Expert: Eric Hofer - 10/12/2009

Question
Eric,

I'm about to receive a license from my state's liquor control agency to import %26 distribute a foreign liquor product (have had my federal permit %26 label approval for months).

So I'm almost "ready to go," as it were, but I have no industry experience, just been reading a lot and teaching myself as I go along.  I do, however, have a signed letter of intent from a foreign supplier to gain exclusive rights for distribution of their product within my state.  No expiry date!

The product is currently not available at retail anywhere in the US, and therefore brand awareness here is virtually zero.  There are, however, a handful of other small / amateur importer-distributors such as myself (one of which happens to be incorporated in my same state) who have expressed some interest in bringing the product to market here in the US, but have never actually put their money where their mouths are.

At this juncture, my primary concern relates to how we should structure the distribution / purchase contract with the supplier(the language of which will be almost entirely up to our discretion).  My questions for you are:

1. a). In your experience, do you find that this type of beverage distribution arrangement is common, wherein a distributor is granted exclusive rights to a certain territory, and if so does the fact that it is an alcoholic beverage make a difference?
b). Do you feel it would be feasible to include a provision in the contract whereby we could gain multi-state, even national, exclusivity of distribution rights (at our option) if pre-determined sales targets are met?
c). Are you aware of any free resources out there where I might be able to find something even remotely close to what I am describing, or should I be working with a lawyer?
d). Finally, can I reasonably expect a contract with a foreign entity that assigns us exclusive distribution rights to hold up if, for example, legal action were to be brought against us by one of the other distributors I mentioned above?  I ask this especially in light of the fact that we intend to secure these rights with no expiry date.

2. Do you recommend we use a customs broker to get the product across the US border?  The supplier is registered with the FDA as a foreign food facility, and the product has already been imported in the past (for promotional purposes only).  Further, I am already set up to comply with the FDA's Prior Notice system.  Is there anything a customs broker can do for me that I can't (or don't yet know I need to) do myself?

Thanks much.

-Tom

Answer
Tom,

This is a bit out of my area of expertise.  You need both a lawyer and a customs broker.

Some points I do know...

No expiry date can be a disadvantage; I think this could even be used to break the agreement.

The laws for any agreement are based upon the site where you signed the deal unless otherwise expressed; therefore you'll have whatever protection that jurisdiction provides.

It would be advantageous for you to gain 1st right to venture into other states especially as you'll be building the brand awareness.  Sales targets would be one way to set a measure to win those rights.

I know of no free resources.  Everybody's got to eat (if they're livin' that is).  And anyway, if the work isn't done right, then you want somebody professionally bonded.  A lawyer works just fine.

I don't know about the impact of the exclusivity and action of a 3rd party distributor.  I would think you'll find yourself in a pickle between the manufacturer and others that you bring into the deal if the product takes off and you're then found not to have the rights you purported down the line (distribution wise that is).  

I definitely think you need somebody with customs experience, at least when you're starting up and then on call when you expand.  Customs brokers are usually experienced, bonded and possibly even licensed depending upon what they trade in.  So for me, I'd get one involved.

When you get to the next point, on setting up teams to do selling, check out www.salessuite.net.

E.