Introduction
Sell-to-Right Contract is increasingly used in commercial practice, especially by international companies that want to expand distribution channels while maintaining legal security. Unlike general distribution agreements or franchise models, a Sell-to-Right Contract grants the right to purchase and resell goods under specific contractual obligations, balancing exclusivity, competition law compliance, and intellectual property rights. In this article, we will analyze the legal framework of Sell-to-Right Contracts, discuss their practice, remedies, and show how they differ from franchise agreements.
Legal Framework of Sell-to-Right Contract
1. Basis under Contract Law
The Sell-to-Right Contract is not explicitly codified in Turkish law or most continental systems. It falls under the general provisions of the Turkish Code of Obligations (TCO, Law No. 6098) and comparative contract law principles. As an “innominate contract” (sui generis), its validity rests on freedom of contract (pacta sunt servanda).
2. Core Characteristics
- Purchase Obligation: The seller grants the counterparty the contractual right to purchase and resell goods in a defined territory.
- Exclusivity Clause: Often accompanied by exclusivity, preventing the seller from granting the same right to other distributors.
- Resale Right: Distinguishes Sell-to-Right Contract from agency, since the contracting party resells in its own name and at its own risk.
- Duration: Can be fixed-term or indefinite, subject to termination clauses.
3. Governing Law and Jurisdiction
International Sell-to-Right Contracts usually include a choice-of-law clause (e.g., Turkish law, Swiss law, English law) and arbitration or court jurisdiction. In Turkey, disputes would fall under the general jurisdiction of Commercial Courts of First Instance.
Practical Applications of Sell-to-Right Contract
1. Distribution in Regulated Sectors
Sell-to-Right Contracts are popular in pharmaceuticals, food, automotive, and technology sectors, where regulatory compliance is essential but parties do not want to use franchise or licensing structures.
2. Risk Allocation
- The contractor bears commercial risk of resale (unsold stock, marketing, competition).
- The supplier ensures product quality and often imposes compliance obligations.
3. Remedies for Breach
If obligations are breached, remedies include:
- Termination of contract for cause.
- Compensation for damages under TCO Art. 112 ff.
- Injunctions (e.g., preventing resale outside agreed territory).
Distinction from Franchise
1. Legal Nature
- Sell-to-Right Contract: Primarily a sales contract with exclusivity; no transfer of business model.
- Franchise: Composite contract combining intellectual property licensing, know-how transfer, and ongoing support.
2. Intellectual Property
- Sell-to-Right Contract: Limited use of trademarks or branding, only to the extent necessary for resale.
- Franchise: Heavy reliance on franchisor’s trademark, brand image, and IP portfolio.
3. Control and Support
- Sell-to-Right Contract: Supplier has limited control; contractor acts independently.
- Franchise: Franchisor exercises strict control over operations, quality standards, and business strategy.
4. Competition Law
Both contracts must comply with Turkish Competition Law (Law No. 4054) and EU Block Exemption rules:
- Sell-to-Right Contract: Exclusivity clauses and resale price maintenance may trigger competition concerns.
- Franchise: More complex because of territorial restrictions and brand standardization.
Remedies and Enforcement in Sell-to-Right Contract
1. Civil Remedies
- Specific Performance: For delivery obligations.
- Damages: For non-delivery, breach of exclusivity, or unauthorized resale.
2. Termination Rights
- Unilateral termination possible for serious breach, insolvency, or violation of competition law.
3. Dispute Resolution
- Typically subject to arbitration clauses in international commerce (ICC, ISTAC, LCIA).
- If no clause exists, Turkish commercial courts will adjudicate under TCO principles.
Why Companies Prefer Sell-to-Right Contract
- Flexibility: Easier to draft and negotiate than franchise.
- Lower Compliance Burden: No licensing of brand systems, fewer statutory disclosures.
- Clearer Risk Allocation: Reseller carries its own risk.
- Suitable for Cross-Border Trade: Recognized under general contract law principles worldwide.
Conclusion
Sell-to-Right Contract offers a flexible contractual framework for businesses seeking controlled distribution without the burdens of a franchise system. While it resembles exclusive distribution agreements, its distinct nature lies in granting the right to purchase and resell under contractual exclusivity. The legal framework is rooted in the Turkish Code of Obligations, international private law, and competition law. Compared with franchise agreements, the Sell-to-Right Contract involves less control, fewer IP transfers, and lower compliance requirements. For international investors, understanding this contractual model is essential to mitigate risks, ensure enforceability, and design effective market entry strategies.
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