Ensuring the Lawful Use of Digital Signatures for Distributor Agreements in India

How to eSign a document: digital signature lawfulness for Distributor Agreement in India

so today I'm going to talk about franchise and non franchise state distribution agreements and before I do so I wanted to just briefly talk about the three-tier system which I'm sure many of you already know that in the beverage alcohol industry we have three tiers in which we sell products so the first tier is the supplier manufacturer in Pierre the second is wholesaler distributor and I'm going to use both terms interchangeably and then last is the retailer and of course consumers purchase their goods from the retailer so today when we're talking about the distribution agreements we're going to be talking about the supplier or distributor level so just by way of background back in 1933 after the repeal of prohibition what happen was that beverage alcohol reverted back to the individual states so the states could decide how they could distribute the product so there were two different categories we have open States which allows private individuals to be licensed and actually distribute the product within the state and then we also have controlled States and in the control space the government would dictate how the products would be distributed within their borders so here you can see we have a map of the United States that highlights both the control and open States so the purple would be the control state which there are seventeen states in Montgomery County and then you have the open states that are in blue so I'm bringing this up just so you understand that they are there is a division between the types of states where you distribute but what we're going to do is concentrate on the open space when it relates to franchise and non franchise so in the franchise - you have a prop approximately 50% are for distilled spirits and then the percentage is a little higher for wine products and then the due diligence when you're talking about your distribution agreement or negotiating the terms with your wholesaler it's good to understand whether or not you're dealing in a France or non franchisee states now most people call me and they ask me if distribution agreements are necessary and as an attorney what do you think I say absolutely yes but there's a reason for it if not just because I want to generate some bills and do some work but there are reasons that we're going to go through here so why well when you work on your distribution agreement you're negotiating with your distributor and you're going to be talking about some of the key terms right so there's an understanding between both parties as to what's got you're going to do who does what the second it identifies the roles and responsibilities so again who is responsible for handling one aspect of this business third you're going to manage each party's expectation because you have it in writing when you first meet everything is great you have a wonderful relationship everyone's really excited but when you put it in writing at least you can put that to bed and don't have to look at it until afterwards if God forbid there's an issue and then lastly if there is an issue at least you have your means for resolution how do you go about resolving that conflict so some of the key distribution agreement terms we're going to go through and just highlight so and these are going to be for the non franchisee states to start so first where are you going to be distributing these products are you going to be distributing in one particular state are you going to be in multiple states say you want to be in New York New Jersey Connecticut do you want to be in a region do you want to go down the Northeast Corridor or do you want to be nationwide so once you understand where you're going to be that's obviously a good start secondly what products are you selling well if I currently have some wine products I know what they are right they exist I have them I want to sell them but what about future products so say right now I have Donna's vodka that's my brand and I also have a gin so it's called Donna's gin well if I bring on a new product is that something that goes with that you with that distributor or can I give it to somebody else or if I have a line extension so I have done as vodka I have done this gin and then let's say I want to come up with a bourbon or an American whiskey is that a line extension well if it's under the Donna's label I would say yes and therefore it should go with that distributor however if Steve is producing Ibaka out of Italy and I decide to bring it in that would be a new product so I have Steve's vodka so as a new product should that distributor get that brand now lots of times people don't think about this they may be acquiring different products maybe they're expanding maybe they're merging with another company that has a different portfolio where do those new products go well your distributor is most likely is going to want to have the opportunity to represent any brand that you bring in or that you're distributing so they would want what's called the right of first refusal so with line extensions generally the distributor will get it but with new products that's not always the case so it's something to think about do you want that product to go with the distributor now my distributor may specialize in distilled spirits so if I'm working with vodka gin my American whiskey my bourbon that's fantastic but if I'm importing Steve's wine from Italy well maybe that distributor doesn't have the expertise in the wine industry maybe that's a hand sell product that should go to a different distributor that specializes in wine maybe going to white tablecloth the cap so in that case it may make business sense to go with a different distributor so something to think about talk about with your distributor when you're talking about your terms for your agreement so pricing and payment you have your product now you're selling to your distributor what's the price point for those products personally I like to add in an exhibit that shows the products that you're selling the different sizes and the prices that you are going to be paying when you first set out the terms of your agreement then you could always update it as you go by depending on the terms of your agreement the frequency of the price changes how often can you make these changes well suppliers time's want to increase their prices it could be due to increase costs of goods it could be there can be a gas surcharge there could be another you know a bunch of other different reasons so when can you make those increases well just because your cost of goods increase yesterday doesn't mean that the next day that you can just automatically increase the price to the distributor many states require price posting and so for us so for the whole show to make that change they would have to file document the change would have to take place over a period of time it could take 