Reseller / Distribution Agreement — US Drafting Reference

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Drafting reference for US reseller and distribution agreements — territorial restraints, resale price maintenance, FTC Franchise Rule, antitrust risk.

The reseller, distribution, and dealer agreement family governs the indirect-channel sale of products by an upstream manufacturer or licensor to downstream parties who resell to end users. Unlike a one-time supply agreement, a distribution relationship is a continuing commercial arrangement that creates joint exposure to antitrust law, state dealer-termination statutes, the FTC Franchise Rule, and (in trademark-heavy contexts) the doctrine of naked licensing. This page is the US drafting reference for the contract type. Cross-reference contract law basics for offer-acceptance, UCC Article 2 for the goods-sale overlay that governs the underlying transactions, and standard clauses for boilerplate.

Distributor vs. Reseller vs. Agent vs. Franchisee — The Classification Question

The first drafting task is classification. Each of the four arrangements carries a different legal regime:

  • Distributor. Takes title to the product, resells to end users (or sub-distributors), bears inventory risk, sets its own resale price (subject to MAP/RPM policies discussed below). Most B2B channel arrangements.
  • Reseller. Often synonymous with distributor; some industries reserve “reseller” for value-added intermediaries (VARs) who bundle the product with services or sell it under their own branding. Functionally similar treatment.
  • Agent. Does not take title; represents the principal, who sells directly to end users. Sales commissions; principal bears inventory risk; agent has fiduciary obligations to the principal. Often governed by state agency-law statutes (e.g., the California Independent Sales Representative statute, Cal. Civ. Code § 1738.10).
  • Franchisee. Operates a business under the franchisor’s trademark and “marketing plan,” paying a “franchise fee.” Defined at 16 CFR § 436.1(h) and triggers the FTC Franchise Rule disclosure regime. Many state “business opportunity” statutes layer on top.

The classification is not chosen — it is determined by the actual relationship terms. A “distribution agreement” that imposes a marketing plan and charges a fee can be re-classified as a franchise notwithstanding the contractual label, exposing the upstream party to FTC Franchise Rule liability for failure to provide a Franchise Disclosure Document (FDD).

FTC Franchise Rule — When Does Distribution Become Franchise?

The FTC Franchise Rule at 16 CFR § 436 triggers when three elements coincide:

  1. The franchisor grants the franchisee the right to operate a business that is identified or associated with the franchisor’s trademark;
  2. The franchisor has the right to exercise significant control over, or provides significant assistance in, the franchisee’s method of operation;
  3. The franchisee makes a required payment of $615 or more (2024-adjusted threshold) within the first six months of operations.

If all three elements are present, the franchisor must provide the prospective franchisee with a Franchise Disclosure Document (FDD) at least 14 calendar days before signing or any payment. Failure is an unfair or deceptive practice under FTC Act § 5, with penalties up to $51,744 per violation (2024 adjustment).

Drafting consequence: a distribution agreement that requires the distributor to pay any meaningful fee (training fee, initial inventory purchase, set-up fee) AND uses the manufacturer’s trademark AND imposes operational requirements (territory, sales targets, methods) is at risk of franchise reclassification. Standard structural responses: keep the distributor’s required payment below $615; license trademark use narrowly (product packaging only, not business identification); minimise operational control. State franchise registration regimes (California, New York, Illinois, Michigan, and 11 other “registration states”) add a parallel layer and use varying definitions.

Exclusive vs. Non-Exclusive Territory

Territorial restraints are the structural heart of a distribution agreement. Three patterns recur:

  • Exclusive territory. The distributor is the only authorised reseller in a defined territory; the manufacturer commits not to appoint another reseller and (often) not to sell directly into the territory. Strong distributor incentive; high manufacturer commitment cost.
  • Non-exclusive territory. Multiple resellers may operate; manufacturer may sell directly. Lower commitment; lower distributor incentive.
  • Protected territory / preferred status. Distributor’s primary territory where other resellers may operate but the distributor receives lead-routing preference, marketing-development funds, or override commissions on cross-territory sales.

