Ecommerce in the shrinking world.

I heard on the news that the EU and the USA have started discussions on a free trade arrangement. Undoubtedly this will take several years to agree, but it’s a sign that the world is shrinking and international commerce is growing. Many Ecommerce websites are ahead of the game in international trade, and have been sending all around the world for several years. We’ve been doing it since 1997.

Unfortunately we’ve become so successful that we’ve been noticed. We sell licensed products. We only sell genuine merchandise supplied either direct from the manufacturer or an authorised distributor. Whilst our principal market is the UK, we’ve been expanding our international sales, especially in the united states. For some reason we could sell some of our product to customers in the USA cheaper than US retailers. Our market share is growing.

In the world before Ecommerce a licensor used to sell licences to producers and distributors based on land. Therefore a licensee (A) would have the license to distribute certain product in the united states, and another licensee (B) would have the license to distribute the product in britain. A retailer would purchase from their regional distributor and sell the product to customers.

The thing is that the internet doesn’t recognise territory. With companies like Amazon and Ebay actively encouraging UK retailers to record on Amazon.com and Ebay.com, and also encouraging US retailers to record on Amazon.co.uk and Ebay.co.uk, an increasing number of retailers will sell products outside their neighborhood distributor’s territory. When you have noticed the fun starts.

In theory, when a licensor grants a license to a distributor, the distributor is intended to include in their terms and conditions of sale that the retailer can’t sell the merchandise away from the distributor’s territory. In practice this might be illegal it the merchant is in the EU and the distributor is attempting to restrict the land to only a part of the EU. This practice could also become illegal if the EU/US free trade agreement comes into force. Further in the actual world, few vendors really put such conditions in their conditions of sale.

In the actual world therefore when a merchant sells outside the land of the distributor, that other land’s distributor will rightly become annoyed. Since we’re probably talking million dollar firms here, their annoyance is very likely to lead to them threatening legal action. But who do they threaten?

Their first instinct is to go after the bad Ecommerce retailer who has likely never been told not to market internationally. Indeed who might have been selling internationally for decades, but have only just been noticed, or the land license agreements might have just recently been agreed. The retailer is simply hoping to expand in the web and hasn’t put any territorial limitations on any of the sales. Why would you limit your earnings unless forced?

Using bullying tactics this original approach could well succeed with many retailers. There is however no reason why it should succeed. There’s no contract and no association between the merchant and the overseas distributor. No basis for any court case. What the distributor ought to do is demand that the Licensor deal with it. After all it’s the Licensor who has sold and allocated lands and thus should shield them. The Licensor should require their territorial vendors to modify their terms of sale to limit retailers ahead sales, and therefore the distributors can then block the merchant from selling internationally.

Licensors however are reluctant to get involved. They don’t like the notion of poor marketing, they don’t like the thought of restricting sales. They would much rather that their license is widely advertised and simple for customers to obtain.

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The retailers in the bottom of the chain do what they know best. Selling their merchandise to customers. As Ecommerce expands and a growing number of retailers market on Amazon and Ebay, using all of the market places as encouraged by Amazon and Ebay, these territory disputes will rise. Sooner or latter the Licensors will realise that the world is international, and it’s not sensible to try to restrict a merchant to a single nation. Finally, if common sense prevails, retailers will be permitted to sell their product to whatever clients the can find, where-ever they are. Right now, the Licensors are copying King Canute, and attempting to block the change of tide.