Exclusive Supply Agreement and Competition Law: What You Need to Know
An exclusive supply agreement is a contractual agreement between a supplier and a buyer in which the supplier agrees to supply goods or services exclusively to the buyer. This agreement can provide benefits to both parties as it guarantees a consistent source of supply for the buyer and a guaranteed market for the supplier. However, these types of agreements can also raise concerns related to competition law.
Competition law aims to ensure fair competition in the market and prevent anti-competitive behavior. An exclusive supply agreement can be anti-competitive if it restricts competition in the market or limits consumer choice. As such, it`s essential to consider the competition law implications of an exclusive supply agreement before entering into one.
Here are some key points to keep in mind when drafting an exclusive supply agreement:
1. Consider market share: If the supplier has a significant market share, an exclusive supply agreement with a single buyer can raise competition law concerns. This is because the supplier may be using their dominant position in the market to restrict competition.
2. Define the scope of the agreement: The scope of the exclusive supply agreement should be clearly defined to ensure that it does not unduly restrict competition. The agreement should be limited to what is necessary to achieve the intended purpose of the agreement.
3. Allow for flexibility: To avoid anti-competitive behavior, it`s important to allow for flexibility in the agreement. This means that the supplier should be able to supply to other buyers or the buyer should be able to source from other suppliers in case of unforeseen circumstances.
4. Consider the duration of the agreement: The longer the exclusive supply agreement, the more likely it is to raise competition law concerns. It`s essential to ensure that the duration of the agreement does not unduly restrict competition in the market.
5. Seek legal advice: It`s always advisable to seek legal advice when drafting an exclusive supply agreement to ensure compliance with competition law.
In conclusion, an exclusive supply agreement can provide benefits to both the supplier and the buyer, but it`s important to bear in mind the competition law implications. By considering the market share, scope, flexibility, duration of the agreement, and seeking legal advice, parties can ensure compliance with competition law and avoid anti-competitive behavior.