What Does It Cost to Terminate My International Distributor Agreement?
A company in Munich wants to resell my product across German-speaking Europe. They have the relationships, I have no presence there, and the deal is obvious. Somebody sends a three-page reseller agreement and everyone signs.
If I ever want that territory back, I assume my thirty-day termination clause just ends things. I have never checked whether the country on the other side of that contract agrees.
Why Is an International Distributor Agreement Different?
In the United States, a distributor relationship is largely whatever the contract says it is. Across much of Europe and in a number of other jurisdictions, certain sales intermediaries receive protections by statute that the contract cannot remove.
The European framework comes from Council Directive 86/653/EEC on self-employed commercial agents, implemented in national law across EU member states. It draws a line between a Commercial Agent, who negotiates or concludes sales on your behalf, and a true Distributor, who buys your product and resells it for their own account. Agents get the statutory protections. Distributors generally do not, although some national laws extend similar treatment.
The label on your document does not settle which one you have. What matters is how the relationship actually operates.
What Do the Statutory Protections Actually Require?
Two provisions matter most. Under Article 15 of the Directive, minimum notice periods run one month in the first year, two months in the second, and three months in the third and subsequent years, and the parties may not agree to shorter periods. Member states may set four, five, and six months for later years.
Under Article 17, a commercial agent is entitled after termination to an indemnity or to compensation for damage. The indemnity is available where the agent brought you new customers or significantly increased business with existing ones and you continue to derive substantial benefit, and where payment is equitable in the circumstances.
The indemnity may not exceed one year’s remuneration, calculated on the agent’s average annual remuneration over the preceding five years. And Article 17 states expressly that granting the indemnity does not prevent the agent from also seeking damages.
Can You Draft Around It?
Not before the contract ends. Article 19 provides that the parties may not derogate from Articles 17 and 18 to the detriment of the commercial agent before the agency contract expires. A waiver signed at the start is, by design, ineffective.
Article 18 does exempt some situations, including termination for the agent’s own default justifying immediate termination under national law.
The practical consequence is that the termination cost is decided at the start, by the structure you choose, not at the end by the notice clause you wrote.
Common Mistakes Founders Make
- Assuming your governing law clause settles it. Choosing California law does not automatically escape protective rules a jurisdiction treats as mandatory for relationships in its territory.
- Calling the counterparty a distributor when they behave like an agent. If they negotiate on your behalf rather than buying and reselling for their own account, expect the substance to govern rather than the label.
- Signing a short-form reseller agreement because the deal is small. The statutory exposure scales with the business the intermediary builds, not with the length of the document that created it.
Before You Sign, Check These Six Things
- Does our counterparty buy and resell for their own account, or negotiate and conclude sales on our behalf?
- Which country will they actually operate in, and have we checked what that country does with these relationships?
- What notice period does our agreement give, and would it survive a mandatory minimum?
- Have we modeled what a year of their commissions would cost us?
- Do we have exclusivity in the deal, and does that make the relationship look more like agency?
- Who on our side owns the relationship, and would they know to escalate before sending a termination notice?
The Bottom Line
This is the rare international issue where exposure is created entirely at signing and cannot be repaired later. A conversation about structure before your first territory deal is worth far more than a careful termination letter four years on.
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