Exclusivity versus Restraint of Trade

Exclusivity versus Restraint of Trade

The difference between exclusivity and restraint of trade: Exclusivity relates most closely to contractual trade agreements between agents or distributors of exports which authorize sales territories in countries and geographic areas, sole or exclusive representation, and restrictions regarding sales of competitive products which might represent conflict of interest on the part of the importer or seller. In an ideal, freely competitive market such exclusivity clauses are in the best interests of the exporter who must select agents or distributors to actively market and sell their products.

The rules and laws regulating agency and distributor agreements differ from country to country. So without sufficient review general contractual terms of exclusivity themselves may violate local national competition and anti-trust laws. This concept of exclusivity may be perceived as restrictive if it involves excessive tied selling, or significant decreases in local competition which lead to trade monopolies. The US Sherman Antitrust Act governs over cases of restraint of trade or interstate and international commerce where contracts, combinations or conspiracies of trade lead to exclusionary, monopolistic or anti-competitive acts.

For example these practices are described as restraint of trade: illegal price fixing (either raising or lowering prices in agreement between competitors), group boycotts (for political or religious reasons), market territory divisions (such as quotas), production limitation or supply controls agreements, customer allocation, divisions of fields of production, clauses on patent-tying above and beyond rights obtained through patent grants or patent permissions based on obligations to purchase materials from agreed buyers. Other US acts such as The Clayton Act, The US Federal Trade Commission Act, The Wilson Tariff Act and The Anti-Dumping Act also contain clauses ruling unfair competitive practices, price discrimination, or unfair trade restraints.

Clauses providing an exclusive arrangement between trading partners may become a form of unfair competition subject to legal challenge if they are found to perpetuate restraint of trade.

An example of a legitimate exclusivity clause.

From Jagoe's Export Sales and Marketing Manual (2007):

"Representative is authorized to sell all products manufactured and/or marketed by the Seller, hereafter referred to in this agreement as "Products," in (name of country), hereafter referred to in this Agreement as "Territory." Unless authorized in writing by the Seller, Representative further agrees not to promote, advertise, market or sell Products in Territory that are directly competitive with Seller's products. " (From Figure 5.1 Sample of Distributor Agreement).

A similar example where an exclusivity arrangement would constitute restraint of trade and therefore be clearly illegal.

"Representative is required to sell all products manufactured and/or marketed by the Seller, hereafter referred to in this agreement as "Products," in (name of country), and only to (companies named) hereafter referred to in this Agreement as "Territory." As authorized in writing by the Seller, Representative further agrees to fix prices on products in agreement with (companies listed) and not to promote, advertise, market or sell Products in Territory that are directly competitive with Seller's or (companies listed) products. In addition Seller is prohibited from making sales to purchasers of competitors products." (Hypothetical Restraint of Trade Clause)