International Distribution and Franchise Agreements: Legal Risks for Businesses Expanding Abroad

International expansion often begins with a deceptively simple commercial idea:

Find a local partner and let that partner sell the brand in the new market.

The legal reality is considerably more complicated.

A company entering a foreign country through a distributor, dealer, franchisee, master franchisee or other commercial intermediary does not simply appoint a sales partner. It creates a long-term legal relationship involving territorial rights, pricing, competition law, intellectual property, regulatory compliance, customer ownership, online sales, termination and dispute resolution.

A poorly structured agreement can leave a brand facing two opposite risks.

It may give the local partner too little protection, making the partner unwilling to invest in developing the market.

Or it may give the partner too much control, making it extremely difficult for the brand owner to replace that partner, enter the market directly or recover control over its trademarks and customer network when the relationship ends.

The central challenge is therefore to create a structure that encourages local investment without surrendering long-term control of the market.

For companies expanding internationally, the important question is not simply:

“Should we appoint a distributor or franchisee?”

The more useful questions are:

Who owns the customer relationship?

Who controls pricing?

Who owns the trademark and local registrations?

Can the local partner sell outside its territory?

Can the brand sell directly through its own website?

What happens if the relationship ends after the distributor has developed the market for ten years?

And ultimately:

Which country’s mandatory laws can override the contract?

These questions should be resolved before the first product is shipped or the first franchise outlet is opened.

1. Distribution, Dealership, Agency and Franchise Are Not the Same Relationship

The terminology used by commercial teams can be misleading.

Companies frequently use terms such as:

• distributor;
• dealer;
• reseller;
• commercial agent;
• franchisee; and
• representative

as though they were interchangeable.

They are not.

The legal classification of the relationship may significantly affect liability, compensation rights, competition-law analysis and termination.

Distributor

A distributor normally purchases products from the supplier and resells them in its own name and for its own account.

The distributor therefore generally assumes:

• inventory risk;
• resale risk;
• customer credit risk; and
• part of the local marketing burden.

The supplier sells to the distributor.

The distributor sells to the final customer or downstream dealer.

Commercial Agent

An agent generally negotiates or concludes transactions on behalf of the principal rather than purchasing and reselling products independently.

This distinction can be particularly important because many jurisdictions provide statutory protections for commercial agents, including rights relating to termination compensation or indemnity.

Franchisee

A franchise relationship normally goes much further than ordinary distribution.

The franchisee usually receives permission to operate using the franchisor’s:

• trademark;
• business model;
• know-how;
• operating standards;
• trade dress;
• commercial system;
• manuals; and
• continuing commercial assistance.

In return, the franchisee may pay:

• an initial franchise fee;
• recurring royalties;
• marketing contributions;
• technology fees; and
• product-related payments.

The legal risks are therefore broader than those in a simple distribution agreement.

2. The First Strategic Decision: How Much Control Does the Brand Want?

A company entering a new country should first determine the level of control it wants to retain.

An independent distributor may provide rapid market entry because the distributor already possesses:

• local customers;
• warehouses;
• logistics infrastructure;
• sales staff;
• market knowledge; and
• regulatory experience.

But the distributor also operates as an independent business.

A franchise model provides the brand with greater operational control but usually requires greater involvement in:

• training;
• quality standards;
• store design;
• technology;
• supply chain;
• advertising; and
• monitoring.

A wholly owned local subsidiary offers even greater control but requires considerably more capital and operational commitment.

The legal model should therefore follow the commercial strategy.

A business should not use a franchise agreement simply because another company in the industry does so.

Nor should it appoint an exclusive distributor before understanding how difficult exclusivity may later be to reverse.

3. International Expansion Creates a Conflict-of-Laws Problem

An international distribution agreement may involve several legal systems simultaneously.

Consider the following example:

A Turkish manufacturer appoints a German distributor to sell products throughout France, Belgium and the Netherlands.

The agreement provides for English law and arbitration in Switzerland.

The transaction may therefore interact with:

• Turkish law;
• German law;
• English contract law;
• Swiss arbitration law;
• EU competition law;
• French, Belgian and Dutch product regulations; and
• local trademark and consumer-protection rules.

A governing-law clause does not necessarily eliminate every other legal system.

Certain mandatory rules can apply regardless of the contractual choice of law.