Territorial restraints between manufacturer and distributor are vertical restraints (between successive levels in a supply chain) and are evaluated under the rule of reason under Sherman Antitrust Act § 1, 15 USC § 1. The Supreme Court’s foundational case is Continental T.V., Inc. v. GTE Sylvania, 433 U.S. 36 (1977), which overruled United States v. Arnold, Schwinn & Co. and established that vertical territorial restrictions are analysed under the rule of reason rather than per se illegality. The practical implication: exclusive territories, location clauses (“you may operate only from approved locations”), and customer restrictions are almost always lawful in B2B distribution, provided they have a plausible competitive justification (encouraging inter-brand competition, protecting investment in promotion, preventing free-riding).

Resale Price Maintenance — Federal vs. State Divergence

Resale price maintenance (RPM) — an agreement between manufacturer and distributor fixing the resale price — is one of the most-evolved antitrust doctrines. Three points along the spectrum:

Maximum RPM (manufacturer caps distributor’s resale price). State Oil Co. v. Khan, 522 U.S. 3 (1997) held that vertical maximum price-fixing is analysed under the rule of reason. Almost always lawful in practice.

Minimum RPM (manufacturer floors distributor’s resale price). Leegin Creative Leather Products v. PSKS, 551 U.S. 877 (2007) overruled the 1911 per se rule in Dr. Miles Medical Co. v. John D. Park & Sons and held that vertical minimum price-fixing is analysed under the rule of reason. Generally lawful federally if the manufacturer can articulate a procompetitive rationale (preventing free-riding, encouraging promotion and service investment, distinguishing brand image).

State-law divergence is critical. Several states reject Leegin under their state antitrust statutes. Maryland’s Antitrust Act explicitly retains the per se rule against vertical RPM (Md. Code Ann., Com. Law § 11-204). California’s Cartwright Act has been interpreted by some California courts to treat RPM as per se illegal notwithstanding Leegin (see Alsheikh v. Superior Court, 195 Cal. App. 4th 410 (2011)). New York and several other states have similarly resisted. The drafting implication: any RPM provision must be analysed under each state’s antitrust statute, and national distribution networks routinely structure pricing as a minimum advertised price (MAP) policy rather than a contractual minimum-RPM clause.

Minimum Advertised Price (MAP). A unilateral manufacturer policy — not an agreement — that specifies the minimum price at which the product may be advertised, with the manufacturer reserving the right to refuse to deal with non-complying distributors. The doctrinal anchor is United States v. Colgate & Co., 250 U.S. 300 (1919), which held that a manufacturer may unilaterally announce in advance the price at which it will refuse to deal, and may then refuse to deal. The fragile element of the Colgate doctrine is unilaterality: any back-and-forth negotiation, distributor agreement, or coercion converts the policy into an agreement subject to Leegin rule-of-reason analysis (or state per-se rules). MAP policies are widely used in consumer-electronics, appliance, and apparel sectors. Drafting practice: maintain MAP as a separate, signed-by-manufacturer-only policy document, not a contractual obligation in the distribution agreement.

Tying Arrangements

A tying arrangement conditions the sale of one product (the tying product) on the buyer also purchasing a second product (the tied product). Jefferson Parish Hospital District No. 2 v. Hyde, 466 U.S. 2 (1984) set the per-se tying test: substantial market power in the tying product + non-trivial commerce in the tied product + actual conditioning of sale. Eastman Kodak Co. v. Image Technical Services, 504 U.S. 451 (1992) extended tying liability to aftermarket parts in the photocopier-service market. The modern trend has moved away from per-se treatment in software-and-service contexts (see United States v. Microsoft Corp., 253 F.3d 34 (D.C. Cir. 2001) en banc, applying rule of reason to platform tying), but conventional product-bundling can still trigger per-se analysis in commodity contexts.

Distribution-agreement implication: requiring the distributor to purchase complementary or accessory products as a condition of carrying the principal product is a tying risk, particularly where the principal product is unique (patented, branded) and the accessory is widely available from competing sources.

Robinson-Patman Act — Price Discrimination

The Robinson-Patman Act, 15 USC § 13, prohibits price discrimination between competing customers in commodities of “like grade and quality” sold in interstate commerce, where the effect may be to substantially lessen competition. The Act was a 1936 amendment to the Clayton Act and is unusual in that it permits private rights of action with treble damages.

For distribution agreements, the operative principle: a manufacturer selling to multiple competing distributors must offer the same price terms unless one of three defences applies: (i) cost justification (the price differential reflects actual cost differences in serving the customer); (ii) meeting competition (the price differential reflects a good-faith response to a competitor’s price); (iii) functional discount (the customer performs functions the others do not). Functional discounts can be defended under Texaco Inc. v. Hasbrouck, 496 U.S. 543 (1990), if the discount reflects services actually performed by the distributor.

