Exclusive Dealing Agreements Under Antitrust and Competition Laws
Sometimes parties will enter a contract whereby one agrees to buy (or supply) all of its needs (or product) to the other. For example, maybe a supplier and retailer agree that only the supplier’s product will be sold in the retailer’s stores? This usually isn’t free as the supplier will offer something—better services, better prices, etc.—to obtain the exclusivity.
If you compete with the party that receives the benefit of the exclusive deal, this sort of contract can seem quite aggravating. After all, you have a great product, you offer a competitive price, and you know that your service is better. Then why is the retailer only buying from your competitor? Shouldn’t you deserve at least a chance? Isn’t that what the antitrust laws are for?
Maybe. But most exclusive-dealing agreements are both pro-competitive and legal under the antitrust laws. That doesn’t mean that you can’t bring an antitrust action and it doesn’t mean you won’t win. But, percentage-wise, most exclusive-dealing arrangements don’t implicate the antitrust laws.
It is important that I deflate your expectations a little bit at the beginning like this because if you are on the outside looking in at an exclusive dealing agreement, you are probably quite angry and feel helpless. From your perspective, it will certainly seem like an antitrust violation. And your gut feeling about certain conduct is a good first filter about whether you have an antitrust claim. What I am trying to tell you is that with regard to exclusive dealing, your gut may give you some false positives.
So what is an exclusive dealing agreement?
It occurs when a seller agrees to sell all or most of its output of a product or service exclusively to a particular buyer. It can also occur in the reverse situation: when a buyer agrees to purchase all or most of its requirements from a particular seller. Importantly, although the term used in the doctrine is “exclusive” dealing, the agreement need not be literally exclusive. Courts will often apply exclusive dealing to partial or de facto exclusive dealing agreements, where the contract involves a substantial portion of the other party’s output or requirements.
Indeed, loyalty-discount agreements and exclusive dealing agreements are, under the law, sometimes indistinguishable.
Before going further, you should understand that antitrust and competition law in the US and theEuropean Union (and throughout the world) is currently in flux. Great controversy surrounds issues relating to anticompetitive effects, substantial foreclosure, and de facto exclusive dealing, for example. This article won’t delve into those issues, but if you call me about an exclusive dealing case, there is a good chance that we will need to confront into them. If you are interested, you can review the International Competition Network’s Workbook Chapter on Exclusive Dealing here, which I helped to draft a few years ago.
If you do have an exclusive-dealing antitrust claim, you may be able to bring it under multiple antitrust provisions. The claim assuredly would fit under Section 1 of the Sherman Act, which requires in agreement. In this case, it would be a vertical agreement. If the restraint involves a good or other physical commodity, you can also bring the claim under Section 3 of the Clayton Act. And if you are suing a monopolist or near monopolist, you might even assert a claim under Section 2 of the Sherman Act, alleging that the exclusive-dealing agreement is exclusionary conduct that your powerful adversary is using to unlawfully acquire or maintain a monopoly.
The vehicle you utilize for your exclusive-dealing claim may affect the precise approach the court takes in analyzing your claim. But the relevant issues are similar enough that we won’t make such fine distinctions here. We will instead examine the claim from the perspective of Section 1 of the Sherman Act.
Although some claims under Sherman Act, Section 1 are per se illegal under the antitrust laws, exclusive dealing is not. Instead, courts analyze these claims under the rule of reason. That means that the court won’t allow any shortcuts. An exclusive-dealing plaintiff must put in the hard work of showing that the anticompetitive aspects of the agreement exceed the pro-competitive benefits.
You can read the rest of this article, which includes a description of each of the elements of an exclusive-dealing antitrust claim, at the link below.