I've been approached by a vendor who wants to negotiate a distribution agreement for a piece of software and associated SaaS services. They claim to have a number of identified customers, etc.
They're asking for (1) a non-circumvention clause, and (2) a geographically exclusive distributor agreement.
I have to admit that I'd never even heard of a non-circumvention clause before this. I've been around the block for a while, and these just do not seem to be common in software or SaaS industries. Even NDAs have gone somewhat out of fashion in many cases, but I'd not even encountered this beast. Perhaps if I'd been in sales or marketing instead of corporate dev and engineering I would have seen them.
The second part I consider problematic just about to the point of being a show stopper. It frankly does not seem to make much sense. Geography for software and Internet services is kind of hard to even pin down. In many cases you don't even know for certain where your users are, etc. It might make sense for a hardware or other physical goods company but I just don't get it here.
I'm curious about whether anyone else has ever encountered such a thing before, and when/if it would ever make any sense. Or is this bizarre to "run away!" levels?
Apologies for the vagueness, but I can't disclose exact details or participants.
I don't know about the non-circumvention clause; it sounds like a non-compete which is banned/unenforceable in some jurisdictions but it also sounds like you're in a potential supplier rather than employee relationship here, so labor law considerations don't apply. Geographic exclusivity doesn't sound odd to me at all, and if you don't get the concept then it may be worth your while to take a course in basic business law or buy a book on the subject to get a feel for why it matters and why it would make sense; a distributor who wants rights to particular territory is telling you that that's the scope within which they're able to carry on business effectively, and that they don't want to be liable for problems that might arise when dealing with customers from outside that territory.
In many cases you don't even know for certain where your users are, etc.
You will if you give one of them occasion to sue you and you find yourself summoned to go to their jurisdiction. If this concept is foreign to you, then you definitely need to learn more about it. Here's a book that would give you a cheap-but-decent introduction to business law: http://www.amazon.com/Business-Law-Barrons/dp/0764142402
You should definitely get legal advice; don't make the mistake of thinking that your common sense and skill at logic outweigh centuries of established inter-business legal practice, even though some of the conventions may be counter-intuitive or seem anachronistic.