Distribution Reseller Breach Demand Letters
Demand letter strategies for distribution and reseller disputes: territory violations, exclusivity breaches, MAP pricing violations, minimum purchase requirements, and grey-market conflicts
Distribution agreements create valuable but often-violated rights. When distributors breach territory restrictions, violate MAP pricing, miss minimum purchase requirements, or engage in grey-market sales, manufacturers have contractual and sometimes statutory remedies. Here’s how to structure effective demands.
- Territory violations: Distributor granted exclusive rights to California actively sells or solicits in Oregon distributor’s territory.
- MAP (Minimum Advertised Price) violations: Distributor advertises products below manufacturer’s MAP policy, undermining brand positioning and other channel partners.
- Minimum purchase failures: Distributor committed to $500k annual purchases but only orders $200k, losing exclusivity rights or facing termination.
- Grey-market / unauthorized channels: Distributor sells through Amazon, eBay, or discount channels prohibited by agreement, or supplies unauthorized sub-distributors.
- Trademark misuse: Distributor uses manufacturer’s trademarks in unapproved marketing, creates misleading product listings, or implies unauthorized endorsements.
- Diverted goods: Distributor purchases at wholesale prices for one market, then diverts to higher-profit markets in violation of territory restrictions.
- Agreement and Territory/Channel Definitions: Quote relevant sections defining exclusive territories, approved channels, pricing policies, or minimum purchases. Attach agreement as exhibit.
- Specific Breach Documentation: Detail the violations with dates, locations, evidence (screenshots, customer complaints, shipping records). For MAP violations, include screenshots showing advertised prices below MAP.
- Harm to Manufacturer: Explain how breach harms your brand, other channel partners, or market strategy. Include complaints from other distributors if applicable.
- Prior Notice and Cure Opportunities: If you gave prior warnings, reference them with dates. If contract requires cure notice, show that cure period expired without compliance.
- Consequences and Remedies: State what you’re demanding: (1) immediate cessation of violations; (2) contract termination; (3) damages (lost profits from territory interference, MAP violation penalties if in contract); or (4) return of inventory and materials.
- Trademark and Marketing Restrictions: If distributor is terminated, demand cessation of trademark use, removal of product listings, and return or destruction of marketing materials bearing your marks.
- Liquidated Damages: If your agreement includes liquidated damages for MAP violations or territory breaches, calculate and demand these amounts.
- Future Relationship Conditions: If you’re willing to continue relationship conditional on compliance, state specific corrective actions required and monitoring terms.
- Deadline: Typically 10-15 business days for cease-and-desist, immediate for termination effective date.
- Arbitration/Governing Law: Note dispute resolution provisions if applicable.
Legal distinction: Minimum Advertised Price (MAP) policies restrict how distributors advertise prices but don’t control actual sale prices. This is generally legal. Minimum Resale Price agreements that fix actual selling prices are per se illegal under federal antitrust law.
Enforcement strategy: MAP policies must be unilateral (manufacturer’s policy, not negotiated agreement) and consistently enforced. In your demand letter, frame MAP as your unilateral policy, reference prior communications establishing the policy, and note that enforcement (termination) is your independent business decision, not a negotiated price-fixing agreement.
Territory restrictions are generally enforceable in distribution agreements but require clear drafting:
- Exclusive territory: No other distributor appointed in territory, and manufacturer won’t sell directly. Strongest protection for distributor, but limits manufacturer flexibility.
- Exclusive rights with exceptions: Common structure—distributor has exclusive rights but manufacturer reserves right to sell direct to major accounts or through online channels.
- Non-exclusive territory: Distributor has no exclusivity; manufacturer can appoint competing distributors. Weakest protection but easier to enforce violations.
- Customer-based vs. geographic territories: Some agreements grant exclusivity by customer type (e.g., retail vs. industrial) rather than geography. Define clearly in demand letter.
Common problem: Distributor creates unauthorized Amazon, eBay, or Walmart Marketplace seller accounts in violation of approved-channel restrictions. Manufacturers often discover this through brand monitoring services or customer complaints about unauthorized sellers.
