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Appointing resellers: what the agreement can and cannot control

Selling through other people looks like distribution without cost. Somebody else carries the stock, finds the customers and takes the commercial risk, and your product reaches markets you were never going to reach alone. The instinct is to write an agreement holding firm control of price, territory and presentation.

Two things get in the way of that instinct. Part of the control a brand owner naturally reaches for cannot lawfully be imposed at all, and most of the rest binds only the person who signed. Neither limitation appears while the relationship is working.

Before any of it, there is a question about what has actually been created. The word reseller is used loosely for arrangements that behave very differently: a distributor who buys goods and sells them on its own account, an agent who finds customers and concludes sales on your behalf, and a white-label partner who sells what you make under its own name. The heading on the document does not decide which of those you have. What the parties do decides it, and the money, the customer relationship and the liability sit in a different place in each.

What follows is where those differences surface, and which of the controls a brand owner assumes it holds actually exist.

The arrangement you have is the one you operate

Characterisation is a matter of substance. An agreement describing a reseller, operated in a way where the supplier sets the price to the end customer, invoices that customer directly or carries the credit risk on the sale, may not be the arrangement its own first page describes.

That matters most at the end. In Great Britain, self-employed intermediaries with continuing authority to negotiate the sale of goods on another business's behalf can attract statutory protections that are not removed by the wording of the contract, and which can require a payment to be made when the arrangement is terminated. A relationship everybody has called a reseller for years, but operated as agency, can therefore end with a liability nobody priced into the deal. The position in Northern Ireland has its own treatment, and arrangements concerning services sit differently from arrangements concerning goods.

The other version of this problem is the arrangement that grew without paperwork. A partner approached, orders were raised, standard terms travelled on the back of a purchase order, and somewhere in the email history a director confirmed that the territory was theirs. Arrangements of that kind are contracts on terms nobody chose, and their content is worked out afterwards from correspondence, at a point when the parties have stopped agreeing about anything.

The controls that cannot be imposed

The first control most brand owners want is over the resale price, because discounting damages the direct channel and infuriates the other partners. Competition law in the United Kingdom restricts what a supplier may do here. Fixing the minimum price at which an independent reseller may sell, or achieving the same result through pressure, incentives or the threat of withdrawing supply, is treated seriously. Recommended and maximum prices sit in a different position, and the boundary between a recommendation and a requirement is drawn by conduct rather than by the word used in the document.

Restrictions on the territories a reseller may sell into, and on the customers it may serve, are regulated as well. There is genuine room to structure a distribution arrangement, and that room is narrower and more conditional than most first drafts assume. What is available depends on how the arrangement is built and on the positions the parties occupy in their market, which makes it a question to be assessed rather than one to be answered from a template.

In practice the pressure to fix prices does not arrive during the drafting, when everybody is being careful. It arrives later, when a partner starts discounting on a marketplace and the calls begin. The instruction that creates the problem is usually given by telephone, by a sales manager under pressure to protect a channel, who has never read the agreement and does not know that the sentence carries a risk of its own.

A contract reaches only the party that signed it

Even where a restriction is lawful and well drafted, it binds your counterparty and nobody else. Goods do not respect that boundary.

Once genuine goods have been placed on the market in the United Kingdom or the European Economic Area by you or with your consent, your trade mark rights are generally exhausted in relation to those particular goods and cannot be used to prevent their onward resale. There are limited circumstances in which a brand owner may still object, for instance where the condition of the goods has been changed or impaired. The general position, though, is that trade mark law gives a brand owner very little purchase over who resells its own genuine stock.

So a partner who breaks a territorial restriction gives you a claim against that partner. The trader who bought the stock from them, and is now selling it into a market you reserved for somebody else, gives you nothing comparable, because you have no agreement with them and no right you can readily deploy against genuine goods.

This is where brand owners who have not run online sales themselves are most often surprised. Stock leaks, and it leaks predictably. A partner sitting on unsold inventory at the end of a season clears it to a trader, who clears it onto a marketplace, and the resulting listing sits next to your own at a price your retail buyers will see and remember. The remedies available at that stage are commercial rather than legal: what a partner is permitted to buy, on what terms, and what happens to supply when leakage recurs. Choosing partners carefully does more work here than drafting aggressively.

Whose customer is it, and what becomes of them

In a white-label arrangement your contract is with the partner, and the partner's contract is with the end customer. You are not a party to it. That has consequences which only appear when something goes wrong.

If the partner fails, is acquired, or moves to a competing supplier, the customers move with it, and there is no relationship of your own to fall back on. Where your product is delivered as a service, you may hold the data those customers depend on while having no contractual right to contact them and no lawful basis on which to market to them. The clause describing what happens to live customers when the relationship ends is usually the most valuable one in the agreement, and it is generally negotiated last, quickly, by people who cannot yet imagine the relationship ending.

Support is the other exposure. The customer's experience of your product is the partner's support desk, and the complaints that follow attach to the product rather than to the shopfront. A brand owner who has never seen those tickets is relying on a report, prepared by the party whose performance the report describes.

The arrangement also has to settle who is the controller of the end customer data and who is processing on whose instructions, because that determines who owes what to the individuals concerned and who has to act if something goes wrong. It is far easier to settle at the outset than during an incident.

Liability does not follow the margin

A partner takes a share of the revenue without taking a matching share of the risk, and in several respects the risk stays where it was or grows.

Consumers in the United Kingdom have rights against the trader who sold to them, so a consumer complaint lands on the partner first, which is limited comfort. The partner will look to you under the supply contract, and the reputational consequence attaches to the product in any event.

Product liability in the United Kingdom can also attach to a business that holds itself out as the producer by applying its own name or mark to goods, which means a white-label partner takes on exposure of its own that sits alongside yours rather than replacing it.

Regulatory duties travel as well. Where a partner imports your goods, obligations relating to safety, labelling and compliance can attach to it, and a partner unaware of them tends to discover them through an enforcement contact rather than through its own review. Whether your agreement requires compliance, and what happens if it is not achieved, is a question about your exposure and not only theirs.

Indemnities are the usual answer to all of this, and an indemnity is worth what the party giving it could actually pay. A promise from a small distributor to cover the cost of a product recall is generally worth considerably less than such an event costs, and the moment it is needed is the moment that becomes apparent.

What is not worth doing

A channel is not free, and for some businesses the honest answer is that they should not build one. Where the margin cannot support a partner's margin and the cost of supporting that partner, the arrangement moves revenue outwards and work inwards. Partner management is a genuine function, performed by real people, and it is normally handed to whoever already has the least time available.

Exclusivity offered to a partner who has not yet sold anything is worth less than the freedom to appoint somebody else, and a period of demonstrated performance before exclusivity attaches is an ordinary thing to ask for. A partner who will not entertain it is telling you something useful.

Not every breach deserves a response, and the small ones are where suppliers most often damage themselves. Pursuing a minor partner over discounting is the situation in which the remedy a supplier instinctively reaches for carries risk back to the supplier, and terminating a productive partner over a presentational failure costs more than the failure did. What tends to change behaviour in a distribution channel is the supply itself, and how much of it a partner can rely on next season.

The proposal worth resisting is the one that arrives already drafted by the other side, with a request to sign quickly in order to catch a season. Reading it properly costs a season. Signing it can cost the channel.

This guide is general information about how these matters usually run. It is not advice, and nothing becomes advice until terms are agreed in writing. Brandleys Legal Ltd delivers reserved legal activities alongside regulated partners.