Distributor Termination Letter
(Reasons Other Than Pricing Practices)

Summary

This Distributor Termination Letter - Reasons Other Than Pricing Practices is a letter that a company can use to terminate a distributor for reasons permitted under the antitrust laws even when the company has market power or monopoly power. A company that seeks to discontinue working with a distributor should send a letter, such as this one, to document its legitimate business reason for ending the relationship and retain a copy of this letter in its records. Use this letter to document why the company has decided to end the relationship for reasons do not concern pricing practices such as for failure to provide services to customers or a failure to promote the product. To terminate a distributor for failure to follow a resale price policy or agreement, use Distributor Termination Letter (Failure to Follow Suggested Resale Prices) or Distributor Termination Letter (Failure to Follow Resale Price Agreement). This template includes practical guidance, drafting notes, alternate clauses, and optional clauses. If a company terminates a distributor, the distributor may have several different potential antitrust claims it could bring against the company. If the relationship was profitable and there is no legitimate business justification underlying the decision to end the relationship, the distributor may have an antitrust claim for monopolization or attempted monopolization under Sections 2 or 3 of the Sherman Act, 15 U.S.C. §§ 2-3. If the company has a resale price maintenance policy or a minimum advertised price policy, the terminated distributor might allege that the company ended the relationship as the result of an illegal agreement with the distributor’s competitors or in violation of federal or state laws on resale price maintenance including Section 1 of the Sherman Act, 15 U.S.C § 1. For a discussion of resale price maintenance, see the practice note Resale Price Restraints in Vertical Agreements. A terminated distributor might also contend that the termination violates Section 1 because it results from an illegal agreement between the supplier and other distributors regarding such issues as transshipments, territorial allocations or customer allocations. Finally, the terminated distributor could argue that the termination reflects a failed attempt to force it to deal exclusively with the company in violation of Sections 2 and 3. For a discussion of exclusive dealing claims, see the practice note Exclusive Dealing Arrangements and Anticompetitive Concerns. A company can use a letter such as this one to help substantiate a defense that the distributor was terminated for a legitimate business reason rather than for the anti-competitive reason alleged by the distributor.