International distribution agreements must therefore distinguish between:

the law chosen to govern the contract

and

mandatory laws applicable because of the territory in which the commercial activity takes place.

This distinction is particularly important in competition, agency, franchise disclosure, consumer protection, product regulation and intellectual property.

4. Territorial Exclusivity: The Commercial Promise That Creates Legal Risk

One of the first demands made by a foreign distributor is often:

“If I invest in developing your brand in this country, I want exclusivity.”

Commercially, the request is understandable.

A distributor may be expected to spend substantial money on:

• local advertising;
• product registration;
• warehouses;
• employees;
• showrooms;
• retailers;
• translations;
• trade fairs; and
• customer development.

It may refuse to make those investments if the supplier can immediately appoint another distributor in the same market.

But exclusivity must be precisely defined.

An agreement should specify whether exclusivity applies to:

• a country;
• part of a country;
• particular customer groups;
• particular products;
• particular sales channels;
• physical retail;
• wholesale customers;
• e-commerce; or
• government contracts.

The phrase “exclusive distributor for Germany” may be insufficient.

Does that prevent the supplier from accepting unsolicited orders from German customers through its international website?

Does it prevent a distributor in France from selling to a German customer who approaches it?

Does it cover Amazon?

Does it cover sales by affiliated companies?

Does it cover products launched after the agreement is signed?

These questions should not be left unanswered.

5. Active Sales and Passive Sales Under EU Competition Law

Territorial restrictions become particularly important when distribution takes place within the European Union.

The current EU framework is principally based on Commission Regulation (EU) 2022/720, the Vertical Block Exemption Regulation (“VBER”), together with the accompanying Vertical Guidelines.

Under VBER, qualifying vertical agreements can benefit from a block exemption where both supplier and buyer generally remain within the applicable 30% market-share thresholds and the agreement does not contain hardcore restrictions.

EU law draws an important distinction between active and passive sales.

Active selling generally involves deliberately targeting customers in a particular territory or customer group, including through targeted communications or advertising.

Passive selling generally concerns responding to unsolicited customer requests.

This distinction has major consequences for territorial exclusivity.

EU competition law permits certain restrictions on active sales into territories or customer groups reserved to the supplier or allocated within qualifying exclusive distribution systems.

By contrast, broad restrictions on passive sales can constitute serious competition-law restrictions.

The commercial concept of “absolute territorial protection” must therefore be approached with extreme caution.

6. Exclusive Distribution Does Not Necessarily Mean One Distributor

The current EU VBER also modernised the concept of exclusive distribution.

An exclusive territory or customer group may, under the Regulation’s framework, be allocated to the supplier itself or to a limited number of distributors; the Regulation defines an exclusive distribution system as one in which the supplier allocates a territory or customer group exclusively to itself or to a maximum of five buyers, subject to the applicable conditions.

This creates greater flexibility for businesses.

A supplier may therefore be able to create “shared exclusivity” in a large territory rather than appointing only one exclusive distributor.

For example, a brand entering Germany may wish to appoint several distributors specialising in different commercial channels while still protecting that territory from active selling by distributors located elsewhere.

However, the exact structure must satisfy applicable competition rules.

7. Resale Price Maintenance: “You Must Sell at This Price” Can Be Dangerous

Brands naturally want consistency.

They may wish customers in different stores to encounter approximately the same retail price.

But controlling the distributor’s resale price can create serious competition-law problems.

Under the EU VBER, restrictions on the buyer’s ability to determine its own resale price are classified among the hardcore restrictions.

A supplier may generally recommend a resale price or establish a maximum price, provided that these mechanisms do not effectively become fixed or minimum resale prices through pressure or incentives.

This distinction is fundamental.

There is a major legal difference between:

“Recommended retail price: EUR 100.”

and

“You may not sell below EUR 100.”

The second provision may constitute resale price maintenance (“RPM”).

Problems can also arise indirectly.

For example:

• threatening to terminate distributors who discount;
• withdrawing rebates from discounting retailers;
• monitoring prices and demanding corrections;
• setting minimum advertised prices that operate as resale-price controls; or
• automatically adjusting distributor benefits based on compliance with minimum pricing

may create competition concerns depending on the relevant law and circumstances.

Price-control mechanisms should therefore be reviewed jurisdiction by jurisdiction.

8. Türkiye Has Its Own Vertical-Agreement Competition Framework

Companies distributing products in Türkiye must also consider Turkish competition law.

