{"id":14858,"date":"2020-02-24T07:00:14","date_gmt":"2020-02-24T06:00:14","guid":{"rendered":"https:\/\/www.legalmondo.com\/?p=14858"},"modified":"2025-01-29T11:26:16","modified_gmt":"2025-01-29T10:26:16","slug":"germany-distribution-franchise-agreements-goodwill-indemnity-termination","status":"publish","type":"post","link":"https:\/\/www.legalmondo.com\/pt-pt\/2020\/02\/germany-distribution-franchise-agreements-goodwill-indemnity-termination\/","title":{"rendered":"Germany \u2013 Distribution, Franchise Agreements and Goodwill Indemnity at Termination"},"content":{"rendered":"<blockquote><p><strong>Quick Summary:<\/strong> <em>In Germany, on termination of a distribution contract, distribution intermediaries (especially distributors \/ franchisees) <strong>may claim an indemnity <\/strong>from their manufacturer \/ supplier<strong> if<\/strong> their position is <strong>similar to that of commercial agents<\/strong>. This is the case if the distribution intermediary is <strong>integrated into the supplier\u2019s sales organization and obliged to transfer its customer base<\/strong> to the supplier, i.e. to transmit its customer data, so that the supplier can immediately and without further ado make use of the advantages of the customer base at the end of the contract. A recent court decision <strong>now aims at extending<\/strong> the distributor&#8217;s right to indemnity also to cases where the supplier in any way benefited from the business relationship with the distributor, <strong>even where<\/strong> the distributor <strong>did not provide the customer data<\/strong> to the supplier. This article explains the situation and gives tips on how to overcome the ambiguity that this new decision brings with it.<\/em><\/p><\/blockquote>\n<hr \/>\n<p>A German court has recently widened the distributor\u2019s right to goodwill indemnity at termination: Suppliers <strong>might even have to pay indemnity<\/strong> if the distributor was <u>not<\/u> obliged to transfer the customer base to the supplier. Instead, <strong>any goodwill provided could suffice<\/strong> \u2013 understood as substantial benefits the supplier can, after termination, derive from the business relationship with the distributor, regardless of what the parties have stipulated in the distribution agreement.<\/p>\n<p>The decision may <strong>impact all businesses where<\/strong> products are sold through distributors (and franchisees, see below) \u2013 <strong>particularly<\/strong> in <strong>retail<\/strong> (especially for electronics, cosmetics, jewelry, and sometimes fashion), <strong>car and wholesale trade<\/strong>. <strong>Distributors are self-employed, independent contractors<\/strong> who sell and promote the products<\/p>\n<ul>\n<li>on a regular basis and in their own name (differently from commercial agents),<\/li>\n<li>on their own account (differently from commission agents),<\/li>\n<li>thus bearing the sales risk, for which \u2013 in return \u2013 their margins are rather high.<\/li>\n<\/ul>\n<p>Under German law, distributors are less protected than commercial agents. However, even distributors and commission agents (see <a href=\"https:\/\/www.legalmondo.com\/2017\/04\/distribution-commission-agents-indemnity-end\/\">here<\/a>) are entitled to claim indemnity at termination if <strong>two prerequisites <\/strong>are given, namely if the distributor or the commission agent is<\/p>\n<ul>\n<li>integrated into the supplier\u2019s sales organization (more than a pure reseller); and<\/li>\n<li>obliged (contractually or factually) to forward customer data to the supplier during or at termination of the contract (German Federal Court, 26 November 1997, Case No. VIII ZR 283\/96).<\/li>\n<\/ul>\n<p>Now, the Regional Court of Nuremberg-F\u00fcrth has established <strong>that <\/strong>the second prerequisite shall already be fulfilled if the distributor has provided the <strong>supplier with goodwill<\/strong>:<\/p>\n<p><em>\u201c\u2026 the <u>only<\/u> decisive factor, in the sense of an analogy, is whether the defendant (the principal) has benefited from the business relationship with the plaintiff (distributor). \u2026<\/em><\/p>\n<p><em>\u2026 the principal owes an indemnity if he has a &#8220;goodwill&#8221;, i.e. a justified profit expectation, from the business relationships with customers created by the distributor.\u201d<\/em><\/p>\n<p>(<a href=\"http:\/\/www.gesetze-bayern.de\/Content\/Document\/Y-300-Z-BECKRS-B-2018-N-31520?AspxAutoDetectCookieSupport=1\" target=\"_blank\" rel=\"noopener\">Decision of 27 November 2018, Case no.