China distribution contracts

My law firm has been seeing a massive increase in work for foreign companies entering into distribution contracts with Chinese distributors, due in large part to China rapid growth as a consumer market. Many of the companies that come to us to draft their distribution contracts with Chinese distributors are already experienced with distributor relationships and already have a “standard” distribution contract. Though China distribution agreements have much in common with US and European distribution agreements, they also have stark and interesting differences.

Our clients’ standard distribution agreements (usually with a United States or a European company) typically make for an excellent starting point in our drafting of their Chinese distribution agreement. These standard distribution contracts have usually been honed and customized over the years to match what our client wants and needs from its relationships with its distributors.

But we also always need to substantially modify them to make them work for China.

One reason for this is that the United States/Europe generally provide distributors with all sorts of legal protections. These countries often make it difficult or expensive to terminate a distributor and it is common for distributors in these countries to sue or threaten to sue when a distribution relationship sours.

Chinese law has no special protections for distributors. In particular, there is no legal requirement in China for payment of any special compensation to a distributor upon termination of the distribution agreement. All of our China distribution agreements call for applying Chinese law and we usually remove these sorts of provisions US/European distribution contracts when we re-write them for China.

We also add in what we call a “no registration” provision to further protect our clients’ China trademarks. In this provision, the distributor agrees that our client has exclusive ownership of all trademarks, that the distributor gains no rights to those trademarks, and that the distributor will not register any trademarks in any way related to our client’s trademarks. I use the words “further protect” because the first line of protection for your trademarks in China is to register them properly in China. This provision is important because under Chinese law, you lose your trademark if you go three years without using it and Chinese courts usually find that your distributer using your trademark is NOT the same thing as you using your trademark.

One other difference between a Chinese distribution agreement and that for the United States or Europe is that the signature line in a Chinese distribution contract should provide a place for the distributor to affix its company seal; unsealed distribution contracts are arguably not valid under Chinese law.

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Photo of Dan Harris Dan Harris

Dan is a founder of Harris Bricken, an international law firm with lawyers in Los Angeles, Portland, San Francisco, Seattle, China and Spain.

He primarily represents companies doing business in emerging market countries, having spent years building and maintaining a global, professional network. 

Dan is a founder of Harris Bricken, an international law firm with lawyers in Los Angeles, Portland, San Francisco, Seattle, China and Spain.

He primarily represents companies doing business in emerging market countries, having spent years building and maintaining a global, professional network.  His work has been as varied as securing the release of two improperly held helicopters in Papua New Guinea, setting up a legal framework to move slag from Canada to Poland’s interior, overseeing hundreds of litigation and arbitration matters in Korea, helping someone avoid terrorism charges in Japan, and seizing fish product in China to collect on a debt.

He was named as one of only three Washington State Amazing Lawyers in International Law, is AV rated by Martindale-Hubbell Law Directory (its highest rating), is rated 10.0 by AVVO.com (also its highest rating), and is a recognized SuperLawyer.

Dan is a frequent writer and public speaker on doing business in Asia and constantly travels between the United States and Asia. He most commonly speaks on China law issues and is the lead writer of the award winning China Law Blog. Forbes Magazine, Fortune Magazine, the Wall Street Journal, Investors Business Daily, Business Week, The National Law Journal, The Washington Post, The ABA Journal, The Economist, Newsweek, NPR, The New York Times and Inside Counsel have all interviewed Dan regarding various aspects of his international law practice.

Dan is licensed in Washington, Illinois, and Alaska.

In tandem with the international law team at his firm, Dan focuses on setting up/registering companies overseas (via WFOEs, Rep Offices or Joint Ventures), drafting international contracts (NDAs, OEM Agreements, licensing, distribution, etc.), protecting IP (trademarks, trade secrets, copyrights and patents), and overseeing M&A transactions.