The principal framework includes Law No. 4054 on the Protection of Competition and Communiqué No. 2002/2 on Block Exemption for Vertical Agreements.

Following the 2021 amendments, the general market-share threshold applicable to the supplier for block-exemption purposes was reduced to 30%. A corresponding 30% threshold applies to the buyer in relevant single-buyer supply arrangements.

Turkish competition law similarly treats territorial and customer restrictions carefully.

The Competition Authority has expressly recognised that restrictions on active sales into a territory exclusively allocated to the supplier or another buyer may benefit from the relevant exception under the vertical-agreements regime, subject to the regulatory conditions.

Franchise and dealership contracts therefore should not be analysed solely under contract law.

A provision that appears commercially reasonable may create a competition-law problem independently of whether both parties voluntarily agreed to it.

9. Online Sales Have Changed the Meaning of Territory

Twenty years ago, defining a distributor’s territory was comparatively simple.

Today a Turkish, Italian or German customer can visit a foreign distributor’s website within seconds.

This creates questions that traditional distribution contracts often fail to answer:

• Can the distributor operate its own website?
• Can it sell through Amazon?
• Can it use third-party marketplaces?
• Can it buy Google advertisements targeting another distributor’s territory?
• Can it use another country’s domain name?
• Can the supplier sell directly from its global website?
• Who receives online leads originating from the distributor’s territory?
• Who handles warranty claims arising from cross-border online sales?

EU competition rules expressly recognise the importance of internet sales.

Restrictions designed to prevent the effective use of the internet for selling contract goods or services can fall outside the protection of the VBER, and certain restrictions on entire online advertising channels may be treated as serious restrictions.

An international distribution agreement written for an offline world is therefore no longer sufficient.

10. Marketplace Restrictions Require Separate Analysis

Premium brands may not want products sold indiscriminately through online marketplaces.

Their concerns may include:

• counterfeit products;
• customer experience;
• discounting;
• product presentation;
• unauthorised sellers; and
• damage to luxury positioning.

But a clause stating:

“The distributor may never sell online”

is fundamentally different from imposing proportionate quality standards concerning online distribution.

The legal validity of marketplace restrictions depends on matters including:

• the nature of the distribution system;
• market position;
• contractual structure;
• territorial law; and
• whether online sales remain practically possible through other channels.

International brands should therefore treat e-commerce clauses as competition provisions, not merely marketing provisions.

11. Franchise Agreements Create an Additional Layer: The Business System Itself

A franchise arrangement involves something more valuable than products.

It involves a replicable business system.

The franchisor may provide:

• branding;
• store design;
• recipes;
• operational procedures;
• software;
• supplier networks;
• marketing systems;
• training;
• manuals;
• confidential know-how; and
• ongoing commercial support.

The franchise agreement must therefore regulate not only what the franchisee sells, but also how the franchisee conducts the business.

This produces a difficult balance.

Too little control can damage the brand.

Too much control may produce competition, employment, agency or other legal risks depending on the jurisdiction.

12. There Is No Single Global Franchise Law

Businesses sometimes assume that an international franchise agreement can simply be translated and used worldwide.

That is dangerous.

Franchise regulation differs substantially between countries.

Some jurisdictions impose:

• pre-contract disclosure requirements;
• registration;
• mandatory cooling-off periods;
• restrictions on termination;
• statutory good-faith duties;
• mandatory contractual provisions; or
• specific dispute-resolution requirements.

Others regulate franchises primarily through ordinary contract, competition and intellectual-property law.

The United States provides a clear example of disclosure regulation.

The U.S. Federal Trade Commission’s Franchise Rule requires franchisors subject to the Rule to provide prospective franchisees with a Franchise Disclosure Document containing 23 specified categories of information concerning the franchise system and investment.

A franchise agreement designed for one country therefore cannot safely be rolled out globally without local-law review.

13. Master Franchise Agreements: Fast Expansion, High Dependency

International franchisors frequently use master franchise arrangements.

Instead of contracting directly with every franchisee in a country, the brand appoints one master franchisee.

The master franchisee may receive the right to:

• open its own outlets;
• recruit sub-franchisees;
• provide local training;
• supervise operations;
• collect fees;
• manage suppliers; and
• develop the territory.

This can provide very rapid expansion.

It also creates concentration risk.