\u00a02 HK O 10103\/12<\/a>).<\/p>\n<p>To support this wider approach, the court abstractly referred to the <a href=\"http:\/\/curia.europa.eu\/juris\/liste.jsf?language=de&amp;num=C-315\/14\" target=\"_blank\" rel=\"noopener\">opinion<\/a> by the EU advocate general in the case Marchon\/Karaszkiewicz, rendered on 10\u00a0September 2015. That case, however, did not concern distributors, but the commercial agent\u2019s entitlement to an indemnity, specifically the concept of \u201cnew customers\u201d under the <a href=\"https:\/\/eur-lex.europa.eu\/legal-content\/EN\/TXT\/?uri=CELEX%3A31986L0653\" target=\"_blank\" rel=\"noopener\">Commercial Agency Directive 86\/653\/EEC<\/a>.<\/p>\n<p>In the present case, it would, according to the court, suffice that the supplier had the data on the customers generated by the distributor on his computer and could freely make use of them. Other cases where the distributor indemnity might arise, even regardless of the concrete customer data, would be cases where the supplier takes over the store from the distributor, with the consequence of customers continuing to visit the very store also after the distributor has left.<\/p>\n<h2><strong>Practical tips: <\/strong><\/h2>\n<p>1. The decision makes the <strong>legal situation with distributors \/ franchisees less clear<\/strong>. The court\u2019s wider approach needs, however, to be seen in the <strong>light of the Federal Court\u2019s case law<\/strong>: The court still in 2015 <strong>denied a distributor the indemnity<\/strong>, arguing that the second prerequisite was missing, i.e. that the distributor was not obliged to forward the customer data (<a href=\"http:\/\/juris.bundesgerichtshof.de\/cgi-bin\/rechtsprechung\/document.py?Gericht=bgh&amp;Art=en&amp;nr=70337&amp;pos=0&amp;anz=1\" target=\"_blank\" rel=\"noopener\">decision of 5 February 2015, case no.\u00a0VII ZR 315\/13<\/a>, following its earlier decision re Toyota, 17\u00a0April\u00a01996, case no.\u00a0VIII ZR 5\/95). Moreover, the Federal Court <strong>also denied franchisees the right to indemnity<\/strong> where the franchise concerns anonymous bulk business and customers continue to be regular customers only de facto (<a href=\"http:\/\/juris.bundesgerichtshof.de\/cgi-bin\/rechtsprechung\/document.py?Gericht=bgh&amp;Art=en&amp;az=VII%20ZR%20109\/13&amp;nr=70269\" target=\"_blank\" rel=\"noopener\">decision of 5 February 2015, case no.\u00a0VII ZR\u00a0109\/13<\/a> re bakery chain \u201c<em>Kamps<\/em>\u201d). It remains to be seen how the case law develops.<\/p>\n<p>2. In any case, <strong>suppliers should, before entering the German market, consider<\/strong> whether they are willing to take that risk of having to pay indemnity at termination.<\/p>\n<p>3. The same applies to franchisors: <strong>franchisees will likely be able to claim <\/strong><strong>indemnity based on analogue application of commercial agency law<\/strong>. Until today, the German Federal Court of Justice has denied the franchisee\u2019s indemnity claim in the single case and therefore left open whether franchisees in general could claim such indemnity (e.g. decision of 23 July 1997, case no. VIII ZR 134\/96 re <em>Benetton<\/em> stores). Nevertheless, German courts could quite likely affirm the claim in the case of <strong>distribution franchising<\/strong> (where the franchisee buys the products from the franchisor), provided the situation is similar to distributorship and commercial agency. This could be the case where the franchisee has been entrusted with the distribution of the franchisor&#8217;s products and the franchisor alone is entitled, after termination of contract, to access the customers newly acquired by the franchisee during the contract (cf. German Federal Court, decision of 29 April 2010, Case No.\u00a0<a href=\"https:\/\/juris.bundesgerichtshof.de\/cgi-bin\/rechtsprechung\/document.py?Gericht=bgh&amp;Art=en&amp;sid=0648b14991dca5eb2f6ef66115c61b5b&amp;nr=53638&amp;pos=0&amp;anz=1\" target=\"_blank\" rel=\"noopener\">I ZR 3\/09, <em>Joop<\/em><\/a>)<em>.<\/em> <strong>No indemnity<\/strong>, however, can be claimed where<\/p>\n<ul>\n<li>the franchise concerns <strong>anonymous bulk business<\/strong> and customers continue to be regular customers only de facto (decision of 5 February 2015 re the bakery chain \u201c<em>Kamps<\/em>\u201d);<\/li>\n<li>or <strong>production <\/strong><strong>franchising<\/strong> (bottling contracts, etc.) where the franchisor or licensor is not active in the very sector of products distributed by the franchisee \/ licensee (decision of 29 April 2010, Case No. I ZR 3\/09, <em>Joop<\/em>).