clause.md

Exclusivity

An exclusivity clause commits one party to deal only with the other, in a defined market, territory, or product category, for the duration of the contract.

What it does

Exclusivity comes in several forms. Exclusive supply means the supplier will not sell the product or service to anyone else, or to anyone else in a territory or customer segment. Exclusive purchase means the customer will buy only from this supplier and not from competitors. A non-compete goes further and prevents a party from offering competing products at all. Distribution and reseller agreements often combine these: the distributor gets an exclusive territory and in return agrees not to sell competing brands.

The clause is valuable to the party that gets it and costly to the party that gives it. Exclusivity is usually traded for something: minimum purchase commitments, better pricing, marketing investment, or a longer term.

Because exclusivity restricts competition, it is subject to competition law. In the EU, exclusivity and non-compete obligations in supply and distribution agreements are permitted within limits, and those limits depend on market share, duration, and the nature of the restriction. Long or wide exclusivities can be unenforceable or unlawful. This is jurisdiction-dependent and specialist advice is needed for anything beyond a simple case.

Example wording

During the Term, the Supplier shall not appoint any other distributor for the Products in the Territory and shall not itself actively sell the Products to customers located in the Territory. In consideration of this exclusivity, the Distributor shall purchase not less than the Minimum Annual Quantity set out in Schedule 1 in each Contract Year. If the Distributor fails to meet the Minimum Annual Quantity in any Contract Year, the Supplier may, on written notice, convert this appointment to a non-exclusive one.

Risks for SMBs

Giving exclusivity for nothing. An SMB supplier that grants a distributor an exclusive territory without minimum purchase commitments may find the distributor sits on the territory and sells little, while the supplier cannot appoint anyone else. Exclusivity should always be conditional on performance.

Being locked into a single supplier. An exclusive purchase obligation removes the customer’s leverage. Prices rise, service slips, and the customer has no alternative until the term ends. Pair exclusive purchase with price protection and a right to exit for poor performance.

Scope creep in definitions. “Competing products” and “Territory” are where exclusivity disputes start. A definition that covers everything the supplier might ever make, or a territory defined as “Europe” when the distributor operates in two countries, causes problems later. Define both narrowly.

Duration without exit. Exclusivity that runs for five years with automatic renewal and no performance-based exit is a long time to be wrong about a partner. Match the exclusive period to the investment it is rewarding.

Competition law exposure. Exclusivity and non-compete terms that exceed what competition law allows can be void, and in serious cases attract fines. An SMB rarely has the market power for this to matter, but the counterparty might. Ask.

Online sales. Territory-based exclusivity sits uneasily with online sales that reach customers everywhere. Clauses need to address whether the exclusive party may be protected from online sales into its territory, within the limits competition law sets.

Common variants and negotiation points

This page is general information about a common contract clause. It is not legal advice and does not account for your jurisdiction, industry, or the specific contract in front of you. Talk to a qualified lawyer before relying on it.

Tracking renewal dates, notice periods, and other contract obligations is what Trackado does.