An exclusive distribution relationship may be established by: 1) an expressly exclusive written distribution agreement, or 2) in the absence of an integrated written agreement, by evidence of a verbal exclusive agreement or a course of dealings or course of performance between the parties establishing de facto exclusivity.
At least where an expressly non-exclusive agreement is in effect between the parties, courts have ruled that the payment of commissions is not evidence that the principal has waived its right to sell products directly or through another distributor in competition with its alleged exclusive distributor. In Print, Medical Books Inc. v. Harcourt, Inc. 93 Fed. Appx. 240, 241, 2004 WL 528433, 1 n.1 (1st Cir. 2004)(unpublished)(“The plaintiff contends that the payment of a 10% override commission on all direct sales by the defendant in Puerto Rico rendered the distribution agreement exclusive. We do not agree. The essence of a non-exclusive agreement is that the manufacturer (or, as here, the publisher) retains the right to sell its wares to others, including other distributors, as it sees fit. [citation omitted]. The defendant at all times retained that right”).
Things get like quick sand for the principal, where there is no written agreement or a material factual dispute exists as to whether a non-exclusive written agreement continues to govern the relationship between the parties.
In those circumstances, a distributor has been able to avert the entry of summary judgment on the issue of exclusivity with an argument that, over a period of years, it has been the sole reseller of the principal’s products in Puerto Rico or the principal has paid a commission for selling products directly. Kellogg USA v. B. Fernandez, 2010 WL 376326 (D.P.R. Jan. 27, 2010)(Gelpi, J.)(Out of full disclosure the author represented Kellogg in that case). The distributor’s argument in that case was that the principal would not have been contractually obliged to pay any commissions if the relationship had been non-exclusive. The court decided that this allegation created a triable issue of fact. On the other hand, if the court hit it on the spot in In Print, Medical Books Inc. v. Harcourt, Inc., the payment of commissions would not necessarily create exclusivity as the principal acted consistently with its right to sell directly, which is the essence of non-exclusivity. In other words, paying commissions does not indicate the principal's intent to renounce its right to sell directly. By the same token, there is an equally permissible inference from the one drawn by the Kellogg court that the distributor waives its claim of de facto exclusivity by permitting others to sell directly even when accepting the payment of commissions. Unless, of course, in that case the principal clearly has manifested its intent to agree to pay commissions in recognition of the distributor’s exclusive rights.