Evidence strategy: Screenshot seller account pages showing product listings, capture “Ships from” or “Sold by” information proving distributor identity, document pricing below MAP or authorized retail. Many distributors use shell companies or third-party fulfillment, so you may need investigative purchases to confirm identity.
Many distribution agreements condition exclusivity on minimum purchase volumes:
- “All or nothing” structure: Distributor loses all exclusivity if they miss minimum by any amount. Harsh but clear.
- Tiered exclusivity: Different purchase levels trigger different territory sizes or exclusivity scopes. More flexible but complex to administer.
- Cure rights: Distributor has X days to cure shortfall by placing make-up order. Reduces disputes but delays enforcement.
In your demand letter, calculate the shortfall precisely, reference the contract provision linking purchases to exclusivity, and state whether exclusivity is terminated or subject to cure.
Distributors also have enforceable rights under distribution agreements. When manufacturers breach exclusivity, fail to supply, engage in line-dumping, or terminate wrongfully, distributors can demand damages or specific performance.
- Exclusivity violations: Manufacturer granted you exclusive California territory but directly sells to California customers or appoints competing distributor.
- Failure to supply: Manufacturer fails to fill orders, creates artificial shortages to pressure price increases, or prioritizes other distributors.
- Line-dumping: Manufacturer sells slow-moving or discontinued products to your territory at deep discounts through other channels, undermining your inventory investment.
- Direct sales encroachment: Manufacturer establishes competing direct-to-consumer channel (online store, company-owned retail) in your exclusive territory without compensation or adjustment.
- Wrongful termination: Manufacturer terminates agreement without cause, without required notice, or in retaliation for your complaints about their breaches.
- Failure to provide support: Manufacturer agreed to provide marketing support, training, or warranties but fails to deliver, harming your sales.
- Agreement and Exclusivity Rights: Quote sections granting exclusive territory or other protected rights. Highlight manufacturer’s obligations (supply, exclusivity, support).
- Your Performance: Show that you fulfilled all material obligations—met purchase minimums, maintained approved channels, invested in territory development.
- Manufacturer’s Breach: Document specific violations with dates and evidence—direct sale records, competing distributor listings, supply denials, or wrongful termination notice.
- Damages Calculation: Calculate lost profits from manufacturer’s territory incursions, stranded inventory costs from line-dumping, or lost future profits from wrongful termination.
- Reliance and Investment: Describe your reliance on exclusivity—inventory purchased, marketing investments, sales staff hired, customer relationships developed—to show why breach is particularly harmful.
- Demand for Relief: State what you’re seeking: (1) specific performance (stop direct sales, honor exclusivity); (2) monetary damages; (3) inventory buy-back; or (4) contract reinstatement if wrongfully terminated.
- Mitigation: Note your duty to mitigate damages but explain how manufacturer’s breach makes mitigation difficult (can’t sell products you can’t get, can’t develop territory you don’t have exclusive rights to).
- Franchise Law Considerations: Some states have franchise relationship laws protecting distributors from wrongful termination or requiring good cause. Cite these if applicable.
- Deadline: 15-20 business days for manufacturer response and cure.
- Arbitration Notice: Reference dispute resolution provisions and note intent to arbitrate if not resolved.
Some states (including California, Wisconsin, New Jersey) have “franchise relationship laws” or “dealer protection statutes” that protect distributors from wrongful termination even if contract is “at will.” These laws typically require:
- Good cause for termination: Manufacturer must prove material breach, failure to meet standards, or legitimate business reason.
- Notice and cure rights: Manufacturer must give advance notice (often 90 days) and opportunity to cure before terminating.
- Compensation for investment: Some statutes require compensation for distributor’s investment in territory development.
Strategy: If your distribution relationship may qualify as a “franchise” under state law, cite these protections prominently in your demand letter and argue termination violates statutory requirements.
Calculating damages for manufacturer’s exclusivity violations:
- Lost profits from diverted sales: If manufacturer directly sold $100k in your territory and you typically earn 30% margin, your lost profit is $30k.
- Diminished territory value: If manufacturer’s encroachment reduces your total territory sales by 20%, calculate 20% of your historical profits for the period.