If the master franchisee fails, the franchisor may suddenly face:

• dozens of sub-franchise relationships;
• unpaid royalties;
• uncontrolled trademarks;
• local employees;
• store leases;
• customer data;
• social-media accounts; and
• operational systems

that it does not directly control.

A master franchise agreement should therefore regulate not only the master franchisee’s rights but also what happens to the entire sub-franchise network if the master agreement terminates.

14. Development Obligations Are Essential When Exclusivity Is Granted

An exclusive territory should generally not be granted without measurable development obligations.

Otherwise, a distributor or franchisee may secure a country and then fail to develop it effectively.

Possible performance obligations include:

• minimum annual purchases;
• minimum turnover;
• minimum number of stores;
• required marketing expenditure;
• market-coverage targets;
• key-account development;
• minimum staffing;
• warehouse capacity; and
• launch deadlines.

The agreement should explain what happens if targets are not achieved.

Possible consequences include:

• loss of exclusivity;
• reduction of territory;
• appointment of additional distributors;
• conversion to non-exclusive status; or
• termination.

A practical international arrangement may therefore use conditional exclusivity rather than permanent unconditional exclusivity.

15. Non-Compete Obligations Must Be Proportionate

A supplier may reasonably wish to prevent its distributor from promoting a direct competitor simultaneously.

Likewise, a franchisor may need to protect confidential know-how.

But non-compete clauses are regulated by competition law.

Under the EU VBER, a non-compete obligation includes certain arrangements under which the buyer is effectively required to obtain more than 80% of relevant purchases from the supplier or a supplier-designated source.

As a general matter, indefinite non-compete obligations or those exceeding five years fall outside the block exemption, subject to specific exceptions.

Post-termination non-compete obligations are even more sensitive and should be separately analysed under the applicable competition and contract law.

The drafting objective should not be:

“Prevent the former partner from competing forever.”

It should be:

“Protect legitimate know-how, customer relationships and network investment within the limits permitted by applicable law.”

16. Trademark Ownership Must Remain Clear From Day One

A surprisingly common international-expansion problem arises when a local distributor registers the brand’s trademark in its own name.

The local partner may initially explain:

“We registered it because someone needed to protect the brand locally.”

Years later, after termination, the same registration may become commercial leverage.

The safest structure is normally for the actual brand owner or the appropriate group IP entity to own the trademarks.

The agreement should expressly prohibit the distributor or franchisee from:

• registering identical or similar trademarks;
• registering company names containing the brand;
• registering local domain names without consent;
• registering social-media handles in its own name;
• challenging the brand’s ownership;
• using confusingly similar signs after termination.

International trademark strategy should therefore begin before market launch.

17. The Madrid System Can Facilitate International Trademark Protection

The WIPO Madrid System provides a centralised mechanism through which qualifying trademark owners can seek protection in multiple member jurisdictions through an international registration framework.

WIPO currently describes the system as covering more than 130 countries through its participating members and permitting owners to manage international trademark portfolios through a centralised process. National or regional offices in the designated territories nevertheless determine whether protection can be granted under their own domestic laws.

For an international franchise system, this can substantially simplify trademark administration.

However, a Madrid registration should not create a false sense of security.

Trademark clearance, classification, local refusal risks, enforcement and local-language considerations still require jurisdiction-specific analysis.

18. Know-How May Be More Valuable Than the Trademark

In many franchise systems, the most commercially valuable asset is not the logo.

It is the operating knowledge behind the business.

This may include:

• recipes;
• pricing methodology;
• customer acquisition techniques;
• supply processes;
• software;
• technical specifications;
• supplier terms;
• operational analytics;
• training systems; and
• business manuals.

The franchise agreement should therefore define confidential information and know-how carefully.

The contract should address:

• who can access it;
• how it may be used;
• whether employees must sign confidentiality agreements;
• security standards;
• copying restrictions;
• return or destruction after termination; and
• continuing confidentiality obligations.

Once confidential know-how becomes public, a damages claim may not restore its commercial value.

Prevention is therefore more important than litigation.

19. Quality Control Protects Both Brand Value and Trademark Integrity

A franchisor typically wants a customer to receive a consistent experience regardless of whether the outlet is in:

• Istanbul;
• London;
• Dubai;
• Berlin;
• Singapore; or
• New York.

The franchise agreement may therefore establish standards concerning:

• premises;
• signage;
• uniforms;
• product quality;
• customer service;
• menu or product selection;
• suppliers;
• software;
• advertising;
• hygiene;
• store design; and
• staff training.

