Legal Update - Data Sharing
Legislative Issue Update - January 2008
Data Sharing With Your Suppliers – Who Owns the Data?
According to the recent Facing the Forces of Change® – Lead the Way in the Supply Chain, published by the NAW Institute for Distribution Excellence (www.naw.org), a key future trend will be wholesaler-distributors sharing their point-of-sale data with more suppliers. In 2006, 40 percent of the wholesaler-distributors surveyed did not share their point-of-sale data with any suppliers. That percentage is expected to fall to 20 percent by 2012. In 2006, the survey indicated a median of 5 suppliers receiving point-of-sale data from wholesaler-distributors; that number is expected to go to 10 suppliers by 2012.
Data sharing may be a requirement contained in the distributorship agreement. This clause, for example, is excerpted from a distributor’s agreement:
Information Collection. Upon Supplier’s request, Distributor shall provide Supplier with information regarding the Supplier’s Product sales, service and inventory levels, information about the other activities of Distributor under this Agreement, and information about Distributor’s market with respect to Supplier’s Products and other similar products. (Emphasis added)
There can be risks to a wholesaler-distributor who shares its sales data with a supplier, especially where the data sought includes sales of other suppliers’ products. These risks are best addressed by the parties at the outset with a clearly-worded written data sharing agreement, covering the following key issues.
• Ownership of the Data – The agreement should specify who owns the data the wholesaler-distributor is providing to the supplier. For example, the agreement could state that the data remains the property of the wholesaler-distributor and the supplier has a license to use the data as specified in the license agreement while the agreement is in effect. The license can be non-exclusive, non-transferable and subject to termination as specified in the agreement.
• Whose Data Will Be Shared – Will the data-sharing with a supplier be limited to sales of the supplier’s products or will it include the wholesaler-distributor’s sales of similar products?
• Level of Detail – What level of detail will the shared data be provided to the supplier? The data can be aggregated as a total for the wholesaler-distributor’s assigned territory or Primary Area of Responsibility, or refined to the specific customer/location level, or by county, ZIP code, etc.
• License Fee – Will the supplier pay a license fee to the wholesaler-distributor for the right to use the data? A license fee, even a nominal amount, will provide the legal consideration necessary to make the agreement enforceable.
• Use of Data – What are the authorized uses a supplier may make of the data? The agreement will typically prohibit the supplier from sharing or transferring the data to another party, including any competing wholesaler-distributors. A nondisclosure provision in the agreement applicable to the supplier is also prudent.
• Warranty – The agreement should address what warranty, if any, the wholesaler-distributor makes with respect to the accuracy and completeness of the data provided to the supplier. A warranty disclaimer and liability limitation language in the agreement should be considered.
• Term and Termination – The term of the license needs to be specified as well as the conditions allowing a party to terminate the agreement. The supplier’s post-termination obligations (e.g., return of all copies of the data, removal of the data from the supplier’s database, etc.) should be spelled out in the agreement.
Data sharing has definite benefits for the supplier and its wholesaler-distributor who is willing to share point-of-sales data. As with any mutually beneficial relationship (i.e., a contract), both parties will be better served by reaching a clear written understanding of the arrangement at its outset.