An exclusive dealing contract is an agreement between a manufacturer and a distributor where the distributor only buys from the manufacturer and is contractually prevented from dealing with the manufacturer’s competitors. Often there will also be some agreement limiting the distributors that the manufacturer will sell to in the area, so that the distributor benefits as the only seller in the area for the brand.
Exclusive dealing contracts are regulated by the Clayton Act and depend on the effect of the agreement on competition. Exclusive dealing contracts are also subject to the Sherman Ant-Trust Act and state regulations on fair business practices. In general, an exclusive dealing contract will be held legal if the agreement does not have a negative effect on trade and competition. This can be somewhat difficult to determine and depends on a court’s evaluation of the product market and the geographic area.
Typically, a manufacturer can refuse to sell their product without such an agreement because the law regulates business dealings in the market. If a manufacturer does not sell their product, it is not a part of the market as of yet. Put another way, an exclusive dealing agreement cannot be illegal before it is agreed to by the parties and takes effect. However, there are times that a refusal to deal or the termination of a distributorship because of the refusal to agree to an exclusive dealing contract can be illegal, if the action has the effect of restricting trade. This will depend on the specific facts and circumstances of each case.
The laws regarding exclusive dealing contracts and fair business practices can be very complex and will differ drastically based on the circumstances of each case. An experienced business attorney can assist you with creating an exclusive dealing contract or with challenging an existing contract if you feel it restricts your ability to compete in the market. A lawyer can also represent you in court if needed.