Corporate Competition Law Exclusivity Agreements
Corporate Competition Law – Exclusivity Agreements
1. Legal Framework (India)
Exclusivity agreements are assessed under:
(A) Section 3(4), Competition Act, 2002
Covers vertical agreements, including:
Exclusive supply agreements
Exclusive distribution agreements
Refusal to deal
Tie-in arrangements
These are prohibited only if they cause Appreciable Adverse Effect on Competition (AAEC).
(B) Section 4
If imposed by a dominant enterprise, exclusivity may amount to abuse of dominance.
2. What is an Exclusivity Agreement?
A contract where:
A supplier restricts a distributor from dealing with competitors, or
A buyer agrees to purchase only from one seller.
Common Forms:
| Type | Example |
|---|---|
| Exclusive Supply | Dealer can buy only from manufacturer |
| Exclusive Distribution | Manufacturer appoints sole distributor |
| Single-Branding | Retailer sells only one brand |
| Platform Exclusivity | Seller lists product only on one e-platform |
3. When is Exclusivity Lawful?
Exclusivity may be justified if it:
Ensures quality control
Encourages investment
Protects brand image
Prevents free-riding
Short duration and low market power = generally acceptable.
4. When Does It Become Anti-Competitive?
CCI examines:
Market Power / Dominance
Market Foreclosure (Are rivals denied access?)
Entry Barriers
Duration of exclusivity
Consumer harm
5. AAEC Factors (Section 19(3))
CCI considers:
Creation of barriers
Driving competitors out
Consumer benefits
Improvement in production/distribution
6. Key Competition Concerns
| Concern | Effect |
|---|---|
| Foreclosure | Rivals can't access distributors/customers |
| Raising Rivals’ Costs | Competitors forced to use costly channels |
| Network Lock-in | Particularly in digital markets |
| Reduced Consumer Choice | Fewer alternatives available |
7. Important Case Laws
1. Shamsher Kataria v. Honda Siel Cars India Ltd. (CCI, 2014)
Car manufacturers restricted sale of spare parts only through authorized dealers. CCI held exclusivity in aftermarket spares as abuse of dominance — foreclosure of independent repairers.
2. Fx Enterprise Solutions v. Hyundai Motor India Ltd. (CCI)
Hyundai imposed exclusive dealership obligations and resale restrictions. CCI penalized Hyundai for vertical restraints affecting competition.
3. In Re: Exclusive Supply Agreement between E-Commerce Platforms & Sellers (CCI – Smartphone Cases)
Allegations that brands entered exclusive online launch agreements. CCI examined market foreclosure in digital retail markets.
4. MCX Stock Exchange v. NSE (CCI)
While primarily predatory pricing, the case also involved NSE’s exclusivity arrangements that restricted competitors’ access to infrastructure.
5. ESYS Information Technologies v. Intel Corporation (CCI)
Examined loyalty rebates and exclusivity effects; highlighted that dominant firms using exclusivity to foreclose rivals may violate Section 4.
6. In Re: Matrimony.com v. Google LLC (CCI, 2018)
Though about search bias, CCI observed how digital platforms can use exclusivity to reinforce dominance and foreclose competitors.
7. Sonam Sharma v. Apple & WhatsApp Distribution Practices (CCI)
CCI discussed exclusivity of distribution channels in digital app ecosystems.
8. Exclusivity by Dominant Firms (Section 4 Risk)
Dominant firms imposing exclusivity may be liable if it:
Denies market access (Section 4(2)(c))
Imposes unfair conditions
Limits technical development
9. Safe Practices for Corporates
✔ Keep exclusivity short-term
✔ Avoid exclusivity in high market share situations
✔ Allow multi-branding
✔ Document efficiency justifications
✔ Review contracts under competition compliance program
Conclusion
Exclusivity agreements are not per se illegal but become problematic when they:
Foreclose substantial market share
Are imposed by dominant firms
Prevent entry or expansion of rivals
Competition law balances business efficiency with market access for competitors.
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