But enforcement mechanisms should also be specified.

The agreement may provide for:

• inspections;
• mystery-shopping programmes;
• audit rights;
• reporting;
• corrective-action periods;
• mandatory training; and
• termination for serious brand violations.

A standard that exists only in a franchise manual but cannot practically be enforced provides limited protection.

20. Who Owns Local Customer Data?

This question has become increasingly important.

A distributor may spend years building customer relationships.

When the agreement ends, the supplier may want the customer database.

The distributor may respond:

“Those are our customers, not yours.”

The contract should therefore address:

• customer ownership;
• CRM access;
• sales history;
• marketing databases;
• loyalty programmes;
• consent records;
• lead allocation;
• personal-data processing; and
• post-termination data transfer.

Data-protection law may independently restrict what information can legally be transferred.

Therefore, a clause stating that “all customer data belongs to the franchisor” does not automatically make every transfer lawful.

Contractual rights and privacy compliance must operate together.

21. Product Liability Does Not Stop at the Distributor

Brands should also consider what happens when a product causes injury or property damage in the foreign market.

Depending on local law, liability may potentially involve:

• manufacturer;
• importer;
• distributor;
• retailer;
• franchisee; or
• other supply-chain participants.

The distribution agreement should address:

• product compliance;
• import responsibility;
• regulatory registrations;
• recalls;
• customer complaints;
• notification obligations;
• insurance;
• indemnification; and
• cooperation with authorities.

However, contractual indemnities do not necessarily eliminate liability towards third parties.

They usually determine how financial responsibility is allocated internally after an external claim arises.

22. Regulatory Responsibility Should Never Be Left Implicit

Many products cannot simply be shipped into another country and sold.

Depending on the industry, local approvals may be required for:

• pharmaceuticals;
• medical devices;
• cosmetics;
• food;
• chemicals;
• electronics;
• telecommunications equipment;
• vehicles;
• machinery; and
• consumer products.

The distribution agreement should specify who is responsible for obtaining:

• licences;
• conformity certificates;
• labels;
• translations;
• registrations;
• customs documentation; and
• governmental approvals.

A particularly important issue is:

Who owns the registration when the distribution agreement terminates?

If the distributor legally controls the essential product registration, replacing the distributor may become much more difficult than anticipated.

23. Advertising and Social Media Need Contractual Control

Local distributors and franchisees increasingly function as digital publishers.

They operate:

• Instagram accounts;
• TikTok channels;
• websites;
• influencer campaigns;
• marketplace pages;
• email marketing;
• digital advertising; and
• local-language promotions.

One misleading advertisement can create regulatory and reputational problems for the entire brand.

The agreement should therefore establish:

• brand guidelines;
• approval rights;
• prohibited claims;
• influencer standards;
• use of trademarks;
• local advertising-law compliance; and
• procedures for removing inappropriate content.

The contract should also address who owns:

• local websites;
• domains;
• social accounts;
• creative material; and
• follower databases

when the commercial relationship ends.

24. Termination Is Where the Real Value of the Contract Becomes Visible

Businesses often negotiate agreements while everyone expects the relationship to succeed.

A good contract should instead be drafted on the assumption that one day it may fail.

Termination provisions should address events such as:

• non-payment;
• failure to meet sales targets;
• insolvency;
• repeated quality failures;
• unauthorised trademark use;
• bribery;
• sanctions violations;
• change of control;
• loss of licence;
• reputational misconduct;
• competition-law violations; and
• material contractual breach.

The agreement should distinguish between:

breaches that can be cured

and

breaches serious enough to justify immediate termination.

For example, a minor reporting delay may justify a cure period.

Counterfeit production under the franchisor’s trademark may justify immediate termination.

25. Termination Rights Can Be Restricted by Mandatory Local Law

An agreement may state:

“The supplier may terminate at any time on 30 days’ notice.”

That provision may not always produce the expected result.

Certain jurisdictions provide mandatory protections for agents, dealers or franchisees.

Depending on local law and the classification of the relationship, termination may create rights relating to:

• notice periods;
• goodwill compensation;
• indemnity;
• reimbursement of investments;
• repurchase of inventory; or
• damages for abusive termination.

Calling a contract a “distribution agreement” does not necessarily determine its legal classification.

