As you’ve no doubt heard, our president is miffed with 3M for shipping masks to foreign countries before filling orders for the United States. Florida is having a particularly difficult time:
Hi @3M. I’m your new Troll. I’m the Director of Emergency Management for the State of Florida @FLSERT. Please send us N95 masks directly to our hospitals, first responders and the state. How many brokers and distributors do we have to negotiate with only to find empty warehouses? https://t.co/0E3gLc3R5t
— Jared Moskowitz (@JaredEMoskowitz) March 30, 2020
What’s going on here?
What you need to know is that 3M goes to market through stocking distributors. A stocking distributor is an independent company who acquires product and warehouses it locally. The benefit is that if a local hospital (in this case) needs something (such as masks), they can call a local distributor who can quickly provide it out of stock. A non-stocking distributor does not stock product but passes along orders to a manufacturer. In both instances, the distributor takes orders and provides local training and support for the manufacturer.
The benefit to 3M in this arrangement is that these are independent companies that will purchase in bulk and supply in low quantity. It also pushes some of the risk of holding inventory onto the distributor (if they’re a stocking distributor). Additionally, 3M isn’t responsible for managing a worldwide sales team.
What I asked 3M is, are they aware their authorized distributors — U.S. companies — are telling me the reason why our orders are being pushed down is because foreign countries are showing up with cash to purchase the orders … not only did they not dispute it, [but] I asked them if they put out any guidance to prevent the behavior, and the answer was no.
Why was the answer no? Let’s look at the kind of language you’d find in a distributor agreement. This is language from a 3M Distributor Agreement:
11. Relationship of the Parties. The relationship established between 3M and
DISTRIBUTOR by this Agreement is that of a vendor to its vendee. DISTRIBUTOR is
not an agent of 3M and has no authority to bind 3M, transact any business in
3M’s name or on its behalf in any manner, or make any promises or
representations on behalf of 3M. DISTRIBUTOR agrees to represent itself only as
an independent business who is an “authorized 3M DISTRIBUTOR.” The employees and agents of DISTRIBUTOR are NOT for any purpose the employee or agents of 3M. (Emphasis mine)
Is this the language that’s in agreements of the distributors that sell masks? There’s no way to know for sure but this is all rather standard. The basic point being that the Distributor is an independent company.
Can 3M restrict sales to foreign governments? Yes, of course although this needs to be specified in the contract as well. The Distributor in this agreement is prohibited from selling an IBM product outside of the United States:
(A) 3M agrees to make IBM Product(s) available to DISTRIBUTOR for resale to
commercial, consumer and governmental end-users located in the United States.
DISTRIBUTOR agrees not to sell, ship or distribute in any manner, IBM Products
to any customer located outside of the United States.
(B) DISTRIBUTOR agrees that any resale, shipment or distribution by
DISTRIBUTOR or its agents or employees to any customer located outside of the
United States may result in discontinuance of the sale of the IBM Product to
DISTRIBUTOR in addition to other remedies available to 3M or IBM.
Given what we know so far, it is unlikely that 3M’s Safety Products Distributors have such a prohibition. Assuming that’s the case, what can 3M do? Nothing really other than bit of saber rattling to “do the right thing.” The product is owned by an independent company.
How do you get these products from the Distributors? Florida has already tried to ask nicely and the next obvious answer is that the Federal Government needs to break down doors and take them. Is this legal? I’m thinking not. But you know what, that’s what I think I’d do using the time honored tradition of “Caedite eos. Novit enim Dominus qui sunt eius.” “Kill them all; let God sort them out.”