11 Most Common Mistakes with Distribution Agreements

Author: Tijana Žunić Marić, Partner | Updated: July 2026 | Next review: January 2027

A distribution agreement forms the basis of the business relationship between a supplier and a distributor, but in practice it is often concluded in haste or even without a written form, which later leads to costly and hard-to-resolve disputes. Below, we set out the eleven most common mistakes that distributors and suppliers make when negotiating and drafting a distribution agreement — from the absence of a written agreement, through vaguely defined territory and targets, to the failure to align the agreement with competition law rules — along with practical tips on how to avoid them.

1. Lack of a Written Distribution Agreement – Not So Fast!

In brief: Without a written distribution agreement, the distributor has no adequate protection against unfair competition, nor a mechanism for resolving disputed issues, which almost always leads to costly litigation.

During the negotiations, both the distributor and supplier aspire to forge a durable partnership, one that fulfills the respective objectives of each party. The distributor anticipates effectively positioning goods or services within a specified territory to generate profit margins, while the supplier anticipates a smooth placement of its goods or services in the new market.

Considering optimism and enthusiasm for establishing a new business relationship, the distributor and supplier often begin cooperation without an adequate written distribution agreement. However, the experience has shown us that this practice leads to the later troubles of opening Pandora's box. There is no doubt that eventually there will be a multitude of contentious issues when the initial optimism of the contracting parties wears off.

The distribution agreement is of paramount importance for both contracting parties because it enables both distributor and supplier to define their rights and obligations clearly in advance, as well as solutions to potential problems that may arise when the agreement is executed (e.g., damage to goods, non-payment of contracted price, use of intellectual property, dispute resolution, etc.).

Apart from that, when starting distribution, the distributor often invests significant funds in promoting goods and creating a brand, led by the thought that they will remain the exclusive distributor for the agreed territory.

However, it should be noted that without an exclusive distribution agreement, there is no adequate mechanism for the distributor to protect themself from other importers and unfair competition. If the distribution agreement is not concluded in a written form, it is almost certain that the distributor and supplier will have to settle the dispute in court, causing additional costs.

Furthermore, once when the issue of unfair competition arises, the distributor often will not be able to count on the help of the other contracting party. That is when the distributor often realizes how costly a mistake was made by missing out on a written distribution agreement.

Conversely, in the absence of proper regulation of the contractual arrangement, the supplier might find themselves in a scenario where the distributor engages in unauthorized usage of the supplier's intellectual property, potentially resulting in significant harm to the supplier's brand.

Therefore, "short reckonings make long friends" is the right recipe for this contractual relationship and can only be achieved through detailed regulation of all aspects of cooperation through a written agreement.

2. Doubts on the Type of Distribution

In brief: Before concluding the agreement, it is necessary to determine whether the subject of distribution is goods or services, and whether the agreement will be exclusive (one distributor per territory) or non-exclusive (multiple distributors in the same territory).

After we have determined that it is still better to conclude the distribution agreement before starting the business cooperation, the following question needs to be answered: What is the subject of the distribution agreement?

In most cases, the subject of the distribution agreement is goods (one or more products or product groups). However, in addition to goods, the subject of distribution agreements can be services. The services distribution agreement is often concluded in the IT sector, such as for the distribution of cloud services. Bearing in mind the specifics of the services distribution agreement, we will not dive deeper into that particular agreement in this text, but will focus on the distribution agreement of goods.

The next important question to ask is whether the distributor and supplier will conclude an exclusive distribution agreement or a non-exclusive distribution agreement.

If the contracting parties conclude an exclusive distribution agreement, the distributor will be the only one who is entitled to sell the supplier's goods in a particular territory. On the other hand, in the case of the execution of a non-exclusive distribution agreement, the supplier may have multiple distributors in the same territory. This may be the first issue on which the distributor and supplier may have disagreements.

Specifically, the distributor's interest is for the distribution agreement to be exclusive. The reason for this is obvious: the distributor will incur many costs regarding the start of the distribution (promotion, purchase of products from suppliers, etc.), and the distributor wants to make sure that there will be no other distributors or importers, for which the expected earnings will be reduced.

On the other hand, a non-exclusive distribution agreement is much more suitable for the supplier. If a business relationship "goes wrong" with one distributor, the supplier will always be able to rely on another distributor and make sure that the specific market will be provided with its products.

