US Distribution Agreements: Key Terms Every Taiwan Brand Must Negotiate

A US distribution agreement is the legal contract that defines your relationship with a US distributor — the company that will buy your products wholesale and resell them to US retailers, wholesalers, or end consumers. Once signed, this agreement governs every aspect of the commercial relationship for its entire term.

Taiwan brands often approach distribution agreements with urgency: after months of trying to find a distributor, when one finally expresses serious interest, the temptation is to sign quickly before they change their mind. This is a costly mistake.

A poorly negotiated distribution agreement can: lock you into an exclusive arrangement with a distributor who fails to perform, prevent you from selling your own products directly in the US market, allow the distributor to set your retail prices in ways that destroy brand equity, give the distributor permanent rights to your brand in their territory, or make it practically impossible to exit the relationship even if the distributor is not meeting targets.

The good news: distributors negotiate these terms regularly and expect pushback on unfavorable provisions. A confident Taiwan brand that understands what to ask for will be taken more seriously, not less.

The territory clause defines where the distributor is authorized to sell your products. "United States" sounds simple but can create problems. Consider:

Geographic precision: is the territory the entire continental US, including Hawaii and Alaska? Including US territories (Puerto Rico, Guam)? Including US military bases overseas? Define explicitly if you want to exclude any region.

Channel restrictions: can the distributor sell online (Amazon, Walmart.com, their own website) as well as in physical retail? Should online sales be restricted to prevent channel conflict? If you want to maintain your own Amazon store, specify that the distributor's online selling rights do not include Amazon US, or are limited to specific platforms.

Sub-distribution: can the distributor appoint sub-distributors without your approval? Uncontrolled sub-distribution can dilute brand standards and pricing. Require written approval for any sub-distributor appointment.

Outside territory sales: prohibit the distributor from actively soliciting customers outside their territory, but recognize that passive sales (a customer from outside the territory orders on their website) are typically unenforceable to restrict.

An exclusivity clause grants the distributor the sole right to sell your products in the defined territory. Distributors often request exclusivity; brands should grant it cautiously and conditionally.

The problem with broad exclusivity: if your distributor underperforms, you cannot bring in another distributor or sell through other channels to compensate. You are fully dependent on their effort. Broad exclusivity without performance requirements is a trap.

Conditional exclusivity: tie exclusivity to minimum purchase commitments. The distributor is exclusive as long as they purchase at least $X per year (or per quarter). If they fall below the minimum, exclusivity converts to non-exclusive automatically (without requiring termination). This is the standard compromise.

Non-exclusive alternatives: consider a non-exclusive arrangement for the first 1–2 years while the distributor proves their market ability. Offer to convert to exclusive after performance thresholds are met.

Carve-outs even within exclusivity: even in an exclusive arrangement, carve out your right to: sell directly to certain named accounts (existing relationships), sell through your own branded website to US consumers, sell to government or institutional buyers, and sell through Amazon under your own account.

Minimum purchase commitments (MPCs) require the distributor to purchase a minimum dollar or unit volume per year. Without an MPC, a distributor can hold your exclusive territory while doing nothing to develop it — blocking you from other channels.

Setting realistic MPCs: base your MPC on the distributor's own sales projections, discounted by 20–30% for conservatism. If they project $500,000 in year one, set the MPC at $350,000. This is achievable but not so easy that it allows coasting.

Ramp-up schedule: recognize that year one requires market development time. A typical MPC structure: Year 1 — $150,000 (relationship establishment, market development), Year 2 — $300,000 (distribution expansion), Year 3+ — $500,000 (steady state). Each year's MPC should be agreed in the original contract.

Consequences of missing MPC: when the distributor misses their MPC, your options should be clear in the contract. Typical provisions: (1) exclusivity converts to non-exclusive, (2) you have the right to terminate with 30 days notice, or (3) the distributor has a 60-day cure period to make up the shortfall before exclusivity is affected.

Quarterly minimums vs. annual minimums: annual MPCs allow a distributor to have a slow first 9 months and then place a large catch-up order in Q4 to technically meet the annual minimum without building sustainable monthly business. Quarterly MPCs create more consistent pressure.

Intellectual property: specify that your trademarks, trade dress, packaging designs, and product formulations remain exclusively owned by you. The distributor receives a limited license to use your trademarks solely for the purpose of selling your products in the territory. The license automatically terminates when the agreement ends.

MSRP and MAP policies: a Minimum Advertised Price (MAP) policy prevents distributors and retailers from advertising your products below a set price. MAP policies protect your brand's price integrity and prevent a race to the bottom. Include your MAP policy as an exhibit to the distribution agreement and require the distributor to enforce MAP with their retail accounts.

Pricing transparency: you have the right to know at what price your products are being sold to retailers. Require the distributor to provide quarterly sales reports showing units sold, average selling price by channel, and inventory on hand. This data also helps you verify MPC compliance.

Term and termination: standard distribution agreements run 1–3 years with automatic renewal. Include a termination for convenience clause allowing either party to exit with 90–180 days written notice (after the initial term). Without this, exiting a bad distributor relationship may require litigation.

Post-termination: specify what happens to distributor inventory upon termination. Can they continue selling existing stock? For how long (typically 90–180 days)? Must you repurchase unsold inventory? At what price? These provisions prevent disputes when the relationship ends.