Distribution Agreements: Protecting Your Business in Distributor Relationships

A distribution agreement is a contract in which a manufacturer, producer, or brand owner (the "Supplier") grants a distributor the right to purchase the Supplier's products and resell them to end customers or to a defined channel (such as retailers, dealers, or end users) within a defined territory. The distributor buys products outright, takes title at the point of purchase, and resells at its own profit margin — bearing inventory risk, credit risk, and customer relationship responsibility.

The Core Economic Relationship. Unlike an agent, a distributor does not act on the Supplier's behalf or bind the Supplier in contracts with customers. The distributor is the seller; its customers buy from the distributor, not the Supplier. This independence is legally significant: the distributor bears its own financial risk, pays taxes on its own margin, and is not entitled to employment benefits or workers' compensation from the Supplier. Courts and regulatory agencies analyze this independence carefully — misclassification of an agent as a distributor (or vice versa) creates significant legal exposure.

Distribution vs. Agency. An agent acts on behalf of the principal (the manufacturer) and binds the principal in contracts with third parties. The agent does not take title to goods; it facilitates contracts between the principal and customers, receiving a commission on sales. Because an agent acts for the principal, the principal bears legal liability for the agent's conduct within the scope of the agency. A distributor, by contrast, buys and resells on its own account, never binding the Supplier in contracts with customers. The distinction is fundamental to understanding liability allocation: a Supplier whose "distribution network" is actually an agency network may be held liable for distributor actions that a true distribution relationship would insulate. Under the Restatement (Third) of Agency, the label used by the parties is not determinative — courts look to the economic substance of the relationship, including whether the "distributor" bears genuine financial risk or merely earns a markup set by the manufacturer.

Distribution vs. Franchise. A franchise relationship exists when the distributor operates under the Supplier's trademark, follows the Supplier's prescribed business system, and pays fees for the right to do so — triggering federal and state franchise disclosure and registration requirements. Many distribution relationships that involve trademark licensing, required purchasing from the Supplier, and detailed operational standards may legally qualify as franchises, requiring Franchise Disclosure Document (FDD) delivery before the relationship begins. Several states — including California, Wisconsin, and New Jersey — apply "equipment dealer" or "distributor relationship" statutes that impose good-faith and just-cause termination requirements similar to franchise law, even when no franchise label is used. The federal FTC Franchise Rule (16 C.F.R. Part 436) requires franchisors to provide prospective franchisees with an FDD at least 14 calendar days before any agreement is signed or any payment is made. Violation can result in FTC enforcement and private civil liability.

Distribution vs. Licensing. A licensing agreement grants the licensee the right to use the licensor's intellectual property (patents, trademarks, copyrights, trade secrets) in exchange for royalties or fees. A distribution agreement grants the distributor the right to purchase and resell specific products — IP rights are typically involved only incidentally (the distributor uses the Supplier's trademarks in marketing) rather than as the primary subject matter of the contract. Some arrangements combine both: a software distribution agreement may include both a right to resell software products and a trademark license for co-branded marketing.

UCC Article 2 and the Sale of Goods. When a distribution agreement involves the sale of tangible goods, the Uniform Commercial Code (UCC) Article 2 governs the underlying purchase transactions even if the distribution agreement is silent or incomplete on certain terms. UCC § 2-306 specifically addresses contracts measured by the output of the seller or the requirements of the buyer — including exclusive dealing arrangements — and implies a duty of best efforts by both parties. UCC § 2-309 provides that termination of a contract requires reasonable notification under the circumstances. Courts have used these provisions to impose good-faith obligations on Suppliers attempting to terminate distribution relationships on terms the UCC would find commercially unreasonable.

Why the Characterization Matters. The legal characterization of a distribution relationship — as distribution, agency, franchise, or licensing — determines which regulatory frameworks apply, what disclosures are required, what termination protections exist for the distributor, and what antitrust rules govern pricing and territory restrictions. Before signing, both parties should understand the legal category of their relationship and the regulatory framework that governs it.

The type of distribution arrangement — exclusive, non-exclusive, sole, or selective — is the single most commercially important structural choice in any distribution agreement. It determines the distributor's competitive position, pricing power, and the value of its investment in building the Supplier's market presence.

Exclusive Distribution. Under an exclusive arrangement, the Supplier agrees not to appoint any other distributor for the Products in the defined Territory — and, critically, agrees not to sell directly to customers in the Territory. The distributor is the only authorized market participant. Exclusive distribution is appropriate when the distributor is making a substantial investment in building market awareness, establishing a dealer or retail network, training customers, or providing after-sale service. The value of exclusivity is entirely dependent on the precision of the Territory definition and the scope of carve-outs (e.g., the Supplier may reserve the right to sell direct to government accounts, key accounts, or through e-commerce platforms even in an "exclusive" territory).

Non-Exclusive Distribution. Under a non-exclusive arrangement, the Supplier can appoint multiple distributors in the same territory, including the distributor's competitors, and can sell direct. Non-exclusive distribution is standard for products with broad market demand and low distributor investment requirements. A non-exclusive distributor receives no competitive advantage from the relationship — it must compete against other distributors selling identical products at similar cost. Non-exclusive agreements typically feature lower volume commitments and lower per-unit pricing, reflecting the distributor's reduced competitive position.

Sole Distribution. A sole arrangement is a middle ground: the Supplier agrees not to appoint any other third-party distributor within the Territory but retains the right to sell direct to customers in the Territory itself. Sole distribution protects the distributor from third-party competition while exposing it to competition from the Supplier — significant if the Supplier operates a direct sales force or e-commerce channel in the same market. The clause must clearly define "direct sales" and whether key account or government account sales by the Supplier are included.

Selective Distribution. Selective distribution systems restrict distribution to a limited set of authorized resellers who meet defined qualitative and quantitative criteria — product expertise, service capability, facility standards, customer support. Selective distribution is common in premium consumer goods, automotive parts, and luxury products where brand positioning requires that products be sold only through qualified channels. Under EU competition law (Article 101 TFEU), selective distribution systems are generally exempt from competition law under the Vertical Block Exemption Regulation (VBER, Commission Regulation (EU) 2022/720) if they are based on objective qualitative criteria and do not impose restrictions exceeding what is necessary to protect the brand. Under U.S. antitrust law, selective distribution is generally permissible under the rule of reason.

