What do you understand exclusivity to mean? Does it mean a supplier can sell to one sole distributor? As an example, what do you understand if a company asks to be the exclusive supplier of TVs? Does this mean that other suppliers are not going to sell to anyone else, that the distributor cannot buy any other brand of TV?
Distribution agreements are commercial frameworks that allow manufacturers to place their products in the market on a large scale and reach the highest possible number of customers. These contracts have arisen in response to the needs of the market and as an economic tool for manufacturers to expand the scope of their business.
Under the Competition Law, the term “exclusivity” has a very specific definition: when a supplier tasks a sole distributor with the distribution of a product or service for a territorial zone or category of customer. Exclusivity does not mean that, e.g. the distributor may or may not purchase products or services from another supplier, or that the distributor can accept purchase offers outside its zone or category of customer. It is very common for “exclusivity” to be agreed in a contract, but in practice the parties are often not certain of the scope of their obligations. For example, can an exclusive distributor buy products from the competition?
In the following entries we will explore the distribution systems in the context of the Competition Law, an important matter to be able to select the appropriate scheme depending on your business´ requirements, considering the associated risks. We will begin by discussing the matter of exclusivity and then explain the obligations involved in exclusive supply, selective distribution, allocation of exclusive customers and active and passive sales. Then we will go into more detail and explain the differences and risks under the Competition Law of other types of distribution: agencies, franchises, industrial supply and subcontracting, to analyze if there are risks when different channels are used. What is the risk of a resale price clause of an exclusive distributor who has a commercial store versus the same clause for an on-line seller?
We hope that these explanations will be a starting point to avoid long and complex disputes that arise because, during negotiations, the meaning of exclusivity was not made sufficiently clear.
Warning: This newsletter by Pérez Bustamante & Ponce is not and cannot be used as legal advice or opinion since it is merely of an informative nature.