In the course of market expansion strategies, the selection of a distribution model plays a pivotal role. Among various models, exclusive distribution is widely favored by enterprises seeking to maintain control over brand image and service quality. However, the establishment and operation of exclusive distribution agreements entail significant legal risks if the relevant provisions under the Law on Commerce and the Law on Competition are not properly understood. With extensive expertise in commercial contract practice, NPLaw provides an in-depth analysis of the main legal aspects of such a form of exclusivity.
In the course of market expansion strategies, the selection of a distribution model plays a pivotal role. Among various models, exclusive distribution is widely favored by enterprises seeking to maintain control over brand image and service quality. However, the establishment and operation of exclusive distribution agreements entail significant legal risks if the relevant provisions under the Law on Commerce and the Law on Competition are not properly understood. With extensive expertise in commercial contract practice, NPLaw provides an in-depth analysis of the main legal aspects of such a form of exclusivity.
I. Current practices relating to exclusive distribution of products
The application of exclusive distribution in Vietnam is highly prevalent, particularly in industries requiring substantial investment in marketing, after-sales services, or strict brand control, such as automobiles, electronic devices, pharmaceuticals, and high-end cosmetics.
The establishment of exclusivity enables suppliers to control retail pricing, maintain brand image, and ensure consistent service quality across the market. Nevertheless, such a model has also led to numerous legal disputes. Common disputes typically involve breaches of exclusivity commitments by suppliers (e.g., supplying products to third parties within the exclusive territory), or violations by distributors concerning sales targets, pricing policies, or unauthorized assignment of contracts. In addition, exclusive arrangements are subject to scrutiny by competition authorities, particularly where there are indications of abuse of dominant position or anti-competitive agreements that may harm consumers.
In summary, while exclusive distribution offers substantial commercial benefits, its implementation must be carefully assessed from a legal perspective in order to mitigate contractual and competition-related risks.
II. Legal framework governing exclusive distribution of products
1. What is the exclusive distribution of products?
Exclusive distribution of products refers to a commercial arrangement whereby a manufacturer appoints a single distributor to distribute its products within a specified market or geographical territory. Under such a model, the exclusive distributor enjoys distinct rights and obligations, while the manufacturer undertakes not to supply the same products to other distributors within the agreed scope.
Although Vietnamese law does not provide a specific statutory definition of “exclusive distribution”, relevant activities may be governed by the Civil Code 2015 (with respect to contracts and representation) and the Law on Commerce 2005 (covering commercial activities, including agency relationships, trade promotion, and general commercial operations).
2. Which products may be subject to exclusive distribution?
In principle, most goods and services may be subject to exclusive distribution arrangements, except for those restricted or prohibited by law.
Such a model is commonly applied to:
- Products with strong branding or high value, which require strict control over image and pricing (e.g., automobiles, high-tech equipment);
- Products involving complex technical requirements and after-sales services, requiring substantial investment in infrastructure and technical personnel (e.g., industrial machinery);
- New products or products entering a market, which require a dedicated partner to concentrate resources on market development.
However, such arrangements must not result in anti-competitive agreements or abuse of a dominant market position as prohibited under the Competition Law 2018.
3. Rights and obligations of the parties in exclusive distribution of products
Under an exclusive distribution agreement, the manufacturer (grantor of exclusivity) is entitled to set pricing policies, supervise distribution activities, and terminate the contract in the case of breach. At the same time, it is obligated to supply products of agreed quality, provide support to the distributor, and protect the distributor’s exclusive rights in accordance with the agreement (pursuant to Article 172 of the Law on Commerce 2005 and relevant contractual provisions under the Civil Code 2015).
Conversely, the distributor (exclusive distributor) is entitled to exclusive distribution rights, autonomy in determining retail prices, and the right to request support. Its obligations include purchasing agreed quantities, making timely payments, properly storing products, achieving sales targets, reporting business performance, and refraining from distributing competing products (pursuant to Article 175 of the Law on Commerce 2005 and the Civil Code 2015).