Exclusive Distribution	Non-Exclusive Distribution
Only one distributor in a particular territory	More distributors in the same territory

3. Territory Is Defined Too Broadly

In brief: Defining too broad a distribution territory at the very start of the cooperation prevents both parties from testing the relationship and the market, while a smaller territory leaves room for later expansion if the cooperation proves successful.

One of the primary errors often encountered in distribution agreements is the tendency to delineate the distributor's sales territory excessively broadly. This oversight can manifest even in the context of a formally drafted exclusive distribution agreement.

Initially, it seems like the best solution to both the distributor and the supplier is to define the territory in which the distributor will have the right to sell the goods as broadly as possible. The distributor sees an opportunity for higher earnings, while the supplier does not need to make additional efforts to find additional distributors. Nonetheless, the practice has shown that, when starting the cooperation for the first time, it is more favorable for both sides to define the smaller territory in which distribution will take place.

For the supplier, this is an opportunity to "try" collaboration with the distributor, and for the distributor, this is a chance to examine the market to which it markets goods in practice. If both sides are satisfied with the results achieved, they can expand the distribution territory without much effort.

4. No Targets Are Set for the Distributor to Reach

In brief: The absence of clearly defined targets, i.e., the minimum quantity of goods the distributor must purchase, leaves room for disputes over whether the business relationship is successful and whether there are grounds for terminating the agreement.

Distribution agreements often do not have clearly defined targets that the distributor should reach, i.e., they do not have a defined minimum amount of goods that the distributor should buy from the supplier and market it. Even if the agreement contains a provision of this type, inaccurate formulations often appear, such as "a significant effort shall be made" or similar formulations.

By determining the target, the distributor and supplier can assess whether their business relationship is successful or not: unless the distributor has purchased and marketed the defined quantity of goods as specified in the agreement, the agreement is terminated.

Also, if the distribution agreement contained a provision under which the distributor is obliged to make a significant effort to buy back and market a certain amount of goods, and the supplier believes the distributor did not do so, it is almost certain that this leads to the termination of the agreement. Whether or not the distributor has made a significant effort would have to be valued depending on the specific case, and the final decision would certainly have to be made by the court.

The supplier has more benefits from setting target goals, and the distributor needs to insist on reasonable target goals during negotiations, which the distributor believes are possible to meet.

5. Duration of the Distribution Agreement

In brief: The duration of the distribution agreement is a commercial matter on which the interests of the distributor and supplier often differ, and for exclusive agreements, the maximum permissible duration under competition law rules must also be taken into account.

The question of the duration of the distribution agreement is another issue in which the interests of distributors and suppliers are in direct conflict. On the one hand, the interest of distributors is to conclude the distribution agreement for as long as necessary. On the other hand, the interest of suppliers is to make this period as short as possible, due to possible dissatisfaction with the distributor’s business.

Although the duration of the distribution agreement is primarily a commercial issue on which the distributor and supplier should agree, it is important to take care of the provisions of the Law on Protection of Competition, especially in the case of the conclusion of the exclusive distribution agreement, as competition rules stipulate the maximum permissible duration of restrictive agreements.

6. Failure to Check the Distribution Agreement for Compliance with Competition Rules

In brief: Exclusive distribution agreements are by their nature restrictive agreements, so before signing they should be checked from a competition law perspective to avoid significant fines for prohibited clauses.

Agreements between market participants which aim or result in significant restrictions, violations, or the prevention of competition are prohibited and void. The exclusive distribution agreement is a restrictive agreement by nature as it limits competition in the market by excluding other distributors from accessing a supplier that has an exclusive distribution arrangement for a certain market.

In certain cases, however, there are exemptions from this prohibition. In order not to violate the provisions on protection of competition and risk significant fines, it is important to check if any of these exemptions apply.

If market shares of the distributor and the supplier are below certain thresholds, it is likely that the exclusive arrangement is fine from a competition law perspective. If the parties are strong market players and exceed the applicable thresholds, there is still room to implement the agreement, but a decision by the Commission for Protection of Competition exempting this agreement from prohibition will be necessary before the agreement enters into force.

Still, as the devil may be in the details, the otherwise fine exclusive distribution agreement should still be checked by a competition law specialist, as it may contain other restrictive provisions (such as non-compete arrangements) or even prohibited clauses (resale price maintenance or passive sales restrictions).

If these are not identified and corrected, the parties potentially risk significant fines for competition law infringements.

