In the previous blog entry, we gave a taste of what unfair competition could be like in practice where taking advantage of rival-generated resources is concerned, and what to watch out for to defend your business.
In this part, we want to briefly discuss how to ensure your business’s compliance to protect yourself against unfair competition.
Building your distribution network is crucial to your business. It takes time and effort to build the value and recognition of your brand and to ensure market penetration. A very common solution is to have distribution agreements in place with independent distributors or, which is less common in Poland, entering into an agency agreement.
Distribution agreements are hardly ever simple agreements for the sale of goods to a distributor with the view for it to resell them. Such agreements often set out the distributor’s and the principal’s marketing and customer base development undertakings. Usually, distributors go to great lengths by taking all sorts of marketing and sales actions and providing customer service to build and develop the business, but so does the principal, whose responsibility it is to deliver the products, services, and professional and marketing literature in a timely manner. More often than not, the distributor also contributes to the marketing spend.
After many years of cooperation, the parties may go their separate ways. Facing termination of the distribution agreement, the distributor often seeks potential claims against the principal. The most commonly pursued claims are based on the assertion that the distributor should be rewarded for building brand recognition in Poland. Therefore, former distributors frequently raise claims based on unfair competition.
The typical controversies include:
- “Ownership” of customers – The distributor tends to feel entitled to serve customers exclusively and, when the principal switches to another distributor and distributes independently, the former distributor challenges this, alleging unfair competition.
- Compensation for termination – The distributor usually feels entitled to a fee for building the customer and sales bases in Poland.
- Exclusivity and non-compete by the former distributor after termination of the distribution agreement – While the principal normally insists on a non-compete after termination of the distribution agreement; appreciating the importance of such undertaking, one should carefully consider this type of provision from the competition law point of view.
- Use of principal’s trademark and marketing materials by the former distributor – The former distributor still wishing to represent itself as the distributor of principal’s products and use principal’s renown.
- The principal’s repurchase of the inventory.
The principal should bear in mind that the former distributor may argue that the termination of the distribution agreement, takeover of the distributor’s customers and refusal to supply the principal’s products to the former distributor all constitute unfair competition. Therefore, all the matters above should be taken into account while first drafting the distribution agreement in order to avoid any disputes later.
We not only advise on how to identify such unfair conduct on the part of the competition, but also how to avoid any conduct posing a risk of dispute with former distributor, while, in the event of a court dispute, how to defend the adverse party’s allegations.