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considered ineffective to the extent that it negates the protection the agent would haveotherwise enjoyed under statutory provisions.Before appointing a commercial agent in Austria or in any other country of the EuropeanUnion, it is vital to seek legal advice and to have the agreement drafted to avoid pitfalls. Theadditional protection afforded by law and in particular the mandatory terminationcompensation may serve the principal as leverage in negotiations with an agent for insistingon a lower commission percentage than the principal is otherwise paying to agents in theforeign or other overseas jurisdictions.Depending on the circumstances, it might be possible to create a broker or factor contractrather than a commercial agency agreement to avoid the pitfalls set out above. However, thedrafting of such agreements requires great care and legal advice.VDistributorshipAs an alternative to using a commercial agent, a foreign enterprise might consider theappointment of distributors. A distributor might require some exclusivity or at least someselective distribution systems. Again, there are a number of legal pitfalls.An exclusive or selective distribution system may violate national or European competitionlaw. The distributorship contract therefore requires scrutiny as to its legal compliance. Forinstance, there are clear rules as to the limits of any geographic area for exclusivedistribution, parallel imports and retail price maintenance.However, there is another danger when appointing distributors in Europe. A distributor whois economically dependent on the manufacturer to a high degree may, at the time of thedissolution of the distribution, claim contract protection similar to a commercial agent (seeabove). While there are no statutory provisions for the protection of distributors, courts inAustria and in other EU countries have extended the protection of the commercial agent tothe distributor in a considerable number of instances. Also, although the beginning of adistributor relationship might be harmonious and not exposed to such dangers, anyremarkable success achieved by the distributor might make the distributor economicallydependent upon the manufacturer. If the manufacturer then wants to go directly into thatmarket, e.g. by setting up a subsidiary, the distributor may object and require considerablepayments in return for giving up any action to determine their rights in the courts andthereby create an unclear situation in this particular market for a number of years.VI Joint VentureJoint ventures are an attractive business model for foreign investors using a local partner toimplement a project. In Austria, such projects are typically building and construction projects,plant contracting, IT projects, pharmaceutical developments and life science projects.However the foreign or overseas joint venture partner would rely completely on the localknowledge of the local partner and frequently does not have the proper controlling andmanagement information systems in place. These joint ventures therefore sometimes proveto be high risk ventures and often end in drawn out litigation or arbitration.Apart from any particular risk of the local joint venture partner itself, there is a high risk vis-àviscreditors of the joint venture as, according to Austrian law, each partner of a joint ventureis jointly and severally liable to the creditors of the joint venture. In the absence of specificcontractual stipulation in the agreement each joint venture partner can bind the joint ventureitself to third parties. The foreign partner might then find themselves at the mercy of thecreditors, in particular in case of insolvency of the local partner. This risk can be managed byway of an incorporated joint venture in which the joint venture partners create a newcompany and, as a result, the liability of each joint venture partner is limited to their equitycontribution.- 15 -