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Marketing Agreements Notes

LPC Law Notes > International Commercial Law Notes

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Marketing Agreements AGENCYDefinition?

Types ofAgency AgreementRelationship whereby one party (principal) give another (agent) authority to act on her behalf Contracts concluded by agent are binding between principal and TP, if agent has authority Sales agency agreement: agent is intermediary; title in goods passes directly from principal to TP; agent can conclude contracts directly with TP Other types: 'marketing' or 'introducing' agreements: agent introduces client to customers (causing them to enter contract), even negotiates terms, but no authority to conclude contract Court will pay more attention to actual relationship than to labelling of agreement Express authority Implied / actual authority

Types of authority

Apparent /
ostensible authority

Authority by ratification Authority arising by customer

Actual authority (express /
implied) Apparent authority


No authority

Scope of agent's authority set out expressly in agreement May arise in two ways: 1) Agent has implied authority to do things incidental to performance of duties 2) Implied authority arises out of customs of particular trade Arises where principal has given distinct but false impression that agent had authority to enter into a particular contract. Authority arises from estoppel if: 1) At some stage, principal represented (by words or conduct) that agent had authority 2) TP must rely on that representation, believing agent had authority 3) TP must alter his position, by entering transaction (Freeman & Lockyer v Buckurst Part Properties [1964]) Where agent does not have authority, or has exceeded authority, principal may ratify actsPrincipal and TP

Agent and TP

Contract between principal and TP; each party can sue the other Contract between Principal and TP; each party can sue the other; Principal estopped from denying contract No contract between Principal and TP

Contract is between Principal and TP (Agent drops out)

Principal and agent N/A

Contract between Principal and TP; Agent drops out of picture

Principal may be able to bring actions against Agent if acted outside authority

TP may sue Agent in deceit, where Agent knew s/he had no authority; cannot sue for breach of contract

Agent may be liable to Principal if latter suffers loss




EXCLUSIVE, NONEXCLUSIVE AND SOLE AGENTSDisclosed principal: TP is aware Agent is acting on behalf of another person; that person may be "identified" (TP knows identity) or "unidentified" (TP does not know identity) Undisclosed principal: if not disclosed to TP that Agent acting as agent+TP thinks s/he is dealing with Principal, TP has a choice: if Agent acted w/in authority, TP may sue Principal or Agent Usually valid in context of agency agreements, for duration of agreement, if in writing and reasonable for protection of valid business interests and not contrary to public interest Must relate to the geographical area, customers and goods under agency; no more Must last for no more than 2 yrs from termination Must comply with competition law principles; if Agent is not "commercial agent", post-termination restraint of trade clause will not be valid Types: restrictions related to any grant of exclusivity; obligation not to sell competing products Exclusive rights : prevent Principal from actively seeking sales in Agent's territory and from appointing other Agents / Distributors there; Principal may reserve certain rights (continued right of supply to named (groups of) customers Sole rights: prevent Principal from appointing other Agents / Distributors in the territory, but not from actively seeking sales itself Non-exclusive rights: Principal is free to appoint other Agents etc and to actively seek sales Principal may also reserve right to convert from one type to another (e.g. sole rights to non-exclusive), contingent on, e.g. sales figures
? P agrees not to appoint other As / Drs in Exclusive agency /
territory distributorship
? Also agrees not to sell products itself within territory
? P agrees not to appoint any other As / Drs in territory Sole agency / distributorship
? Remains free to sell products in territory itself
? P can appoint other As / Drs in territory Non-exclusive agency /
? Can sell products in territory


MIXED ARRANGEMENTS?Supplier sells goods to Distributor, which then re-sells them on its own behalf E.g. manufacturer - wholesaler - retailer Title in goods passes from Principal to Distributor to customer; contractual relationships are:
- Principal Distributor
- Distributor Agent
? No contractual relationship between Principal + customers (may be tortious liability) Note that it is possible for an Agent to be both a sales Agent and a Distibutor for the same Principal in relation to different products

