However, this process of geographic expansion and internationalisation through distributors is not free of challenges.
As far as intellectual property is concerned, before starting to negotiate with a distributor, it is important to be cautious and duly register any corresponding trademarks. After all, the protection granted by a trademark is territorial; after contacting a potential distributor, it is not unusual for the legitimate owner of a trademark to find that the distributor-to-be has already gone ahead and registered the trademark in its own name in the new country or territory.
In addition to these kinds of pre-contractual issues with distributors, after a distribution agreement is signed, it is common for the legitimate trademark owner to witness the distributor selling the products in question outside the established market or geographical area. In other words, “parallel imports” or the “grey market” arise.
“Grey market” or “dark market” are terms that refer to the flow of goods through distribution channels other than those authorised by the manufacturer or producer. Unlike the “black market” (counterfeits), “grey” goods are not illegal, as they do not infringe the actual trademark.
Remarkably, these parallel imports may be considered as legal and legitimate under European Commission competition rules as well as under trademark law provided that they follow what is called the “exhaustion of trademark rights” regime (which has provisions and exceptions of its own).
This legal situation makes it vital that any contractual clause between manufacturer and distributor aimed at restricting parallel trade be drafted and designed with care, since, if not worded correctly, the clause could be considered contrary to competition rules and thus deemed null and void.
In conclusion, business expansion by means of distribution agreements requires solid registration protection against third parties as well as reliable and continuous legal advice from specialist lawyers. This will help to prevent unauthorised trademark registrations by potential distributors as well as the emergence of unauthorised, “grey market” sales.