Working with American distributors in practice

Many Polish companies that want to conquer the American market think that finding a distributor in the US market is the best way to sell European products in the US. Polish entrepreneurs who found American distributors should be congratulated upon but please bear in mind that 

Finding a distributor in USA

Many Polish companies that want to conquer the American market think that finding a distributor in the US market is the best way to sell European products in the US. Polish entrepreneurs who found American distributors should be congratulated upon but please bear in mind that it is just the beginning.


Establishing relationships with American distributors

The easiest way to address this question is to consider the case of one of the European companies manufacturing products marketed in the US. The company developed a very interesting product. It is so unique that it has attracted some attention from the Western media. One of major TV stations produced a show exploring the new product, which we will refer to as ‘product X’. Although the program was produced with TV viewers in mind, it was quickly featured on social media and enjoyed huge popularity there. Why? Not only does the product X address a real market need, but it also offers a very unique value/advantages. After using up the product X, the consumer can discard or even leave it ‘in the street’ as it is super environment-friendly. This additional use of the product is hugely popular with consumers in Western markets, including the US, where a segment of consumers support green brands by buying their products, even if they are more expensive than the products offered by the competitors. No wonder that potential business partners looking to sell products X, including the American distributor, have come to approach the European manufacturer. The American distributor offered to launch the product X in the US and was provided the rights to sell the product X in the US. The European manufacturer neither planned nor expected to get to sell their product in the large American market so soon. It is worth adding that the American distributor is based in one of the warmer US states. Why does the location of the product distributor play such a significant role in this case will be discussed later on.

Product promotion by the American distributor

The American distributor rapidly committed to seriously promoting and selling the European product in the American market. It is worth stressing here that the US is a market where companies make business decisions very quickly. The distributor started promoting the products X in the American social media. The video about the product X made by a Western TV station was used for promotion on Facebook. Did the manufacturer have the copyright for this video and provided it to their distributor in the US? This is the question #1 that comes with legal consequences in the US. If the manufacturer or their distributor did not have the copyright to use this video in the US, one of the parties has violated the copyright for the video since it was and has been used for commercial purposes. It is also worth keeping in mind that the video addressed to American Facebook users has promoted products X in two product categories: category A and category B. This is the issue #2 related to the American market. Available information showed that the European manufacturer did not agree to promoting and selling their products in the category B. Why? The sales of products in the category B requires the manufacturer to meet specific requirements of the American market, including the obligation to notify the FDA about the export of the products X before they are dispatched from Europe. From the beginning, the sales of the products X in the category B has not met American regulations. If any American consumer suffers from an injury while using a European product, the injured consumer will have the right to claim compensation from the distributor and the end vendor – anybody who markets the product X in the American market. The fact that the product X from the very beginning did not meet the standards of the American market would be effectively used by the lawyers of the injured party. Would legal consequences reach the manufacturer in Europe, too? The answer to this question will depend on many factors. It is worth adding that the manufacturer might not even have realized that the American distributor exposed them to such civic liability. The creative American distributor went even further.


Using manufacturer’s trademark in the US

The issue #3 concerns the rights to use trademarks and brands in the US. The US distributor drew up and filed with the American Patent Bureau an application for the protection of the brand related to the product X without having notified the EU manufacturer. What are the legal consequences of this move? If the distributor completes the whole legal procedure and effectively registers the brand and trademark in the US nationwide, they will gain exclusive rights to use the registered brand in 50 US states, and the European manufacturer will lose control over their brand in the US market. In the event of any disputes between the distributor #1 and manufacturer and termination of their business in the American market, nothing will stop the disappointed American distributor from going on a trip to China. There, they can quickly find a manufacturer who will be happy to manufacture products X for the needs of the American distributor. It is obvious that the European manufacturer has the option to work with US companies that will promote and market their high-quality products X manufactured in the EU. Unfortunately, the American distributor #1 will have the right to use the brand X in the US market and will be able to prevent the sales of any European products launched on the American market under the brand X. The owner of the registered brand X will be the ‘king’ of the American market.


The distributor in the UE and online sales

The issue #4 is the online sales in the US market. These days, web is a very interesting and profitable sales channel. Products X are already available on the American Amazon. Should the distributor come to own the brand X in the US, they will be able to register ‘their’ brand with Amazon as part of the ‘Brand registry’ (you can find more information here). As a result, the brand will be listed as one of the brands protected based on the official brand registration in the US Patent and Trademark Office. What will be business and legal consequences in the US? No online vendor, wholesale company or the manufacturer of the product X will be able to sell online X-branded products in the US. In future, the European manufacturer will not even be able to directly sell their products on Amazon FBA. Why? Because whenever other businesses come to sell the products under the brand X, the only thing the American distributor needs to do is report a given online offering to Amazon, and Amazon will block the account of any vendor who does not own the copyright to the offered product X. It will take just a few days.


Other issues related to the distribution in the American market

The issue #5 is the location of the storehouse used by the American distributor. Products X are so unique that the manufacturer themselves mentioned on the labels that they are stored in dry space. The storehouse of the American distributor is located in a state with 200 sunny days per year and the average humidity level above 85%. This means that the products X should be stored in air-conditioned rooms, which is costly for the American distributor. If the US distributor stored products X in a storehouse without controlled humidity even for several weeks on top of 4-5 weeks needed for transporting the products from the EU to the US in a container without air-conditioning, it is very likely that, by the time they reach American customers, the products will not be fit for use and will fall apart in the hands of the customers. Dissatisfied American customers are quick to share their bad experience with products in social media or with negative opinions on the Amazon website. In no time can the brand of the product X and the goodwill of the European manufacturer suffer losses across all markets where the products X are sold.


Smart cooperation with US distributors

How should the European company prevent such consequences and mistakes in the American market? The risk can be largely eliminated by drafting and entering into an American distribution contract. A distribution contract drafted in line with the market requirements and the American law shall set forth the rights, obligations and restrictions related to advertising and selling the products in the US market and the scope of activities that the American distributor can engage in in a given territory. A properly drafted distribution contract shall clearly state that the American distributor shall not have the rights to register the trademark related to the product exported from Europe. The contract with the American distributor shall also clearly mention the consequences of not meeting contractual conditions and allow the European manufacturer to terminate the contract with each distributor who exposes the distributor to costly consequences in the US.


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Author: Jacek Cieszyński