Commercial, Distribution and Product Liability

Commercial law in Germany: an overview

Commercial law in Germany governs how companies buy, sell, distribute and make products available. It combines the general law of obligations in the Civil Code (Bürgerliches Gesetzbuch, BGB), the special rules for merchants in the Commercial Code (Handelsgesetzbuch, HGB), EU regulations on products, competition and consumers, and a large body of case law, in particular on standard business terms.

For a company selling in Germany, the practical consequences are concrete: standard terms that work in other jurisdictions may be void, commercial agents can claim a mandatory goodwill indemnity on termination, distributors are protected against abusive conduct by suppliers with market power, and manufacturers face strict liability for defective products alongside an expanding set of EU product compliance rules.

This pillar page explains the main areas of German commercial law and how they interact, and links to our three detailed pages: commercial contracts and standard terms, distribution, agency and franchise, and product liability and product compliance. It is written for general counsel, sales and supply-chain managers, and foreign companies entering the German market.

Commercial contracts and standard terms

German contract law gives parties wide freedom, but standard business terms (Allgemeine Geschäftsbedingungen, AGB) are subject to strict judicial review under §§ 305 to 310 BGB. Any contract clause pre-formulated for multiple use and presented by one party counts as a standard term, including clauses in a company's own template agreement, unless it was genuinely negotiated. Between businesses, the specific lists of prohibited clauses in §§ 308 and 309 BGB do not apply directly, but courts apply the general fairness test in § 307 BGB and use those lists as an indication of what is unreasonable (§ 310(1) BGB), with due regard to customs and practices in commercial dealings.

In practice, this means that many clauses common in international contracts are vulnerable under German commercial law: blanket exclusions of liability for negligence, caps that do not cover foreseeable typical damage, exclusions of liability for breach of essential obligations, unilateral price change rights without transparent criteria, and very short limitation periods. A clause that fails the test is void and replaced by the statutory rule, without a reduction to the permissible level. Individually negotiated terms are not subject to this review, but German courts set a high bar for showing genuine negotiation.

Key drafting points

• Limitation of liability: distinguish between intent and gross negligence, breach of essential contractual obligations and other cases; caps should relate to foreseeable, typical damage.
• Force majeure and hardship: define events, notice, mitigation and termination rights; § 313 BGB (interference with the basis of the transaction) applies only in exceptional cases.
• Price adjustment: tie changes to transparent cost elements or indices and allow both increases and decreases.
• Choice of law and forum: German law applies by choice or under the Rome I Regulation; the UN Convention on Contracts for the International Sale of Goods (CISG) applies to cross-border sales unless excluded.
• Inspection duties: in sales between merchants, the buyer must inspect goods without undue delay and give notice of defects, or the goods are deemed accepted (§ 377 HGB).

Our page on commercial contracts and standard terms explains the AGB review in depth, including battle of the forms, supply and manufacturing agreements and the treatment of liability clauses. See also our insight on limitation periods under German law.

Supply chains and recourse

Long supply chains create recourse problems. A manufacturer that must repair or replace defective goods for its customer will want to pass the costs on to its supplier, and German sales law gives a seller who has had to take back or repair a newly manufactured item recourse against its own supplier for the necessary expenses (§ 445a BGB).

These rights can be modified by contract, but standard terms that exclude them entirely are vulnerable. Quality assurance agreements, which allocate inspection duties between supplier and customer and often waive or modify the incoming goods inspection under § 377 HGB, are common in the automotive and engineering industries and need to be consistent with the main supply contract.

Long-term supply and price adjustment

Energy price shocks, tariffs and supply shortages since 2020 have shown the limits of fixed-price long-term contracts. German law allows adjustment for a fundamental change in circumstances under § 313 BGB only where holding a party to the contract would be unreasonable, and courts have applied this narrowly. Commercial contracts should therefore provide their own mechanisms: index-based price adjustment, renegotiation clauses with a fallback, allocation of customs and tariff costs and, where appropriate, termination rights. See our insight on US tariffs and contract implications.

