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Country Commercial Guides FY 2000: Luxembourg Report prepared by U.S. Embassy Luxembourg, released July 1999 Note*

CHAPTER IV. MARKETING U.S. PRODUCTS AND SERVICES

DISTRIBUTION AND SALES CHANNELS

Increasing numbers of companies are selling into the Luxembourg market through distributors and agents. The new-to-market American company will find a large number of well-established representatives in virtually every industry sector in Luxembourg. Frequently, their territory is larger than just Luxembourg, and often extends to the Benelux (Belgium, the Netherlands, and Luxembourg) and other neighboring European countries as well. Well-established distributors in certain sectors may be reluctant to take on new product lines due to various business constraints, notably the lack of access to quick and affordable financing and high social costs for additional employees.

Considering the host of distribution options available in Luxembourg, it is important for the would-be exporter to select the method best suited to his or her product. Luxembourg buyers generally prefer to purchase through an intermediary; making sales directly to the end-user is not a common practice. However, sales of expensive, technically sophisticated goods are an exception to this rule.

USE OF AGENTS AND DISTRIBUTORS; FINDING A PARTNER

Intermediaries may take one of three primary forms under Luxembourg law: distributor, agent, or salaried representative.

Distributor
A distributor is an individual or legal entity who purchases goods directly from a producer for the purpose of resale. The distributor operates independently, and is only bound by the written provisions of the distribution agreement. These agreements, however, are subject to specific rules and regulations regarding exclusive distribution and price-fixing.

The conditions of contract termination are an important concern, and vary with the type of distribution agreement. Either party without prior notification or indemnification may terminate a distribution agreement of specified duration at the end of the contract period. If the termination takes place before the end of the contract period, the terminating party may be sued for breach of contract.

Either party after a fair notice period, usually six months, may terminate a distribution agreement of an unspecified duration without indemnification. The termination of such a contract by the producer without fair notice may be grounds for damage claims by the distributor.

Agent
This category covers commercial agents as well as those persons acting as agents but not fulfilling the requisites of commercial agent status. Unlike distributors, agents do not actually purchase goods for resale. Instead, they match up buyers and sellers on a commission basis. All agents exercise their activities in an independent manner, and their principals are exempt from payment of payroll taxes. Agents assume their own fiscal charges (i.e. business license tax and value-added tax) and social charges.

Commercial Agent
Agents with a written contract have the status of agents commerciaux (commercial agents) if they exercise their activity as a sustained independent profession and fulfill certain conditions. They negotiate sales and purchases on behalf of producers, manufacturers or dealers; do not have a written employment contract; and are registered with the Tribunal of Commerce as commercial agents.

A commercial agent is independent and free to act on the behalf of any other firm. However, in the case where the agent wishes to represent one of his or her principal competitors, consent of the principal must be secured.

The principal may justifiably terminate the commercial agent contract only if the agent shows substantial deficiency in carrying out his or her obligations. Otherwise, contract termination gives the agent a right to indemnification, often equal to two years commission.

Other Agents
Persons who do not fulfill all the requirements for commercial agency, and who are not in a position of subordination to the company they represent, are considered agents. Notarized act or private agreement can effect authorizations of an agent. Either party may terminate the agency agreement at will, but the non-terminating party has a right to indemnification of losses.

Salaried Representatives
Unlike agents, salaried representatives have employment contracts. They and their employers share the burden of payroll taxes, contributions to social security, unemployment compensation, and retirement/pension plan contributions.

Statutory Representatives
Regardless of qualifications or title, persons are considered statutory representatives if they exercise their activity as a sustained independent profession and fulfill certain conditions. They are: engage in the activity of a sales representative for the account of one or more employers; desist from executing commercial operations on their own behalf; institute mutual commitments with employers regarding the nature of the goods or services offered for sale, the region of activity or the category of clients, and the rate of compensation.

Non-statutory Salaried Representatives
Representatives who are subordinate to their employers and who do not fulfill the requisites for statutory representative status fall into a separate category and are considered regular employees.

Finding a Partner
The Commercial Service, part of the International Trade Administration (ITA) of the Department of Commerce (USDOC), offers several programs, such as the Agent Distributor Service and the Gold Key Service, to help an exporter identify potential foreign representatives. To find out more about these services, interested companies should contact the nearest U.S. Department of Commerce Export Assistance Center, which can be found on their website at www.ita.doc.gov under the Export Assistance Center listings. Please note that the Commercial Service in Brussels, Belgium is responsible for the commercial affairs in Luxembourg.

