Reseller Agreement – Agent or Distributor?

We often get asked by providers of goods or services (like software developers or vendors) to draft a reseller agreement to allow a third party (reseller) to sell their solutions to the third party’s customers (end users). They want to sell more goods or services to customers through a channel. Many vendors refer to these types of agreement as “reseller agreements” and they are a type of IT contract. They are related to teaming agreements but they are slightly different.

• If you are the vendor, we can draft a reseller agreement for you to appoint one reseller or a reseller agreement template for you to use to sign up many resellers.
• If you are the reseller and have been presented with a reseller agreement to sign, we can also advise you and help you negotiate the agreement.

To find out how we can help, please complete the form on the right.

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 which 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 end user).

Who are the role players?

1. Vendor – the provider of products or services
2. Reseller – acting as a distributor or agent (or hybrid)
3. Customer – the end-user of the products or services, who has a relationship with the reseller

Reseller as Distributor

Distributors are typically dealers of commodity products who act as wholesalers and retailers for standard computer products.

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. Here, the vendor does not have a direct relationship with the customer through the distribution contract, although sometimes the vendor licences the software directly to the customer through an end-user licence agreement.

The distribution agreement governs the reseller’s responsibilities and the terms on which it can acquire the vendor’s software. The reseller will then enter into separate contracts of supply with its own customers (end users) in relation to the products or services the vendor authorises the reseller to distribute.

Reseller as Agent

In contrast to this, 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 latter type of agent begins to look very much like a distributor.

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 contract. One of the disadvantages for 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.

What kind of Reseller Agreement do you need?

In our experience, most resellers are forms of distributors sharing many of the characteristics which derive from an agent. The following questions need to be answered to assist us to determine whether the customer is an agent or a distributor?

1. Does the customer buy the software from the vendor?
2. Does the vendor grant the customer a licence to use the vendor’s software and then give the customer the right to sub-license the software?
3. Does the vendor pay the customer commissions?
4. If so, does the customer undertake any responsibilities for the vendor?
5. Does the vendor have any dealings with end users (including post-sales support)?
6. Does the vendor sign a (pen and ink) licence agreement with end users?
7. Does the vendor include an end user licence agreement (EULA) with the software (opened on use by way of a “clickwrap”)?
8. Does the customer licence the software separately to its customers?
9. Does the customer “add to” the software” in any way (change it and add their bits and pieces)?