Distribution, agency and franchise

Companies selling into Germany can use commercial agents, authorised dealers or distributors, franchise systems, or direct sales through their own subsidiaries and online channels. Each model has its own legal profile under German commercial law and competition law.

Commercial agents (Handelsvertreter) are regulated in §§ 84 to 92c HGB, which implement the EU Commercial Agents Directive. The statutory notice periods increase with the duration of the contract, from one month in the first year to six months after five years (§ 89 HGB), and may not be shorter for the principal than for the agent.

On termination, the agent can claim a goodwill indemnity of up to one average annual commission, calculated over the last five years, if the principal continues to benefit from customers the agent introduced (§ 89b HGB). The claim cannot be excluded in advance and must be asserted within one year after the contract ends. Parties may only deviate where the agent is to work outside the EU and EEA (§ 92c HGB).

Distributors buy and resell in their own name. German law contains no specific statute for them, but the courts apply § 89b HGB by analogy where a distributor is integrated into the supplier's sales organisation like an agent and must transfer its customer data to the supplier on termination. This analogy is a frequent source of unexpected termination costs for foreign suppliers. Franchise agreements are equally unregulated by statute, but pre-contractual disclosure duties, AGB review and competition law shape them.

Competition law limits

Vertical agreements are assessed under Article 101 TFEU and §§ 1 and 2 GWB. The Vertical Block Exemption Regulation (Regulation (EU) 2022/720) exempts agreements where supplier and buyer each have a market share of no more than 30%, provided they contain no hardcore restrictions such as resale price maintenance or bans on online sales; § 2(2) GWB applies it to purely domestic agreements. Suppliers with relative market power must not obstruct dependent distributors unfairly (§ 20 GWB). Our page on distribution, agency and franchise covers agency, distribution and franchise contracts, selective distribution and termination in detail, and our insight on vertical agreements under the VBER explains the block exemption.

Choosing a sales model

The choice between agency, distribution, franchise and direct sales has consequences beyond contract law. An agent does not usually bear the commercial risk of the transactions it negotiates, so the principal may set prices and conditions without infringing competition law; a distributor bears that risk and must be free to set its own resale prices. A franchisor can impose a uniform system and business methods but must protect its know-how and disclose material information before signature. Direct sales through a German subsidiary give the most control but bring employment, tax and corporate obligations. Many groups combine models, which requires consistent rules on territories, customer allocation and online sales.

Consumer and e-commerce law

Business-to-consumer sales are governed by mandatory EU-based rules implemented in the BGB. Online traders must give extensive pre-contractual information, use an order button that states the payment obligation clearly (otherwise no contract is concluded), offer a 14-day right of withdrawal for most distance contracts and, since 2022, provide a cancellation button for online subscriptions (§ 312k BGB). Since 19 June 2026, online distance contracts must also offer an electronic withdrawal function (§ 356a BGB). Consumer sales law gives buyers a two-year warranty period, a burden-of-proof reversal for defects that appear within one year, and specific rules for goods with digital elements and updates.

Advertising and marketing are regulated by the Act against Unfair Competition (Gesetz gegen den unlauteren Wettbewerb, UWG), enforced mainly by competitors and associations through warning letters and injunctions. The EU Directive on empowering consumers for the green transition has been implemented in the UWG with effect from 27 September 2026, tightening the rules on environmental claims and sustainability labels. The Right to Repair Directive has added repair obligations for manufacturers of certain goods. See our insights on consumer law for e-commerce, the withdrawal button and green claims after EmpCo, and our retail and consumer goods sector page.

Product liability and product compliance

Manufacturers in Germany face liability on two tracks. Under the Product Liability Act (Produkthaftungsgesetz, ProdHaftG), a manufacturer is strictly liable, regardless of fault, if a defect in its product causes death, personal injury or damage to private property other than the product itself (§ 1 ProdHaftG). In parallel, fault-based tort liability under § 823(1) BGB covers breaches of the manufacturer's duties of care in design, production, instruction and product monitoring, and also reaches commercial property damage.