ADVANTAGES / DISADVANTAGES Agency Distribution Agent (A) appointed by principal (P) under Supplier (S) enters distribution agreement with agency agreement. A receives commission distributor (D). D buys the goods from S for resale, (usually agreed percentage of sales or and retains all profits from resale. Generally only introductions). Can be used for marketing suitable for marketing goods. services as well as goods. Requires close supervision by P. Less suitable Requires ltd supervision. D decides how and where to if A + P are based in different countries or P market goods. More suitable for mass-produced has ltd time. More suitable for bespoke products or where S likely to encounter unfamiliar products, those requiring close contact / after- markets / language problems. More difficult to protect sales service. Useful to protect brand/ rep. brand / rep. More suitable where direct contact is needed More suitable where there is no need for direct between Principal + customer (bespoke work / relationship between Principal and customer specialist after-care) More suitable where Principal needs to retain More suitable where Principal is unfamiliar with tight control over sales / marketing (although effective marketing strategies in local jurisdiction and may include detailed contract provisions or requires local expertise second employees) P remains contractually liable to his No contractual liability between S and D's customers, customers. A has limited financial risk, and although S may be liable in tort or under product has no initial outlay on stock, although A will liability legislation. D bears the risk of non-payment, probably earn less through payment of claims from customers and unsold stock. commission than profit from re-sale. Often more expensive for P to set More expensive for D to set up and operate, but can up+operate; however, commission paid to be more lucrative for D. D may have more incentive Agent generally less than margin earned by to exploit market to generate profit. distributor (who takes greater financial risk) Agency agreements are unlikely to infringe UK Can give rise to competition law problems. The grant or EU competition law of territorial protection may infringe Article 101 of the TFEU or the Chapter I Prohibition (see Chapter 28). Under agency agreements, P retains freedom The imposition of RPM on a distributor is unlawful to fix her own prices for sale. under UK / EU competition law. Agency agreements in the UK are subject to No equivalent legislation for distribution in EEA (there the Commercial Agents (Council Directive) are in other jurisds, e.g. Gulf Co-operation Council). Regulations 1993 (SI 1993/3053), which govern areas such as payment of duties of A+
P, commission, and payment of compensation
/ indemnity on termination of the agreement. Equivalent provisions apply throughout EU. Where P and A are based in separate D will generally pay all tax on profits and VAT. jurisdictions, they may be regarded as one undertaking for corporation tax purposes, which may have adverse tax consequences for P. P liable for VAT on products supplied in its name. SUMMARY FOR PRINCIPAL Agency Distributorship Control over price and other Yes No terms of sale Ability to dictate choice of Yes No customer Direct contractual rel'p with Yes No customer Close control over marketing Yes No, but there can be secondment arrangements+ contractual obligations to implement consistent marketing strategies

Ability to off-load financial risk of consignment stock Lower commission payable Compensation for termination Art. 101 complications?
Simpler tax positions Commercial Regulation apply

Scope?'Commerci ?
al agent'??
Important ?
to determineif Regsapply????
Where regs do not applySpecificprovisions Derogatio n



Yes Yes Usually not. If "genuine" agency, restrictions fall outside 101 No Yes

No No, in the UK Possibly Yes No

THE 1993 REGULATIONS Before drafting the agreement, consider whether the 1993 regulations apply 'Govern relations between commercial agents and their principals ... in relation to the activities of commercial agents in Great Britain' (reg 1(1)) 'Self-employed intermediary [incl. a company] who has continuing authority to negotiate the sale or purchase of goods on behalf of another person (the 'principal') or to negotiate and conclude the sale or purchase of goods on behalf of and in the name of that principal' E.g. NOT marketing agents NOT one-off transactions 'Negotiate' understood broadly to include time and resources spent on developing Principal's goodwill, if in Principal's commercial interest Can be "authority to negotiate" or "authority to negotiate and conclude" Many terms cannot be excluded from agency, or may be excluded only if in Agent's favour Application may determine whether a Principal chooses an agency or another model Cross-border element: must seek advice on local implementation of Directive Regs apply to agency agreements (oral / in writing) Agency usually paid on commission, distribution by 'mark-up', but remuneration not conclusive Where Agent's activities are not to be performed in UK (although similar regs apply across EEA) Where Agent is not 'commercial agent' (a marketing agent) (but apply to 'introducing agents') Where arrangement is in substance a 'distributorship' Where Agent excluded under reg 2(2) (unpaid, commodities exchange, Crown Agents) Where Agent's activities are 'secondary' under regs 2(3-4) and Schedule
- Sales not individually negotiated
- Sales not likely to lead to repat business
- Other ways of acquiring goods in are than through agent
- Agent does not devote own skills and resources to developing the market in these goods
- Agent not full-time agent
- P supplies promotional material directly to customers
- If customers select goods themselves and merely place orders through agents
- Mail order catalogue agents / consumer credit agents Supply of services aot goods, incl. software, supply of gas; situation of 'mixed goods' not clear (best to have separate agreements) See below for Agent's duties, Principal's duties, financial provisions, termination Derogation Regulations with non-derogation Derogation not mentioned provisions

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