7. Inaccurately Specified Conditions for Price Change

In brief: The conditions under which the supplier may change the purchase price of the goods are often not precisely regulated, which leads to disputes — the solution is a predefined notification mechanism and limits on price changes.

Distributors often insist that the distribution agreement of goods contains a provision that allows the supplier to change the purchase price of goods only once a year. If the price at which the distributor obtains goods from the supplier is changed often, it would inevitably affect the price change towards the end consumer. Such a frequent change in product price could further negatively affect its purchase by the end consumer.

In practice, however, it often happens that because of the change in the price of raw materials, suppliers need to change prices more frequently. If they are not allowed to do so under the distribution agreement, they are practically forced to use lower-quality raw materials, which can also affect the success of the placement of goods.

The issue of price change is one of the issues that the distributor and supplier often cannot resolve by mutual agreement, and therefore, resort to court resolution of the issue. As this is a common problem, the practice has developed the following solution – a provision that enables the supplier to change the price as needed, but with prior reasoned notification to the distributor. Of course, such a price change cannot be unlimited, and a mechanism needs to be found that meets the interests of both sides.

8. Insufficient Regulation of the Right to Use Trademarks and Other Service Marks

In brief: The distributor's right to use the supplier's trademark and other trade marks must be precisely regulated in the agreement, otherwise both parties risk losing intellectual property rights in the given territory.

It is particularly important for the distributor that the distribution agreement clearly defines the distributor's right to use the supplier's trademark and other service marks, to be able to place goods on the market in the first place, but also to promote them.

Therefore, it is important to verify that the supplier's trademark is already protected in the territory in which the goods are placed. If the trademark is not registered, it is advisable to regulate the obligations of the contracting parties regarding this issue. For example, a supplier's obligation to register a trademark, or the right of a distributor to do so on behalf of and for the supplier's account, may be anticipated.

Trademark protection should be taken care of by both the supplier and the distributor.

The distributor may find themselves at a disadvantage if the supplier's trademark is not registered in a specific territory, as its protection against unfair competition is drastically limited.

On the other hand, if the supplier does not wish to file a trademark application, and the distributor does so on their behalf and for their account (for legitimate reasons), the supplier may be in a situation where the supplier has permanently lost their intellectual property rights in the territory. In any case, upon the termination of the distribution agreement, these situations lead to numerous disputes between former partners, which always prove to be too expensive.

In the absence of regulation on this issue, infrequently the distributor even registers the same business name of the supplier in the territory, which raises additional issues of intellectual property rights, especially after the cessation of the mutual cooperation.

9. Applicable Law Has Not Been Defined

In brief: In international distribution of goods, it is useful to define the applicable law in advance, since otherwise different laws may apply to the distribution agreement and to each individual sale and purchase agreement concluded on its basis.

In international distribution agreements, it is particularly useful to define the applicable law. In the absence of this provision, the applicable law would be determined by the application of norms regulating the conflict of laws, so it is more favorable for both sides to immediately determine the applicable law and examine in advance the provisions of the law applied to them. Also, if the applicable law is not agreed upon, it can often happen in practice that one law is applicable for a distribution agreement and the other for a specific agreement on the purchase of goods concluded by the supplier and distributor, following the distribution agreement.

However, as both the distributor and supplier wish to determine the applicable law of the country of their respective seat, it is often resorted to applying international rules as a neutral solution in practice. For example, to overcome difficulties in concluding agreements that stem from differences in national legislation, contracting parties often opt for the application of UNIDROIT principles.

Additionally, if both parties in the distribution agreement belong to the signatories of the United Nations Convention on International Sales of Goods (Vienna Convention), the provisions of this convention will apply by force of law to each specific agreement on the purchase of goods concluded by the supplier and distributor under the distribution agreement. In any case, the distributor and supplier have the right to exclude the application of this convention by stipulating so in the agreement.

Note that, even if the parties agree on the applicable law, in case of an exclusive distribution agreement (or a distribution agreement that contains other restrictive clauses), the competition law regulations of all jurisdictions in which the exclusive (or otherwise restrictive) distribution agreement has effects shall mandatorily apply.

10. Lack of Clear Terms for Termination of the Distribution Agreement

In brief: Insufficiently precise regulation of the grounds and conditions for termination — particularly the concept of material breach — is one of the most common mistakes, and it opens the door to abuse of the right to terminate.

