Using an Agent or Distributor to Sell U.S. Products and Services

Companies wishing to use distribution, franchising, and agency arrangements need to ensure that the agreements they put into place are in accordance with EU law and Member State national laws.  Council Directive 86/653/EEC establishes certain minimum standards of protection for self-employed commercial agents who sell or purchase goods on behalf of their principals.  The Directive establishes the rights and obligations of the principal and its agents, the agent’s remuneration, and the conclusion and termination of an agency contract.  It also establishes the notice to be given and indemnity or compensation to be paid to the agent.  U.S. companies should be aware that according to the Directive, parties may not derogate from certain requirements.  Accordingly, the inclusion of a clause specifying an alternate body of law to be applied in the event of a dispute will likely be ruled invalid by European courts.

The European Commission’s Directorate General for Competition enforces legislation concerned with the effects on competition in the internal market of “vertical agreements.” SMEs in the United States are often exempt from these regulations because their agreements likely would qualify as “agreements of minor importance,” meaning they are considered incapable of impacting competition at the EU level but useful for cooperation between SMEs.  Companies with fewer than 250 employees and an annual turnover of less than €50 million are considered SMEs.  According to Commission Notice 2014/C 291/01, agreements that affect less than ten percent of a particular market are generally exempted.

European Union authorities also look to combat payment delays.  Directive 2011/7/EU covers all commercial transactions within the European Union, whether in the public or private sector, primarily dealing with the consequences of late payment (transactions with consumers, however, do not fall within the scope of this Directive).  This directive entitles a seller who does not receive payment for goods and/or services within thirty days of the payment deadline to collect interest (at a rate of eight percent above the European Central Bank rate) as well as €40 as compensation for recovery of costs.  For business-to-business transactions, sixty days may be negotiated subject to conditions.  The seller may also retain the title to goods until payment is completed and may claim full compensation for all recovery costs.

Companies’ agents and distributors can take advantage of the European Ombudsman when the victim of inefficient management by an EU institution or body.  Complaints can be made to the European Ombudsman only by businesses and other bodies with registered offices in the European Union.  The Ombudsman can act upon these complaints by investigating cases in which EU institutions fail to act in accordance with the law, fail to respect the principles of good administration or violate fundamental rights.  In addition, SOLVIT, a network of national centers within the European Union, offers online assistance to citizens and businesses who encounter problems with transactions within the borders of the single market.

Establishing a Local Office

Establishing an office in Europe, whether a subsidiary or a new business, requires knowledge of the relevant national legislations in the country of interest.  While there are several EU- level policies in effect, some key areas such as taxation, are still largely a Member State competence.  For information relevant to Member State national laws, please consult the relevant Member States’ Country Commercial Guide.

For the latest Investment Climate Statement (ICS) which includes information on investment and business environments in each member state pertinent to establishing and operating an office and to hiring employees, visit the U.S. Department of State’s Investment Climate Statements website.

Franchising

U.S. businesses looking to franchise within the European Union will likely find that the market is quite robust and friendly to franchise systems in general.  There are several laws that govern the operation of franchises within the European Union, but these laws are fairly broad and generally do not constrain the competitive position of U.S. businesses.  The potential franchiser should take care to look not only at EU regulations but also at local laws concerning franchising.  More information on legislation relating to franchising can be found on the website of the European Franchise Federation.

The European Franchise Federation

The European Franchise Federation was founded in 1972 as a not-for-profit association to promote, defend, and speak for the franchise industry in Europe.  Based in Belgium, it is now recognized as the leading voice for ethical franchising in the world.

The Federation brings together a community of national franchise associations that share the same ethical core values and seek to uphold commitments to promote and operate by a robust set of ethical standards and principles as defined by the Code of Ethics for Franchising, which is available on the organization’s website.  This code is mandatory for all Federation members, as well as their respective partners.  Furthermore, it serves as an important standard on franchising issues, including for legislators, the judiciary, and other professional organizations.

National franchise associations that are members of the European Franchise Federation may adopt additional extensions to the Code of Ethical Franchising to fit the evolution of franchising in their national markets, as long as those extensions do not contradict the Code.

Direct Marketing

The European Union has yet to adopt legislation harmonizing the direct selling of consumer products.  However, there is a wide range of EU legislation that impacts the direct marketing sector.  Compliance requirements are elevated for marketing and sales to private consumers.  Companies need to focus on the clarity and completeness of the information that they provide to consumers prior to purchase and on their approaches to collecting and using customer data.  The following gives a brief overview of the most important provisions flowing from EU-wide rules on distance-selling and e-commerce.  In addition, it is important for exporters relying on a direct-selling business model to comply with Member State requirements.

Processing Customer Data

The European Union has strict laws governing the protection of personal data, including the use of such data in the context of direct marketing activities.  For more information on these rules, please see the Data Privacy section below.

Distance Selling Rules

In 2011, the European Union overhauled its consumer protection legislation and merged several existing rules into a single rulebook, the Consumer Rights Directive, the provisions of which have been in force since 2014.  The Directive contains provisions on core information to be provided by traders prior to the conclusion of consumer contracts.  It also regulates the right of withdrawal, includes rules on the costs for the use of means of payment, and bans pre-ticked boxes.  There are updates to these rules that will apply from May 2022.  For more information, consult the EU Commission’s useful tool to learn about consumer rules.

The European Union adopted in March 2019 a set of two directives that govern EU-wide contract rules for the online sales of goods and the supply of digital content and services.

Alternative Dispute Resolution

In 2013, the European Union adopted rules for alternative dispute resolution mechanisms, which provide consumers the right to turn to quality alternative dispute resolution entities for all types of contractual disputes, including purchases made online or offline, domestically or across borders.  An Online Dispute Resolution Regulation has set up an EU-wide platform to handle consumer disputes that arise from online transactions.

Distance Selling of Financial Services

Financial services are regulated by a 2002 Directive (2002/65/EC), which was designed to ensure that consumers are appropriately protected with respect to financial transactions where the consumer and the provider are not face-to-face.  In addition to prohibiting certain abusive marketing practices, the Directive establishes criteria for the presentation of contract information.  Given the special nature of financial markets, specifics are also laid out for contractual withdrawal.

Direct Marketing over the Internet

The e-Commerce Directive (2000/31/EC) imposes certain specific requirements connected to the direct marketing business.  Promotional offers must not mislead customers and the terms that must be met to qualify for them must be clear and easily accessible.  The e-Commerce Directive stipulates that marketing e-mails must be identified as such to the recipient and requires that companies targeting customers online must regularly consult national opt-out registers where they exist.  When an order is placed, the service provider must acknowledge receipt quickly and by electronic means, although the Directive does not attribute any legal effect to the placing of an order or its acknowledgment; instead, this is a matter of national law.  Vendors of electronically supplied services (such as software, which European Union authorities consider service and not good) must also collect value-added tax.

Due Diligence

Product safety testing and certification is mandatory in the European Union, and U.S. manufacturers and sellers of goods must perform due diligence in accordance with mandatory EU legislation prior to exporting.

Joint Ventures and Licensing and Express Delivery

For more information on these topics, please consult the Department of Commerce’s Country Commercial Guides for individual EU Member States.