What Does an "Exclusive Contract" Mean?

by Hunkar Ozyasar; Updated September 26, 2017
Closeup contract

Exclusive contracts can impose limits on one or both signatories. This can restrict the types of purchases a business can make and its choice of suppliers, for example. With individuals, it can affect representation rights. Such contracts must not curtail competition in the marketplace to be deemed legal.

Purchase and Sales Contracts

A common type of exclusive contract involves the sale and purchase of goods within a specific geographic area. Most automobile dealerships operate on this basis. A dealership may also have an agreement that limits the vehicle brands it can sell. A Ford dealership, for instance, can usually not sell vehicles manufactured by other automakers. Often, the owner of the dealership must set up another independent corporation, with separate staff and showroom, to sell other car brands. Agreements may also include clauses that restrict supply options. For example, a distributor agreement between a soft-drink vendor and the manufacturer may mandate that the vendor only purchase the product from the bottling plant, even though he could buy from wholesalers.

Representation Agreements

Another type of contract that often includes exclusivity clauses involves the representation of artists or athletes by agents. An agreement between a basketball player and an agent, for instance, could stipulate that the player cannot be represented by any other party than the agent when dealing with basketball teams as well as advertisers. Such contracts also tend to have an "earliest termination" date. Even if the athlete is unhappy with the services of the agent, the contract can usually not be unilaterally terminated prior to a specified date, unless the player can prove gross negligence on the part of the agent.

Publishing Contracts

Publishing contracts are also often exclusive. The exclusivity in the realm of intellectual products can mean different things depending on the context. An author often sells the publication rights of a book to a publisher on an exclusive basis. While the author usually retains the copyright and is free to write an article in a magazine excerpted from the book, the book as a whole can only be reproduced by the publisher. Such contracts may also contain clauses that mandate that the author show her next manuscript to the publisher of her first book, before contacting other publishers.

Legality

Exclusive contracts are only legal if they do not curtail competition and trade. The Clayton Act and Sherman Antitrust Act detail the conditions under which exclusivity agreements are deemed illegal and thus unenforceable. Due to the complexity of these acts, a qualified legal expert must often be consulted to determine whether a particular agreement is appropriate.

About the Author

Hunkar Ozyasar is the former high-yield bond strategist for Deutsche Bank. He has been quoted in publications including "Financial Times" and the "Wall Street Journal." His book, "When Time Management Fails," is published in 12 countries while Ozyasar’s finance articles are featured on Nikkei, Japan’s premier financial news service. He holds a Master of Business Administration from Kellogg Graduate School.

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