The GTE Sylvania Landmark. The foundational U.S. antitrust case governing vertical distribution restraints is Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36 (1977). Prior to Sylvania, vertical territory restrictions were treated as per se illegal under United States v. Arnold, Schwinn & Co. (1967). In Sylvania, the Supreme Court overruled Schwinn and held that non-price vertical restrictions — including exclusive territory grants and location clauses — are subject to rule of reason analysis. The Court recognized that vertical restraints could promote interbrand competition (competition among different manufacturers' products) even while restricting intrabrand competition (competition among distributors of the same manufacturer's products). Sylvania remains the cornerstone of vertical restraints analysis in U.S. antitrust law.

Conditional Exclusivity — The Performance Trigger. The clause above illustrates a common mechanism: exclusivity that is conditioned on minimum purchase performance. If the distributor falls short of its Minimum Purchase Requirement, the Supplier can convert the arrangement to non-exclusive. This provision is economically significant because it creates a floor revenue commitment — essentially a minimum royalty — as the price of exclusivity, and simultaneously creates a risk that the distributor's major market investment is undermined by the loss of exclusivity at the moment it is most vulnerable (e.g., following a market downturn or a supply chain disruption attributable to the Supplier).

Dual Distribution Antitrust Risk. When a Supplier distributes through independent distributors while also selling directly to end customers in competition with those distributors, the arrangement is called "dual distribution." The Supreme Court addressed the antitrust treatment of dual distribution arrangements in Ohio v. American Express Co., 585 U.S. 529 (2018), which arose in the credit card context but has broader implications: the Court held that two-sided platforms must be analyzed as a single market when assessing competitive effects. While Amex involved a different type of vertical restraint (anti-steering provisions), the dual distribution context raises similar questions about whether restraints imposed by a Supplier competing with its own distributors should be analyzed under the standard for vertical restraints (rule of reason with presumptive legality) or under a stricter standard reflecting the Supplier's conflict of interest. Distributors in dual-distribution situations should be alert to the possibility that their Supplier's pricing advantages, preferential product availability, and direct account solicitation may raise antitrust issues beyond ordinary vertical restraint analysis.

Territory provisions define the geographic and customer boundaries within which the distributor may operate. They are among the most commercially significant and antitrust-sensitive provisions in any distribution agreement.

Geographic Exclusivity and Active vs. Passive Sales. Under U.S. antitrust law, restrictions on a distributor's active selling efforts outside its defined territory are generally permissible under the vertical restraints doctrine established in Continental T.V., Inc. v. GTE Sylvania Inc. (1977). Active sales restrictions — prohibiting the distributor from setting up warehouses, employing a sales force, or actively soliciting customers outside its territory — are analyzed under the rule of reason. Restrictions on passive sales (accepting unsolicited orders from outside-territory customers) are more problematic and, under EU competition law (VBER Article 4(b)), are generally prohibited as "hardcore restrictions" for non-absolute territory agreements. The active/passive distinction is particularly important for international distributors selling into EU territories, where passive sales restrictions to consumers are categorically prohibited regardless of any block exemption.

Online Sales Carve-Outs — A Critical Issue. The clause above illustrates one of the most commercially significant territory issues in modern distribution: the Supplier reserves the right to sell through its own online store to customers in the distributor's territory without compensation. In today's market, this carve-out can effectively eliminate 20–40% of a distributor's addressable market in certain consumer goods categories. Under EU competition law, the VBER specifically provides that a supplier may not prohibit distributors from making online sales within the EU internal market (VBER Article 4(e)), though a supplier can restrict the distributor from actively targeting customers in other territories online. U.S. courts have generally permitted Supplier online sales carve-outs as vertical restraints analyzed under the rule of reason. Distributors should negotiate for: (1) explicit restrictions on the Supplier's direct online sales in the territory; (2) a referral fee or territory credit for in-territory online sales by the Supplier; or (3) a shared revenue mechanism for sales to customers within the Territory regardless of channel.

Key Account Carve-Outs. Suppliers commonly reserve the right to sell directly to "Key Accounts" — large national retailers, government agencies, original equipment manufacturers (OEMs), or national chains. If the Key Account list is defined by Exhibit D and the Supplier can update it unilaterally on 30 days' notice (as in the clause above), the Supplier could progressively expand the Key Account list to effectively eliminate the distributor's market. Negotiate for a defined, closed list of Key Accounts identified at signing, with any additions requiring the distributor's consent or triggering a corresponding reduction in minimum purchase requirements.

Antitrust Considerations — Vertical Restraints. Territory restrictions and customer restrictions are "vertical restraints" — restrictions imposed by a party at one level of the distribution chain (the Supplier) on a party at another level (the Distributor). Under U.S. antitrust law, vertical restraints are analyzed under the rule of reason following GTE Sylvania (1977) and Leegin Creative Leather Products v. PSKS (2007). The key question is whether the restriction has anticompetitive effects that outweigh its pro-competitive justifications. Absolute territorial restrictions that prevent all sales outside the territory by the distributor (including passive sales) can raise antitrust concerns in market contexts where the Supplier has significant market power.

Two-Sided Platform Analysis — Ohio v. American Express. In Ohio v. American Express Co., 585 U.S. 529 (2018), the Supreme Court held that when a product is offered on a two-sided platform serving two distinct groups (e.g., consumers and merchants), the relevant market must be defined to encompass both sides. Vertical restraints in distribution networks that involve platform characteristics — such as marketplace-based distribution arrangements — may need to be evaluated under the framework articulated in Amex, requiring the challenging party to demonstrate anticompetitive effects on the two-sided market as a whole before the burden shifts to the defendant to demonstrate pro-competitive justifications.

Parallel Import and Gray Market Issues. In international distribution, territory restrictions face additional legal complexity due to exhaustion-of-rights doctrines. In the United States, the doctrine of international exhaustion (as interpreted in K Mart Corp. v. Cartier, Inc., 486 U.S. 281 (1988)) means that once a trademark owner or authorized distributor sells genuine goods abroad, importing and reselling those goods in the U.S. may not constitute trademark infringement even if the distributor's territory is limited to the U.S. Manufacturers and distributors with international networks must carefully address gray market and parallel import risks in distribution agreements through contract provisions rather than relying on trademark law alone.

Pricing provisions govern the economics of the distribution relationship from two directions: the wholesale price the distributor pays the Supplier, and the retail pricing restrictions — if any — the Supplier imposes on the distributor's resale pricing.