30 60 90 s maybe up to 120 days so therefore that change can't be automatic so that needs to be understood between the parties and then when you're making those changes then you can talk about it but you don't want to make changes too frequently and I can guarantee that the distributor won't want you to as well and then lastly how will enter payments made are you sending out an invoice or is going to be electronic payment so again this way everybody knows what the terms of your agreement are and how you're going to be working together so now roles and responsibilities now suppliers usually will hire distributor and their expectation is they're going to be distributing products in whatever territory it is with the state regional or otherwise so when they're pulling on account who's responsible for going there is it just the distributor if I want supplier and I have hired a couple of great salespeople and they're going out and trying to sell the product what accounts are they going to you don't want to have overlap so it's good to to break out who's going to be responsible for going to what accounts you know maybe the distributor is going to handle all accounts but you a specialized team that's going to work on national accounts so again if you set your expand your expectations at the beginning and you have clear understanding between the parties I think things will run a lot smoother inventory levels so inventory levels affect both sides so if your supplier you want to make sure that your distributor has enough inventory in the warehouse to sell through into the marketplace now everybody wants a hot brand right you want to have your products flying off the shelves and you want your distributor to be able to meet those demands so again how much inventory do they need to hold in their warehouse to get it through to the market on the flip side the distributors also going to want the supplier to have a fair amount of inventory at their disposal again we're talking about new businesses it could be craft someone just starting out and we know inventory is expensive so how much inventory will you have at your disposal again the distributors out marking the product they're doing a fantastic job your brand's really high can you meet that demand because the worst thing that you could possibly have is a hot brand and you can't get the product to the consumers marketing plans and support so as a supplier it's important to have a marketing plan and it won't just be for a couple of months generally going to have an annual business plan and then you're going to have that built out for several years you want to be able to sit down with your distributor and go through those plans what kind of events are you going to have what kind of advertising how many people do you have on the ground from the supplier side who's going to be doing what is the distributor level so this way you have a rounded up plan and everybody knows what they're supposed to be doing so this way you can get your brand sold and then last is reporting now we know reports are very important when you're trying to evaluate your business so distributors have so much data at their fingertips so they're able to collect all this information for you and they have a wealth of knowledge as to what brands are doing and what's trending so as a supplier it's really important to get the right information so you know how your brand is growing the only thing I caution though is because the shredders have so much information that you don't want to overwhelm them and ask them for everything at their disposal they can give you every type of report that you could possibly want but the question is are you going to use that information so I would suggest a meeting with your distributor talking with them and saying what kind of information can you give and how often can you do it now some people will generate it some distributors will distribute the information in-house and they can distribute it to you or other organizations have a portal for the supplier where you can actually go in and then you can check on your inventory you can check on your POS you can check on sales and various territories and that information is at your fingertips you can control it but again talk to your distributor see what information they have available for you and then utilize it to sell your brand turn pretty straight forward how long will you be in this partnership with your distributor and it is a partnership I mean one can see something without the other and it's best to go in and decide what is best for you oftentimes I guess we've gone in different cycles where wholesalers won't have written agreements for long term went for a period where they could be 10 years long then we went through another cycle where they did way with agreements and they said oh it's okay we'll just work together and take it from there then we went back to written agreements and then the terms started to shift so they weren't ten years but the distributor may want five years suppliers like to have shorter term so it varies so it depends on what type of brand you have how you know how long you been in the industry what kind of relationship you may or may not have with a distributor already and then you figure out what works best for you now when you're talking about the length of your term the term of your agreement there are certain things that you can do to extend it so there's something called automatic renewal you can have an agreement say it's for one year you start January 1 and you end on December 31st well you can have a provision in there where you don't have to do anything it will automatically turnover and it can be for that same term so if you had a one-year agreement it automatically turns over for another year or you can have it for multiple years again something to talk about with your distributor you can have an agreement where it just expires we say okay January 1 December 31st then we're done and then you could decide what you want to do or you can have a provision in there where the agreement either continues and it's automatic renewal and if you decide to terminate you have to provide so many days notice could be 30 60 90 120 whatever you decide and therefore if other one party notices the other then you can get out of the agreement termination that's something that we like to talk about it but it is a reality how do you get out of your agreement with your distributor well they're generally two ways you can have you can get out without cause sometimes calls for convenience and this method generally one party or the other will be send a notice the other side saying we'd like to end our relationship you give so much notice say it's 120 days and this would allow both parties to to wind down the business the other way is for cause and for cost could be for a variety of reasons it could be based upon performance maybe your distributor is not meeting the goals that you've both agreed to it could be breached of a material term of your