What Are The Must Have Things In A China Distribution Contracts

There is hardly a day when some American SME’s never inquired about how they could sell their US made products into the Chinese market with the help of a trusted Chinese distributor. As legal experts, we have assisted a large number of companies in writing well-drafted distribution agreement. In order to understand the legal side of China distribution agreements, following points/links could prove highly beneficial:

  • Getting Your Product Into China Via Distributorship. A Legal Piece Of Cake
  • That’s Hot: China Distribution Contracts
  • China Distribution Agreements: Exclusivity Is NOT Required

We offer the following in our China distribution contracts-

  • An exclusivity provision, or not
  • Whether the distributor can subcontract out distribution, or not
  • The geographic and market territory offered to the distributor
  • The term of the distribution agreement and what could be done to terminate or renew it
  • The specific products covered by the distribution agreement
  • Procedures a distributor can use to sell the products
  • The pricing of the product distributor can use
  • Terms of payments
  • Performance, efficiency, and sale requirement of the distributor
  • Ordering and shipping methods
  • Who is in charge of what when it comes to such things as faulty products, warranties, advertising, obtaining permits, technical support etc.
  • Anti-corruption and FCPA compliance
  • Rights regarding new or modified products
  • Distributor’s right on whether or not he/she could sell the products of others
  • All sorts of things relating to intellectual property (trade secrets, trademarks, patents, copyrights, etc.)
  • Non-competition during or after the term of the distribution agreement
  • Damages for breaches
  • Dispute resolution (venue, choice of law, etc.)

These are the terms that are must in a standard agreement.

After reading the article titled “Getting a Good Night’s Sleep While Distributing Medical Devices in China” I realized deeply how challenging it is to distribute products in China. Benjamin Shobert and Juan Jimenez, the writers of this article and friend of mine, have written out this remarkable article using their long-term experience of dealing with medical device distribution in China. The article started out with the following scenario, that is both truly common and nightmarish:

“Somewhere in China right now, a domestic Chinese medical device distributor for an American company is invoicing one of their dealers for a product they sold to a public hospital. This is a good thing. The dealer has built and maintained key relationships with the hospital. This is also a good thing. Both the dealer and distributor likely are covered by some sort of exclusive distributor agreement between them and the manufacturer, which is always a good idea in China. But, unbeknownst to you, when the dealer encounters a situation where your product is too expensive, or would be too complex of a sale for your dealer, they will assume a new identity and, under this assumed identity, sell a competitor’s product. The assumed identity represents another option for the dealer, another way to protect their risk in a market where selling on something more than price is many times an uncomfortable position for an unsophisticated distributor or dealer.”

Being a responsible lawyer, I can assure all my clients that I fairly deal with all these issues in our distribution contracts. But when the distributor relationship begins, it is up to our clients to monitor compliance and to decide how to deal with noncompliance and that is where things get challenging. If you are involved in selling your product in China through a third party (even if that third party is your own WFOE or Joint Venture), I strongly recommend you to go through the article of Shobert/Jimenez, it will definitely offer you the knowledge to secure better security.

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