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A Guide to IT Contracting by Michael R. Overly, Matthew A. Karlyn

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Distribution Agreements
CHECKLIST
License Grant
Consider necessity and scope
S Exclusivity
S Territorial limitation
S Hybrid of exclusive and territory
S Quotas
Reservation clause
Noncompetition clause
Intellectual property license
Termination in the event of a breach
End User License Agreement
Which agreement will govern use of distributed product?
Process for getting agreement to customer
Who may accept agreement on manufacturer’s behalf?
Who owns the customer that purchases the product?
Development of the Product
Identify parties’ representatives
Describe process for setting meetings
Dra development plan with technical aspects of product design
Agree ahead of time how parties will allocate expenses
Obligations of the Parties
Distribution and sale of the product
Training distributors employees
Customer support
Marketing of product
S Marketing materials
284  •  A Guide to IT Contracting: Checklists, Tools, and Techniques
S Marketing plans
S Press releases
Assign primary marketing contact for each party
Ensure that distributor cannot misrepresent or otherwise make
false statements regarding product
Product Pricing
Determine price of product and royalty payments
Collecting fees
S Initial license
S Add-on services
S Subscriptions
Shipping costs and taxes
Expenses incurred in distribution
Invoicing and collection of fees
Distributors periodic reports:
S Sales
S Marketing
S Audit payments
Maintain records aer termination of distribution agreement
Condentiality
Term of Agreement
Ensure survivorship of certain contractual clauses
S Warranties
S Indemnication
S Risk of loss
S Limitation of liability
S Intellectual property
OVERVIEW
Distribution agreements are used between a manufacturer of informa-
tion technology (e.g., a soware manufacturer) and a supplier of infor-
mation technology or publisher of content to a wide base of customers
(e.g., a marketer and distributor of soware products). Generally speak-
ing, a distribution arrangement provides an opportunity for both sides to
make money and a balanced relationship will be one where the manufac-
turer and the distributor both make monetary gains. In most cases, the
Distribution Agreements • 285
manufacturer will “sell” whatever it is that it manufactures to the distribu-
tor, who will then “sell” the product for a higher price. It is oen the case
that the manufacturer makes the least money, but it should, nonetheless,
be well compensated for the products being distributed.
ese types of agreements can range from the simple (i.e., a very concise
statement of the obligations of the manufacturer to provide the product,
obligations and restrictions on distribution, and a statement of the busi-
ness deal) to the very complex (i.e., license terms, marketing obligations,
collaboration obligations if the parties are to jointly develop any product).
In all cases, it is critical that the parties clearly articulate in the distribu-
tion agreement the manufacturer’s obligations with respect to providing
the product to be distributed, the distributor’s obligations with respect to
marketing and distributing the products, any intellectual property obliga-
tions, and a clear statement of the business deal (e.g., what will the manu-
facturer be paid for its products and when will payment be made?).
KEY ISSUES FOR DISTRIBUTION AGREEMENTS
License Grant
In each distribution agreement it is essential to consider whether a license
grant is necessary and, if it is, what the scope of the license grant should
be. Generally speaking, a license grant in a distribution agreement should
be broad enough to cover all of the required distribution obligations of
the distributor. So, for example, it should include the right for the dis-
tributor to market, promote, distribute, sell, and use the products that
will be distributed.
• Consider whether the license should be exclusive so that the distribu-
tor is the only entity that can distribute the product, or non-exclusive
so that the manufacturer is permitted to enter into multiple distribu-
tion agreements for the same products.
• Manufacturers frequently will want to limit the distribution rights
to a particular territory (e.g., a particular state, region, or country).
• A hybrid approach is oen acceptable, in which the distributor has
the exclusive rights of distribution within a dened territory, coupled
with non-exclusive rights outside of that territory. Be careful—this

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