MAP Policies — Minimum Advertised Price. A Minimum Advertised Price (MAP) policy restricts the price at which the distributor may advertise or promote the Supplier's products — it does not legally restrict the actual selling price at the point of sale. MAP policies are widely used by consumer products manufacturers to prevent "race to the bottom" pricing that erodes brand value and margin throughout the distribution channel. Because MAP policies restrict advertising prices rather than actual selling prices, they are generally treated as less legally problematic than resale price maintenance (RPM) under U.S. antitrust law. The FTC has investigated MAP policies where enforcement mechanisms effectively controlled selling prices — including provisions cutting off distributors for selling below MAP — under the theory that such enforcement constitutes de facto RPM subject to rule-of-reason analysis. State MAP law variations also apply: California's Cartwright Act and New York's Donnelly Act have broader reach than federal antitrust law in certain MAP enforcement contexts.

Resale Price Maintenance (RPM) — Legal Complexity After Leegin. Resale price maintenance — agreements between a manufacturer and a distributor that fix, set minimums for, or otherwise restrict the distributor's actual selling price to end customers — was treated as per se illegal under U.S. antitrust law for 96 years following Dr. Miles Medical Co. v. John D. Park & Sons Co. (1911). In 2007, the Supreme Court in Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877 (2007) overruled Dr. Miles and held that vertical RPM agreements — including minimum resale price agreements — are subject to the rule of reason, not per se illegality. The Court identified circumstances where RPM may be pro-competitive: encouraging dealers to provide pre-sale services, invest in showrooms, or maintain in-store expertise without free-riding on rivals who cut price but not service. However, several states — including California (Cartwright Act), Maryland, and New York (Donnelly Act) — have state antitrust laws that continue to treat certain RPM arrangements as per se illegal, making multi-state distribution RPM analysis particularly complex.

State Oil Co. v. Khan — Maximum RPM. While Leegin addressed minimum RPM, the Supreme Court's earlier decision in State Oil Co. v. Khan, 522 U.S. 3 (1997) addressed maximum RPM — agreements requiring distributors not to charge more than a specified ceiling price. Khan overruled Albrecht v. Herald Co. (1968) and held that maximum RPM is analyzed under the rule of reason rather than per se illegality. Maximum price arrangements are generally viewed as pro-competitive (they prevent distributors from exercising market power) but can harm consumers if set so low as to prevent distributors from offering enhanced services. The distinction between minimum RPM (addressed by Leegin) and maximum RPM (addressed by Khan) is important when reviewing price restriction clauses — minimum price floors and maximum price ceilings are legally distinct with different histories.

Robinson-Patman Act — Price Discrimination. The Robinson-Patman Act (15 U.S.C. § 13) prohibits price discrimination between competing purchasers of goods of like grade and quality where the effect may be to substantially lessen competition. In the distribution context, this means a Supplier generally cannot charge materially different prices to competing distributors selling in the same market unless the price difference is justified by cost differences, meets competition (matching a competitor's price), or falls within the statutory exemptions. The Supreme Court addressed Robinson-Patman in the distribution context in Volvo Trucks North America, Inc. v. Reeder-Simco GMC, Inc., 546 U.S. 164 (2006), holding that competing purchasers must be shown to compete for the same customer sale in the same contemporaneous transaction for Robinson-Patman liability to attach. Volvo narrowed Robinson-Patman's reach in the context of bid-based distribution (common in heavy equipment), but the statute remains an important consideration for distributors who receive less favorable pricing than competitors purchasing from the same Supplier.

Price List Unilateral Amendment. The clause above permits the Supplier to amend its Price List on 30 days' notice — meaning the Supplier can raise wholesale prices without the distributor's consent, compressing the distributor's margin. Distributors should negotiate for: (1) longer notice periods for price increases (60–90 days); (2) a maximum annual price increase cap (e.g., no more than the Consumer Price Index change plus 2%); (3) the right to terminate the agreement if price increases exceed a defined threshold; or (4) price protection for inventory already in transit or on order at the time of a price increase announcement.

Payment Terms and Credit. Standard distributor payment terms of Net 30 days from invoice are common, though negotiated terms range from Net 15 to Net 60 depending on the distributor's creditworthiness and market position. The Supplier's right to modify credit terms or require prepayment "in its sole discretion" (as in the clause above) effectively allows the Supplier to impose cash-in-advance requirements for any distributor it deems a credit risk — including distributors experiencing temporary cash flow challenges. Negotiate for notice periods before credit changes become effective, minimum credit thresholds tied to distributor creditworthiness metrics, and cure rights before credit restrictions are imposed.

Currency Risk in International Distribution. When the Supplier invoices in one currency and the distributor sells in another, currency fluctuation creates margin risk. A distributor selling in euros while purchasing in U.S. dollars bears the cost of any dollar appreciation against the euro. Distribution agreements for international territories should address: (1) the invoicing currency; (2) the applicable exchange rate methodology (fixed rate, spot rate at time of invoice, or average rate for the month); (3) currency hedging arrangements; and (4) price adjustment mechanisms triggered by material currency movements (e.g., a 10% or greater shift in exchange rates).

Performance obligations translate the distribution agreement's commercial purpose into measurable commitments. They define what the distributor must deliver — in purchasing, marketing, and reporting — and what happens when it falls short.

Minimum Purchase Requirements (MPR). The MPR is the most common performance metric in distribution agreements. It establishes a revenue floor for the Supplier and forces the distributor to commit to a meaningful sales effort. MPRs are typically set as either (1) a total annual purchase volume (in units or dollars); (2) a percentage of the prior year's purchases; (3) a percentage growth target; or (4) a market share target within the Territory. The level at which MPRs are set is critical: an MPR set at the distributor's projected sales level is a reasonable commitment; an MPR set 50% above realistic forecasts is effectively a hidden termination mechanism that allows the Supplier to terminate the relationship for non-performance regardless of the distributor's genuine effort.

Ratchet Clauses — The Escalating Trap. The clause above includes a ratchet: the MPR increases by 15% automatically each year, compounding over the agreement's term. In year one, the distributor may accept a realistic MPR; by year three at 15% annual escalation, the MPR is approximately 52% above the starting level (1.15³ ≈ 1.52). If market growth does not match this escalation — or if the Supplier introduces competing products, expands Key Accounts, or begins direct online selling — the distributor may face an unachievable ratcheted MPR in later years with no contractual adjustment mechanism. Ratchet clauses should be: (1) limited to CPI or market-growth-correlated escalation rather than arbitrary fixed percentages; (2) subject to mutual agreement if escalation exceeds actual market growth; (3) suspended if the Supplier expands Key Accounts, begins direct sales, or raises prices materially; and (4) bounded by a cap (e.g., no more than 25% total escalation over the agreement's term).

