Distribution agreements are, from a civil law point of view, not specifically regulated under Dutch law. Instead, the general laws of contract apply along with case law from Dutch court decisions. Book 6 Dutch Civil Code (DCC) sets out the requirements relating to the formation of contracts. These provisions must be read in conjunction with the more general rules regarding juridical acts, that is, acts intended to invoke legal consequences provided in Book 3 DCC.
There is a general legal obligation on parties to deal with each other in good faith. Under Dutch laws, general civil law is governed by the principle of reasonableness and fairness. The principle of reasonableness and fairness may not only supplement the existing contract and relationship (based on article 6:248(1) DCC), but may also derogate from the contract that the parties agreed upon at an earlier stage if a provision is, in the given circumstances according to the principle of reasonableness and fairness, unacceptable (based on article 6:248(2) DCC). A high standard is applied to derogate from an agreed provision in a contract. That said, (very) large suppliers should be aware that a very one-sided provision in an existing contract (for example, a provision that the distribution relationship may be terminated by the supplier at any given moment, respecting a notice term of only 30 days), with (very) small distributors could be set aside under the principle of reasonableness and fairness, if such provision is deemed unacceptable in the given circumstances. It is not possible to predict what kind of provisions may be set aside, if any, since the court will consider all relevant circumstances, including the financial power of each party, the dependency of the parties on each other, the duration of the contract, the investments made by either party, what each party could reasonably expect from the other party, and any other relevant circumstances that exist. As a general rule, Dutch courts have the tendency to protect a ‘weaker’ (smaller) party at the expense of a financially stronger (larger) party.
When dealing with distribution agreements – and other vertical agreements – competition laws, and more particularly, the Commission Regulation (EU) No. 330/2010 of 20 April 2010 on the applicability of article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices, are applicable.
EU Commission Regulation 330/2010 and the EC Guidelines thereto provide the relevant framework for the assessment under competition law of all vertical agreements that affect trade between the member states. The Regulation, inter alia, prohibits resale price fixing as well as imposing certain restrictions on the territory or group of customers that can be served. It is prohibited to restrict ‘passive sales’ by a distributor, which includes sales via the internet. The Regulation also restricts the duration of a contract that contains a non-compete clause. With respect to purely domestic distribution agreements, the Regulation equally applies by virtue of article 13a of the Dutch Competition Act. There are no additional Dutch competition laws relating to distribution agreements.
The Netherlands Authority for Consumers and Markets (ACM) is charged with competition oversight, sector-specific regulation of several sectors, and the enforcement of consumer protection laws. The ultimate goal of the ACM is to create a level playing field, where all businesses play by the rules, and where consumers exercise their rights.
For the ACM, fines are an important way to sanction violators. Fines can be as high as €450,000 or 10 per cent of the relevant turnover. However, ACM has many other instruments at its disposal, including:
- orders subject to periodic penalty payments. In order to end violations, the ACM has the ability to impose orders subject to periodic penalty payments on companies. A company is given a deadline before which it must have adjusted its practices. If the company fails to do so, it will have to pay the penalty payments until it has made the necessary adjustments.
- binding instructions. If a company violates a statutory provision, the ACM has the option of giving it a binding instruction. Through the instruction, the ACM explains how the law should be interpreted in practice.
- commitments. Companies can make commitments to ACM, promising to adjust their practices in order to avoid further enforcement actions.
- education. Education is an important instrument to make sure that businesses and other organisations comply with the rules. That is why the ACM publishes its decisions, vision documents, and interpretations of the rules on its website. The ACM additionally published studies and advisory papers such as market scans and informal opinions.
The powers of the ACM have been laid down in laws and regulations. These rules determine what the ACM can and cannot do. In several procedures and policy rules, the ACM has clarified how it exercises its powers in practice.
Many investigations launched by the ACM have been prompted by solid leads (tip-offs). These tip-offs may have been submitted by businesses or to ConsuWijzer, or by anonymous informers. ACM officials have the authority to enter premises, request information, demand access to documents, and obtain data. These powers can be exercised at business premises as well as in homes. Furthermore, everyone is required to cooperate with ACM investigations. If the ACM comes across correspondence between lawyers and their clients, the ACM shall leave such correspondence outside the scope of the investigation (legal professional privilege). This applies to any correspondence found at a law firm as well as at the company under investigation.
Several types of distributors
There are many different types of “distribution” relationships. For the purpose of this report, we will assume that a distribution agreement will be the classical reseller agreement, as contained hereunder as the first type of distribution relationship:
Distributors (classical distribution agreement)
Distribution agreements are agreements (or relationships) whereby the supplier provides its distributors the right (and also obliges them) to resell and distribute the relevant products or services in its own name, and on its own account.
Franchise agreements are agreements (or relationships) whereby the franchisor provides its franchisees with the right (and also obliges them) to operate a business following the business concept of the franchisor. In the course of the contract’s duration, the franchisee has the right and duty to make use of the franchisor’s brand name, know-how, technical and business methods, method of working, and other matters that fall under the industrial and intellectual property of the franchisor. The franchisor provides support to the franchisee in the form of continued commercial and technical support. An agreement for distribution / resale of products or services may be part of a franchise agreement.
The Dutch Franchise Act has recently been adopted, and will most likely come into effect on 1 January, 2021 (the Franchise Act). The Franchise Act protects franchisees operating in the Netherlands. It has been argued that the Franchise Act should also apply to selective and exclusive distribution agreements. As the Franchise Act still needs to come into effect, it is unclear as to what approach the courts will take, but it is certainly something to pay attention to while concluding a distribution agreement under Dutch law or with a Dutch distributor, especially when such distribution agreement bears some elements of or resemblance to franchise.
Commercial agency agreements are agreements (or relationships) whereby the principal entrusts the commercial agent, for a remuneration, to act as an intermediary in the realisation of contracts, and possibly to conclude such contracts in the name and on account of the principal, without being subordinate to the latter. The agency protection has a reputation, as the agent may be entitled to a goodwill compensation upon termination. In some neighbouring countries – we understand this is the case in Belgium, France, Germany, and Switzerland – the agency rules regarding goodwill are analogously implemented to distribution agreements. So far, this approach has not been adopted by Dutch courts.
Use of (employed) sales representatives
Employment agreements are agreements whereby the sales representative is working, in general for a monthly salary, according to specific instructions, and in the name and for the account of the employer.
Right to sell under a private label
A supplier may also provide a third party the right to resell and distribute its products or services under the third parties’ private label. Such sales are on the third parties’ own account and in their own name.
Trademark agreements are agreements whereby the licensor grants the licensee the right (and may also oblige it) to use the relevant trademark for certain products or services in a certain territory. The licence can be granted on a pending application or a registered trademark right, and can be for a limited period of time or perpetual, exclusive or non-exclusive, limited in scope (for certain use only), for free or for consideration. A trademark licensing agreement can be (very) similar to a franchise agreement.
A supplier may also work closely with a local distributor in a contractual business undertaking (without any partnership or incorporation) such as a joint venture or set up a business entity with the local distributor.