Distribution Contracts: Steps to Take to Protect Your Inventory
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Entering into an agreement with a distributor, or a publisher acting as a distributor, can be an effective means of increasing sales for the small or mid-sized publisher. However, once you begin to work through a distributor, a
portion of your book inventory is at risk. If your distributor declares bankruptcy, you may lose ownership of the portion of your inventory under its control.
Many publishers think they’re protected against this danger because their distribution agreements provide that the inventory under the distributor’s control is being held on a consignment basis–”to be sold” to a third party, so that title (ownership) to the inventory does not pass from the publisher until the distributor makes a sale. If the distributor fails to sell all or part of the inventory to third parties, then the distributor simply returns the unsold goods to the publisher and has no obligation to pay the publisher for them.
Trouble crops up, though, because of a legal principle known as the “ostensible ownership doctrine.” This doctrine provides that any time a distributor holds inventory on consignment, the inventory becomes subject to claims by creditors of the distributor. As a result, a creditor may rely on the possession of goods by its debtor as an indication of the debtor’s ownership of those goods.
In other words, a distributor’s creditor may assume that inventory of yours that the distributor has in its possession…IBPA Members – Click here to view the full article (login required).
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