Problems with a distributor

[gentle-memories]

I am an active seller on E-Bay. Last Friday I got a call from one of my distributors who told me they were cutting me off because I was selling on E-Bay. I also have my own website where I sell the same goods. Now this distributor wants me to sign an agreement that I sell the goods for the price he demands, I am not allowed to sell on E-Bay, nor am I allowed to sell to Americans (95% of my business) or they will refuse to supply me. I know that this is illegal in Canada and have contacted the Competition Bureau....I also understand that there are stringent anti-trust laws governing this practice in the US. Is there anyone out there who can give me some advice on where to go from here...I know I can hire a lawyer but that will take alot of money and time I don't have during the Christmas season. I would really appreciate some support from my fellow power sellers....thanks so much....Patty

[sunward-hobbies]

Try to get everything they want in writing before you call or mention a lawyer.

Get another distributor if you can.

As for selling in the US, they can refuse to supply you simply by saying someone else has the rights. Same for ebay.

If you are thinking of grey market, you can sell if you get the goods from someone else. But the company just has to file VERO rights, and you can't sell on ebay.

Price fixing is another story, and that is why you need it in writing. But be prepared to spend a hugh amount of money and time for lawyers. Maybe time to look for something else to sell.

[shoplineca]

Patty
Not everything they are telling you is illegal and there is a good chance, nothing they are telling you is illegal.

With respect to selling to Americans. There may be exclusive rights given to businesses in the US that provides those businesses with protected territories where your sales from Canada are putting the distributors' products into those protected territories in direct competition with those US businesses.

That would be the same with selling on eBay. Your sales may be moving the distributor's products into areas in direct competition with businesses that purchase from the distributor with a protected territory as defined by a contract that they have with the distributor.

Do you have an existing contract with the distributor or have you simply been purchasing from them?

The distributor may not necessarily be able to tell you how much to sell the products for but he can place a MINIMUM amount to protect the value of his items (as well as setting a MSRP).

However, even with respect to setting the price, it all depends on your relationship as defined by your contract with the distributor. Do you think that each franchised restaraunt location such as McDonalds or Burger King get to set their own prices? Of course not. They are 100% directed as to what the price must be and must participate in special promotions from time to time. Nothing about that is illegal.

Now IF the distributor is setting terms for you different from someone else in competition with you to put you out of business, then you have an argument and it would be of interest with the Federal Competition Branch of the Government but the burden of proof lies with you and that takes alot more than speculation before you spark enough of their interest to get involved to start an investigation.

If you have a relationship with the distributor absent of any contract then you are totally out of luck as there is nothing in law to force them to sell to you (aside from refusing based on race, religion or political beliefs).

I dont mean to sound as if I am not supporting you here but if you dont have contracts with your distributors setting out your rights, then you dont have a proper documented relationship that will protect you should the distributor wish to remove you as a source of selling their products or change the existing relationship at their will.

Malcolm

[shoplineca]

Patty
After reading my post I also realized that your distributor may only have rights given to him by the manufacturer to sell to Canadian businesses as there may already be a US distributor. Your US sales could cost him his licence to sell the manufacturer's products in Canada as a result.

Without having all the facts I can only make assumptions but I assure you that I have not seen much in what you posted to suggest that his actions are totally or even marginally illegal unless you had knolwedge of his supporting another business in direct competition with you.

Malcolm

[gentle-memories]

Thank you so much everyone for all your advise. You have no idea how much I appreciate it. I sold over $6000.00 of this product last month and this month I will definitely be over that amount. I do not have a contract in writing with this company although I am an authorized dealer. Their decision to refuse to sell, as you can imagine, is devastating to my business. I cannot get this specific product anywhere else...although the possibility exists to get similar products from other manufacturers. You are right when you tell me that the US manufacturer is threatening the Canadian distributor's license over my selling on E-Bay...however only about 5% of my sales are below MSLP...I use a few products as loss leaders. You are right about Burger King and Mcdonalds...however these are franchises...which are under different laws. On the other hand there are several US on-line businesses (not on E-Bay) selling the same product who are also discounting and selling to Canadians. As well, several other sellers of this product are on E-Bay selling at the same or substantially less than my prices. Two of these E-Bay sellers also claim to be authorized dealers. The whole situation is becoming a nightmare for me.