distribution agreement it could be financial what if your distributor goes bankrupt well how are they going to sell your products change of control you may have joined with a distributor because you like the management team you like the ownership but what if the product if the business was sold merged something happened maybe that's a reason you want to get out or loss of license if your distributor doesn't have a license they can't sell your product so intellectual property is something that I think is very important for our brands and sometimes people forget that their brands should be protected and I mean protected by filing for a certificate of registration at the US Patent and Trade Office so if I have my brand it's Donna's brand I'm spending a lot of money time effort trying to build that brand I'm working with my distributor so now I go when I get a registration certificate so once I do that I have to be very careful as to who can use my mark right so I'm trying to protect it's called police in the mark so I'm going to license my distributor a limited non-exclusive license to use my brand specifically for promoting selling my products I'll put that in the agreement generally I say the term that they can use my mark it's for the length of our agreement and then if we part ways that license stuff and then also what I like to do with our distributors is ask them to be the eyes and ears in the marketplace to make sure that my mark is protected now what do I mean by that you know I have my brand the distributors going out there putting my brand on the shelves they me be meeting with people talking to people and they hear things usually before others so there's a market there's a new brand out in the market called Donna but it's not CEO and in a apostrophe s its Bo na apostrophe s well that could be confusingly similar and it's a vodka as well so now you have done is what she wins you have Donna with one end well I would like my distributor let me know so I can go out there and protect my mark and again these are partners so if you work with them talk with them they can help you police your brand as well now what happens when your agreement either expires or terminate well it's a business right so your product you're going out there your people the distributor they're selling your products they're running events and that's fantastic but there's going to be a win down period that you need to get your products and move to a different distributor so you may have pending orders so steve has such a great product in Italy I ordered a full container the container is on the water now but I already gave notice to my distributor that I don't want to work with him anymore so what do I do he has this container coming in well I would like to reserve the right in my agreement that if that container is on the water I can divert it I can cancel it or I can say that order is now going to go to my new distributor why because if I terminated my distributor especially for cause why would I give them that container of product now they purchase it right it's theirs but I don't want them selling my product it does a terrible job that's why we're no longer working together so I want to divert it to the new distributor inventory same scenario except we're talking that inventory that's right in the warehouse from my existing distributor disturber didn't sell my product the way I wanted they have 90 days worth of inventory they have 2000 cases of my product what do I do I like to reserve the right in my distribution agreement but I can repurchase that product if I want so if I'm building a brand here in the US and I'm getting Steve's products again from Italy and I can't get that product in fast enough well I just appointed a new distributor how are they going to sell if they don't have any product so I want the ability to repurchase that product back from my former distributor and then sell it over to my new distributor sucking a product in the market and last marketing and advertising materials same thing I just spent a ton of money on a new ad campaign I have POS everywhere I have flyers I have advertising material you name it I have it we're running all these events except I had a problem with my distributor so it's a brand new campaign right this stuff cost a lot of money I want to give it to my new distributor well I reserve the right and my distribution agreement that if we terminate I can repurchase that material back in this way the new distributor doesn't miss a beat we can run our event and I don't have to have that produced yet again dispute resolution pretty obvious there are three basic ways that you can resolve your your disputes with your distributor mediation arbitration litigation most people think of litigation that you're going to go to court you resolve it arbitration seems to be very popular because again it's usually a little cheaper and faster than litigation and then in some cases depending on the supplier and the distributor mediation may work why because mediations sometimes you can get somebody who actually understands this quirky little business of ours and they may be able to resolve the issue better than a judge who knows nothing about it so now we're going to just cross over to franchise franchisee States concern so we were talking about non franchisee days basic distribution agreement terms and now we're going to figure out what's franchise me how much people think of a franchise they may think of McDonald's I may think of Starbucks I may think of Dunkin Donuts Chili's you know another national chain probably thinking this is where I go all the time to eat but anyway franchise I pulled up the definition for a merriam-webster online and it says it's the writer license granted to an individual or group to market a company's goods or services in a particular territory it also means the territory involved as such right so we're talking about franchise we're talking about the state now a brand so Donna's brand if I'm selling it in a particular state and happens to be a franchise state if I say I'm not going to sell it anymore and I sell it to Steve my good buddy Steve it buys my brand well guess what that franchise the wholesaler that I'm with goes with the brand if follows so Steve is messed up with my distributor good better and different so the basic difference is between franchise and non franchisee we're going to talk about just four points our territory and the exclusivity aspect definition of a brand term and termination so for non franchise dates you were saying territory it's negotiated by the parties right you may be in one particular state they were in New York or you can break it up and say well I want to be in Metro New York but I don't want to be in upstate New York and you can you decide and then exclusivity you can decide if your hotel is going to be exclusive or some space you may have to be exclusive but at least you have that freedom franchise is dictated by the state statute so when you're going into a franchise state