Puerto Rico Law Blog

Exclusive distribution rights in Puerto Rico are granted under Law Number 75 of June, 24, 1964 (10 L.P.R.A. § 278, et.seq.). This law, drafted at a time when marketing and importation strategies depended on the commitment of foreign and stateside large corporations to introduce new essential consumer products into the Puertorrican market, intended to grant exclusive rights over the distribution of their products to a dedicated few who invested time, effort and money in return for their continuous flow of merchandise into the island.

This law favors local distributors by establishing controvertible presumptions against the unfair termination of contractual obligations by their foreign and stateside suppliers, by creating causes of action for unfair termination, and by prohibiting quota based sales. In a jurisdiction where verbal contracts are permitted, this creates a risky endeavor for wholesale enterprises seeking to establish themselves in new markets, such as our own.

In just a short matter of time, a simple product purchasing relationship can create an expectation of product exclusivity which forbids the distributor from expanding their sales within our area, without the already established “exclusive local distributor” permitting the possible new and larger ventures. In addition, the loosely defined term “just cause” necessary to terminate the contractual obligation under Law 75 leaves the matter to be interpreted in court, instead of providing an faster and cheaper alternative to exclusive distribution contract dispute resolution.

The safest and best practice for stateside corporations already selling their products to local resellers is to review their contracts to “Law 75 Proof” them. For new enterprising companies wishing to include Puerto Rico into their venues, the safest option is to draft a detailed and precise contract that includes alternative dispute resolution options, limitations of jurisdiction and clauses which reserve the right to sell their products on a non-exclusive relationship.

Otherwise, they run the risk of facing several years of costly litigation, and seeing how a fruitful consumer market such as Puerto Rico turns into a sour venture for everyone involved.