Distribution Agreement with exlusivity clauses- are they the cause of price increase?
Products are becoming more expensive - is it possible to monitor exclusive importers?
The legal meaning of a distribution agreement with an exclusivity clauses
Alon Kaplan, in collaboration with Dun's 100
09:06, 08.08.22
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The question is currently under discussion as to whether it is possible to supervise the price increases of products imported to Israel by "exclusive importers" and prevent them from raising prices without restriction. Chairman of the Histadrut, Arnon Bar-David, announced that he would launch a struggle known as a consumer boycott. The journalist Nehemiah Shtrasler in an article dated July 29 suggested that the government cancel exclusivity agreements that those importers have with manufacturers abroad.
The discussion of these issues should take place in light of the examination of the legal situation. Such an examination will show that the struggle against rising prices is a social matter and not a regulatory one. The relationship of exclusive importers is based on commercial contracts between manufacturer and supplier and is part of an orderly legal system. There are two types of connections in this area:
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"Exclusive Agent"
in which the importer, as an agent, acts as the manufacturer's long hand for the purpose of selling the products in Israel. The agent obtains orders supplied by the manufacturer who determines the price of the product and pays the manufacturer a distribution fee from the volume of sales. In this type of activity the manufacturer controls the price of the product and the agent does not customarily change the price without the consent of the manufacturer. In these relationships, it is customary to establish an exclusivity clause for the agent's credit to ensure the agent confidence in the relationship especially if the agent has agreed with the manufacturer on a marketing system, customer service, etc. This type of relationship has received a legal consolidation in the Agents Law - "Agency Contract Law (Commercial Agent and Supplier)".
"Exclusive distributor"
is a different kind of attachment. Here we are talking about a situation where there is a contract between a manufacturer and a distributor of products according to which the distributor purchases the products from the manufacturer at an agreed price and sells them to the public at a profit determined by the distributor. In this engagement, the distributor assumes obligations to the manufacturer to market the products and pay the manufacturer for them with a chance to make a profit and also a risk of losing if he fails to sell the product. Taking into account the need to invest in the creation of the market (marketing advertisement, etc.) and the distributor's obligation to pay the manufacturer even if there are problems in the sale of the inventory purchased by the distributor, it is customary to establish between the parties an "exclusivity agreement" that guarantees the distributor that the manufacturer will not sell the products to another distributor nor will it initiate a direct sale to the exclusive distributor's competitors. This issue arose in legal discussions when the issue of what would happen when a competitor of the distributor in Israel finds a "substitute" source of supply - different from the manufacturer associated with the exclusive distributor, performs a parallel import of the same product that he obtains from another source, i.e., an import of the same brand or product produced or imported from another country. In the legal dispute heard in court, it was ruled that the exclusive distributor in Israel will not be able to prevent the parallel import of the same product if it was not purchased from the manufacturer with whom the distributor has an exclusivity contract. The relationship between the parties is a contractual system and the distributor has no "property rights" in the reputation of the product.
Dr. Alon Kaplan Dun & Bradstreet
(Credit: PR)
In light of this explanation, a proposal for government intervention to cancel exclusivity agreements is impractical because it would imply intervention by the sovereign in a commercial relationship anchored in contract law. This is especially true when there is no legal restriction on importing identical products from other sources. Presumably, the obvious way to facilitate the import of comparable products will be an adequate solution, in addition to the social struggle of consumers who receive a boost and encouragement from the Histadrut, as can be seen in the news today.
The author of the article specialized in the subject of agents and distributors in master's degree studies and in his legal work.
Dr. Alon Kaplan, Adv., Alon is the author of the book Trust in Israel: In Practice, a member ofSTEP, a member of the International Association of Trustees, and a member of the International Academy of Trusts and Family Wealth. Member of the Israel Bar Association since 1970 and in New York since 1990. Among the founders of STEP Israel, he served as chairman of the Israel branch and currently serves as president of the organization in Israel. Lectured at the Faculty of Law of Tel Aviv University in master's degree studies and coordinator of the STEP diploma course Israel. Alon has served as a consultant to the Tax Authority's Trust Taxation Committee, edited books on trust issues, and published numerous articles on trust and the handling of family wealth in leading journals around the world. Alon is a member of the International Council of the Weizmann Institute. Alon is a member of the Board of Trustees ofIMPACT, a charitable organization that provides scholarships to discharged soldiers.