While initiating business collaboration, contemplating the termination of the agreement may not be a priority; however, failing to define the terms of termination is arguably one of the most significant oversights for both distributors and suppliers.

For both sides, the most favorable solution would be that they could terminate the agreement at any time, without specifying the reason for terminating the agreement. However, as a rule, the supplier will insist on a short cancellation period, while the distributor will wish for long cancellation deadlines. The distributor could protect their interests by anticipating the right to termination of the agreement without citing a reason only after a certain amount of time (for example, after two years from the day of starting the cooperation).

On the other hand, the unilateral termination of the agreement, which can only follow if the other party fails to meet certain obligations, is one of the most important provisions of the distribution agreement. The most common mistakes that occur in practice are insufficiently precise regulations of what is an important breach of the agreement that leads to the other side's right to seek termination. Unfortunately, contracting parties often unclearly predict that each and every breach of the agreement matters, which can open the issue of numerous violations of the right to terminate the distribution agreement.

11. Lack of Regulation of the Relationship Between Distributor and Supplier After Termination of the Distribution Agreement

In brief: The distribution agreement should also regulate the parties' relationship after termination, including the fate of undelivered and unsold goods, since these issues are difficult to resolve amicably once the cooperation has ended.

Each distribution agreement contains the rights and obligations of the contracting parties for the duration of the distribution agreement. However, the distributor and supplier often miss out on regulating their relationships after the termination of the distribution agreement. In this case, questions are being asked that can be disputable in practice. Some of them are:

• What will happen to the goods the distributor ordered, and the supplier has not yet delivered?
• Does the supplier have the right to sell the goods from stock to end consumers after the termination of the distribution agreement?
• Does the distributor have a deadline to sell the goods from the stock?
• Does the distributor have to return the goods to the supplier if it does not sell the goods, and within what time frame? In that case, at what price should the distributor return the goods, and who covers the transportation costs?

If the answers are not provided in the distribution agreement itself, the distributor and supplier would have to agree after the termination of the agreement, which, in most cases, is impossible due to disrupted business relations. In practice, the absence of regulation on these issues usually leads to litigation.

Thus, the first step toward successful business cooperation between distributors and suppliers is the conclusion of a written distribution agreement. But this first step can only lead you in the right direction. What will get your business relationship on track is to make a detailed distribution agreement, following the needs of the specific business. Provisions on termination of the agreement, dispute resolution, and the rules that apply to the agreement are also extremely important, especially when it comes to international agreements for the distribution of goods.

In this regard, the parties should also consider subjecting their dispute to arbitration as an alternative dispute resolution mechanism. As we have written in our blog on the benefits of arbitration, some of the advantages of resolving disputes in this way are the provision of a neutral "court" for resolving disputes and more efficient conduct of proceedings.

Frequently Asked Questions

What is the difference between exclusive and non-exclusive distribution?

In exclusive distribution, only one distributor has the right to sell the supplier's goods in a given territory, while in non-exclusive distribution, the supplier may have multiple distributors in the same territory. The choice of form depends on the parties' interests: exclusivity usually suits the distributor better, while the supplier benefits from greater flexibility.

Does an exclusive distribution agreement have to be checked from a competition law perspective?

Yes. Exclusive distribution agreements are by their nature restrictive agreements and must comply with the Law on Protection of Competition. In certain cases, where the parties exceed the applicable market share thresholds, a decision of the Commission for Protection of Competition exempting the agreement from the prohibition is also required.

What happens if the distribution agreement does not define the applicable law?

If the applicable law is not defined, it is determined by applying conflict-of-laws rules, which can result in different laws applying to the distribution agreement itself and to each individual sale and purchase agreement concluded on its basis. For this reason, it is useful for the parties to determine the applicable law in advance, often through the application of neutral international rules such as the UNIDROIT principles.

Who should register the trademark in the distribution territory?

It depends on the parties' agreement — the agreement may provide for the supplier's obligation to register the trademark, or the distributor's right to do so on behalf of and for the account of the supplier. If this issue is left unregulated, both parties risk disputes and the loss of intellectual property rights in the given territory once the cooperation ends.

What happens to the distributor's goods after termination of the distribution agreement?

If the agreement does not regulate this, the parties must subsequently agree on the fate of unsold or undelivered goods, the deadline for selling off stock, and any obligation to return the goods to the supplier — which is, in practice, difficult to achieve once the business relationship has already broken down. It is therefore advisable for these issues to be regulated in advance, in the agreement itself.