IP Tech Knowledgy

When obtaining assistance in marketing your technological product, consider if you want to sell it through a distributor, or have a sales representative help you find customers. Although the services of each are similar, there are nuances. Also, determine how the customer will obtain and use the software that operates in conjunction with the product.

The core difference between a distribution agreement and a sales representative agreement is whether the middleman is acquiring the product and reselling it (a distribution agreement), or is finding customers who will purchase directly from the manufacturer (a sales representative agreement). The manufacturer often has a more direct connection with the customer using a sales representative, because the sale, the warranty, and the software license creates a direct relationship with the customer. When using a distributor, the distributor owns the product for some period of time and needs to pass through any licenses, warranties and possession. With a distribution agreement, the manufacturer may have less ability to control who obtains the product, if there is some sensitivity to the types of users the manufacturer is looking for.

When the product includes software, for which the user will need to obtain a license, a sales representative agreement may create a smoother transaction because the manufacturer can license the software directly to the customer at the same time it is finalizing and shipping the device in which the software resides. In a distribution agreement, the customer may first need to contract with the distributor to acquire the device and then contract with the manufacturer to receive the software license. Or the distributor would have to have the rights to pass through a license, which might be more cumbersome for the manufacturer to coordinate and keep track of.

If the business model is to rent the technological equipment to the customer, a sales rep agreement may be more flexible for the manufacturer to take back the products that are being misused and to monitor the periodic payments. If the rental is operated through a distribution agreement, there may be a more complex lease and sublease arrangement.

In either arrangement, consider if the manufacturer is granting “exclusive” rights or “sole” rights in a territory and/or a certain market. An exclusive grant means not even the manufacturer can approach the customers.  If the grant establishes a “sole” distributor or sales representative, the manufacturer can also operate in that market. 

The distributor bears more risk than the sales rep, must consider inventory, and could bear the burden if the market for the product quickly dries up.
 

Ned T. Himmelrich
410-576-4171 • nhimmelrich@gfrlaw.com