Getting Your Product to Market: Advertising, Selling, Distributing

A combination of federal and state law governs your advertisements, sales, and product distribution.  Your ads must take into account consumer protections and fair competition.  Your sales and distribution relationships require contract considerations, and your contracts must operate lawfully.  The following basic information brings some of the issues to light.  Please contact a local attorney for individualized help.

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Advertising

Advertisements must generally be fair and ethical.  Be aware that technically true information can nonetheless be misleading.  Take measures to ensure that the impression you create through any advertisement delivers a clear and honest picture of your market intentions.  It is generally important to share all material facts with consumers.

You might want to check your state law, or to get a legal opinion, before using an ad to compare your products, services, or prices to anyone else’s, or in certain cases even to your own.  For example, it can be important not to advertise false discounts.  False discounts occur if you consistently sell at a certain price, but display that price as a discount relative to a higher price at which you do not actually sell.  In such a case, the price at which you consistently sell is likely your actual true price.  Advertising it as a discount might be deceiving.  Consult your state law.

In general, get a sense of consumer protection and other related business laws in your market.  It is often not necessary that any party incur injury before filing a complaint against you.  You will generally want your ads to be honest representations of your prices, offerings, products, and services.

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Selling

Selling often requires engaging in relationships to help you bring your products to market.  You may undertake direct sales, work with sales representatives (reps), sell to resellers (wholesalers, distributors, etc.), or work with third party logistics providers.  Every method of bringing your product to market requires certain relationship, contract, and other legal considerations.  Each relationship is unique, and requires its own planning.

Sales reps

A sales rep agreement should generally cover the parties’ expectations, rights, and obligations.  If you are working with reps, you will likely maintain title to your product; the rep usually will not take ownership.  You will want to address this, or any alternative arrangement, in your contract.  Ask yourself to what extent the rep will serve as an agent for your business.  For example, will the rep have the right and power to set prices?

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Be aware of applicable state law regarding employee and independent contractor working relationships.  For example, a state may impose unusual termination rules, such as the ability to terminate only “for cause.”  Look to your state law for understanding. 

To ensure that all parties are on the same page regarding payments, it is a good idea to be clear in your rep agreement about commissions and payment calculations.  It is generally best to provide a detailed account of applicable math, or to reference appropriate company documents and integrate these into your agreement.  As with all contracts, it is important to make sure that your rep agreement delivers a clear and sensible read of your expectations to any disinterested party.

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Reseller Sales and Marketing

State regulations applicable to reseller arrangements vary.  This is an important area of law to explore if you are a manufacturer and will engage resellers.  Some manufacturers tend to rely exclusively on company policies to regulate reseller relationships.  But, it may be ideal to use individual agreements supplemented by internal policies.

Any resellers with whom you work will likely have their own accounts; they will usually take title to the product.  Particularly, distributors will likely buy in bulk, maintain their own credit, provide delivery and other services, and often provide technical support.

If you will work with distributors, it may be helpful to look to your state law regarding the legal distinctions between a distributor and a franchisee.  For example, while distributors generally pay for inventory, they do not pay for the privilege of doing business as a franchise.  In some instances, distributor relationships are unintentionally structured to resemble franchise relationships.  When this happens, franchise regulations apply.  They can be cumbersome.  If a franchise is not your intention, make sure your distributor relationship is not mistaken for one.

Some distributor issues will likely be subject to the “rule of reason,” a standard in anti-trust law.  In this area of law, business combinations that unreasonably restrain trade are illegal.  A manufacturer’s natural business concerns may butt up against anti-trust laws.  Generally under the rule of reason, manufacturer interests are legal until they become unreasonable.  Reasonableness is a legal issue.

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If you are a manufacturer, you are generally required to treat competing customers equally.  You might have a general right to sell specific items to specific distributors.  A manufacturer generally has no duty to sell all products to all customers (unless it is a monopolist).  However, if you contract to sell a distributor all of your products, you must abide by your agreement.  Ensure that the language you use in any agreement is lawful and reflects your intentions.  A manufacturer might have the freedom to tell a reseller to whom it can sell, and to allocate territories and markets.

Manufacturer price controls may pose issues.  The ability to control or affect price variables is likely subject to the rule of reason.  A manufacturer’s desire to dictate prices may be at odds with anti-trust laws.  A manufacturer may be able to indicate minimum or maximum prices to protect margins, protect image, or keep online prices from undercutting brick and mortar prices.  It may be possible to dictate a minimum advertised price, while allowing any actual sales price.  At the same time, contractually setting prices is illegal in certain states.  It may be possible to address general price concerns through policy.  Setting out reasonable policies by which a manufacturer uniformly does business might not upset anti-trust laws.  Look to your state law for more information.

Manufacturer price discrimination also may pose legal issues.  Service providers can generally discriminate between customers, demanding variable prices from different customers.  Manufacturers must generally treat competing customers equally.  Thus, manufacturer price discrimination may occur in only certain circumstances.  In rare cases, there may be cost justifications for discriminating in price.  It may be acceptable to lower a price to meet a competitive offer.  It may be reasonable to adjust a price to account for changing conditions.  If necessary, contact a local attorney for help in your area.

The reasonableness of manufacturer promotional discrimination will likely be judged against a slightly different standard than that of price discrimination.  Promotional discrimination occurs, for example, when different resellers receive different manufacturer display racks, or when one benefits from a manufacturer demonstration but another does not.  Although it is not generally required that all resellers receive identical promotions, it is often generally required that promotional items be functionally available to competitors on proportionately equal terms.  If one reseller receives promotional support, another must generally receive a proportionately and functionally equivalent means of support.

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Manufacturers thinking about distributor territories must consider whether resellers will distribute through the internet.  If so, manufacturers may want to address online territory controls.  A manufacturer confronting online resellers may also want to ensure control over product appearances and use of manufacturer trademarks.  Beware of online intellectual property issues.  Address all concerns to protect the value of your property.  For example, if a distributor’s domain name contains your business name, you will likely want to address ownership rights to that domain name, and to determine what happens to the name if your relationship with the reseller terminates.

Manufacturers will often want to think about non-compete, non-solicitation, and confidentiality issues both during reseller relationships and after termination.  Any restrictive agreements should clearly define what information, activities, and products are covered.  Ensure that any restrictive post-termination agreements are reasonable under law in scope and duration.  Restrictive covenants such as non-competes should generally be treated as distinct contracts; their validity rests on exchanges of offer, acceptance, and consideration.  The accepting party must generally receive a distinct offer and applicable consideration, and be allowed to separately accept such restrictive provisions, whether they are included within, or are separate from, other contracts.

Logistics Providers

Third party logistics provider relationships may function as hybrids of independent sales rep and reseller relationships.  They may involve combinations of the rep and reseller sales and marketing concerns discussed above.

Determine the law as relevant to your business.  Consult a local attorney if you need help.