Robinson-Patman enforcement was relatively dormant from the 1980s through the early 2020s but the FTC under Chair Lina Khan revived enforcement, opening investigations against PepsiCo and Coca-Cola in 2025. Drafting practice has shifted accordingly: written cost-justification analysis for tiered pricing; written functional-discount programs; documented meeting-competition responses.

Trademark License — Quality Control and Naked Licensing

A distribution agreement typically includes a limited trademark license permitting the distributor to use the manufacturer’s marks in advertising, packaging, and promotion. The Lanham Act requires the trademark owner to control the quality of goods sold under the mark — a doctrine codified at 15 USC § 1055 and § 1127. A trademark license without quality control is a naked license and can result in abandonment of the mark.

The Seventh Circuit’s decision in Eva’s Bridal Ltd. v. Halanick Enterprises, 639 F.3d 788 (7th Cir. 2011) is the modern reference: Judge Easterbrook held that a trademark licensor who exercised “no control whatsoever” over the quality of goods sold under the mark by its franchisee had abandoned the mark by naked licensing. The drafting obligation: a trademark license clause must include quality-control standards (specifications, approval rights for marketing materials, audit rights for compliance), and the licensor must actually exercise those controls. A clause without actual enforcement is no better than no clause.

State Dealer-Termination and Fair-Dealership Statutes

A patchwork of state statutes regulate manufacturer termination of distributors. The most prominent:

  • Wisconsin Fair Dealership Law (WFDL), Wis. Stat. ch. 135. Applies to any “dealership” — broadly defined to include almost any continuing distribution relationship involving a community-of-interest. Requires 90 days’ written notice of termination, statement of cause, and a 60-day cure period for curable breaches. Termination without cause is unlawful; “good cause” is required.
  • Connecticut Franchise Act, Conn. Gen. Stat. § 42-133e et seq. Requires good cause for termination of “gasoline dealer” and certain other franchise relationships; 60 days’ notice.
  • New Jersey Franchise Practices Act, N.J.S.A. 56:10-1 et seq. Applies to franchises with NJ gross sales over $35,000; requires good cause, 60 days’ notice, opportunity to cure.
  • Vehicle dealer statutes. Nearly every state has a specific motor-vehicle dealer franchise statute; many extend to heavy equipment and farm machinery.
  • Beer and wine distribution statutes. Most states have beer-and-wine-distributor termination protections, often more protective than general dealer statutes.

The drafting consequence: choice-of-law clauses cannot escape the substantive protections of these statutes if they apply by territory or registration. A distribution agreement governed by Delaware law that terminates a Wisconsin dealer is still subject to the WFDL if the dealer is a Wisconsin “dealership.” Mandatory pre-termination procedures — notice, cause statement, cure opportunity — must be observed.

Pricing, MOQ, Returns

The transactional terms — pricing, payment, minimum order quantities, return rights — are governed by UCC Article 2 and typically structured as a framework (in the distribution agreement) plus individual purchase orders. Payment terms run from prepayment for new distributors to net 60 / net 90 for established channel partners. Return rights vary from no-returns (final sale) to limited-return for damaged/defective (statutory minimum under UCC § 2-608 revocation of acceptance) to broader stock-rotation programs.

Warranties Pass-Through

Distribution-agreement drafting must address how product warranties flow to end users. Three patterns: (i) distributor passes through manufacturer’s warranty to end users with no additional warranty by distributor; (ii) distributor provides its own warranty and is reimbursed by manufacturer for warranty work performed; (iii) hybrid where manufacturer warrants to distributor and distributor warrants to end users. UCC §§ 2-312 through 2-318 govern the underlying warranties; the Magnuson-Moss Warranty Act layers consumer-protection requirements on top for consumer products.

Choice of Law and Forum

Manufacturer typically prefers its home-state law and forum. Distributor’s home state often has dealer-protection statutes that cannot be contracted around. The compromise patterns: (i) governing law of manufacturer’s state for general contract interpretation, with savings clause that state dealer-protection statutes of distributor’s state apply where mandatory; (ii) AAA/JAMS arbitration to displace state-court forum.

Bibliography

Cross-references

Disclaimer: This content is informational, not legal advice. Last verified: 2026-05-10. Always consult licensed counsel for binding decisions.