The regime is about to change substantially. The new EU Product Liability Directive (Directive (EU) 2024/2853) applies to products placed on the market or put into service after 9 December 2026. It covers software, including AI systems, as a product, extends liability to the loss or corruption of data and to defects arising from updates or a lack of updates, and eases the claimant's burden of proof.

Germany's act to modernise product liability law, which replaces the ProdHaftG with a new version, was adopted by the Bundestag on 8 October 2026, and the Bundesrat decided on 16 October 2026 not to call the mediation committee, according to the Bundesrat decision.

Product compliance runs alongside. The General Product Safety Regulation (GPSR) has applied since 13 December 2024 and imposes duties on manufacturers, importers, distributors and online marketplaces; the Machinery Regulation applies from 20 January 2027; the Ecodesign for Sustainable Products Regulation introduces digital product passports; and the Packaging and Packaging Waste Regulation (PPWR) has applied since 12 August 2026. Our page on product liability and product compliance explains these regimes, CE marking, market surveillance and recalls.

Commercial law disputes and enforcement

Disputes under German commercial law are heard by the civil courts, typically the chambers for commercial matters (Kammern für Handelssachen) at the regional courts, which sit with one professional judge and two lay judges from business.

Since the Act to Strengthen Germany as a Location for Justice entered into force on 1 April 2025, the federal states can set up Commercial Courts at Higher Regional Courts for business disputes from a value of EUR 500,000 and allow proceedings entirely in English. Arbitration under the rules of the German Arbitration Institute (DIS) or the ICC is common in supply, distribution and joint venture contracts. See our pages on commercial litigation and Commercial Courts and English-language proceedings.

Typical commercial disputes concern defective deliveries and recourse along the supply chain, price adjustment and termination of long-term supply contracts, goodwill indemnity claims of agents and distributors, unfair competition claims and product liability claims. Interim injunctions play a large role in competition and IP-related disputes, while supply chain disputes often turn on the inspection and notification duties of § 377 HGB and the validity of liability clauses in standard terms.

Warning letters and injunctions

A distinctive feature of German commercial practice is private enforcement of unfair competition and consumer law. Competitors, qualified business associations and consumer associations send warning letters (Abmahnungen) demanding a cease-and-desist declaration backed by a contractual penalty, and can obtain preliminary injunctions within days. Companies receiving a warning letter should check its formal requirements and the scope of the declaration requested before signing, because a penalty-backed undertaking binds them for the future.

Commercial law for foreign companies selling in Germany

Foreign companies entering the German market should review their contract templates for German commercial law before using them. Clauses drafted for common law jurisdictions often rely on broad exclusions of liability or termination at will, which may be void or trigger compensation claims in Germany. Distribution contracts should be designed with the goodwill indemnity, competition law and the possible transfer of customer data in mind.

Consumer-facing businesses must adapt their online shop, terms and processes to German and EU consumer law, which is enforced vigorously by competitors and consumer associations. Products must comply with EU harmonisation legislation and the GPSR before they are placed on the market, and online marketplaces now play an active role in enforcing these rules.

Where foreign suppliers deliver to German customers, their purchasing terms and the customer's terms often conflict. German courts treat conflicting clauses as not agreed, and the statutory rules apply instead, so a careful approach to the battle of the forms is essential. Our international clients pages explain market entry more broadly, including the choice of a German subsidiary.

How TRW & Co helps

We advise manufacturers, suppliers, retailers, distributors and foreign companies on German commercial law. We draft and review standard terms and supply, manufacturing, distribution, agency and franchise agreements, adapt international templates to German requirements, and negotiate key contracts. We advise on competition law limits for distribution systems, on terminating agents and distributors, on consumer and e-commerce compliance, and on product liability, product safety, recalls and market surveillance. We represent clients in commercial disputes before German courts and in arbitration. To discuss a contract or a dispute, please contact us. This page provides general information, not legal advice.