Many managers might be tempted to use standard American sales channel agreements in Europe.

After all, they are not the most complicated agreements in the world.  And you have already spent good time and money on having them drafted to suit your needs.  The temptation can become overwhelming, especially when new distributors in Europe are knocking on the door, but threatening to go to a competitor if contracts are not signed quickly.  It must make sense to re-use these agreements.   Right?  Wrong.

Using American agreements can leave you facing unlimited liabilities, and swingeing fines, and paying partners vast sums just to go away. Here are some of the risks associated with using US agreements in Europe.

Competition or Anti-Trust Law
This is undoubtedly the biggest area of risk, as toymaker Hasbro recently found out – at a cost of nearly £5m in fines.  Failure to comply with European competition law can result in fines of up to 10% of your worldwide revenue.  In addition, your agreements can be held to be unenforceable.

End-user price fixing and restrictions on distributors from selling into certain territories or customer groups are blacklisted.  Non-compete obligations, during and after the distribution agreement, are also highly regulated.  If you have a market share of over 30%, you will also be unable to benefit from the block exemption for vertical agreements, so you will be scrutinised even more heavily.

Liability and Warranty Clauses
Getting this wrong in your US contract could leave you with unlimited liability under the contract -– and a totally unmanaged risk.

Many European member states prohibit the exclusion of certain liabilities.  For example, in the UK it is not permissible to attempt to exclude or limit liability for death or personal injury caused by negligence.  In Germany, there are mandatory provisions on product liability that may not be excluded under the agreement.  For instance, the German Civil Code imposes a duty to provide a minimum warranty of 2 years in relation to the sale of certain software products. This is unlikely to be covered in your USA agreement!

What is more, simply changing your governing law clause to, say, English law won't always help.  For instance, under American agreements, we often see liability for loss of business profits excluded as an example of a consequential loss.  In the UK, this drafting would leave you exposed, as you would be liable to pay for any loss of business profits suffered by your distributor where it is a direct loss.  This somewhat subtle distinction could have large ramifications for you, the USA supplier.

Each member state has its own regime in relation to the enforceability of liability clauses.  What is fair in one member state may be deemed to be unfair in another.  So don't take it for granted that your standard USA liability clause will be enforceable, as it may be held to be unreasonable.