Carve-Outs from MPR Calculations. Distributors should negotiate carve-outs for situations where MPR shortfalls result from Supplier failures rather than distributor underperformance: (1) if the Supplier fails to maintain adequate product availability, fulfillment shortfalls should reduce or eliminate the MPR for the affected period; (2) if the Supplier raises prices materially above market levels, the price increase should result in MPR adjustment; (3) if the Supplier modifies the product line, adds competing products to its own direct channels, or expands Key Accounts in the Territory, the MPR should be adjusted proportionally. Force majeure events should also suspend MPR obligations.

Marketing Obligations — Resource Commitments. Marketing commitments — dedicated sales staff, minimum marketing budgets, participation in trade shows and Supplier conferences — are performance obligations that impose real costs on the distributor. The clause above requires a dedicated sales force of at least N personnel and a minimum $[Amount] annual marketing budget. These obligations should be reviewed against the distributor's cost model: a mandatory marketing budget that exceeds expected margin contribution creates a losing proposition regardless of sales volume. Marketing obligations should be tied to the Supplier's own co-op marketing contributions, promotional support, and product availability.

Reporting Requirements and Data Sensitivity. Monthly sales reports, customer data submissions, inventory level disclosures, and competitive intelligence sharing are common reporting obligations in distribution agreements. Distributors should be aware that extensive reporting requirements may transfer valuable commercial intelligence — customer identities, purchasing patterns, pricing data — to the Supplier. If the Supplier is also a direct seller in the same market (dual distribution), the competitive sensitivity of this data is acute. Negotiate for limitations on the Supplier's use of reported data, prohibitions on the Supplier using distributor-reported customer data for direct sales solicitation, data security obligations on the Supplier's part, and a right to audit the Supplier's use of reported data.

Consequences of Performance Failure — Cure Opportunities. The clause above gives the Supplier an immediate right to terminate or convert to non-exclusive status on 30 days' notice following an MPR shortfall, with no cure opportunity. Distributors should negotiate for: (1) a cure period following MPR notification (allowing the distributor to purchase deficiency inventory to make up a shortfall); (2) automatic MPR adjustment in cases of Supplier-attributable supply failures; (3) a financial payment option to cure shortfalls without termination (some agreements allow the distributor to pay a "shortfall fee" equivalent to the Supplier's margin on missed purchases in lieu of termination); and (4) a reasonable ramp-up period for newly entered territories where market development takes time.

Intellectual property provisions in distribution agreements address two distinct categories: the trademark and brand rights the distributor uses in marketing the Supplier's products, and the question of who owns the commercial intelligence (customer data, market knowledge) that the distributor develops during the relationship.

Trademark License — Scope and Limitations. The trademark license in a distribution agreement is typically non-exclusive, limited to the Territory, and limited to use in connection with distributing the specific Products under the agreement. The Supplier retains ownership of the marks; the distributor may not sublicense them or use them outside the approved scope. Because the license is ancillary to the distribution relationship rather than the primary subject matter of the agreement, it terminates automatically when the distribution agreement ends. Under Lanham Act quality control doctrine, if the Supplier fails to exercise adequate quality control over the distributor's use of its marks, the trademark license can become a "naked license" and the Supplier risks cancellation of its trademark registration. This means both parties have legal reasons to ensure the brand guidelines and approval process function effectively.

Marketing Material Approval Process. Pre-approval of marketing materials incorporating the Supplier's marks is standard — and legally necessary for the Supplier to maintain Lanham Act quality control requirements. However, approval processes with no defined timelines give the Supplier a de facto veto over the distributor's marketing activities. Distributors should negotiate for: (1) defined approval timelines (10–15 business days); (2) deemed approval if the Supplier fails to respond within the specified period; (3) clear standards against which approval is evaluated (conformance to Brand Guidelines, not Supplier's "sole discretion"); and (4) pre-approved template library for standard marketing assets.

Marketing Fund Contributions. The clause above requires the distributor to contribute 2% of annual product purchases to the Supplier's Marketing Fund. Marketing fund contributions are common in distribution agreements involving strong brands — but they create significant issues if the fund's governance is opaque. Distributors should negotiate for: (1) an accounting of how marketing fund contributions are spent; (2) restrictions ensuring contributions are spent in or near the distributor's Territory rather than in other markets; (3) the distributor's right to receive a share of co-op advertising dollars from the fund; (4) prohibition on the Supplier retaining fund earnings or using the fund to subsidize corporate overhead; and (5) a right to audit fund expenditures annually.

Co-Branding and Market Development Activities. Many distributors invest in market development activities — trade show exhibits, co-branded advertising, product demonstrations — that incorporate both the Supplier's marks and the distributor's own brand. The distribution agreement should address co-branding: whether co-branded materials require individual approval, how brand guidelines apply to co-branded assets, and who owns co-branded marketing collateral developed at the distributor's expense. If the distributor creates original marketing content (photography, videos, copy) featuring the Supplier's products, the IP ownership of that content should be addressed — absent a work-for-hire provision, the distributor as author may own the copyright in materials the Supplier wants to use across its entire distribution network.

Customer List Ownership — A Critical Battleground. The clause above is one of the most commercially dangerous provisions a distributor can face: it requires the distributor to transfer all customer lists, contact data, and market information to the Supplier upon termination. From the distributor's perspective, surrendering customer relationships built through years of sales effort, service, and relationship investment — as a requirement upon termination — effectively transfers the distributor's core business asset to a party that may then use it to compete directly. Distributors should resist any provision vesting customer list ownership in the Supplier. At minimum, negotiate for: (1) joint ownership with explicit use restrictions; (2) prohibition on the Supplier using transferred customer data to solicit the distributor's customers for a defined period; and (3) deletion of customer data from Supplier systems after the relationship transition period. Privacy law analysis (CCPA, GDPR, and applicable state privacy statutes) may also constrain the Supplier's use of transferred customer data.

Inventory and fulfillment provisions determine how the distribution channel operates physically — how much stock the distributor must hold, what happens when products fail, and who bears the cost and burden of recalls. These provisions have direct, material impacts on the distributor's working capital requirements and operational risk.