you definitely want to look and see what that particular state statute says because it's going to guide the terms of your distribution agreement in most cases exclusivity is required however there are some states that allow you to have dueling distributors so that means you can have two distributors like New Jersey for instance you can have more than one distributor selling your product line extension again negotiate the bud parties right so if I have Donna's vodka Donna's gin Don American whiskey and bourbon fine I could sit there and choose what I want to do with it and new products again will they get Steve's vodka or not again something you can negotiate franchise line extensions automatically go to your distributor so it's not up for discussion and then you product again it varies so you want to look at your safe staff juice to find out what you can and cannot do in that particular state so your turn I see a common theme here non franchisee guess what you get to negotiate your terms franchise though it's generally indefinite duration because if you were called we're talking about whether you have I'll say sorry will goes next slide good cause can you get out of this agreement right so in franchise fee you definitely need to have good cause if you have good cause you can't just say okay mr. distributor I'm good cause you're terminated that's not how it works there's a process so that process is you have to let the distributor know in writing why you want to terminate them and they have the ability to cure so saying you're working with a distributor and they did something wrong whatever it is they were not selling your product and we're following your plan they weren't meeting some distribution of goals although that's not always a case for cause but we'll just use that for argument's sake you have to give them notice say you didn't meet these goals we agreed to them and now you have X period of time in which to cure or fix that so depending on what the state statute says you may be able to have they may be able to cure it and if they do guess what you're stuck again so you're going to be continuing to work with that distributor I don't mean that in a bad way but you're going to be working with that distributor again you're not getting out of the agreement and in some cases you need to get ABC approval so depending on the state you may have to go to the local liquor board and get their approval and they will determine whether or not you have good cause and can you get out of your agreement non franchise besides negotiated by the parties for termination now what if you don't have good cause are you stuck with this distributor can you not get out unless you die and if you do you know somebody else's problem but what do you do there are a couple ways to get out so you can pay it's a termination save liquidated damages what did they well you can pay to get out of something and I don't mean it in a Farias way not like a Sopranos way I am from New Jersey but that's not what I mean so termination fee or liquidated damages fee is that you agree upfront and you say okay and generally it could be an industry standard I don't want to work with you anymore this just isn't working out we're like this when we're talking you're not doing what I say you don't think I listen so let's try and move move on you can write in your agreement that you will pay a liquidated damages fee what does that come out to be generally it is is one times your gross profit for a year and depending on the brand or how long you've been with somebody it could escalate it could be two times it could be more it could be ten times it could be six times if you're a beer or something so it varies but again something that you would negotiate upfront and then if God forbid something went wrong with your relationships you can get out another way to get out is called brand swap so if I'm working with distributor a it's not working out I want to go to a distributor B distributor B may have a product the distributor a really wants it would work with it's his portfolio so you talk to your potential new distributor maybe they work it out maybe he has sees vodka and they're going to trade Donna's for Steve's or maybe Steve has a bourbon and they have a gap and they need a bourbon so it's possible that you can do a trade sometimes it works out perfectly nice even trade sometimes maybe there's a payment but again at least it's an option to get out of your agreement and then last stop selling the product now this isn't something that I would favor however there are circumstances where this may be a good alternative so I was working with I was working with an importer who was having an issue with the distributor and they were concerned that they could not get a agreement and we were talking about different ways of what they can do again you know payment swap and or you know has the brand even been sold in that state so we did some research and unfortunately for him it didn't work out he was they were selling it but their sales were very slow so he wasn't completely out of the state but if you stopped selling a brand so say you're working with the distributor distributors not doing what they're supposed to do they're not making any sales it's just trickling in or they completely forget about your brand well if you don't have sales and you're out of the market say for over two years basically and again general statement then you're not making any sales so then you're out of the market in such case you may be able to come back say you stop concentrating on this particular state you're focusing on some other areas and you come back and say you know what let's make this like a brand relaunch we're going to come back into the state we're going to have a great marketing plan this is what we're going to do but we're going to do with a different distributor if it's been a period of time and there have been no sales that's an opportunity but I think I said that's more of a last resort so if you're desperate and you want to be able to get back in and it's just not working out that may be an opportunity for you so basically in summary just to reiterate some of these facts between franchisee versus non franchisee I always like to do my homework upfront figure out where you want to be figure out if the state you're dealing with is a franchise fee because if it is it's really important to look at the state statutes obviously case law helps to but this way you understand what it is that you need to do to get out of your relationship with your distributor if you know upfront what you can and cannot do you're in a better position and you just hope that you don't have to deal with it and if you have a great partnership with your distributor but at least you know upfront and there are no surprises so hopefully that gives you a little bit of a highlight of franchise and non franchisee States and distribution agreements and if you have any questions please feel free to ask me after the break thank you [Applause]