I. Distribution Agreement and Competition Law – Case Overview
TB Legal provided legal assistance to a business client in connection with the competition law review of a distribution agreement.
The client’s objective was to structure a commercial distribution model that protected its business interests while taking into account the requirements of Georgian competition law.
TB Legal reviewed the structure of the proposed agreement, the rights and obligations of the parties, the distribution model and contractual provisions capable of affecting the parties’ commercial independence and market conduct.
The review identified provisions requiring additional competition law attention, and practical recommendations were prepared to strengthen the agreement’s compliance with applicable competition rules.
II. Why Distribution Agreements Require Competition Law Review
A distribution agreement often regulates considerably more than the supply of products, price and payment terms.
It may define the territory in which a distributor operates, exclusivity arrangements, the organisation of sales, dealings with particular customer groups and other aspects of the parties’ long-term commercial relationship.
Under the Law of Georgia on Competition, an agreement between undertakings operating at different levels of production or distribution concerning the conditions under which goods or services are purchased, sold or resold may constitute a vertical agreement.
Article 7 of the Law prohibits agreements whose object or effect is the prevention, restriction or distortion of competition within the relevant market.
Accordingly, the assessment of a distribution agreement may require consideration not only of its contractual wording but also of its economic substance, the relationship between the parties and the potential market effects of the restrictions concerned.
In this matter, TB Legal’s objective was to identify these issues before the distribution agreement was finalised.
III. Exclusivity and Territorial Restrictions
Exclusive distribution and territorial arrangements are common elements of commercial distribution models.
The existence of an exclusivity clause does not, by itself, establish a competition law infringement. Its legal assessment depends on the nature and scope of the restriction, the structure of the distribution relationship and the relevant commercial circumstances.
Particular attention may be required where the agreement regulates matters such as:
- exclusive territories;
- restrictions on sales outside an allocated territory;
- customer allocation;
- restrictions affecting the distributor’s commercial independence; or
- other limitations on how and where products may be resold.
In the client’s case, TB Legal reviewed the relevant contractual provisions and identified issues requiring further legal attention in order to structure the proposed distribution relationship within a more competition-compliant framework.
For a detailed analysis of these issues, see our article Distribution Agreement and Antitrust Risks – What Businesses Should Know. The article examines exclusive distribution, territorial restrictions and the distinction between active and passive sales in the context of competition law.
IV. Refining the Distribution Model and Contractual Terms
A competition law review is most useful when it goes beyond identifying potential risks.
For a business, the practical objective is to determine how the commercial model or relevant contractual provisions can be structured so that the intended economic purpose is preserved while unnecessary competition law exposure is reduced.
Based on its assessment, TB Legal prepared recommendations for clarifying relevant provisions and refining the legal structure of the proposed distribution model.
This allowed competition-law-sensitive issues to be considered during the negotiation and drafting stage, before the parties entered into the final contractual arrangement.
V. Outcome – Preventive Management of Distribution-Related Competition Risks
As a result of TB Legal’s involvement, the client received a competition law assessment of the proposed distribution agreement together with practical recommendations concerning relevant contractual provisions.
The engagement included:
- review of the proposed distribution model;
- analysis of the commercial relationship between the parties;
- identification of provisions requiring additional competition law attention;
- assessment of relevant contractual restrictions; and
- preparation of recommendations for improving the legal structure of the agreement.
The client was therefore able to consider competition law risks before finalising the distribution arrangement and to structure the proposed cooperation with those risks in mind.
The matter demonstrates the value of preventive competition law advice in distribution relationships, particularly where an agreement contains exclusivity, territorial restrictions, sales limitations or other provisions affecting the commercial freedom of the parties.
VI. Legal Support for Distribution Agreements and Competition Law in Georgia
TB Legal is a law firm in Georgia advising Georgian and international businesses on competition law compliance and the structuring of commercial arrangements.
Our Competition Lawyer in Georgia practice includes competition law review of distribution and other commercial agreements, assessment of vertical restrictions, exclusivity and territorial arrangements, competition compliance and representation in proceedings before the Georgian Competition and Consumer Agency.
If you are planning a distribution arrangement involving exclusivity, territorial limitations, sales restrictions or other commercially sensitive provisions, you can contact TB Legal for a competition law assessment before the agreement is implemented.