Exclusive Supply Agreement Competition Law

An exclusive distribution agreement may manifest itself as a territorial restriction if the supplier agrees to sell its products only to a distributor for resale in a given area or as a customer restriction where the supplier is limited to sales to a given group of customers. It is very popular in the pharmaceutical sector, where chemists are appointed exclusively for institutional sales to large buyers like hospitals, etc. 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%. In some cases, competition law prohibits dominant companies from requiring a buyer to purchase product A (the «linked» product) in order to acquire product B (the «binding» product). On the other hand, the mere offer of a discount to customers who purchase several products or services jointly is generally not contrary to competition law as long as customers also have the realistic opportunity to purchase the products or services separately. Among the pro-competitive effects/justifications that the CCI may consider in the context of exclusive distribution agreements are (i) brand image protection8 for quality products, (ii) prevention of the «footsp» – another distributor unfairly uses the advertising activities of another distributor, etc. Exclusive purchase agreements that oblige a distributor to sell the products of a single manufacturer may have similar effects on a new distributor Manufacturers and prevent it from placing its products in a sufficient number of outlets to allow consumers to compare its new products with those of the first manufacturer. Exclusive purchase agreements may infringe anti-cartel rules when they prevent new entrants from competing with sales. For example, the FTC found that a tube or pipe fittings producer had unlawfully maintained its monopoly on domestically manufactured ductile tube or pipe fittings by requiring its distributors to purchase domestic tube or pipe fittings exclusively from it and not from its competitors attempting to enter the domestic market.

The FTC found that this producer`s policy prevented a competitor from obtaining the sales necessary for effective competition. In another case, the DOJ challenged the exclusive activities of an artificial tooth manufacturer with a market share of at least 75%. These exclusive contracts with key distributors effectively prevented small competitors from selling their teeth to dental laboratories and eventually being used by dental patients. In similar situations, new entrants may face considerable additional costs and time to induce distributors to forgo exclusive agreements with the leading company or find another way to preserve its product in front of consumers. In these cases, the harm to consumers is that the acts of the monopoly prevent the market from becoming more competitive, which could lead to lower prices, better products or services, or new decisions. . . .