Inventory Stocking Requirements. Minimum stocking requirements impose working capital obligations on the distributor. If the Supplier can issue "minimum stocking recommendations" unilaterally, and if those recommendations are de facto requirements enforced through performance reviews or defaults, the distributor faces a capital commitment it did not fully model at signing. Distributors should negotiate for: (1) stocking requirements defined at signing, not by unilateral Supplier recommendation; (2) stocking targets expressed as weeks of supply based on actual sales history (not aspirational projections); (3) protection against stocking requirements that require the distributor to hold inventory of products for which the Supplier cannot guarantee supply; and (4) the right to return slow-moving inventory to the Supplier if it cannot be sold within a defined period.

Stock Rotation and Slow-Moving Inventory. Many Supplier-drafted agreements are silent on stock rotation — the right to return unsold inventory against future purchase credit. Stock rotation rights are critical for distributors of products with: (1) model years or periodic refresh cycles (electronics, automotive parts, seasonal goods); (2) expiration dates (consumables, chemicals, batteries); or (3) high obsolescence risk from rapid product innovation. A standard stock rotation provision allows the distributor to return 5–10% of annual purchases annually for credit against future orders, subject to the products being in original, resaleable condition. Negotiate explicitly for stock rotation rights — if the agreement is silent, you likely have none.

Dead Stock and Discontinued Products. When the Supplier discontinues a product or introduces a replacement model, the distributor may be left holding obsolete inventory with no right of return. Negotiate for: (1) advance notice of product discontinuation (90–180 days) to allow the distributor to sell through existing stock before the announcement creates customer uncertainty; (2) a right to return all inventory of discontinued products for full credit; (3) a prohibition on the Supplier selling the discontinued product at discounted prices in the distributor's territory during the sell-through period; and (4) a right to cancel outstanding purchase orders for discontinued products placed prior to the discontinuation notice.

Defective Products and Warranty Scope. The warranty in the clause above limits the Supplier's liability for defective products to repair-or-replace within 12 months of shipment to the distributor — not 12 months from the customer's purchase date. If the distributor holds inventory for several months before sale, the warranty period from the distributor's customer's perspective may be materially shorter than 12 months. Distributors should negotiate for a warranty measured from the date of sale to the end customer. The "repair or replace only" limitation is also significant: if a defective product causes consequential damages to the distributor's customer, the Supplier's sole-remedy limitation may leave the distributor exposed to customer claims without recourse against the Supplier.

Product Recall Obligations. The clause above requires the distributor to cooperate with product recalls "at Distributor's cost" — including identifying and notifying affected customers. Product recall logistics can be expensive: the distributor may need to contact thousands of customers, collect and ship returned products, provide replacement units, and maintain recall records for regulatory compliance. Distributors should negotiate for: (1) the Supplier to bear all costs of recall logistics attributable to product defects; (2) the Supplier to indemnify the distributor for recall-related customer claims and regulatory costs; and (3) advance notice and a recall protocol that specifies respective responsibilities and cost allocation before a crisis occurs. Consumer Product Safety Commission (CPSC) recall requirements impose additional obligations on the manufacturer — ensure the distribution agreement clearly allocates regulatory notification and cooperation costs between the parties.

Distribution agreements are significantly affected by state law — particularly statutes that impose good-faith termination requirements, mandatory notice periods, and cause-of-action rights on distributors that override the contract's terms. These statutes may apply regardless of the governing law clause, particularly if the distributor operates in a state with such protections.

California — Franchise Applicability. California's franchise statutes apply whenever a relationship meets three criteria: (1) the distributor uses the Supplier's trademark; (2) the Supplier prescribes a marketing plan or system; and (3) the distributor pays a "franchise fee" (broadly defined to include minimum purchase requirements, equipment requirements, and training fees). Distributors operating in California who meet this test are entitled to 90 days' notice for termination without cause and 30 days' notice with cure opportunity for termination for cause. California courts have applied these requirements to distribution relationships that were labeled as non-franchise in the contract.

Wisconsin — Fair Dealership Law. Wisconsin's Fair Dealership Law (Wis. Stat. § 135) is among the broadest dealer protection statutes in the United States. It applies to any "dealership" — a relationship in which a person is granted the right to sell or distribute goods or use a trade name, service mark, or related characteristic — with a "community of interest" in the marketing of goods or services. The statute requires good cause for termination (including non-renewal) and 90 days' written notice with a 60-day cure period. Violation of the Wisconsin Fair Dealership Law can result in actual damages, lost profits, goodwill value, costs, and attorneys' fees — and courts have awarded significant damages for wrongful termination. Critically, the statute cannot be waived by contract: a governing law clause selecting another state's law does not eliminate Wisconsin Fair Dealership Law protections for a Wisconsin-operating distributor.

New Jersey — Franchise Practices Act. New Jersey's Franchise Practices Act (N.J.S.A. 56:10-1 et seq.) applies broadly to any franchise relationship in which the franchisee (distributor) establishes or maintains a place of business in New Jersey. The Act requires "good cause" for termination, cancellation, or failure to renew, and mandates 60 days' written notice of termination. New Jersey courts have applied the Act to distribution relationships that include trademark use combined with operational requirements, even when the parties did not use the word "franchise." Available damages include lost profits, the value of the franchise relationship, and attorneys' fees. Like Wisconsin, New Jersey's Act cannot be waived by contract.

Puerto Rico — Law 75. Puerto Rico Law 75 of 1964 is the most powerful distributor protection statute in the United States. It applies to any person who operates as a distributor of products in Puerto Rico regardless of the contract's governing law clause — the statute's protections cannot be waived by contract. Under Law 75, a Supplier who terminates or impairs a distribution relationship without "just cause" — a strictly defined standard — must compensate the distributor for actual damages, lost profits, the value of the distributor's investment in the market, and goodwill. Puerto Rico courts have awarded multi-million dollar damages to distributors terminated without just cause. Any U.S. manufacturer distributing through Puerto Rico distributors must understand this statute before structuring the distribution relationship.

Equipment Dealer Statutes. Multiple states have enacted statutes specifically protecting dealers of farm equipment, heavy construction equipment, and similar durable goods. These statutes — which vary significantly by state — typically require good cause for termination, impose mandatory repurchase obligations for dealer inventory upon termination, and provide for actual and sometimes punitive damages for statutory violations. States with active equipment dealer statutes include Minnesota (Minn. Stat. § 325E.068), Indiana (Ind. Code § 23-2-2.7), Oregon (ORS 646A), and Wisconsin (Wis. Stat. § 135 combined with equipment-specific provisions). Distributors of farm equipment, construction equipment, or similar durable goods should research applicable equipment dealer statutes in every state where they operate before signing.

