Agency Agreement Vs Distribution Agreement

It may be worthwhile to compare an agency agreement with a distribution agreement. A distribution agreement is one which is signed by the Indian exporter with a distributor abroad. The basic distinction between an agency agreement and a distribution agreement relates to the title of the goods. Under an agency agreement, the agent is responsible only for the procurement of orders. Subsequently, there is a direct contractual relationship between the exporter and the party placing the order. Title of the goods, even when stocked at the agent’s premises, remains with the principal. So does the risk.

Under a distribution agreement, on the other hand, the contractual relationship is only between the principal and the distributor. But there is no subsequent contract between the principal and the ultimate buyers. The distributor purchases the goods from the principal on his own account and, therefore, both risk and title to the goods pass on to the distributor.

Similarly, credit risks are to be borne by the principal in the case of an agency agreement, unless del credere terms are involved, while in the case of distribution agreement credit risks will be borne by the distributor. Further, on the case of an agent, the principal may be subject to third party liability because of any action on the part of the agent taken during the course of business. However, when a distributor is appointed such third party liability does not go back to the principal. Liabilities on account of product warranties, of course will remain with the principal even when a distribution agreement has been concluded.

It is, therefore clear that the extent of legal liabilities under an agency agreement tends to be higher than under a distribution agreement. But this has to be viewed against the relative disadvantages in terms of marketing factors, which are implicit in a distribution agreement. When a distributor is appointed, he operates as an independent organization buying and selling on his account. Therefore the control of the principal on the distributor cannot be foolproof. Under an agency agreement, on the other hand, the agent is always under the direct control of the principal and therefore the latter can effectively manage the marketing operations in the way, he likes. Moreover, it is more difficult to get a distributor than a good agent.

Laws relating to products:

Trade Marks: Trade Marks are words or designs or combination of these. The words may be manufactured words, i.e. words which do not exist in any language but have been invented specifically for the purpose of trade mark, viz., XEROX or KODAK. Trade marks are expected to perform many marketing functions. Some of these are:

1. to enhance or create distinctiveness;
2. to help identifying the product;
3. to lead to easier recognition of the product;
4. to symbolize the quality of the product and
5. to simulate the desire to buy

Protection of Trade Marks:

A manufacturer can apply for registration of his trade mark to the registering authority of the country where he is exporting or wants to export. Certain names cannot be registered. Names, surnames, geographical place names, descriptive words or numerals are generally not allowed to be registered. Before registering a trade mark, the registering authority will conduct a check whether this or a similar trade mark has already been registered. If no evidence of such a trade mark is found, the trade mark being applied for will be published in the official journal of the registering authority. Anybody can raise objections to the granting of registration within a specified period after the publication. If the ground for objections, if any is found to be not in order, the registration is given. This is more or less the practice followed in most countries though there are minor variations. An exporter has to assign the task of trade marks registration to attorney firms which are specialized in such matters.