About Exclusivity Contracts
Exclusivity contracts can help increase confidence with people looking to engage in a business relationship or transaction.
The term “exclusive” generally describes an agreement to an arrangement where one party has the sole right to engage in a specific activity or where one party agrees to engage with a sole company in regards to a specific transaction. For example, a company could agree to buy logs of wood from a single company for a set quantity and given amount of time, and buy from no one else. Or a company could agree to sell a product to a single company and no one else, for a specified set of time.
Types of Exclusivity Agreements
- Business Negotiating – If a company wanted to sell to another one, they might sign an exclusivity agreement to not review offers from any other company until the time came when they were ready to sell to the company they made the agreement with.
- Commercial Leases – If you were a store and wanted to rent a unit in a shopping mall, you might be able to sign an exclusivity agreement with the landlord barring other tenants from selling the product you do, or having tenants that sell the product you do.
- Supplier Agreement – This would be when a company agrees to buy products exclusively from a sole supplier for a set amount of time. Details such as the type of product and quantity would usually be included.
- Distributor Agreements – If a company agrees to sell a product only to a single company for a set amount of time, they would then become the exclusive distributor for that company
Exclusivity in Manufacturing
Oftentimes, when a person is having a custom product made overseas, the protection of intellectual property is a serious concern. Exclusive manufacturing agreements are useful when you are looking to have a custom product made. They aren’t really used when sourcing common available products such as pencils or chairs.
Exclusive manufacturing agreements can help secure the intellectual property of a new product being made overseas. They will dictate that a company is bound to sell a product to the customer and only the customer. This legally binding contract will act as a safeguard. Companies that break the agreement would be subject to severe penalties, including the damages that occur as a result of the leaking or selling of the information.
While this is a great way to protect a product overseas, you also need to look to protect your product domestically as well.
Your overseas connections could be absolutely secure, but if someone gets a hold of your product domestically, nothing will stop them from taking it to an engineer who can reverse engineer it so they can make their own version of it, except a patent.
The best way to protect your idea domestically is to get a patent on it.
You may see exclusivity clauses in contracts such as non-disclosure agreements (NDA’s) or confidential disclosure agreements (CDA’s). These are used for the same reasons as above, but may be included in part of a broader document.
It’s worth noting that some exclusivity clauses are illegal under antitrust laws. If your exclusivity clause is helping you establish a monopoly, then it would be illegal under the Sherman act. This is to stop a single company from dominating a market by controlling the supply and demand, and thus, the pricing of a product.
“If one of the parties to the agreement is a monopolist or near-monopolist, a challenger could also assert a claim under Section 2 of the Sherman Act by alleging that the exclusive-dealing agreement is exclusionary conduct used to unlawfully acquire or maintain monopoly power. This usually takes the form of a monopolization or attempted monopolization claim.”
Most exclusivity clauses are going to be legitimate and legal, however, it’s always a good idea to have a lawyer draft or at least review any documents you want to send to companies to sign.
Global Trade Specialists Approach to Exclusivity
We make sure to get exclusive manufacturing agreements in place with the companies we work with before getting a quote. We have been working with our partner companies for decades overseas, and they have made sure to take every precaution in safeguarding our customers’ intellectual properties.
If you are looking to start manufacturing and sourcing your product from overseas safely, contact us now!