Courts may examine how the relationship actually operates.

A foreign brand should therefore conduct a local mandatory-law review before terminating a long-standing commercial partner.

26. Post-Termination Obligations Should Be Extremely Detailed

Termination is not completed merely because the agreement says “terminated.”

The parties may still need to address:

Branding

Removal of signs, logos and trade dress.

Inventory

Whether remaining genuine products may be sold and for how long.

Confidential Information

Return or destruction of manuals and files.

Domains

Transfer of locally registered websites.

Social Media

Transfer or closure of brand-related accounts.

Customers

Treatment of outstanding orders and warranties.

Data

Transfer or deletion of customer information where lawful.

Sub-Franchisees

Continuation, assignment or termination of sub-franchise agreements.

Premises

De-branding of stores.

Intellectual Property

Immediate cessation of trademark and copyright use.

Transition

Cooperation with the replacement distributor.

These provisions can determine whether the brand can re-enter the market quickly.

27. Inventory Buyback Is Frequently Overlooked

Suppose a distributor has EUR 2 million of legitimate inventory when the supplier terminates the agreement.

What happens?

Possible models include:

• mandatory supplier repurchase;
• optional repurchase;
• a sell-off period;
• transfer to a replacement distributor; or
• continued sale subject to brand standards.

Each model has financial consequences.

A supplier should also consider whether allowing an extended sell-off period undermines its new distribution strategy.

The issue should therefore be negotiated before termination rather than litigated afterwards.

28. Change of Control Must Be Regulated

A company may carefully select an exclusive distributor because of its management team, reputation and ownership structure.

Two years later, that distributor may be sold to the brand’s largest competitor.

Without a change-of-control clause, the supplier may have limited contractual options.

International agreements should therefore define:

• direct change of control;
• indirect change of control;
• changes at parent-company level;
• competitor acquisitions; and
• notification or consent requirements.

The same issue is particularly significant for master franchise agreements.

A brand should know who ultimately controls the entity holding national franchise rights.

29. Anti-Bribery, Sanctions and Export Controls Must Be Part of Modern Distribution Contracts

A local distributor can expose an international company to regulatory risks well beyond contract law.

A distributor may interact with:

• customs officials;
• public hospitals;
• ministries;
• state-owned companies;
• tender authorities; and
• regulators.

International groups may therefore need contractual protections concerning:

• anti-bribery compliance;
• sanctions;
• export controls;
• beneficial ownership;
• books and records;
• audit rights;
• prohibited payments; and
• termination for compliance violations.

These clauses should not exist only as generic representations.

The company should consider actual compliance procedures, training and monitoring.

30. Dispute Resolution: Court or Arbitration?

Cross-border distribution and franchise disputes commonly involve parties located in different jurisdictions.

This creates a fundamental question:

Where will disputes be resolved?

Litigation before national courts may be appropriate for some relationships.

International arbitration may be preferable where:

• neutrality matters;
• the agreement is high-value;
• assets are located internationally;
• confidentiality is important;
• specialist decision-makers are valuable; or
• enforcement abroad may be required.

Potential arbitration institutions include:

• ICC;
• LCIA;
• SIAC;
• ISTAC; and
• other regional institutions.

The agreement should normally specify:

• institution;
• seat;
• language;
• number of arbitrators;
• governing law; and
• scope of arbitration.

31. Intellectual-Property Injunctions May Require Court Access Even When Arbitration Exists

A franchisor may discover that a terminated franchisee continues using its trademark.

Waiting months for a final arbitral award may be commercially unacceptable.

The dispute clause should therefore consider interim relief.

The brand may need immediate measures preventing:

• continued trademark use;
• disclosure of trade secrets;
• transfer of domains;
• destruction of evidence;
• unauthorised sales; or
• dissipation of assets.

Modern arbitral institutions may offer emergency procedures, but national courts can remain important for urgent intellectual-property enforcement.

The arbitration clause should therefore avoid unintentionally preventing legitimate applications for interim judicial protection.

32. Governing Law Should Be Chosen Strategically

Brands often choose their home-country law automatically.

That may be convenient.

It does not eliminate mandatory local law.

Suppose a U.S. franchisor appoints a franchisee in a country whose local law requires mandatory pre-contract disclosure and statutory termination protection.

Writing:

“This agreement is governed exclusively by New York law”

may not automatically exclude those mandatory rules.

