In January 2022, the Saudi Ministry of Commerce announced substantial amendments to the Saudi commercial agency and distributorship regime through a new Commercial Agency Law. Most notably, the new law will establish antitrust oversight of commercial agencies and distributorships, open the sector up for foreign investment, and revise IP protection.
The new version of Commercial Agency Law is expected to come into effect in mid-2023. It will expand the scope of applications, amend the treatments of intellectual property (IP) rights, and regulate exclusivity, termination, and compensation.
Under the existing Saudi Commercial Agency Law, only Saudi nationals and citizens of other Gulf Cooperation Council (GCC) countries may act as commercial agents or distributors. Opening the commercial agency and distributor activities for foreign investment marks a dramatic change in the Kingdom's commercial agency and distributor regime, which has traditionally been exclusive to local investors and protectionists.
The changes made to Commercial Agency Law will allow commercial agents and distributors to use the principal's trademarks and other intellectual property within the scope of the agreement, providing some registration exemptions from the Saudi IP law regime.
In addition, it also amends the treatment of exclusive agencies and distributorships. The Ministry of Commerce, in cooperation with the General Authority for Competition, may set aside exclusivity where it restricts the supply of necessary goods or services in the Kingdom. Aside from protecting supply and market integrity, this approach may limit exclusivity when Saudi agents or distributors fail to meet demands.
The changes to the law will also authorize the General Authority for Competition to assess the impacts of agencies and distributor arrangements on the Saudi Markets from a political perspective.
Commercial Agency Law will also limit the parties' choice of dispute resolution forums. It will introduce a dispute resolution committee with jurisdiction over disputes between principals, agents, or distributors.
The dispute resolution committee will also take over some regulatory authorities by addressing new commercial agency law violations and imposing penalties. These penalties have increased from SAR 50,000 to 500,000, equivalent to about 14,000 to 140,000 USD.
The changes to Commercial Agency Law are not final, but we expect the overall principle to be maintained. Therefore, companies should consider these new parameters when contemplating entering the Saudi market through new agencies, distributors, or revising existing distribution networks.
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