Exclusive Distribution

Exclusive distribution is a distribution model in which a supplier undertakes to sell its products in a given territory or to a given customer group only through one dealer or distributor. The dealer becomes the supplier’s sole representative in its territory and thus gains security to invest in marketing, after-sales service and stock.

Position under Competition Law

Exclusive distribution is a vertical agreement. If the supplier’s market share does not exceed thirty percent and the agreement contains no hardcore restrictions, it benefits from the block exemption. Because exclusivity can increase inter-brand competition and encourage dealer investment, it is generally considered legitimate. For suppliers with high market shares, the risk of weakened inter-brand competition and foreclosure is assessed individually.

Protection from Active Sales

The key element of exclusive distribution is protecting the dealer’s territory from active sales by other dealers. The supplier may restrict other dealers’ active sales into the exclusive territory. This protection does not extend to passive sales; preventing customers outside the territory from buying on their own initiative is a hardcore restriction. For details, see Territorial and Customer Restrictions.

Difference from Exclusive Purchasing

Exclusive distribution is the supplier’s commitment. Exclusive purchasing, where the buyer undertakes to buy a product only from that supplier, is a non-compete obligation subject to the five-year limit. In practice the two commitments often appear together in the same agreement.

Drafting Tips

• The exclusive territory or customer group should be clearly defined.
• Active sales restrictions should not be drafted to cover passive or online sales.
• Minimum purchase or sales targets tied to exclusivity and the consequences of missing them should be set out.
• If exclusivity is combined with a non-compete, duration limits must be observed.