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Best efforts clause

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Definition Edit

A best efforts clause is a contractual provision which requires one of the parties to use its highest efforts to perform its obligations and to maximize the benefits to be received by the other party, although it does not generally require the party to achieve any specific goals.

Overview Edit

In a licensing or distribution arrangement, the party supplying the product is naturally interested in maximizing revenues. To reach that goal, the supplier wants the distributor to do whatever is necessary and prudent to market the product. This is particularly true when the agreement grants the distributor the exclusive marketing rights to the product.

Many distribution agreements either have no provision directed at the performance of the distributor or have a provision requiring that the distributor use its “best efforts” (or “reasonable efforts”). Unfortunately, in either situation, there are no objective criteria by which the distributor’s performance can be judged.

When the contract is silent, a court would be required to decide whether there is an implied duty on the distributor to promote the product. The courts that have addressed this issue have had mixed results.

When the contract does provide for best efforts, a court must determine the enforceability of such a clause, and if enforceable, whether the distributor made sufficient effort to market the product under the circumstances. The courts have little trouble in finding a lack of best efforts when the distributor has done absolutely nothing to market the product. The more difficult question arises when the distributor has made some effort, but the supplier claims it was not enough.

Sample ClauseEdit

Distributor agrees to use its best efforts to advertise, market, promote, and license the interactive title in order to maximize sales volume. In that regard, Distributor agrees to the following minimum marketing commitment:

1. To spend not less than $ ________ in print advertising in major industry publications per calendar quarter for the first year; and, 2. To include Developer’s title in Distributor’s annual catalog for a minimum of three issues, listed under Developer’s name, name of software package and type of application in a typeface and style at least as prominent as all other listings in the catalog.

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