[shoplineca]

Patty
It is possible that the other "Authorized Dealers" are purchasing directly from the US Manufacturer or from a US Distributor at substantially less than what your distributor sells the items to you.

Have you thought about approaching the US Manufacturer directly OR approaching one of the US Distributors and by-passing the Cdn guy you are dealing with.

By the way, I am very conversant with franchise law having been a VP/General Mgr of a Cdn franchisor. I wrote our franchise contracts and negotiated them with franshisees' legal counsels.

At the same time, a distributor has a right to protect the value of his product by preventing licensed sellers to sell below a certain amount and I believe that is what may be happening, from time to time in your instance.

As far as the US Sellers discounting to Cdns, I have found that for most US manufacturers, we are nothing more than a dumping ground. A place to pick up some extra sales or pick up the slack when their domestic market is flat. It would be of very little consequence to the US manufacturer that some of his US Sellers are dropping below the set price to Cdns or even selling into Canada in competition. We are just too small a market for most of them to give a damn although you should be raising that issue with your distributor.

Your principal problem is that you are operating void of having a contract and as such, you must rely on general law and whether the distributor or manufacturer are violating any laws.

Had you a contract, he might be forced to give you 6-months written notice of a change or at least 3-months to accomodate any changes you might have to make to your business.

Otherwise, he is pretty well free to refuse to sell you without your entering into a written contract with him, which is what he appears to want to do.

My suggestion: Tell him that you would like to enter into a contract and ask him to forward it to you so that your lawyer can review it before you sign it.

Then delay signing it on the basis of an absent lawyer etc until such time as you either replace the distributor/manufacturer or perhaps negotiate a good deal with this distributor, when you have time.

In the mean time, increase you orders to build up sufficient inventory to carry you through Christmas but do it in such a way that he doesnt really notice what you are doing. Make certain to pay down your account with him to not give him any excuse to hold up any shipments, even if you have to pre-pay for the extra quantities you want to take in.

Malcolm

[ospreylinks]

Malcolm, I thought the Combines Act made it impossible for distributors or manufacturers to stipulate prices, hence they quote suggested retail price.

I have an acquaintance who is a McDonald's Franchisee (has four restaurants) and he told me that they are free to set their own pricing and determine which promo they wish to participate in, but of course it is to their advantage to have similar pricing with regional restaurants and thus they have great regional communication to determine what other franchisees are doing in the area and in this regard they tend to work in a co-operative spirit.

I know for a fact that McDonald's menu pricing is different here in North Bay than Toronto....

Jeff

[sunward-hobbies]

Malcolm, thanks for the legal bit. Very interesting. Especially since I signed an exclusive agreement with a distributor.

Jeff;
I am not sure of the Combines Act and how it can or can't stipulate prices.

But keep three things in mind.
1) last I heard, there were only 2 convictions under the act
2) legal bills if gental-memories decides to sue
3) being able to set your price and getting stock are two different things. The old, it is being delivered, lost your order, we're out of stock, etc, etc.

[shoplineca]

Jeff
McDonald's has regional pricing, regional promotions and from time to time a franchisee is permitted to run a special promotion on its own, subject regional approval.

The slight differences in pricing and/or product mix are there to recognize the differences in regional choices in food and in the costs of operation. This was not the case 10 or 15 years ago however.

Generally speaking, the success of franchising is that people can expect basically the same products, quality of food and service and pricing no matter what McDonald's they eat in or where.

The Combines Act became the Anti-Competition Act in 1986. The main purpose of the Act is to prevent mergers or aquisitions or foreign ownership in Canada that would lessen the competitive nature of that industry and hurt the average Canadian by removing "choice".