<\/li>\n<\/ul>\n<p>4. The German <strong>indemnity for distributors \u2013 or potentially for franchisees \u2013 can still be avoided<\/strong> by:<\/p>\n<ul>\n<li>choosing <strong>another law<\/strong> that does not provide for an indemnity;<\/li>\n<li>obliging the supplier to <strong>block, stop using and, if necessary, delete such customer data<\/strong> at termination (German Federal Court, decision of 5\u00a0February\u00a02015, case no.\u00a0VII ZR 315\/13: \u201c<em>Subject to the provisions set out in Section\u00a0[\u25cf] below, the supplier shall block the data provided by the distributor after termination of the distributor\u2019s participation in the customer service, cease their use and delete them upon the distributor&#8217;s request.<\/em>&#8220;). Though such contractual provision appears to be irrelevant according to the above decision by the Court of Nuremberg, the court does not provide any argument why the established Federal Court\u2019s case law should not apply any more;<\/li>\n<li>explicitly <strong>contracting the indemnity out<\/strong>, which, however, may work only if (i) the distributor acts outside the EEA and (ii) there is no mandatory local law providing for such indemnity (see the article <a href=\"https:\/\/www.legalmondo.com\/2016\/11\/german-distributor-indemnity-avoid\/\">here<\/a>).<\/li>\n<\/ul>\n<p>5. Further, if the supplier deliberately accepts to pay the indemnity in return for a solid customer base with perhaps highly usable data (in compliance with the EU <a href=\"https:\/\/eur-lex.europa.eu\/legal-content\/EN\/TXT\/?uri=CELEX%3A32016R0679\" target=\"_blank\" rel=\"noopener\">General Data Protection Regulation<\/a>), the <strong>supplier can agree with the distributor on \u201centry fees\u201d<\/strong> to mitigate the obligation. The payment of such entry fees or contract fees could be deferred until termination and then offset against the distributor\u2019s claim for indemnity.<\/p>\n<p>6. The distributor\u2019s goodwill indemnity is <strong>calculated on basis of the margins made<\/strong> with new customers brought by the distributor or with existing customers where the distributor has significantly increased the business. The exact calculation can be quite sophisticated and German courts apply different calculation methods. In total, it may amount up to the past years\u2019 average annual margin the distributor made with such customers.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Quick Summary: In Germany, on termination of a distribution contract, distribution intermediaries (especially distributors \/ franchisees) may claim an indemnity from their manufacturer \/ supplier if their position is similar to that of commercial agents. This is the case if the distribution intermediary is integrated into the supplier\u2019s sales organization and obliged to transfer its [&hellip;]<\/p>\n","protected":false},"author":6,"featured_media":14859,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[202],"tags":[220],"class_list":["post-14858","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-distribution-agreements","tag-germany"],"acf":[],"_links":{"self":[{"href":"https:\/\/www.legalmondo.com\/pt-pt\/wp-json\/wp\/v2\/posts\/14858","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.legalmondo.com\/pt-pt\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.legalmondo.com\/pt-pt\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.legalmondo.com\/pt-pt\/wp-json\/wp\/v2\/users\/6"}],"replies":[{"embeddable":true,"href":"https:\/\/www.legalmondo.com\/pt-pt\/wp-json\/wp\/v2\/comments?post=14858"}],"version-history":[{"count":5,"href":"https:\/\/www.legalmondo.com\/pt-pt\/wp-json\/wp\/v2\/posts\/14858\/revisions"}],"predecessor-version":[{"id":31749,"href":"https:\/\/www.legalmondo.com\/pt-pt\/wp-json\/wp\/v2\/posts\/14858\/revisions\/31749"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.legalmondo.com\/pt-pt\/wp-json\/wp\/v2\/media\/14859"}],"wp:attachment":[{"href":"https:\/\/www.legalmondo.com\/pt-pt\/wp-json\/wp\/v2\/media?parent=14858"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.legalmondo.com\/pt-pt\/wp-json\/wp\/v2\/categories?post=14858"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.legalmondo.com\/pt-pt\/wp-json\/wp\/v2\/tags?post=14858"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}