Software distribution arrangements can significantly and quickly expand the channels available for licensing your software to end-users, thereby exploding sales volume and enhancing profitability. The management challenge in domestic distribution arrangements is in establishing control over the distributor for purposes of insuring that higher sales result in higher profits. Foreign arrangements present the additional complexities of foreign taxation, indiscriminate software piracy, exchange rate fluctuations and export control laws.

Conflicts in your domestic software distribution arrangements can be minimized by negotiating key issues with your distributor in advance. Your software distribution agreement should clearly establish the scope of distribution rights for specific software products, end-users, territories and subdistributors. The duration of the agreement, grounds for termination and level of exclusivity will also be important.

Negotiating these issues with foreign distributors is complicated by social, cultural and political barriers. Taxation on sales by the foreign country and corresponding domestic tax treatment along with fluctuating exchange rates can substantially erode profitability. Weak copyright and trademark law enforcement, particularly in some Asian countries, can result in lost software control. Language translation requirements can preclude quick and easy enforcement of contract terms. Export laws of the United States and import laws of the foreign country can slow distribution and expansion plans. Foreign statutes precluding termination of the distributorship except on the grounds of “just cause” can eliminate management flexibility, despite the terms of the distribution contract.