Distribution Agreements in Denmark

Distribution agreements are not governed by a specific statutory regime under Danish law. They are primarily regulated by general principles of contract law, including freedom of contract, supplemented by Danish case law, trade usage, and, where applicable, mandatory EU law. As a result, the parties generally enjoy broad contractual freedom when structuring distribution relationships.

In consequence, unlike e.g. commercial agents, distributors are not protected by mandatory legislation comparable to the Danish Commercial Agents Act. There is therefore no statutory regulation concerning notice periods, termination compensation, or goodwill indemnity. However, certain rules may apply indirectly such as the sales of goods act, competition law, product liability law, marketing law, and general rules on unfair contract terms.

Danish courts may intervene under Section 36 of the Danish Contracts Act, which permits the setting aside or adjustment of contractual terms if they are deemed unreasonable or contrary to good practice. In long-term or economically dependent relationships, Danish case law has developed certain protective principles, particularly in relation to the notice period.

EU competition law, especially the Vertical Block Exemption Regulation and related guidelines, plays a central role in defining the permissible content of distribution agreements in Denmark.

The key distinguishing feature of a distributor under Danish law is that the distributor purchases goods in its own name and for its own account and resells them to customers in his own name and for his own account while bearing the commercial and financial risk. This contrasts with a commercial agent, who acts on behalf of the principal and does not assume ownership of the goods.

This distinction is legally significant, as commercial agents are protected by mandatory statutory rules, including – under certain conditions - rights to notice periods and compensation upon termination. Distributors do not benefit from such statutory protection. Danish courts focus on the actual substance of the relationship rather than its contractual label, and misclassification may lead to recharacterization.

Franchisees differ from distributors in that franchise relationships typically involve the right to use a brand, business concept, and know-how, combined with a higher degree of control by the franchisor. As with distribution, Denmark has no specific franchise legislation.

Other intermediaries, such as commission agents or sales representatives, fall somewhere between these categories, but Danish courts will assess risk allocation, authority, and independence when classifying the relationship.

There are no formal requirements under Danish law for entering into a distribution agreement (i.e. no registration, notarization, or approval requirements). Distributions agreements may be concluded orally, in writing, or implicitly through the conduct of the parties, and are in principle legally binding regardless of form. However, written agreements are strongly recommended, particularly in cross-border relationships, as Danish courts place considerable emphasis on documented contractual obligations and intent when resolving disputes.

In the absence of a written agreement, courts will determine the contractual terms based on correspondence, behaviour of the parties, industry practice, and general principles of contract law. This often increases legal uncertainty, especially with regard to exclusivity, termination rights, and notice periods.

From a competition law perspective, certain restrictions are only enforceable if they comply with EU competition rules, particularly the Vertical Block Exemption Regulation.

A distribution agreement is considered exclusive when the supplier grants the distributor sole rights to sell the products within a defined territory or to a defined group of customers. Exclusivity must be expressly agreed and is (generally) not presumed under Danish law.

Exclusivity may take various forms, including exclusive distribution, selective distribution, or exclusive customer allocation. Under EU competition law, exclusivity is generally permitted provided that market share thresholds are respected and that the agreement does not contain hardcore restrictions, such as prohibitions on passive sales.

For the supplier, exclusivity typically prohibits the supplier in appointing additional distributors (and similar) or to sell directly within the territory and/or allocated customer group (depending on what has been agreed).

Exclusivity may also influence termination assessments. Where a distributor has relied on exclusivity to make significant investments, Danish courts may require a longer notice period upon termination.

Resale price maintenance, meaning the imposition of fixed or minimum resale prices, is generally prohibited under EU and Danish competition law and is considered a hardcore restriction. Agreements containing such restrictions are typically invalid and may expose the supplier to consequences from relevant authorities.

Recommended resale prices and maximum resale prices are, in principle, permitted, provided they do not amount to fixed or minimum prices in practice. The assessment focuses on whether the distributor retains genuine freedom to determine its resale prices.

Danish competition authorities apply a strict approach and will consider whether recommendations are accompanied by pressure, incentives, monitoring, or sanctions that effectively restrict pricing freedom. Even informal conduct may be relevant.

