We often get asked by vendors of goods or services (like original software manufacturers (OEMs), principals, software developers or vendors) to draft a reseller agreement to appoint a third party (or reseller) to sell their solutions to the third parties customers (customers). Vendors want to sell more goods or services to customers through a channel. Many vendors refer to these types of agreements as “reseller agreements” and they are a type of IT contract. They are related to teaming agreements but they are slightly different.
Drafting and signing reseller agreements can be harder than it appears. It is critical to know the nature of the relationship because it determines the kind of contract that you need.
The labels people use
Reseller is one of several labels that one encounter’s in this space. The other labels include “distributors”, “value-added resellers” (VARs), “partners” or “channel partners” etc… all of which are intended to present the role in a manner that is considered appropriate for each type of market, ultimately defined by your target customers. None of the labels are necessarily used exclusively of the others and a reseller may be described in more than one of these ways.
Whatever label one chooses, in law one is either talking about an “agent” or “distributor”. It is ultimately our job to figure out which one is intended as there is a big difference between the two that informs the type of agreement we draft (for example under the Consumer Protection Act agents and distributors have different obligations to the customer).
Often people use the term distributor to refer to the main reseller for a vendor in a territory. The distributor then appoints multiple resellers in the territory in the channel below them.
Who are the role players?
- Vendor – the vendor or provider of goods or services (like software and services)
- Reseller – acting as an agent or distributor (or hybrid)
- Customer – the user of the goods or services
Outcomes vendors can achieve
- Appoint a reseller by asking us to draft you a reseller agreement.
- Appoint many resellers by asking us to draft you a reseller agreement template you can use many times.
Outcomes resellers can achieve
- Become a reseller for a vendor (or distributor) by asking us to review the reseller agreement you have been presented with.
- Become a reseller for a vendor (or distributor) by asking us to draft a reseller agreement.
Is the relationship one of agency or distribution?
Reseller as agent – agency agreement
The agent is a channel facilitating direct contractual relationships between the vendor and the customers. The precise nature of the agent’s responsibilities can vary greatly:
- in one case enabling the agent to receive commissions for making introductions (but not doing much more) and
- in another case undertaking a large number of responsibilities, including pre-and post-sales support, order administration, and so forth.
The relationship between the vendor and an agent consists of rights and obligations implied by the law of agency as well as those defined in the agency agreement. One of the disadvantages of a vendor appointing agents is that whatever the actual authority granted by the agreement, the agent has implied legal authority to bind the vendor as its principal. Put differently, the agent has the authority to create contracts between the vendor as principal and other parties, and thus obligations which the vendor has to abide by, whether or not the vendor was aware of these in advance.
Reseller as distributor – distribution agreement
One of the main distinguishing features which contrast distribution agreements from agency arrangements is that a distributor is an independent organisation, buying on its own behalf as a principal from the vendor and reselling accordingly to the customer. Here, the vendor does not have a direct contractual relationship with the customer.
Distributors are sometimes dealers of commodity products who act as wholesalers and retailers for standard computer products.
The distribution agreement governs the reseller’s responsibilities and the terms on which it can acquire the vendor’s software and services. The reseller will then enter into separate contracts of supply with its own customers in relation to the goods or services the vendor authorises the reseller to distribute.
Hybrid? – reseller agreement
Sometimes the software is provided through an agency and services are provided through distribution. For example, where the vendor licences the software directly to the customer through an end-user licence agreement (EULA). This is typically where a reseller agreement is concluded.
People often use the term reseller because the relationship is a combination of agency and distribution.
What kind of agreement do you need?
Please answer these questions to help us work out what the relationship is and what type of agreement is required.
- Does the customer “buy” the software from the vendor or the reseller?
- Does the vendor grant the customer a licence to use the vendor’s software? Or does the vendor grant the reseller the licence, who then grants the customer the licence?
- Does the vendor sign a (pen and ink) licence agreement with customers?
- Does the vendor include an end-user licence agreement (EULA) with the software (opened on use by way of a “clickwrap”)?
- Does the vendor provide the customer a software as a service (SaaS) to use the vendor’s software? Or does the vendor provide the reseller a SaaS, who then provides it to the customer?
- Does the vendor pay the reseller a commission being a percentage of the money the customer pays to the vendor?
- Does the vendor provide services (like implementation, support and maintenance) to the customer? Or does the vendor provide services (like 2nd and 3rd-level support) to the reseller, who then provides them to the customer?
- Does the reseller undertake any responsibilities (for example, provide services) for the vendor after the sale is made?
- Does the vendor have any dealings with customers (including post-sales support)?
