Legal Question in Business Law in California

I have a business law, contractual disagreement question. This question might seem complicated so forgive me if it is convoluted. There are two companies were one creates a product and the other distributes the product over a 25 year span. The manufacturing company is located out of the US and the distributing company distributes to the US through its subdistributing channels. The product was a small and little to no name product in the beginning. 25 years later, this product is a big brand. The distributing company does not have IP rights to the product because they were just the distributor. Currently, the manufacturer sold the business to a big corporation and the big company now owns the product. The big company and the distributor cannot come to terms on a new contract.

The distributing company basically built the product name and doesnt want to sign the new contract. Is there any legal protection/compensation where big corp has to pay distributing company for their service and building the brand over the years?

Asked on 8/23/13, 1:37 pm

3 Answers from Attorneys

William Christian Rodi Pollock

This really depends on the prior contractual relationship between the two companies. Do you have those agreements. Do they provide any protection? I bleieve you need counsel to review and evaluate the existing agreements. Unless they provide otherwise, you may have no rights other than to earn revenue for your distribution efforts until termnated

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Answered on 8/23/13, 3:12 pm

Bryan Whipple Bryan R. R. Whipple, Attorney at Law

Maybe. The facts, including the contract or contracts over the past 25 years, would need a careful examination. The likelihood that there is no (unexpired) agreement between the parties is not fully determinative. In addition, the question isn't put to rest by the (possible) fact that the contract, although unexpired, was not binding on "heirs, successors and assigns" of the original parties.

I've looked for cases where the courts have considered the right of a manufacturer to terminate a long-standing relationship with its distributor(s) where the latter have played an instrumental role in developing the manufacturer's sales and brand strength. One key case I remember reading in law school I haven't been able to locate again on short notice, but I did find another: the California Supreme Court case of Long Beach Drug Co. v. United Drug Co., decided in 1939 and reported at 13 Cal.2d 158. The facts of this case may not be sufficiently similar to those of your situation, but I'd encourage you to look it up on line.

Even if your contract has expired, an abrupt termination of the marketing relationship may be improper (in a legal sense) if the distributing company has made substantial investments in reasonable reliance upon the continuation of the relationship, such as printing catalogs, acquiring inventory, training employees, and the like. This was the essence of the case I was looking for and haven't found yet.

Finally, in negotiating an extension of the contract, or a new contract, remember that the existing distribution company has some built-in advantages over any competitor, including experience, contacts and know-how. This may include trade secrets that it cannot be required to divest, such as which customers' wives like Givenchy or which purchasing agents want to be taken to see the Red Sox when they're in town.

Please feel free to contact me if you'd like to discuss representation in this matter

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Answered on 8/23/13, 3:46 pm
Terry A. Nelson Nelson & Lawless

Of course there are legal protections for property rights. Your particular situation turns upon what terms and conditions are in your contracts and agreements, and the various industry standards that apply. If there were renewal rights provided, those could be enforced against the new purchasing compnay. Unfortunately, the only way you are going to get an informed, firm and useable legal opinion about what you can do, is by consulting with counsel to review all the documents, facts, issues, etc. Assume for the moment that you have some right to maintain or renew the agreement with the new company, then your question is: are you willing to take legal action to do so if the attorneys say you have grounds for that? If serious about pursuing this, feel free to contact me.

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Answered on 8/26/13, 1:51 pm

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