Practical Ecommerce

Ecommerce in the shrinking world.

I heard on the news tonight that the EU and the USA have started talks on a free trade agreement. No doubt this will take many years to agree, but it is a sign that the world is shrinking and international trade is growing. Many Ecommerce sites are ahead of the game in international trade, and have been sending merchandise all over the world for years. We have been doing it since 1997.

Unfortunately we have become so successful that we have been noticed. We sell licensed goods. We only sell genuine merchandise supplied either direct from the manufacturer or an authorised distributor. Whilst our principal market is the UK, we have been expanding our international sales, particularly in the USA. For some reason we can sell some of our merchandise to consumers in the USA cheaper than US retailers. So our market share is growing.

In the world before Ecommerce a licensor used to sell licences to manufacturers and distributors based on territory. So a licensee (A) would have the licence to distribute certain merchandise in the USA, and another licensee (B) would have the licence to distribute the merchandise in the UK. A retailer would buy from their local distributor and then sell the merchandise to customers.

The problem is that the internet does not recognise territory. With companies like Amazon and Ebay actively encouraging UK retailers to list on Amazon.com and Ebay.com, and likewise encouraging US retailers to list on Amazon.co.uk and Ebay.co.uk, more and more retailers will sell merchandise outside their local distributor’s territory. When you get noticed the fun begins.

In theory, when a licensor grants a licence to a distributor, the distributor is meant to include in their terms and conditions of sale the fact that the retailer cannot sell the merchandise outside the distributor’s territory. In practice this may be illegal it the retailer is in the EU and the distributor is trying to restrict the territory to just part of the EU. This practice may also become illegal if the EU/US free trade agreement comes into force. Further in the real world, few distributors actually put such conditions in their terms of sale.

In the real world therefore when a retailer sells outside the territory of their distributor, that other territory’s distributor will rightly get annoyed. Since we are likely talking million dollar companies here, their annoyance is likely to result in them threatening legal action. But who do they threaten?

Their first instinct will be to go after the poor Ecommerce retailer who has probably never been told not to sell internationally. Indeed who may have been selling internationally for years, but have only just been noticed, or the territory licence agreements may have only recently been agreed. The retailer is simply trying to expand in the internet and has not put any territorial restrictions on any of their sales. Why would you restrict your sales unless forced?

Using bullying tactics this first approach could well succeed with many retailers. There is however no reason why it should succeed. There is no contract and no relationship between the retailer and the foreign distributor. No basis for any court case. What the distributor SHOULD do is demand that the Licensor deal with it. After all it is the Licensor who has allocated and sold territories and thus should defend them. The Licensor should require their territorial distributors to change their terms of sale to restrict retailers onward sales, and thus the distributors can then stop the retailer from selling internationally.

Licensors however are reluctant to get involved. They do not like the idea of poor publicity, they do not like the idea of restricting sales. They would much rather that their licence is widely advertised and easy for consumers to obtain.

The retailers at the bottom of this chain are doing what they know best. Selling their merchandise to consumers. As Ecommerce expands and more and more retailers sell on Amazon and Ebay, using all the market places as encouraged by Amazon and Ebay, these territory disputes will grow. Sooner or latter the Licensors will realise that the world is global, and it is not sensible to try and restrict a retailer to a single country. Eventually, if common sense prevails, retailers will be allowed to sell their merchandise to whatever customers the can find, where-ever they are. At the moment, the Licensors are imitating King Canute, and trying to stop the change of tide.

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  1. Jason Greenberg February 15, 2013 Reply

    Why would the licencors care if the distributors and retailers sold outside of their designated areas. How would that cannibalize or affect overall sales in any way? I think that zero restrictions for internet retailers will help business. For small businesses that offer unique products their markets open up and for large businesses, they cannot monopolize markets if there’s competition from all over the world.

  2. Richard Stubbings February 15, 2013 Reply

    The licensor does not really care. The Licencee however does care. Say you purchased the rights for exclusive distribution in the USA. Say it cost you $100,000. Now would you be a bit upset if a UK retailer was selling into the USA and cutting into your market and reducing what you can sell? I bet you would.

    These territorial restrictions should go.

  3. darrylxxx February 21, 2013 Reply

    Great article Richard and timely. We regularly get involved in ‘discussions’ (ahem!) with licensors and distributors about such matters. The funny thing is that many of them don’t know what the rest of their organisations are up to e.g. selling products directly from their own e-commerce stores in to markets they had sold exclusive licenses for. Comical at times. We just try to avoid arguments and quote the UK and EU company law about competition and cartels at them until they wander off muttering.

  4. Richard Stubbings February 21, 2013 Reply

    Tell me about it. I have had a similar discussion with a major Licensor who really should have known better. Fortunately they were simultaneously getting very bad publicity on a completely separate matter and did not want any other poor publicity heaped on them. They too walked away when they realised I would not back down.

  5. Rosita May 12, 2013 Reply

    I have a bespoke site in codeignitor platform, and thinking of moving to Magento- not sure which one?