III. Legal questions on exclusive distribution of products
1. Is registration or notification to authorities required for exclusive distribution agreements?
Currently, Vietnamese law does not require mandatory registration or notification to State authorities for the establishment of exclusive distribution agreements. Such relationships are primarily governed by mutual agreement between the manufacturer and the distributor.
However, it should be noted that where an exclusive arrangement exhibits signs of restricting competition under the Competition Law 2018 (e.g., anti-competitive agreements or abuse of dominant or monopoly positions affecting market competition), it may be subject to review and intervention by competition authorities.
Therefore, although no specific registration procedure is required, the parties must ensure compliance with competition law.
2. In what cases may the seller terminate the exclusive distribution agreement?
The seller may terminate the agreement where the distributor commits serious breaches of contractual obligations, such as failure to meet sales targets, delayed payment, distribution of competing products, or violations of product quality standards.
Pursuant to Article 177 of the Law on Commerce 2005, the seller is required to provide written notice of the breach and allow a reasonable period for remedy, in accordance with the general principles on contractual breach under Article 351 of the Civil Code 2015.
The contract may also terminate upon expiration without renewal, by mutual agreement, or where the distributor loses legal status, becomes insolvent, or where force majeure makes performance impossible, in accordance with general provisions on contract termination and force majeure under the Civil Code 2015.
3. Can an exclusive distribution agreement be assigned to a third party?
In general, the assignment of an exclusive distribution agreement to a third party is not permitted without the explicit consent of the manufacturer. Such agreements are inherently personal in nature, as the manufacturer selects the distributor based on specific criteria, including capability, market reach, reputation, and commitment to exclusivity.
Under general provisions on contracts and assignment under the Civil Code 2015 (including Article 423 on termination and Article 424 on amendment and supplementation of contracts, as well as provisions on transfer of rights and obligations), the transfer of contractual rights and obligations to a third party typically requires the consent of the remaining parties.
Furthermore, in franchising activities, which share similarities with exclusive distribution in terms of licensing and control, sub-franchising is only permitted with the consent of the original franchisor (Article 290 of the Law on Commerce 2005). Although this provision applies to franchising, it reflects a broader legal principle requiring consent for assignment.
Accordingly, unless expressly permitted in the agreement or approved in writing by the manufacturer, the distributor may not unilaterally assign the contract to a third party. Any such act may constitute a breach of contract, leading to termination and potential legal liabilities.
4. What are the common causes of disputes in exclusive distribution of products?
Disputes typically arise from the following causes:
- Breach of exclusivity commitments, where the supplier sells directly or indirectly to third parties within the exclusive territory;
- Failure to meet sales targets by the distributor;
- Infringement of intellectual property rights, including improper use of trademarks or logos;
- Unlawful termination of the agreement without complying with notice periods or agreed conditions.
5. Does the law limit the duration of exclusive distribution agreements?
Vietnamese law does not impose any limitation on the duration of exclusive distribution agreements.
The term of the contract is determined by mutual agreement between the parties, in accordance with the principle of freedom of contract in civil and commercial transactions. However, in cases of excessively long or indefinite terms, unilateral termination shall be governed by the provisions of the Law on Commerce and the Civil Code applicable to contracts without a fixed term.
Therefore, the parties are advised to clearly stipulate the contract duration and renewal provisions to ensure legal certainty and avoid unnecessary disputes.
IV. Legal advisory services on exclusive distribution of products
The establishment and maintenance of an effective and legally compliant exclusive distribution agreement require a thorough understanding of commercial, civil, and competition laws. NPLaw offers specialized legal services, including:
- Drafting and reviewing exclusive distribution agreements to maximize legal protection and minimize competition-related risks;
- Advising on termination clauses, assignment provisions, and issues relating to exclusivity commitments;
- Representing clients in negotiations and dispute resolution before courts or commercial arbitration tribunals.
We are committed to assisting enterprises in building a solid legal framework for their exclusive distribution strategies.