- Inventory losses: If you purchased inventory in reliance on exclusivity and can’t sell it due to manufacturer’s competing sales, demand buy-back at your cost.
- Investment recovery: Marketing spend, sales staff costs, or infrastructure investments made in reliance on exclusive rights that are now wasted.
Even if your contract doesn’t explicitly prohibit it, manufacturer’s sale of discontinued or slow-moving inventory into your territory through unauthorized channels (closeout websites, discount retailers) may breach implied covenant of good faith and fair dealing.
Argument: You invested in inventory and territory development based on understanding that manufacturer wouldn’t undermine your market with competing discount sales. Line-dumping destroys your ability to sell existing inventory and damages customer relationships. Courts may find this violates good-faith obligation even without explicit contract prohibition.
If manufacturer terminated your distribution rights, evaluate:
- Termination provisions: Does contract require cause, notice period, or cure opportunity? If so, did manufacturer comply?
- At-will vs. for-cause: Even “at-will” agreements may be limited by franchise laws, good-faith obligations, or implied duration based on your investments.
- Retaliation: Did manufacturer terminate after you complained about their breaches, refused illegal demands, or exercised legal rights? Retaliatory termination may be wrongful even under at-will contract.
- Notice period: Many agreements require 30, 60, or 90 days’ notice. Immediate termination may be wrongful unless you committed material breach.
In your demand letter, argue termination was wrongful under contract terms or applicable law, calculate damages based on expected future profits (often 1-3 years depending on investment recovery periods), and demand reinstatement or buyout.
For grey-market and unauthorized channel disputes, manufacturers should:
- Make test purchases: Buy products from suspected unauthorized sellers to obtain shipping records, invoices, and product authentication proving diversion.
- Use brand monitoring services: Services like TrackStreet, BrandVerity track MAP violations and unauthorized sellers across Amazon, eBay, Google Shopping.
- Preserve web evidence carefully: Screenshots alone may not be admissible. Use web archiving services or hire forensic investigators for litigation-grade evidence.
- Product serial number tracking: If products have serial numbers, track which units were sold to which distributors, then match against unauthorized listings.
Distribution disputes create complex settlement pressures because both parties typically want to preserve business relationships while protecting contractual rights. Understanding typical outcomes helps frame realistic demands.
- MAP violations (first offense): Warning with cease-and-desist, rarely monetary damages. Repeat violations: termination or liquidated damages (if in contract).
- Territory violations by distributor: Termination of exclusivity rights, contract termination, or 30-60% reduction in future territory size as compromise.
- Territory violations by manufacturer: 40-70% of lost profits compensation, or increased margins/reduced minimums to compensate for lost exclusivity value.
- Minimum purchase failures: Loss of exclusivity but continued non-exclusive distribution, or grace period to cure shortfall with reduced future minimums.
- Wrongful termination by manufacturer: 50-200% of annual distributor profits as buyout (1-2 years of expected profits), or contract reinstatement with modified terms.
- Grey-market violations: Immediate termination for egregious cases, or consent agreement with monitoring and liquidated damages for future violations.
Many territory disputes settle with restructured rights rather than all-or-nothing outcomes:
- Example: Distributor had exclusive California rights but sold into Oregon. Settlement: Distributor keeps non-exclusive California rights (loses exclusivity), prohibited from Oregon permanently, and pays $X from Oregon sales as compensation.
- Why it works: Manufacturer preserves Oregon distributor relationship, breaching distributor keeps reduced California rights, both avoid litigation costs and termination complexities.
- When to use: First-time violations, established distributor relationships worth preserving, and ambiguous contract language that makes litigation outcome uncertain.
Many distribution agreements require arbitration. Key considerations:
- Industry arbitrators: Arbitrators with distribution/channel experience may understand commercial realities better than judges or juries.
- Confidentiality: Arbitration keeps sensitive pricing, territory, and financial information confidential, protecting both parties’ competitive positions.
- Speed: Arbitration typically resolves in 8-15 months vs. 18-36 months for trial, critical when business relationships are collapsing.
- Limited injunctive relief: Some arbitration clauses limit preliminary injunctions, making it harder to get emergency stop-orders for ongoing violations.