Applicable-law analysis should therefore consider:

• contractual law;
• local franchise law;
• competition law;
• agency law;
• consumer law;
• intellectual-property law;
• data law; and
• public policy.

Choice of law is important.

But it is not a magical device capable of deleting the legal system of the market in which the business operates.

33. Governing Language Should Also Be Addressed

International agreements are frequently executed in two languages.

This creates another risk.

If the English and local-language versions differ, which prevails?

The agreement should identify the controlling language.

Translations of:

• operating manuals;
• warranties;
• advertising;
• safety information; and
• regulatory documents

should also be managed carefully.

A mistranslation can become both a contractual and regulatory problem.

34. Minimum Purchase Obligations Need Realistic Drafting

Suppliers frequently require distributors to meet annual minimum purchases.

This can protect the supplier from an underperforming exclusive partner.

But the mechanism should address extraordinary developments such as:

• supply shortages;
• product recalls;
• regulatory bans;
• sanctions;
• war;
• severe currency restrictions;
• force majeure; or
• supplier inability to deliver.

A distributor should not lose exclusivity for failing to purchase products that the supplier could not legally or physically supply.

Targets should therefore be linked to clearly defined assumptions and adjustment mechanisms.

35. Currency and Payment Risk Can Destroy an Otherwise Successful Distribution Model

Cross-border relationships involve payment risk.

The agreement should determine:

• invoice currency;
• exchange-rate risk;
• payment method;
• letters of credit;
• advance payments;
• bank guarantees;
• retention of title;
• credit limits;
• late-payment interest; and
• sanctions-related payment alternatives.

Foreign-exchange controls can also become relevant.

A profitable distributor may nevertheless be unable to remit funds abroad if local financial restrictions intervene.

Payment architecture should therefore form part of legal due diligence.

36. Parallel Imports and Grey Markets

Exclusive distributors often complain about genuine branded goods entering their territory from other channels.

These are commonly described as parallel imports or grey-market goods.

The legal ability to restrict them depends substantially on:

• trademark exhaustion rules;
• competition law;
• customs law;
• origin of the goods; and
• jurisdiction.

An exclusive-distribution clause does not necessarily give the distributor an intellectual-property right to prevent every cross-border resale of genuine goods.

The distribution contract and trademark exhaustion regime must therefore be analysed separately.

37. Counterfeit Products Require a Different Strategy

Parallel imports involve genuine products.

Counterfeit goods do not.

A brand entering a foreign country should develop enforcement procedures concerning:

• customs detention;
• trademark infringement;
• marketplace takedowns;
• domain disputes;
• civil injunctions;
• criminal enforcement where available; and
• cooperation with local distributors.

The agreement should specify whether the distributor is merely required to report infringements or may take enforcement action.

Control over trademark litigation should normally remain clearly allocated.

38. Audit Rights Are Essential in Royalty-Based Franchise Systems

Franchise royalties are frequently calculated as a percentage of revenue.

This creates an obvious information problem.

The franchisor depends on the franchisee’s reporting.

Agreements should therefore address:

• accounting standards;
• POS integration;
• reporting frequency;
• record retention;
• audit access;
• underreporting;
• audit costs; and
• interest on unpaid royalties.

Digital systems increasingly allow real-time revenue monitoring.

But access to data should still have a clear contractual basis.

39. Governing the Relationship Through Manuals

Franchise agreements often incorporate an operating manual.

This is commercially useful because operational standards evolve faster than long-term contracts.

But the franchisor’s right to change the manual should not be unlimited.

A clause allowing the franchisor to impose any new obligation at any time could create disputes where changes require significant new investment.

The agreement may therefore distinguish between:

• ordinary operational updates; and
• fundamental changes requiring substantial capital expenditure.

The objective is to preserve brand consistency without creating an uncontrolled unilateral amendment mechanism.

40. The International Distribution Agreement Checklist

Before appointing a distributor or franchisee abroad, the brand owner should answer at least the following questions:

Structure

Is the partner a distributor, dealer, commercial agent, franchisee or master franchisee?

Territory

Exactly which geographic market is granted?

Exclusivity

Is exclusivity absolute, conditional or performance-based?

Channels

Does exclusivity cover online sales, marketplaces and key accounts?

Pricing

Which recommended or maximum pricing mechanisms are legally permissible?

Competition

Does the agreement comply with local vertical-restraint rules?