Contacting and Evaluating Potential Representatives
Once an American company has identified several potential representatives, it should contact them directly in writing. Just as the American firm is seeking information on the Luxembourg representative, the representative is interested in corporate and product information on the American firm. The American firm should provide full information on its history, resources, personnel, the product line, and previous export activity as well as any other pertinent information.

At the same time the firm is providing information on itself, it should also engage in a thorough investigation of the potential representative. The following is a list of important facts the firm should endeavor to find out:
* current status and history, including background on principal officers, personnel and other resources
* sales territory covered
* current sales volume
* typical customer profiles
* methods of introducing new products into the sales territory
* names and nature of American firms currently represented
* trade and bank references
* and, assessment of whether the American firm's special requirements can be met and view of in-country market potential for the American firm's products.

The American firm should not hesitate to ask potential representatives or distributors detailed questions. Exporters have the right to explore the qualifications of those who propose to represent them overseas.

JOINT VENTURES/LICENSING

There are numerous individuals, professional organizations, service companies, financial organizations, and consultants from all disciplines, who are prepared to advise and assist parties considering joint ventures and licensing in Luxembourg. The American Chamber of Commerce in Luxembourg is particularly active and has several strong and effective action committees.

STEPS TO ESTABLISHING AN OFFICE

For the purpose of the everyday definition laid down in Luxembourg law, a business ("commerce") means any person or company who earns a living either full-time or part-time by means of trade. "Trade" embraces activities ranging through industry, the distributive trades, banking, transport and the services sector generally. This diversity of activities is reflected in the responsibilities of the Chamber of Commerce, and the following description applies to all sectors of the economy except for agriculture and the skilled craft trades ("artisanat").

Under Luxembourg law, the status of a businessperson has three main consequences:

1. Litigation between businesspeople is settled before the Commercial Court, acting under special rules of procedure.
2. Business may be declared insolvent. The effect of insolvency is the seizure of the business' assets and its liquidation by the court.
3. A business is subject to a number of special provisions governing economic activity; they include rules on proof of transactions, book-keeping, advertising, competition, and so on.

SELLING FACTORS/TECHNIQUES

In Luxembourg, in addition to being very competitive and sophisticated, language may be factor in selling. Goods need to be labeled in one of the three official languages: French, German, and Luxembourgish (Lëtzebuergesch).

ADVERTISING AND TRADE PROMOTION

"Commercial News USA" is a monthly magazine published by the U.S. Department of Commerce that publicizes products and services of American firms seeking agents, distributors, joint venture partners, or purchasers abroad. It is distributed overseas by U.S. embassies and consulates to a controlled circulation of more than 143,000 business readers in 152 countries including Luxembourg. For more information or to obtain a copy, please contact the Commercial Service in Belgium at +32/2 660-5468.

The American Chamber of Commerce, consisting of American companies operating in Luxembourg and Luxembourg firms with U.S. business interests, also publishes a magazine. The magazine is published by Computerware SA in Brussels and rates are available by telephone from them at +32/2 660-5468.

Le Jeudi
13, rue du Marché aux Herbes
L-1728 Luxembourg
Tel: +35/2 22 05 50
Fax: +35/2 22 05 44
www.le-jeudi.lu

Luxemburger Wort
2, rue Christophe Plantin
L-2988 Luxembourg
Tel: +35/2 49 93 1
Fax: +35/2 49 93 384
www.wort.lu

Luxembourg News
25, rue Philippe II
L-2340 Luxembourg
Tel: +35/2 46 11 22
Fax: +35/2 47 00 56
www.news.lu

Tageblatt
44, rue du Canal
L-4050 Esch-Sur-Alzette
Tel: +35/2 54 71 31 1
Fax: +35/2 54 71 30
www.tageblatt.lu

Letzebuerger Journal
123, rue Adolphe Fischer
L-1940 Luxembourg
Tel: +35/2 49 30 33 1
Fax: +35/2 49 20 65
www.journal.lu

Zeitung vum Letzebuerger Vollek
16, rue Christophe Plantin
L-2339 Luxembourg
Tel: +35/2 40 97 45
Fax: +35/2 49 69 20

Echo d'Industrie
7, rue Alcide de Gasperi
L-1615 Luxembourg
Tel: +35/2 43 53 66 1
Fax: +35/2 43 23 28

PRICING A PRODUCT

Luxembourg is a highly competitive market, and therefore the Luxembourg importer is looking for the best quality at the lowest price. American products and technology are highly regarded, but they do not command higher prices than competitive products available from within the EU or other third country exporters. While Luxembourg is an important market in its own right, it is also the country of entry for many imports destined to be redistributed throughout Europe. This environment gives Luxembourg buyers access to a wide range of products at competitive prices in their own market.

