Is a Reseller Agreement Really Necessary?

Is a Reseller Agreement Really Necessary? Isn’t posting policy terms enough?

In working with brands on the creation of legitimate and enforceable reseller programs, we often get asked the “why” of what we recommend. It is certainly a fair question and one that is only becoming more crucial as the growth of ecommerce continues. The conversation typically goes something like this:  

• Retail Bloom: “We recommend establishing reseller agreements with those resellers you deem as ‘authorized.’” 
• Client: “Over the years we have gained so many resellers. Is it really necessary to have individual agreements? This could be quite the task to gather their individual consents.” 

Now, in addition to the inherent protections that come with having a solid reseller program that differentiates authentic brand products sold through approved channels from grey market sales, the answer to this question is simply, “yes.” 

But why? There are a few levels or, more accurately, tiers as to the “why” when it comes to carefully crafting a reseller program: 

1. Actual confirmation of an agreement goes a long way in enforceability – For better or for worse, in 2020 it is now commonplace for courts to uphold what are often called “click wrap” agreements. We’ve all seen these (and “signed” them). Think of Apple iTunes or Gmail. When you click on the “I agree” or the “I accept” button after a company’s posted terms and conditions, you are indicating your assent to those provisions. Of course, we know that an extremely small percentage of the people who click that button have actually read all—if any—of the terms provided. Still, when these agreements are upheld, which is, again, not all of the time (courts look at many variables in instances where these are challenged such as the sophistication of the signer, the signer’s occupation, the length and clarity of the terms, etc.), they are upheld not necessarily because the signer read the terms but because he or she had the opportunity to read the terms and proceed to either click or not click “I agree.” This step of providing the signer an opportunity to review and either approve or disapprove the terms is significant in arguing for the enforceability of a contract.
2. Enforceability of a policy or terms without confirmation of agreement or assent – Some companies utilize or inquire about the “browse-wrap” agreements. The scenarios attempt to form an enforceable contract between the website user and the company through the user’s behavior (i.e. “use” of the site or purchase of the product). While there is some ambiguity surrounding click-acceptance (as explained above), there is even less case law addressing these browse-wrap approaches. Like many legal topics, these disputes would hinge primarily on the facts of the individual case. How are the terms displayed? What type of notice was provided to the user? Was the wording unambiguous and clear? That being said, it is extremely rare to have an instance in which solely posting terms at a link on the company’s website is enforced against a user who was not provided notice of the terms in some additional manner (such as a physical letter or multiple forms of exposure throughout the website browsing process). In the context of a reseller program specifically, we would add that this approach makes it all the more unrealistic to a court that your brand is serious about enforcing quality controls and oversight with authorized resellers—simply allowing anyone to purchase the goods and alleging that you will follow-up to continue checking on their presentation, product handling, service, etc. could prove to be difficult in combatting grey market sellers who are, in general, permitted to sell your trademarked product under the First Sale Doctrine.
3. Even with a reseller agreement, how it is crafted is important to its enforceability – Whether using a “click-wrap” agreement (to which more scrutiny will be applied) or a traditional paper contract, you still must be careful in crafting the provisions of the contract. Just because a reseller clicks or signs your agreement, it does not mean that anything and everything provided within that document will be enforceable. If you have terms, such as insanely high interest rates, that are contradictory to public policy, these will be void when tried before a court. Similarly, any terms that are “unconscionable” will not be enforceable. You might be wondering, “What is defined as ‘unconscionable?’” Good question. While one common example is a company requiring that a signer waive his or her rights to participate in a class action, a complete list of these types of terms is extremely difficult to create as it is argued on a case-by-case basis. To be safe, if there are terms in your agreement that “shock your conscience” and cause you to lose sleep at night, get out your red pen. 

And that’s it! (sorry—not really). The most important thing to note that is overarching to this entire discussion is that these are simply generalities or guiding principles. Each and every situation is unique and requires a careful examination of the facts and circumstances involved. 

If you have questions about the structure of your reseller program and related policies or agreements (such as MAP policies or online selling agreements), we are happy to help. As part of our services, we always remind clients to review and discuss the documents on which we advise with their company’s attorney.