Performance

What minimum sales or development targets apply?

Intellectual Property

Who owns trademarks, domains, social-media accounts and local registrations?

Know-How

How is confidential business information protected?

Product Regulation

Who obtains licences and registrations?

Customer Data

Who may access and use customer information?

Advertising

Who approves local promotional content?

Compliance

What anti-bribery, sanctions and export-control requirements apply?

Term

Is the agreement fixed-term or indefinite?

Termination

What events permit termination?

Compensation

Could mandatory local law require goodwill compensation or another payment?

Post-Termination

Who controls inventory, customers, domains and local brand assets?

Governing Law

Which substantive law governs the agreement?

Disputes

National courts or international arbitration?

Enforcement

Where are the counterparty’s assets located?

A business that cannot answer these questions is not yet ready to grant exclusive territorial rights.

41. The Most Important Principle: Never Outsource Ownership of the Market

A distributor’s commercial function may be to develop a market.

But the legal architecture should prevent market development from becoming market ownership.

The distributor should not unintentionally gain permanent control over:

• trademarks;
• domain names;
• regulatory registrations;
• essential customer data;
• social accounts;
• sub-distributors; or
• other infrastructure required to continue the business.

Otherwise, termination may become economically impossible.

A company can technically terminate its distributor and still discover that it cannot operate in the country without that distributor.

That is one of the greatest hidden risks in international distribution.

42. A Good Exit Strategy Is Part of a Good Entry Strategy

Commercial parties naturally concentrate on market entry.

Lawyers should also analyse market exit.

Before granting a five- or ten-year exclusive arrangement, the supplier should ask:

If this relationship ends, how do we continue operating the next day?

Can the trademark be used immediately?

Can a new distributor obtain the necessary registrations?

Can existing customers be serviced?

Can websites and telephone numbers be transferred?

Can remaining inventory be managed?

Can stores be de-branded?

Can sub-franchisees continue?

Can confidential information be recovered?

The answers should already exist in the contract.

Conclusion: International Expansion Is About Control, Competition and Exit

Distribution and franchising provide businesses with some of the fastest methods of expanding internationally.

A local commercial partner can provide market access, customer relationships, logistics, local knowledge and investment without requiring the brand owner to build an entire foreign operation from zero.

But that commercial advantage creates legal dependency.

A successful international distribution or franchise structure must therefore balance three competing objectives:

local partner incentive, brand-owner control and regulatory compliance.

The agreement must define territorial exclusivity without violating competition law.

It must give the brand sufficient influence over quality without improperly controlling independent commercial conduct.

It must protect trademarks and know-how without creating unenforceable restrictions.

It must regulate pricing without crossing into prohibited resale price maintenance.

It must permit the local partner to develop the market while ensuring that the brand can recover control when the relationship ends.

EU law provides a sophisticated example of this balancing exercise. Under the current VBER framework, qualifying vertical arrangements may benefit from a safe harbour where the relevant 30% market-share thresholds are respected, while fixed or minimum resale prices and certain territorial and online restrictions remain particularly sensitive.

Turkish competition law similarly provides a specific framework for vertical agreements, including a 30% market-share threshold under the amended Communiqué No. 2002/2.

For franchisors, the complexity increases further because franchise regulation differs significantly between countries. The U.S. FTC Franchise Rule’s mandatory disclosure structure provides only one example of how local legislation may impose obligations beyond the written franchise agreement.

At the same time, international intellectual-property planning should precede commercial expansion. Systems such as WIPO’s Madrid System can facilitate protection of trademarks across multiple participating jurisdictions, but local trademark law continues to determine the scope and effectiveness of protection in designated markets.

Ultimately, international expansion should not begin with the question:

“Who can sell our products in this country?”

It should begin with a broader legal strategy:

Who controls the territory?

Who controls the price?

Who controls the customer?

Who owns the brand assets?

What happens when the relationship fails?

And how can the business continue without the local partner?

A distributor or franchisee may be essential to entering a foreign market.

The agreement should ensure that the brand does not become legally dependent on that partner in order to remain there.

This article is intended for general informational purposes only and does not constitute legal advice. International distribution, dealership, agency and franchise arrangements should be reviewed separately for each jurisdiction, taking into account applicable contract law, competition law, franchise regulation, intellectual-property rules, consumer law, data-protection requirements, product regulation, tax implications and dispute-resolution mechanisms.