Termination provisions determine when and how the distribution relationship can end — and what happens to the distributor's remaining inventory, market relationships, and investment when it does. These provisions have existential significance for distributors that have made substantial investments in building the Supplier's market presence.

Termination for Cause vs. Convenience. Termination for cause — where the Supplier must identify a specific contractual breach and provide a cure opportunity — is far less disruptive than termination for convenience, where the Supplier can end the relationship for any reason (or no reason) with sufficient notice. The clause above gives the Supplier a termination-for-convenience right on 90 days' notice. For a distributor that has invested in warehousing, trained a dedicated sales force, built customer relationships over years, and potentially converted territory-exclusive customers who cannot easily switch suppliers, 90 days is rarely adequate to wind down the investment. The length of the convenience notice period should scale with the duration and depth of the distributor's investment: agreements with significant upfront investment by the distributor should require 180–365 days' notice for convenience termination.

State Law Override of Contractual Notice Provisions. As discussed in Section 08, several states — including California, Wisconsin, New Jersey, and Puerto Rico — impose minimum notice periods for distribution agreement terminations that may exceed the contractual period. Even if the agreement specifies 30 days' notice, a Wisconsin or Puerto Rico distributor may be entitled to 90 days' notice under applicable law. The contractual waiver of statutory termination rights is generally unenforceable against these statutes.

Non-Renewal — Often Treated as Termination. Some distribution agreements contain fixed terms without automatic renewal — when the term expires, the relationship simply ends. Under state dealer protection statutes (particularly Wisconsin's Fair Dealership Law and New Jersey's Franchise Practices Act), non-renewal of a distribution agreement is treated the same as termination: the Supplier must have good cause and provide the required notice period. Many suppliers attempt to avoid this by structuring distribution agreements as fixed-term without renewal rights — courts in protective states have frequently rejected this approach and applied termination protections to non-renewal decisions.

Sell-Off Period and Inventory Disposition. Upon termination, the distributor typically holds product inventory that it purchased from the Supplier and that it will need to dispose of. The clause above provides no sell-off period and no Supplier obligation to repurchase inventory. This is extremely distributor-unfavorable: the distributor may be left with significant inventory — paid for at full wholesale price — that it cannot sell through authorized channels after termination of its distributor status. Negotiate for: (1) a sell-off period of at least 60–180 days after termination during which the trademark license continues and the distributor can sell through remaining inventory; (2) a Supplier repurchase obligation for saleable inventory remaining at the end of the sell-off period (at the distributor's original purchase price less a reasonable restocking fee); and (3) a prohibition on the Supplier appointing a replacement distributor in the Territory during the sell-off period.

Post-Termination Non-Compete — Scope and Enforceability. The clause above imposes a 24-month post-termination non-compete prohibiting the distributor from distributing "Competing Products" within the Territory. Post-termination non-competes in distribution agreements are analyzed under state law, with significant variation: California Business and Professions Code § 16600 renders most non-competes in distribution agreements void and unenforceable in California (with narrow exceptions). Wisconsin courts analyze post-termination restraints for reasonableness in geographic scope, duration, and business justification. Federal Trade Commission rules adopted in 2024 (subsequently challenged in court) sought to broadly ban non-compete clauses — check current enforceability status in your jurisdiction before relying on or agreeing to such provisions.

Wind-Down Obligations. Upon termination, the distributor typically has outstanding customer obligations — open orders, service agreements, warranty commitments — that cannot simply be cancelled. The agreement should address: (1) who is responsible for completing outstanding customer orders at termination (typically the distributor, using existing inventory); (2) how outstanding warranty claims are handled — who repairs or replaces defective products sold before termination; (3) transition assistance obligations (providing customer contact information to the successor distributor, assisting with the transition for a defined period); and (4) the mechanism for final reconciliation of accounts, credits, and outstanding payments between the parties.

Compensation for Goodwill — The "No Goodwill" Clause. The clause above expressly disclaims any obligation to compensate the distributor for loss of distribution rights, goodwill, or anticipated profits — "except as may be required by applicable state law." This carve-out is important: in states with dealer protection statutes, the "no goodwill" clause cannot override statutory entitlements. In jurisdictions without such protections, the distributor's right to recover goodwill from wrongful termination depends entirely on whether the Supplier's termination constituted a breach of contract.

Six landmark cases define the antitrust framework for distribution agreements in the United States. Every distributor should understand these precedents before accepting or challenging restrictions imposed by their Supplier.

Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36 (1977). This is the foundational vertical restraints case. Sylvania, a television manufacturer with a small market share, limited the number of franchises it granted and required franchisees to sell from approved locations. The Supreme Court held that such non-price vertical restraints should be evaluated under the rule of reason — not treated as per se illegal as prior precedent (United States v. Arnold, Schwinn & Co.) had held. The Court's reasoning: vertical restraints can enhance interbrand competition (competition among different brands) even if they restrict intrabrand competition (competition among dealers of the same brand). This case established the baseline: territorial restrictions and location clauses in distribution agreements are presumptively lawful absent evidence of substantial anticompetitive effects.

Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877 (2007). Leegin, a women's accessories manufacturer, maintained minimum resale price (RPM) requirements as a condition of carrying its "Brighton" line. PSKS, a retail dealer, violated the RPM policy and was terminated. The Supreme Court held that minimum RPM is subject to the rule of reason rather than per se illegality, overruling the 96-year-old Dr. Miles precedent. The Court identified circumstances where RPM can be pro-competitive: encouraging dealers to provide services, invest in showrooms, or prevent free-riding. However, the Court also noted that RPM can be harmful when used by a dominant manufacturer to maintain above-market prices or to facilitate cartel coordination. Leegin's practical implication: minimum resale prices are potentially lawful, but RPM in agreements with dominant manufacturers raises greater antitrust scrutiny.