SELLING TO THE GOVERNMENT

Although the objective of EU Directives has been to open government procurement to foreign companies, in practice it is still advisable to work with a locally established company, which has the appropriate contacts and local market expertise. Purchases by government or local entities of over Luxembourg Franc (LUF) 5 million ($160,000) are subject to procurement by tender. In addition, current EU Directives require that tenders for purchases of over $20 million must be published in the EU Bulletin and are subject to procurement procedures established by the EU for all member states.

PROTECTING YOUR PRODUCT FROM IPR INFRINGEMENT

The intellectual property rights granted under U.S. patent, trademark or copyright law can only be enforced in the United States, its territories and possessions. The EU, for its part, has taken a number of initiatives to provide intellectual property protection, but not all measures have been implemented. In cases of non-implementation, national laws still prevail.

Patents

Luxembourg is a member of the World Intellectual Property Organization (WIPO) and the European Patent Convention (EPC). A single European patent, valid throughout the EU, does not yet exist. The Community Patent was created by the 1975 Luxembourg Convention, but has not yet come into force because it has not been ratified by the twelve signatory member states. In the meantime, a patent applicant can choose between a national and a multiple-country patent. In the latter case, a single application to the European Patent Office in Munich (European Patent Office, Erhardstrasse 27, D-80331 Munich, Germany, Tel: +49/89 2399-0, Fax: +49/89 2399-4465, http://www.european-patent-office.org) is required for obtaining patents valid in a number of countries within the EU, Liechtenstein, Monaco, and Switzerland. A patent thus granted is valid in Luxembourg only when a copy of the grant is in one of Luxembourg's three national languages (French, German or Luxembourgish) and is filed with the Luxembourg Office of Industrial Property described below.

To obtain a national patent in Luxembourg, the inventor on his/her assignee must file a request with the Office of Industrial Property in the Ministry of Economic Affairs. After a search of the European Patent Office in Munich, if requested by the inventor, the Luxembourg government will issue the patent without guarantee of patentability. National patents are valid for twenty years if a search has occurred. If not, the validity is reduced to six years. Once granted, the patent is registered with the Register of Patents, again located in the Ministry of Economic Affairs.

Trademarks

An EU Trademark Office has been established in Alicante, Spain. Trademark registration can be handled through this office.

EU Trademark Office
Avenida de Aguilera, 20
03006 Alicante
Spain
Tel: +34/96 513-9100
Fax: +34/96 513-9173

Trademarks in Luxembourg have been regulated by the Uniform Benelux Law of 1962, which offers protection in Belgium, the Netherlands, and Luxembourg. A trademark application can be filed with the Luxembourg Intellectual Property Office in the Ministry of Economic Affairs (http://www.etat.lu/EC) or with the Benelux Trademark Office located in the Netherlands.

Benelux Trademarks Office
Bordewijklaan 15
NL-2591 XR Den Haag (The Hague)
Tel: +31/70 349-1111
Fax: +31/70 347-5708
http://www.bmb-bbm.org

A search is required to ascertain the non-existence of a similar or identical trademark for the same category of product. If granted, protection lasts for ten years from the date of application and can be renewed for further periods of ten years each. Trademarks must be used within three years of registration or within any uninterrupted period of five years.

NEED FOR A LOCAL ATTORNEY

Luxembourg is not a highly litigious country. Nevertheless, American companies should consult local attorneys when drawing up an agency or a distribution agreement. The standard U.S. agreement, which often applies U.S. law, will not suffice in Europe. Local attorneys are also needed when registering patents, trademarks, or copyrights. Lastly, local legal advice is essential when setting up an office or when establishing a distribution, service, or coordination center. The U.S. Embassy in Luxembourg maintains a list of local lawyers specializing in business transactions in Luxembourg and Europe.

PERFORMING DUE DILIGENCE, CHECKING BONA FIDES OF BANKS, AGENTS, AND CUSTOMERS

The Commercial Service ended the International Company Profile service earlier this year. If companies are interested in obtaining financial and other related information about companies in Luxembourg, they can contact the local Dun and Bradstreet office in the United States who can provide the information. In addition, information for the Brussels branch, which handles Luxembourg companies, is included below.

Dun & Bradstreet Headquarters
One Diamond Hill Road
Murray Hill, NJ 07974-1218
Tel: (908) 665-5000
Fax: (908) 665-5803
http://www.dnb.com

Dun & Bradstreet Eurinform S.A.-N.V.
Avenue des Pléiades 73 Plejadenlaan
1200 Bruxelles- Brussel
Tel: +32/2 778-7211
Fax: +32/2 778-7272
http://www.dbbelgium.com