements. New York and Delaware law are commonly selected in commercial contracts. However, a choice-of-law clause may be disregarded if the chosen state has no substantial relationship to the parties or the transaction, or if the chosen law conflicts with a fundamental policy of a state with a materially greater interest.

Note that mandatory state dealer/distributor protection statutes (e.g., Puerto Rico Law 75, Wisconsin Fair Dealership Law) may apply regardless of the governing law selected by the parties, and courts in those states may refuse to enforce a foreign governing law clause that would deprive a local distributor of statutory protections.

Will local courts enforce foreign judgments?

There is no federal statute governing the recognition of foreign-country judgments, and enforcement varies by state. Most states have adopted some version of the Uniform Foreign-Country Money Judgments Recognition Act, which provides a framework for enforcement but also includes grounds for refusal (e.g., lack of due process, lack of jurisdiction, public policy, and in some states lack of reciprocity).

In practice, enforcing a foreign judgment in the US can be time-consuming and uncertain, which is one reason parties to international distribution agreements often prefer arbitration or select a US forum.

Is arbitration preferable?

Arbitration is widely used in international distribution agreements involving US parties, and US law is strongly pro-arbitration. Practically, arbitration is often preferred because arbitral awards are enforceable in most countries, and arbitration offers confidentiality, a neutral forum, and procedural flexibility.

Standard practice is to specify the arbitral institution (e.g., ICC, AAA/ICDR), the seat of arbitration, the number of arbitrators, and the language of proceedings in the distribution agreement. However, parties should be aware that certain state dealer/distributor protection statutes may restrict the enforceability of mandatory arbitration clauses if they effectively deprive a local distributor of statutory rights.