State Oil Co. v. Khan, 522 U.S. 3 (1997). Khan addressed the opposite end of resale price maintenance: maximum price ceilings. Khan, a gas station operator, was prevented by its Supplier (State Oil) from charging more than a specified maximum price. The Supreme Court overruled Albrecht v. Herald Co. (1968) and held that maximum RPM is analyzed under the rule of reason. The Court noted that maximum price agreements generally benefit consumers and can prevent distributors from exercising market power in captive markets. Maximum price controls remain potentially lawful under Khan, but can become anticompetitive if set so low as to foreclose dealer investment in customer service.

Ohio v. American Express Co., 585 U.S. 529 (2018). American Express imposed "anti-steering" provisions on merchants, prohibiting them from encouraging customers to use other payment cards. Several states challenged these as vertical restraints. The Supreme Court held that credit card networks are two-sided platforms serving both consumers and merchants, requiring plaintiffs to define the relevant market encompassing both sides. Plaintiffs could not show anticompetitive harm by examining only the merchant side of the platform. Amex's implications for distribution: two-sided distribution platforms — marketplaces, digital distribution networks, or arrangements where the manufacturer serves both distributors and consumers — may require a broader competitive analysis that accounts for both sides of the platform before vertical restraints can be challenged as anticompetitive.

Volvo Trucks North America, Inc. v. Reeder-Simco GMC, Inc., 546 U.S. 164 (2006). Reeder-Simco, a Volvo truck dealer, alleged that Volvo discriminated in pricing by offering other dealers better concessions in competitive bids. The Supreme Court held that Robinson-Patman Act liability requires that the competing purchasers be in actual competition for the same customer at the same time — not merely that they operate in the same general market. In bid-based distribution (common for heavy equipment, fleet vehicles, and industrial products), price differences between distributors serving different customers or different transactions do not support Robinson-Patman claims absent contemporaneous competition for the same sale. Volvo significantly narrowed Robinson-Patman's reach for equipment distributors competing on a bid-by-bid basis, though the Act remains relevant in categories where distributors compete for the same retail customers.

Restricted Distribution and BRT Mgmt. LLC v. Mallinckrodt (State Court Context). Cases involving restricted distribution networks — where manufacturers limit distribution to qualified specialty distributors for regulatory, safety, or quality control reasons — have been litigated under both antitrust and state dealer protection statutes. Courts have generally upheld restricted distribution systems (including pharmaceutical REMS programs and specialty chemical distribution restrictions) as legitimate vertical restraints when based on genuine safety or quality justifications rather than pretextual elimination of lower-cost competitors. Distributors challenging exclusion from a restricted distribution system must demonstrate both anticompetitive effects and the absence of legitimate business justification under the rule of reason framework.

International distribution agreements involve a layer of legal and operational complexity beyond domestic arrangements — crossing jurisdictions, regulatory regimes, and enforcement systems.

Incoterms 2020 — Defining Delivery and Risk Transfer. The International Chamber of Commerce's Incoterms 2020 rules (effective January 1, 2020) define the point at which risk of loss and responsibility for shipping, insurance, and customs formalities transfer from seller to buyer. Key terms for distribution agreements:

• EXW (Ex Works): Risk transfers at the Supplier's factory gate; the distributor bears all freight, insurance, export clearance, and import duties. Maximum distributor cost and risk.
• FOB (Free On Board): Risk transfers when goods are loaded on the vessel at origin port; the Supplier handles export clearance. Appropriate for breakbulk/containerized cargo where the buyer controls main carriage.
• CIF (Cost, Insurance & Freight): The Supplier pays for carriage and insurance to the destination port; risk transfers at origin port, but the Supplier manages the main carriage.
• CPT (Carriage Paid To): The Supplier pays carriage to the named destination but risk transfers at origin; appropriate for multimodal shipments.
• DDP (Delivered Duty Paid): The Supplier delivers to the named destination with all duties paid; maximum Supplier responsibility; risk remains with Supplier until delivery at destination.

Incoterms 2020 introduced one notable change from 2010: the FCA (Free Carrier) rule now permits the buyer to instruct its carrier to issue an on-board bill of lading to the seller, facilitating letter-of-credit-based financing for container shipments. International distributors should select an Incoterm that matches their logistics capabilities and risk tolerance — and should always specify "Incoterms 2020" by year in the contract to avoid ambiguity.

Export Administration Regulations (EAR) and ITAR. U.S. manufacturers are subject to the Export Administration Regulations (EAR, 15 C.F.R. Parts 730–774) administered by the Department of Commerce's Bureau of Industry and Security (BIS), which control the export of dual-use goods and technology. Products with an Export Control Classification Number (ECCN) other than EAR99 may require export licenses before sale to certain countries or end-users. Separately, products with military or defense applications may be subject to the International Traffic in Arms Regulations (ITAR, 22 C.F.R. Parts 120–130) administered by the State Department's Directorate of Defense Trade Controls (DDTC). ITAR-controlled items require registration with DDTC and specific authorization for export to foreign persons or entities. Distribution agreements for products with potential military applications should address both EAR and ITAR compliance obligations, screening requirements, and the right to terminate immediately upon evidence of non-compliance.

OFAC Sanctions Compliance. OFAC administers U.S. economic sanctions programs against Cuba, Iran, North Korea, Russia (certain items), Syria, Venezuela, and others. Distributors must screen every customer and transaction against the OFAC Specially Designated Nationals (SDN) List before completing any sale — violation carries civil and criminal penalties regardless of whether the Supplier was aware of the violation. Distribution agreements should require distributors to: (1) maintain a written export compliance program; (2) screen all customers and end-users against the SDN List and BIS Entity List; (3) notify the Supplier immediately of any compliance issue; and (4) indemnify the Supplier for compliance violations attributable to the distributor's failure to screen.

Foreign Corrupt Practices Act (FCPA). The FCPA (15 U.S.C. §§ 78dd-1 et seq.) prohibits U.S. companies and their agents from paying bribes to foreign government officials to obtain or retain business. International distributors who have government officials among their customers — or who operate in markets where government approval is required for imports or product registration — are a significant FCPA risk for their Supplier. Distribution agreements should include: (1) FCPA compliance representations and warranties by the distributor; (2) the right to audit the distributor's compliance program; (3) annual FCPA compliance certifications; (4) immediate termination rights for FCPA violations; and (5) an obligation on the distributor to comply with the UK Bribery Act, the Brazilian Clean Companies Act, and other applicable local anti-corruption laws in addition to the FCPA.