Recent rulings have prevented the two separate mergers of Canadian Banks on the basis of their eventual control of the credit card market.

The Act has come into play in our recent mergers within the airline industry and proposed sale of Air Canada to foreign interests.

Price setting or price fixing had led to a number of Ottawa Hotels being charged for setting the same low price for hotel rooms for government employees. The result was they all raised their prices to recover their fines and stuck it to the government.

There are several main sections to the Act as follows:
1.OFFENCES IN RELATION TO COMPETITION
2.DECEPTIVE MARKETING PRACTICES
3.MATTERS REVIEWABLE BY TRIBUNAL which would include Restrictive Trade Practises.

It is the third one which could affect the OP as it deals with one's inability to purchase a product through refusal by the supplier. The fact remains that she is not being refused. She can purchase under a contract from the Distributor or can purchase from other authorized dealers. She therefore has an ability to obtain that product.

She is being refused to be sold product for re-sale into the US which is a different matter entirely.

With respect to the act, price is then what comes into question and is also addressed in the act in that same section.

The OPs biggest problem however is that the OPs sales into the US are the largest part of the customer base and Cdn law can do nothing to protect or preserve those rights, especially this Act which has been ideally created to protect Canadian consumers.

This is why I suggested that the OP contact the US manufacturer with respect to her US business. There is little or nothing that the Canadian distributor can do for her with respect to her US business and that goes for Canadian Law as well.

Malcolm

[gentle-memories]

Hi Everyone,

First, I am just so impressed with all the support you have given me. I have been to discussion boards before and never been too impressed....too much griping and complaining for me...but this one is certainly different. I thank you all from the bottom of my heart....hopefully I can also be some help here at some time down the road...I certainly am going to stay and join the crowd this time.
Second, let me introduce us...my name is Patty and my husband (definitely my better half) is David. David is a retired school principal and I took early retirement two years ago from my job as a research psychologist with the U of T and the Clarke Institute. It's a long story and definitely won't bore you here...but we decided to start our own business and have been at it ever since. We have seven children between us....six girls and one boy....yes JUST one boy with all those girls. He is going to make some woman a fine husband someday...he certainly knows women! Two of our girls are married and have given us five grandchildren....the other five still live at home....we keep showing them that the door actually does open BUT they don't seem to get the hint. Seriously...they are all still in school...the oldest is just finishing her PHd, next...our problem child...still hasn't figured out who she is...but needs to do it soon! Next, our daughter who is studying to be a hair stylist and loving it...next our son who has just been accepted into Royal Military College - Flight Training Division...YEAH! and our baby who is just finishing the last year of high school and busy deciding how much money university residence is going to cost us next year. AS you can see there is a light at the end of the tunnel!!!!!
Third, Malcolm you are a wealth of information...I notice you are a real music lover....my son majored at Cawthra Park Regional Arts Program and plays the sax, piano, guitar and everything in between. A real music nut! My husband and his three retired cronies have just started a new band....called "Men with Gout"....yes...I can hear you laughing. By the way they are just awful! They do practice on every Tuesday night...thank God it is not at this house! David plays the banjo!
Malcolm...your assumptions were right on! The Canadian dealer is purchasing directly from the American company HOWEVER he has sole distribution rights in Canada and so any idea that I could ship the stuff over here from the US is nixed. Unfortunately these people are not all that business savvy...they still have a bit to learn but apparently the American company has an iron clad agreement with them and did threaten them with losing their license if they didn't close me down.
HOWEVER, a distributor and/or manufacturer DOES NOT have the right to mandate the MSLP in either Canada or the US. The Competition Act prevents this practice in Canada AND the Anti-Trust Act prevents it in the US. Having said that...trying to get it enforced is a whole other matter. The Canadian distributor is bound my the Competition Act in Canada regardless of the agreement. The same is true for the Anti-Trust act in the States. There have been many successful charges under the Canadian act...if you want the paperwork I will be happy to send it to you AND let me tell you...neither one of these companies wanted the individual bureaus involved in their business. HOWEVER there is no law preventing any company from telling you where (i.e., E-Bay) you can sell their product...in fact...many companies now have standard clauses preventing E-Bay sales specifically OR they cut your product. However, it would be impossible to enforce selling only within Canada and thankfully they have realized this....I was never under any obligation to show them my sales records....BUT selling in the US is no longer a bone of contention with them.

