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How to Prepare for a Law 75 Claim or Lawsuit in Puerto Rico

SalesYou’re an Exclusive Distributor for a product in Puerto Rico. You have everything in check. Happy clients locally, a stateside supplier giving you a sweet deal in a complete product line, you market the product for a few years, and you’re making a great profit. Your local clients are very happy, and you’re happy to serve them.

And then, it happens. You find out that someone else is buying the exact same products from your supplier, and selling them much cheaper than you can ever sell them in Puerto Rico. Worse yet, maybe your supplier decided to cut the “middleman” and decided to open shop in Puerto Rico.

You know this is wrong (hopefully, because you read this blog). You’re outraged. Your monthly sales start to drop dramatically, because clients prefer to buy products from your competitor. Everything you’ve been working for in the past few years starts to come undone.

What can you do?

As you may already know, Law 75 protects local distributors. But, how can you protect yourself from unfair competition?

Here are a few tips on how to proceed, in no particular order:

1. Keep good records.

Maybe this sounds silly, but keeping good records is the best way to come out ahead in any Law 75 claim. By keeping documentary evidence of your incursion in the local market, you begin protecting your business from undue competition arising from Law 75 breaches.  Perhaps you have an Exclusive Distribution Contract to back your business, perhaps you have several years of invoices and purchase orders. Regardless, a good track record of purchases and sales is the best friend of Law 75 claims.

You will need to prove that you were the first to import products, and that you have spent a great deal of time, money and effort establishing a product in Puerto Rico.

Keep your documents in order, and make sure that they’re detailed. How product sales “behave” from the supplier to the client is the best way to establish that your business has a dominant market share, and that you are an exclusive distributor.

2. Maintain the communication open.

While you may feel terrible about the fact that you just found out your supplier is selling to someone else, or selling on their own, you want to maintain an amicable and open communication with them. Perhaps it’s a misunderstanding. Maybe they’re not aware of Law 75. Maybe it’s something else that can be fixed. In all three cases, you want to keep them informed of your findings and intentions by communicating your grievances, and listening to their feedback.

The best course here is to communicate clearly and in writing. Send them a quick e-mail to inquire. Send them a letter. If it “escalates”, try to arrange a teleconference through telephone, or better yet, through a video chat service, like Skype. If talking doesn’t help, or the supplier is not responding, try sending them a letter through Certified Mail with Return Receipt. Nothing says you mean serious business like sending a letter through Certified Mail.

On this letter, be sure to include a timeline of events, any facts you’ve discovered and optional solutions both your company and the supplier can agree to. Be very careful of agreeing in writing to terms different to you original contract. Also, keep away from accusations, and steer clear of inferences not sustained by your findings. In other words, tread lightly. Keep it simple, direct, and to the point. This first letter is only to open and maintain clear lines of communication. Don’t try to solve the whole problem, or assume that it will be fixed in only one letter. Be amicable, open to suggestions, but keep a firm posture that you intend to continue as the sole distributor of the product in Puerto Rico. Acceptance of any terms to share the market will be viewed as admitting that you are not exclusive in the local market, so beware.

3. Research the local market.

It’s always a good idea to stay on top of how the market is behaving locally. It’s not only wise advise, but it also gives you and your company a clearer view of what’s happening around you. Don’t assume that just because you’re the only distributor in the island that your sales will stay like that forever. Maybe someone is trying to encroach your market. Maybe your competition is unaware that you brought the product first to Puerto Rico, and that you’ve been at it for a few years now.  In any case, it’s always good to know who’s out there, what they’re doing, and how they’re doing.

Ask around to see who’s selling products like yours. Maybe they’re selling exactly the same products. Don’t approach them, or complain, at least, not yet. Find out who they’re buying these products from. It might not be from your supplier, but just to be on the safe side, find out if another regional distributor is re-selling the same products in Puerto Rico, thus bypassing your supplier.  If you find out your supplier is their source, try to find out since when, and how much. Be as specific as you possibly can. This will help in the long run, and might aid you in voicing your concerns to your supplier.  Don’t hold a grudge against your local competition. After all, it is a free market. Just as long as you remain exclusive, and abide by Law 75.

4.  Keep calm and keep growing.

Your incursion into the local market took time, and your loss of that market will take some time, too. You’re going to do everything in your power to prevent that, but you need to continue broadening your reach and increase your sales, even with undue competition brought upon by a Law 75 claim against your source of products.  Communications take time, so plan ahead. Have a a contingency plan prepared just in case your sales start dropping because your source is in violation of Law 75, and you will need time to reestablish the uninterrupted flow of products.

While you research your options, and voice your opinion to your supplier, you need to continue maintaining your business and a healthy market share. Increase your sales in the meanwhile, and show them, and your opposition, that you reign supreme in the local market. After all, you’ve been at it the longest, and even if the products are coming in from another source, you still have most of the market share anyhow.  Don’t stop sales or purchases immediately, as this might give grounds to your supplier to terminate your contract. This might constitute “just cause”, so beware of ceasing your relations with your supplier as soon as you find out they’ve been selling to someone else locally.  Calmly engage your emergency plan, and carry on with your alternate pre-planned precautions. Increase marketing, bring on new clients, offer better service to existing and new clients. Strive to grow even more.

 5. Consult legal counsel.

This might sound obvious if your facing a Law 75 claim, but seeking legal counsel is probably the best way to go before escalating your claim.  By “escalating”, I don’t mean outright filing a lawsuit. I mean making sure that you’re covered by Law 75, and your business is protected. Law 75 is there for a reason. It’s been there since 1964, and it’s still there after almost 50 years, for a reason. Consulting legal counsel can be the best way to ensure that you’re acting with due diligence, and that all the elements required for that protection are in place.  Perhaps one or two letters might solve your problem, without resorting to court.  You might need to tighten your Exclusive Distribution Contract with specific wording, or you might need a more detailed description of unforeseen possibilities that might arise, or are arising, in your relationship with your supplier.

There’s a lot of misinformation around, so seek a reputable source before acting.

I don’t mean this as a sales pitch to run to your lawyer at the first sign of breaching Law 75. I mean this as a preventive measure, in addition to all your other preventive measures, to protect your business interests.  Just be sure to have the straight facts first, and asking for legal counsel is the best source. Research online, ask others around you, and be sure to search for a good source of information before proceeding. Knowledge is power, and a little knowledge goes a long way to preventing future mishaps.

 

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