Exclusive licensing agreements give one company the sole right to use, make, or sell a product or service. These deals can be beneficial because they encourage the company to invest in marketing and development. However, if not handled carefully, they can also break antitrust laws.
In New York, any deal that creates a monopoly or limits competition is illegal and against public policy. If you are looking over any exclusive licensing agreements for your business, make sure that it steers clear of the following issues:
Monopolistic practices
Exclusive licensing can block competitors from important markets or suppliers. When a company gets sole rights to a critical resource or supplier, no other company can use that resource. This can lock up cheaper sources of supply, making it harder for competitors to access affordable supplies and reducing market competition.
For example, if a company has exclusive rights to a major retailer, other companies cannot sell their products at those stores. This is especially problematic if the company is already strong in the market because authorities might see it as an attempt to control the entire market for a product or service.
Collusive conduct
When companies use exclusive agreements or licenses to set pricing strategies together, they can control prices in a way that harms competition. For example, if two companies agree to sell their products at the same price, it eliminates price competition, leading to higher prices for consumers.
Companies might also agree to sell their products only in specific regions, ensuring they don’t compete with each other directly. This is known as market allocation. By dividing the market, each company can maintain higher prices and avoid the pressure to innovate or improve their products.
Do your due diligence
Exclusive licensing agreements can bring great advantages, but they also come with the risk of antitrust violations. Don’t leave your business vulnerable. Understand the potential pitfalls and consult with legal professionals to safeguard your business and ensure a fair, competitive market.
