Pharmaceutical Distribution Agreement Key Review Items

Law firm Veat received a request from pharmaceutical company A ("customer") to review the Distribution Agreement for importing medical devices and selling them domestically.

The distribution agreement is a key document that clearly defines the legal relationships arising in the process of delivering products or services from the manufacturer to the end consumer. In particular, for products subject to strict regulation such as medical devices, it is important to comply with relevant laws and regulations and to clearly define the rights and obligations of all parties involved.

Law firm Veat reviewed the customer’s distribution agreement, focusing on the legal requirements of the Medical Device Act and the following clauses to ensure that it would not be interpreted unfavorably, contributing to clearly defining the rights and obligations between the manufacturer and customer and minimizing business risk.

Key Review Items for Law firm Veat’s Distribution Agreement

Clarification of Contract Structure and Relationship

The customer wished to import medical devices through an overseas manufacturer and needed to follow the import registration procedure under the Medical Device Act. As the customer found it difficult to register directly, they had to enter into a separate import agency agreement with a third party.

In this case, we clearly distinguished the relationship with the third-party import agency from the distribution agreement between the manufacturer and customer and added a clause clarifying the legal status and responsibility to ensure that even if the customer uses an import agency, the relationship would not be misunderstood by the manufacturer or other stakeholders.

Review of Key Commercial Terms

- Damages

Distribution agreements often stipulate damages in the event of a breach of contract. However, in international transactions, the manufacturer's position is often reflected, resulting in clauses that are disadvantageous to the distributor. Therefore, we reviewed whether the scope and amount of damages were clearly defined to ensure that the damages were not set too high and that the amount was legally appropriate.

- Price Change Clause

Fluctuations in raw material costs for medical devices can have a significant impact on distribution prices. Therefore, we reviewed the possibility of price adjustment due to changes in raw material costs, prevention of one-sided price increases by the manufacturer, and measures to respond to unreasonable price changes to ensure that the price change clause did not act unfairly against the customer and to protect the customer’s interests.

Adjustment of Responsibility and Obligations

- Non-Exclusive Sales Right and After Service (AS) Obligations

When a non-exclusive sales right is granted in a distribution agreement, the rights and obligations of the distributor must be clearly defined. Failure to clearly define the scope of AS obligations can result in an excessive burden on the distributor.

- Cost Burden

In international distribution agreements, it is necessary to clearly identify the party responsible for customs duties and transportation costs to anticipate cost disputes in advance.

Dispute Resolution Clause

- Force Majeure Clause

A force majeure clause is essential in international transactions, as it allows parties to be exempt from responsibility if the contract cannot be performed due to unforeseen circumstances. However, as manufacturers often draft clauses that are beneficial to themselves, we redefined it from the customer's perspective, including items such as clarifying the scope of force majeure (natural disasters, government regulations, pandemics, etc.), obligations and procedures for each party when force majeure occurs.

- Termination and Subsequent Actions

Reasons for termination and rights after termination must be clearly defined. In particular, for products such as medical devices, the sales rights of remaining inventory are important. We ensure that the distributor can be protected by the right to dispose of inventory after the termination of the agreement.

- Applicable Law and Dispute Resolution Body

In international distribution agreements, it is necessary to clearly define the applicable law and dispute resolution body to be applied in the event of a dispute and to include a clause for prioritizing mediation in the event of a dispute.

Law firm Veat provides advice, considering the characteristics of highly regulated industries such as pharmaceuticals, bio, and medical device distribution, based on extensive experience in reviewing and drafting English contracts. We provide efficient language communication through foreign attorneys and provide rapid and accurate review of the Korean/English versions of investment contracts based on years of experience.

By providing comprehensive and systematic legal support from Law firm Veat, we help our customers expand their businesses stably without legal risks overseas and succeed in the global arena. Please contact Law firm Veat if you need English contracts or international contract drafting.

Thank you.
Law firm Veat