- Demand letter to response: 10-20 days
- Negotiation phase: 30-90 days
- Mediation (if used): 60-120 days from demand
- Arbitration to award: 8-15 months from filing
- Litigation to trial: 18-36 months from filing
I represent both manufacturers enforcing distribution agreements and distributors protecting their territory and exclusivity rights. My approach focuses on practical channel strategy and enforceable contract provisions.
Agreement Review and Enforcement Strategy: I analyze your distribution agreements to identify enforceable restrictions, drafting gaps, and optimal enforcement approaches for territory, MAP, and channel violations.
Evidence Development: I work with you to gather compelling evidence of violations—investigative purchases, brand monitoring data, territory sales analysis—sufficient to support termination or damages claims.
Demand Letter Drafting: I draft demands that cite specific contract provisions, document violations clearly, distinguish between curable and terminal breaches, and preserve all legal and equitable remedies.
Network-Wide Enforcement: I advise on consistent enforcement across distributor network to avoid selective enforcement claims and maintain distribution strategy integrity.
Exclusivity Rights Analysis: I evaluate your distribution agreement to determine strength of your exclusivity rights, limitations, and manufacturer’s obligations to support your territory.
Damages Quantification: I help you calculate and prove lost profits from manufacturer’s territory incursions, stranded inventory costs, and wasted territory development investments.
Wrongful Termination Defense: I analyze whether termination violates contract notice requirements, good-cause provisions, or state franchise relationship laws, and I demand reinstatement or buyout compensation.
Negotiation and Arbitration: I negotiate modified distribution terms, territory adjustments, or exit compensation, and I represent distributors in arbitration when manufacturer refuses reasonable resolution.
If you’re dealing with a distribution or reseller breach—whether you’re a manufacturer enforcing agreement terms or a distributor protecting your territory rights—I can help you understand your position and develop an effective resolution strategy.
Use the Calendly link below to schedule a strategy call, or email me directly at owner@terms.law.
Schedule Strategy CallMinimum Advertised Price (MAP) policies are generally legal if structured properly. They must be unilateral policies (manufacturer’s independent decision, not negotiated agreements) that restrict advertised prices only, not actual selling prices. Minimum Resale Price agreements that fix actual selling prices are per se illegal. To maintain legality, enforce MAP consistently across all distributors and don’t negotiate MAP terms individually.
Depends on your contract and state law. If your agreement is truly “at will” with no notice requirements, manufacturer generally can terminate without cause in most states. However, many states have franchise relationship laws that require good cause for termination even if contract says “at will.” Additionally, even at-will contracts may be limited by implied duration based on your investments, good-faith obligations, or retaliation prohibitions. Review your contract and consult counsel about state-specific protections.
You have several remedies: (1) terminate the exclusive distributor for breach of territory restrictions; (2) reduce their territory to non-exclusive status; (3) seek damages (if other distributor or direct sales were harmed); or (4) seek injunction to stop ongoing violations. Start with cease-and-desist demand letter giving opportunity to cure. If violations continue, territory restrictions are generally enforceable in commercial distribution agreements, giving you strong litigation position if needed.
If your distribution agreement grants you exclusive rights in a territory and doesn’t carve out exception for manufacturer’s direct online sales, you likely have breach claim for exclusivity violation. Calculate your damages as lost sales from manufacturer’s direct competition. However, many modern distribution agreements explicitly reserve manufacturer’s right to sell direct online. Review your contract’s exclusivity language and online sales carve-outs carefully. Even if contract is ambiguous, you may have claim based on course of dealing if manufacturer previously abstained from direct sales.
Gather circumstantial evidence linking shell companies to distributor: (1) make test purchases and trace shipping origins and product serial numbers; (2) compare marketplace seller inventory to distributor’s known purchase history; (3) analyze seller account registration details, payment information, and business addresses; (4) use product authentication or lot codes to trace supply chain; (5) hire investigators for more complex schemes. Accumulate enough circumstantial evidence to show shell company is distributor’s alter ego. Courts allow termination based on reasonable belief of violations even without absolute proof.