My new contract with them is only that I may not sell on E-Bay....and I could probably still do that if I wanted to under another name....the only problem is that I am trying to develop the business on my own website and to be honest this just forces me to get my butt in gear and spend more time working at what will ultimately make me more money in the long run.

Well, I hope I have made a little sense here....luckily I have had all of you plus a few key friends including lawyers and financial advisors who pulled a few favours to get me the information I needed.

David and I have set up a post office box in Niagara Falls NY and we are seriously considering attending the trade shows in New York in January. We also found out how to clear our own stuff at customs without paying those horrendous clearing fees that customs brokers like to gouge out of our profits. So it is onward and upward.

If there is anything I can ever try to help you with please ask....I am going to check this board daily and really look forward to getting to know all of you. AND AGAIN...thank you from the bottom of my heart!

Patty

[shoplineca]

Patty
Glad to have you (and soon your husband) posting here. The Cdn board started off strong and then withered away somewhat after the Pinks dropped off site (Pinks are eBay staff who are supposed to monitor the boards and give ocassional support).

MSRP, MSLP are only set as a guide and seldom will you find anyone selling at those prices. There are many varying reasons for having those prices and the reasons differ from Canada to the US. I owned a $40 million mfg company in the US and we had to file with Federal Government our LIST prices for our products. However, based on volume purchases, those prices would be discounted.

That being said, your purchase price for a product may differ considerably from someone else's based on the volume of items you are purchasing from the same manufacturer or distributor. The result may provide an opportunity for someone to sell the same product to consumers for less than it is costing you to buy it.

The eBay phonomenen has created many problems for many manufacturers and re-sellers alike. The biggest problem that is developimg is that the manufacturers who have previously simply supplied many distributors and re-sellers/dealers are now beginning to sell on eBay themselves in direct competition with their own customers (the distributors and dealers).

Some are doing it directly, others are doing it through one or two select re-sellers making it somewhat difficult if not impossible to prove.

Ethically or morally this may not be correct however it certainly is legal (unless in contrevention of any written contracts). I would be very concerned at governments prohibiting the rights of a manufacturer to decide how to market and sell their products.

With respect to your Cdn distributor, what I was suggesting is making arrangements with the Mfger to have the items shipped to a place in the US and you import it yourself or set up with a 3rd party to ship for you out of the US.

A bit of work at the beginning but if I faced loosing 95% of my business and the opportunities were substantial, I would be exploring every avenue to by-pass the middle man. Besides your cost for the products will be less by cutting out your distributor.

The greatest problem with law in protecting business is the cost to prove that you have been wronged. Having a very strong legal (and financial) background I am all too familiar with the cost of litigation.

I just completed a 4-year contract as a Business Consultant in a legal dispute bewteen partners and later thc company's accounting firm. Over $2 million was spent in direct legal fees by my client not including what I and other experts were paid. The end result was an out of court settlement where my client recovered peanuts in relation to the claim that was made.

I also personally settled a small legal action where I had to employ legal counsel as one of the defendants in the action was the Government of Canada and I didnt want to take them on by myself. 1/3 of what I settled for ended up being paid to legal counsel and the law firm wrote off twice that in unbilled fees due to business that I have referred to them.

There is no question that you should make every effort to settle your differences outside of going down the path of litigating the case. I can almost guaranty that in 85% of the cases, the lawyers are the only ones who come out on top (win or loose).

Best of luck.

Malcolm