Compliance with the Vertical Block Exemption Regulation is therefore essential when addressing pricing issues in Danish distribution agreements.

Reservation of title clauses are generally enforceable under Danish law, provided that they are agreed upon prior to delivery, are clear and properly drafted. Such clauses allow the supplier to retain ownership of goods until full payment has been received.

However, the enforceability of these clauses, particularly in distribution arrangements, is subject to certain complex limitations, including in insolvency situations. The goods must - inter alia - not be subject to credit (i.e. the supplier may not sell the products to the supplier on credit, but the distributor must pay for each product to the supplier as they are resold). Also, there are further requirements, and practically speaking, for goods that are intended to be resold, reservation of title clauses will be very impractical and often unenforceable. Advice should be sought from a local lawyer in relation to the specific reservation of title set up.

Non-compete obligations during the term of a distribution agreement are generally permissible under Danish law, subject to EU competition law. Under the Vertical Block Exemption Regulation, such obligations are allowed if they do not exceed five years.

Post-termination non-compete clauses are more restrictive. They are only permitted if they are limited to one year, are necessary to protect know-how, relate to competing goods or services, and are limited to the distributor’s premises (see Art. 5 (3) of the Vertical Block Exemption Regulation for details).

In addition, Danish courts may assess non-compete clauses under general principles of reasonableness. Clauses that excessively restrict the distributor’s ability to conduct business may be reduced or set aside.

Distribution agreements concluded for an indefinite term may generally be terminated for convenience with reasonable notice, unless otherwise agreed. What constitutes reasonable notice is assessed on a case-by-case basis.

Relevant factors include the duration of the relationship, the distributor’s investments, the degree of dependency, and whether the agreement is exclusive. In long-term relationships, notice periods of six months are generally considered reasonable. In exceptional circumstances, it may be longer.

Contractual notice provisions are generally respected, but Danish courts may adjust them if they are deemed unreasonable. Fixed-term agreements cannot normally be terminated for convenience unless expressly agreed.

Immediate termination is permitted in cases of material breach. The breach must be of such gravity that it fundamentally undermines the contractual relationship.

Failure to meet minimum turnover obligations (which is different from a “target”) may justify immediate termination if the obligation is clearly defined as material and giving rise to immediate termination of not reached.

Minor or isolated breaches generally do not justify termination with immediate effect.

Distributors are not entitled to statutory indemnity or goodwill compensation under Danish law. Unlike commercial agents, distributors are not entitled to mandatory compensation upon termination.

In exceptional cases, compensation may be awarded based on general legal principles, particularly if the termination is abrupt, disloyal, or in bad faith, and if the distributor has created substantial goodwill that the supplier continues to exploit. However, compensation is very rarely granted to distributors by the courts.

Distributors may also claim damages for breach of contract, including insufficient notice or unlawful termination.

There is no general right to reimbursement for unsold stock, investments, or other termination-related losses. Any such entitlement must be based on the distribution agreement or specific circumstances.

Danish courts may award compensation where the supplier has encouraged stock build-up or investments shortly before termination. In the absence of such conduct, the distributor is generally expected to bear its own commercial risk.

The applicable law is determined in accordance with the 1980 Rome Convention (please note that the Rome I Regulation does not apply in Denmark). The parties are free to choose the governing law of the distribution agreement.

In the absence of a choice, the agreement will generally be governed by the law of the distributor’s habitual residence.

Disputes are commonly resolved through litigation before the Danish courts, which are experienced in commercial and distribution-related matters.

In international distribution agreements, arbitration is frequently chosen, often under the rules of the Danish Institute of Arbitration. Mediation is used less frequently but may be agreed as a preliminary step.

Choice of forum and dispute resolution clauses are generally respected under Danish law.

A foreign supplier will generally not be deemed to have a permanent establishment in Denmark if the distributor acts as an independent entity carrying on business at its own risk.

A permanent establishment may arise if the distributor acts as a dependent agent with authority to conclude contracts on behalf of the supplier or is subject to detailed control. The assessment is factual and aligned with OECD principles and applicable tax treaties.

It is recommended that you also seek advice on this topic from a tax professional.