Distribution Agreements: What’s Protecting Your Intellectual Property?

When foreign companies enter the Latin American market, a common route is to partner with a local distributor. This approach allows companies to leverage the distributor’s existing network and market knowledge while avoiding the upfront costs typically involved in setting up a local entity—such as incorporation, hiring staff, and establishing back-office infrastructure.

However, this strategy also introduces a layer of complexity. Working through a third party brings inherent risks that need to be carefully managed. One of the best tools to mitigate those risks is a well-structured distribution agreement..

One area often overlooked in distribution agreements is the treatment of confidential information and intellectual property (IP). For many foreign companies—particularly those offering unique technologies or highly specialized products—IP is a core asset. Ensuring its proper protection is essential, both during and after the commercial relationship.

Intellectual Property: A Critical Consideration

In industries like mining technology or advanced manufacturing, distributors will inevitably be given access to key assets such as:

• Trademarks
• Patents
• Copyrights
• Technical know-how
• Client databases
• Pricing structures
• Trade designs and specifications

A well-drafted agreement must define how this information is shared, protected, and ultimately returned or destroyed once the partnership ends.

Key Intellectual Property Clauses to Include

• Confidentiality and Non-Disclosure – Confidential information can take many forms—documents, drawings, source code, customer and supplier lists, or financial data. It may also include business processes that don’t qualify for patent protection but still provide competitive advantage. A strong confidentiality clause should clearly define what is protected and how it must be handled.
• Clearly Define the Parties – Make sure the agreement specifies who is bound by the confidentiality terms. Will it apply only to the contracting companies? What about their subsidiaries, holding companies, directors, or employees?
• Defining Confidential Information – Tailor the definition to your business. What counts as confidential should be unambiguous and relevant to what will actually be shared during the relationship.
• Permitted Use – Outline the specific purpose for which the distributor is allowed to use the information, and any restrictions on that use.
• Disclosure Period and Post-Termination Obligations – Include provisions around the duration of confidentiality—both during the agreement and after its termination. Detail what happens to shared information at the end of the relationship, including return or destruction obligations.

Additional Provisions That Strengthen IP Protection

• Territorial Limitations and Jurisdiction – Clearly define where the distributor can operate and where they can use the IP. For example, are they restricted to Chile or Brazil? The agreement should also define governing law and dispute resolution procedures—ideally arbitration or mediation to avoid complex local litigation.
• Monitoring and Audit Rights – Consider including clauses that give the foreign company the right to audit the distributor’s use of IP. Regular compliance checks, usage reports, and performance reviews can help ensure the distributor is acting in line with the agreement.
• Training and Brand Usage Guidelines – If sharing know-how or brand identity, include clauses that govern how the distributor uses your brand. You may want to approve marketing materials or require training to ensure consistent messaging and technical understanding.
• Termination Triggers and Exit Strategy – Define clear scenarios that would justify early termination—such as misuse of IP or underperformance. You may also consider adding non-compete clauses for post-termination protection (subject to local law limitations).
• Local IP Registration Responsibilities – Foreign companies often overlook the importance of registering their trademarks and patents in the local jurisdictions. Clarify who is responsible for these registrations and how the rights will be maintained over time.
• Performance Obligations and Exclusivity Clauses – Tie any exclusivity rights to performance metrics. If the distributor fails to meet agreed-upon sales targets or invest in local development, the agreement should allow for a review or revocation of exclusivity.

Conclusion

Every distribution relationship is different. For some businesses, simple template clauses may be sufficient. For others—particularly those sharing valuable technology or proprietary data—bespoke provisions are essential.

The most important step is to recognize what information is valuable, what must be shared for the distributor to be effective, and what could potentially be misused. From there, companies can prioritize the protection of their most critical assets.

While it may be tempting to rely on informal agreements—especially with local partners who you may be building a relationship with—formal IP protection is non-negotiable. A solid agreement protecting your most important assets needs to be put in place from the beginning of the relationship. 

Ax Legal helps industrial technology, engineering, and service companies to navigate the legal and commercial aspects of operating their business in Latin America. With deep knowledge of the industrial and natural resource sectors, we provide actionable and practical advice to help streamline our clients’ entries into Latin America, improve how they operate in the region, and to protect their interests.

Over the years, our team of legal and commercial advisors have developed a track record of working with companies of all sizes from Australia, Canada, the U.S., and Europe. The one common factor that connects our clients is that they are leaders in their field, providing innovative technologies and services to the industrial sectors.

To better understand how we can support you in the Region, please contact Cody Mcfarlane at cmm@ax.legal