Non-Compete clause in an exclusive distribution contract with a Polish company – Need advise

Question

Hi All

Can we(the supplier) add the following into an exclusive distribution contract with a new Polish partner –

” The distributor shall not create, manufacture, advertise, distribute or represent any kind of product which may compete directly with the product without previous authorisation in writing from the supplier. The commitment not to compete shall be upheld throughout the duration of the contract and 2 years after its completion/termination”

Any advise or recommendations would be helpful?
Regards
Ajay S.

Answer

Hi Ajay,

I think the question is not whether you can use such a clause, but whether they will accept it.

If you have already negotiated this verbally, there’s no reason why they should object if given formal status in a contract. I don’t know the details of your product or service but it does seem to me to be quite restrictive, particularly the duration after completion of the contract.

In my own experience, the key to getting favourable clauses into contracts is also to specify what they CAN do, as well as what they can’t.

You might also ask yourself whether there are any alternatives to protecting your product in other ways, such as a trade mark, as they may want something substantial in return for acceding to the clause, such as fixed pricing or performance guarantees.

I suggest you seek advice from a solicitor you know well, or has been recommended to you.

Good luck!

Philip Yau

Answer

Thanks Philip for your comments.
Regards
Ajay

Answer

I would concur with Philip Yau but would add that the other question would be that of enforceability.

Enforceability is one of the major issues you will encounter with restrictive covenants of this nature. The possibility exists that the Court may not enforce this if they see it as being disproportionate and too restrictive. This is why the insertion of a severability clause which, in layman’s terms, has the effect of keeping the contract or a provision within the contract valid, if one aspect of the contract or clause is ineffective and carved out of the agreement.

I would also point that you need to look to the provisions of the Commercial Agents (Council Directive) Regulations.

Given also that this is a cross-border transaction, you need to ensure that there is a proper law and jurisdiction clause or clauses. I would also ensure that you have a separate dispute resolution provision within the agreement.

Finally but not at all exhaustively, it seems to me that you also need to look at issues of intellectual property to key off the issue which you have described above as I presume that you feel that the knowledge and data the distributor or agent would have gained in the distribution of your product will in part be your intellectual property.

Of course you will not be surprised when I say that you should have your agreement professionally drawn up by a qualified solicitor specialising in international trade law, particularly if the contract is some value to you.

I hope that helps.

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