EU Vertical Block Exemption Regulation (VBER). For distribution arrangements involving EU territories, the EU's Vertical Block Exemption Regulation (Commission Regulation (EU) 2022/720, effective June 1, 2022 through May 31, 2034) provides a safe harbor from Article 101 TFEU competition law violations for vertical agreements where the Supplier's market share does not exceed 30% of the relevant market. Within the safe harbor, distribution agreements can include exclusive territories, selective distribution criteria, non-compete obligations (up to 5 years), and post-term non-compete restrictions (up to 1 year). "Hardcore restrictions" are categorically excluded from the block exemption even within the 30% threshold — these include restrictions on passive sales to consumers, resale price maintenance, and territorial restrictions that prevent parallel imports between EU member states.

Force Majeure in International Distribution. International distribution chains are exposed to a wider range of force majeure events than domestic distribution: port strikes, customs delays, geopolitical disruptions, natural disasters affecting sea lanes, pandemic-related border closures, and currency controls. Force majeure provisions in international distribution agreements should be broader than standard domestic provisions and should address: (1) delayed delivery by the Supplier due to shipping disruptions; (2) inability to import due to regulatory changes in the Territory; (3) currency controls that prevent payment in the agreed currency; and (4) sanctions changes that affect the distributor's ability to receive products.

ICC Arbitration and International Dispute Resolution. International distribution disputes are most commonly resolved through ICC arbitration, which provides a neutral forum, enforceability under the New York Convention on Recognition and Enforcement of Foreign Arbitral Awards (170+ signatory countries as of 2026), and sophisticated arbitration management through the ICC International Court of Arbitration. Key considerations: (1) seat of arbitration determines the procedural law governing the arbitration — choose a neutral seat (Singapore, Paris, New York, London) rather than either party's home jurisdiction; (2) three arbitrators for complex disputes involving significant sums; (3) the language of arbitration; (4) emergency arbitrator provisions for urgent interim relief; and (5) the scope of discovery available.

Ten provisions that signal a distribution agreement heavily weighted in the Supplier's favor — and the risks each creates for the distributor.

Red Flag 1 — Unilateral Price List Amendment with Short Notice (High). Any provision permitting the Supplier to revise wholesale prices with 30 days' or less notice (or no notice) is a significant risk. Distributors that have made commitments to customers based on pricing models built at signing can find their margins eliminated overnight. Adequate protection requires 60–90 days' minimum notice, a maximum annual increase cap, and inventory price protection for units already ordered or in transit.

Red Flag 2 — Unlimited Key Account Expansion (Critical). A Key Account list that the Supplier can update unilaterally at any time effectively allows progressive conversion of the distributor's territory into a direct-sale market. If the Supplier can add any customer to the Key Account list at will, the concept of exclusive or protected territory becomes meaningless. Require a fixed, closed Key Account list defined at signing, with any future additions requiring mutual consent or automatically reducing MPR obligations.

Red Flag 3 — Customer List Vesting in Supplier (Critical). Any provision that transfers ownership of the distributor's customer lists to the Supplier upon termination transfers the distributor's most valuable commercial asset to the entity that may use it to compete directly. Distributors should refuse to assign customer list ownership to the Supplier — at most, grant a limited license for specific, defined purposes — and negotiate for use restrictions prohibiting the Supplier from using the data for direct customer solicitation.

Red Flag 4 — No Inventory Repurchase Obligation (High). A distribution agreement that leaves the distributor holding purchased inventory with no repurchase obligation upon termination — and no sell-off period — creates an inventory loss that can be devastating for distributors with significant warehouse stock. Always negotiate a repurchase obligation for saleable, undamaged inventory at the distributor's landed cost and a minimum sell-off period of 90–180 days.

Red Flag 5 — Ratchet MPR Without Adjustment Mechanisms (High). An MPR that escalates automatically each year by a fixed percentage — without any mechanism to adjust for Supplier supply failures, price increases, Key Account expansion, or market downturns — is a hidden termination mechanism. By year three at 15% annual escalation, the MPR may be 52% above its starting level regardless of actual market conditions. Always pair ratchet clauses with automatic adjustment triggers for Supplier-attributable changes.

Red Flag 6 — Open-Ended Operational Requirements Through Operations Manual (High). Incorporation by reference of an operations manual that the Supplier can amend at will — creating new compliance obligations retroactively — replicates the franchise agreement's "operations manual trap." If the distribution agreement incorporates an operations manual, negotiate for: (1) limits on retroactive changes; (2) a cost threshold beyond which new requirements require mutual consent; and (3) a right to terminate if new requirements materially increase the distributor's operating costs.

Red Flag 7 — Change of Control Immediate Termination (High). The clause above allows the Supplier to terminate immediately upon a change of control of the distributor. For a distributor planning a sale, this provision allows the Supplier to effectively veto the transaction or force renegotiation by threatening immediate termination — with no wind-down period, sell-off period, or inventory repurchase obligation. Negotiate for: (1) advance notice requirements before any change-of-control termination is effective; (2) a right to assign the agreement in connection with a sale of substantially all the distributor's business; and (3) compensation (or an extended wind-down period) if the Supplier terminates upon a change of control.

Red Flag 8 — Marketing Fund Without Governance (Medium). A marketing fund contribution requirement (typically 1–3% of annual purchases) without any accounting, audit right, or restriction on use of funds gives the Supplier access to the distributor's capital without transparency or accountability. Negotiate for annual fund accounting, audit rights, geographic use restrictions (contributions spent in your Territory), and prohibition on the Supplier retaining fund earnings or using contributions for corporate overhead.

Red Flag 9 — Mandatory Arbitration with Supplier-Favorable Venue (Medium). Arbitration provisions that require arbitration in the Supplier's headquarters city under rules selected by the Supplier impose significant cost and logistical burden on distributors, particularly smaller regional distributors challenging termination decisions. Negotiate for arbitration in a neutral venue, rules that provide adequate discovery (AAA Commercial Rules or ICC Rules), and arbitrator selection procedures that prevent the Supplier from unilaterally selecting an arbitrator with Supplier-favorable tendencies.

Red Flag 10 — No Force Majeure Protection for Performance Obligations (Medium). Distribution agreements that impose strict liability for MPR shortfalls without force majeure carve-outs can result in termination in cases where shortfalls are attributable to supply chain disruptions, natural disasters, pandemics, or regulatory actions beyond the distributor's control. Ensure that every performance obligation — MPR, marketing spend, reporting compliance — is subject to a comprehensive force majeure provision that suspends obligations for the duration of a qualifying event and tolls the MPR measurement period accordingly.