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Technology License And Distribution Agreement - First Hand Examples?

Hello.  I have a company embarking on a worldwide launch of a commercial technology.  We have many inquiries coming in to sell our product and made the strategic decision to move into a distributor sales model.  I have developed a framework, but am interested to see if anyone else has like experience and might be willing to share (in confidence) concerns, pitfalls, contract/agreement examples, etc.  I am particularly interested in wholesale pricing methodology, requirements to hold inventory, parts, negotiated warranty labor rates, etc.

The more information that I can arm myself with, the tighter I can manage what is going to be a diverse group of channel partners.  Thank you in advance for any insight fellow Proformative members can provide! -Paul

Answers

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

I have done extensive global business.

Contracts are great, but be advised that enforcing them where the entity is abroad is a different matter and can be quite expensive.

Then again, a very large percentage of these contracts did indeed go off without a hitch.

Feel free to contact me.

Wayne

Topic Expert
Bob Scarborough
Title: CEO
Company: Tensoft, Inc.
(CEO, Tensoft, Inc.) |

My guess is there will be industry specific practices and expectations – and so it would be especially helpful for you to find someone in your own industry. That said – my experience is around the technology industry.

There are some variables that impact your negotiation.
1) One of them is the type of distribution relationship you will have. One type is sell through – where you are selling to a distributor while you already know the end customer. A second type is sell to – where the distributor acts as a collator of demand, and you do not know the end customer at the type of sale. The first model is distribution as a matter of convenience or international requirement – for example the legal requirements around selling into Japan or customs in China. The second model the distributors buy and sell anticipating demand – taking on more risk.
2) A second variable is the uniqueness and price of your product. Commodity type products have one set of important variables for the distributor – for example price guarantees as their market value fluxuates. Higher end or unique products have another set of important variables – for example stock rotation or price rebates may be critical.

A common model to consider is incentives to the distributors, and acknowledgement that their customers are not all the same. If your distributor is selling to major player x they will not get the same terms or pricing they will from minor player y. Ship and debit agreements can set rebate targets for you to help your distributor deal with these market realities – giving them rebates on volume by product or rebates on sales to specific target customers.

If there are major players in your industry that will be buying from your distributors it is often helpful to know who they are. Receiving point of sale (POS) data from your distributors on a regular basis can be extremely helpful – letting you see who their customers are for market and pricing analysis – and giving you some idea of how much inventory is in the channel as a demand or market health indicator. The information you want from the distributor should be part of your negotiation.

My last thought – is to spend at least a small amount of time considering the realities of how whatever agreement you get will be tracked. Complicated methods that require tons of tracking and detailed computations may have the illusion of providing you a few more dollars – but those dollars are something you will lose with the administrative cost required to track them.

Bob Scarborough
www.tensoft.com

Topic Expert
Jake Feldman
Title: Managing Director
Company: Global TaxFin Advisory Group LLC
(Managing Director, Global TaxFin Advisory Group LLC) |

Hi Paul,

In addition to the recommendations above, another place to start is to look at public company filings of distribution agreements. A superb and mostly free resource is www.onecle.com, which has all types of agreements including distribution. As far as pricing, that happens to be one of the things I specialize in because the transfer pricing field is all about determining what comparable profit should be realized for activities like distribution. Beyond that, I've traveled and worked on global projects like yours in over 50 countries on all major continents. Please do get in touch.

Jake

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