Exclusive Supply Agreement Example

Exclusive supply contracts prevent a supplier from selling inputs to another buyer. Where a buyer is in a monopoly situation and obtains exclusive supply contracts, so a newcomer may not be able to receive the inputs necessary to compete with the monopoly, contracts may be considered an exclusionary tactic contrary to Section 2 of the Sherman Act. For example, the FTC prevented a large drug manufacturer from imposing exclusive 10-year contracts for an essential ingredient to produce its drugs, for which suppliers would have received a percentage of the drug`s profits. The FTC found that the drug manufacturer used exclusive supply agreements to prevent other drug manufacturers from moving away from the market by controlling access to the essential ingredient. The drug manufacturer was then able to increase the prices of his drug by more than 3000%. The designation of the distributor by the supplier in section 1 of this agreement is an exclusive date for the distribution of the products in the territory. The supplier may not independently advertise, promote and sell supplier products, support supplier products or designate additional distributors for supplier products in the region. The agreement given is in writing between the supplier and the distributor of the products. The document is designed by the distribution company. The supplier is commissioned by the distributor to deliver the company`s products from one area to another. The agreement should contain standard provisions in favour of both parties. The purpose of the document is to explain the following provisions: exclusive contracts can benefit competition on the market by guaranteeing sources of supply or points of sale, reducing contractual costs or creating commercial links. As stated in fact sheets on Dealings in the Supply Chain, exclusive contracts between manufacturers and suppliers or between manufacturers and distributors are generally legal, as they improve competition between brands from different manufacturers (Interbrand competition).

However, if the company that uses exclusive contracts is a monopoly, the focus is on whether these contracts hinder the efforts of new companies to enter the market or existing small companies to expand their presence. The monopoly could try to impede the entry or expansion of new competitors, as this competition would undermine its market position. Antitrust laws condemn certain acts of a monopoly that drive competitors away from the market or prevent new products from reaching consumers. the potential for harm to competition from exclusive decision-making contracts increases: (1) the duration of the contract; (2) the more opportunities or sources are covered; and (3) less alternative opportunities or sources that are not covered. This Agreement is in all respects governed by the laws of the State, of the United States, which apply without reference to conflict of laws rules that might otherwise apply to other laws. The United Nations Agreement on Contracts for the International Sale of Goods shall not apply to purchases or transactions concluded under this Agreement. . .

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