Exclusive Distribution Agreement Clauses: 7-Point Checklist

The exclusive distribution agreement clauses to read first are: the territory and channels covered, minimum purchase or sales targets, pricing and price protection, trademark use, term and termination, non-compete obligations, and returns and rebates. Together they decide what an exclusive right is really worth and what it costs you.

Some laws, such as Korea’s Agency Transactions Act and EU competition rules, can restrict certain clauses or practices, depending on the transaction. This checklist is written for cosmetics distribution and is not legal advice; have a lawyer in the relevant country review any contract before you sign.

1. Territory and sales channels

The heart of exclusivity is where, and to whom, it applies. Spell out whether it covers a whole country or a region, which channels are included (physical retail, online stores, wholesale), and whether channels the supplier sells through directly are carved out.

The International Chamber of Commerce’s ICC Model Contract on Distributorship puts “Products and Territory” in a separate Annex I, which reflects common practice: keep the product and territory lists in schedules you can update.

If the EU is involved, check competition law.

Article 4(b) of the Vertical Block Exemption Regulation (EU) 2022/720¹ treats restricting where or to whom an exclusive distributor may sell as a hardcore restriction, except, among others, restricting active sales into a territory or customer group reserved to the supplier or allocated exclusively to up to five other exclusive distributors.

Clauses that also block passive sales, made in response to unsolicited requests, are risky.

The regulation applies only where the supplier’s and the buyer’s market shares each do not exceed 30%, and it runs until 31 May 2034.

2. Minimum purchase or sales targets

Exclusivity usually comes with an annual minimum. The ICC model even includes a “Guaranteed Minimum Target” annex. Check:

• whether the target is in units or value, and annual or quarterly;
• what happens if it is missed: termination, or loss of exclusivity only;
• whether targets adjust for supply shortfalls or regulatory changes.

Where Korea’s Act on Fair Transactions in Agency Business² applies, Article 8 prohibits a supplier from abusing its position to set targets and force a dealer to meet them, and Article 6 prohibits using that position in the same way to force a dealer to buy goods it does not want.

3. Pricing and price protection

Agree how supply prices are set, how much notice is given for changes, how currency swings are handled and whether stock already bought is compensated when prices fall.

Be careful with resale-price clauses. Article 4(a) of Regulation 2022/720 treats restricting the buyer’s ability to set its own sale price as a hardcore restriction; maximum or recommended prices are allowed only if they do not become fixed or minimum prices through pressure or incentives. Other countries have similar rules, so a “minimum resale price” clause needs local legal review.

4. Trademarks and intellectual property

Define how far the distributor may use the brand’s trademarks, logos, product images and copy, in whose name local trademarks are registered, how quickly use must stop after termination, and who approves local-language advertising. Cosmetics advertising is tightly regulated, so make clear who writes local claims and who is responsible for them.

5. Term, renewal and termination

Set the term, any automatic renewal, grounds for termination, notice periods and what happens to remaining stock (buy-back or sell-off period). The ICC model also has annexes on change of control and on goodwill indemnity at termination.

In Korea, where the Agency Transactions Act applies, its Article 5 requires the supplier to give the dealer, immediately on signing, a written contract stating the type of transaction, products and term, delivery, payment, return conditions, transfer of business, grounds and procedure for termination and sales incentives, and to keep it for three years after the relationship ends.

6. Non-compete obligations

Non-compete clauses stop the distributor carrying competing brands. Check the scope (the same product type or all cosmetics) and duration (during the contract only, or after it).

Article 5 of Regulation 2022/720 excludes from the block exemption non-compete obligations that are indefinite or longer than five years, and obligations preventing the buyer from making, buying or selling goods after the agreement ends, subject to limited exceptions.

7. Returns, rebates and shelf life

Cosmetics have expiry dates, so return terms matter: the procedure for damaged or defective goods, minimum remaining shelf life on delivery, and conditions for rebates. Korea’s Act also lists return conditions and sales incentives as mandatory contract items. Transport damage is covered in damaged shipment claims.

Exclusive distribution agreement clauses: pre-signing checklist

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SEONGWOO GLOBAL is the Official Distributor of PINKWONDER, Arocell, Carenology95 and irecipe. For distribution enquiries about these brands, contact us below.

Related pages: Our brands · FAQ · Contact us · How to become a Korean brand distributor · Export trade terms glossary · Damaged shipment claims

See also: Regulatory clauses checklist