Drafting an Exclusivity Agreement

Note: Links to our free templates are at the bottom of this long guide.
Also note: This is not legal advice

Introduction

Exclusivity agreements are an invaluable asset in the business world, offering companies the potential to protect their interests, control their product or service and gain a competitive advantage. However, despite the advantages they provide, drafting an effective exclusivity agreement can be complex and time consuming. To ensure that your agreement meets all relevant legal requirements while protecting your company’s interests, it is essential to understand each element and use clear language.

At its core, an exclusivity agreement is a contract between two parties in which one party agrees not to provide the same goods or services to any other party. Such a contract provides protection from competitors ‘free riding’ on efforts made by a company without making similar investments of their own. Additionally, it can be used to secure exclusive distribution rights or limit competition within a specific geographic area - but it’s important to note that such protections come with many legal implications that need careful consideration before entering into one.

The duration of the agreement, any restrictions placed on both parties and what will constitute as breaching the exclusivity should all be clearly defined in order for it to be valid and applicable for your business needs. If you’re unsure about any aspect of drafting an effective exclusivity agreement, then accessing our free template library could be an invaluable tool; with millions of datapoints instructing Genie AI’s Artificial Intelligence (AI) on what constitutes as industry-standard terms and conditions - meaning you can draft and customise high-quality documents without ever having had access to or needing our full suite of features.

Furthermore, while having access to our services may not be required when using this guide; we at Genie AI strive towards building trust in digital contracts and transforming them into accessible resources for everyone; which is why we want everyone no matter where they are on their journey with drafting contracts - whether newbie or expert - to benefit from this guide; especially given its importance as such agreements can have profound effects concerning costs associated with sales contracts being lost due fair competition laws being violated through contraventions associated accidental breaches due poor wording constituting clauses not being worded correctly regarding over-specific definitions thereby leading authorities becoming involved due breach of law occuring through negligence etc… Therefore anyone wishing learn more about how best create compliant design which fulfils intentions desired should read below for step-by-step guidance on how access our template library today!

Definitions

Geographic Region: The physical area covered by an agreement, such as a country, region, or city.
Exclusivity Level: The degree to which an agreement is exclusive, such as to a specific product line, service, or customer.
Rights and Obligations: What each party is allowed to do and what is expected of them under an agreement.
Product or Service Categories: Groups of products or services that are subject to an agreement.
Time Periods: How long an agreement will last and when it will start and end.
Non-Compete Restrictions: Limitations on competing with the other party in an agreement.
Non-Solicitation Restrictions: Limitations on soliciting customers of the other party in an agreement.
Damages or Penalties: Consequences imposed for breaking an agreement.
Termination Provisions: Rules outlining when and how an agreement can be ended.
Compliance with Laws: Making sure an agreement meets all applicable legal requirements.
Dispute Resolution: The process of resolving a disagreement between parties in an agreement.

Contents

1. Defining the Scope of the Exclusivity Agreement
2. Defining Geographic Region
3. Determining Exclusivity Level
4. Clarifying the Parties Involved
5. Establishing Rights and Obligations of Each Party
6. Identifying the Products or Services Subject to Exclusivity
7. Specifying General Product or Service Categories
8. Defining Exact Products or Services Covered
9. Establishing Time Periods for the Exclusivity Agreement
10. Determining Initial Duration of Agreement
11. Establishing Renewal or Extension Provisions
12. Determining What Activities are Prohibited Under the Agreement
13. Outlining Non-Compete and Non-Solicitation Restrictions
14. Outlining Remedies for Breach of Agreement
15. Defining Damages or Penalties for Breach
16. Establishing Termination Provisions
17. Defining Circumstances in which Agreement May be Terminated
18. Outlining Notice Requirements
19. Ensuring Compliance with Applicable Laws
20. Researching Local, State, and Federal Laws and Regulations
21. Specifying Dispute Resolution Procedures
22. Identifying Method of Dispute Resolution
23. Outlining Mediation or Arbitration Requirements
24. Finalizing the Agreement
25. Drafting Agreement
26. Obtaining Legal Review and Approval
27. Signing and Executing the Agreement

Get started

Defining the Scope of the Exclusivity Agreement

• Read through the contract to determine the scope of what the parties are agreeing to
• Identify the type of product or service that is being discussed in the agreement
• Describe the product or service in detail
• Outline the exclusivity rights that will be granted to each party
• Specify the duration of the agreement
• You know you can check this step off your list when the scope of the agreement is clearly defined and both parties agree to the terms.

Defining Geographic Region

• Research the market to determine the geographic area that should be covered by the exclusivity agreement
• Establish the geographic boundaries of the exclusivity agreement, taking into consideration factors such as the location of the parties, the size of the market, and the anticipated reach of the product or service
• Consider the legal implications of the exclusivity agreement, and any potential restrictions, limitations, or exceptions for certain areas
• Finalize the geographic boundaries of the exclusivity agreement

Once you have determined and finalized the geographic boundaries of the exclusivity agreement, you can proceed to the next step in drafting the agreement - determining the exclusivity level.

Determining Exclusivity Level

• Consider the type of exclusivity that is being requested, such as exclusive distribution rights, exclusive marketing, or exclusive use of a trade secret.
• Identify the scope of the exclusivity and how long it will last.
• Discuss any potential issues that could arise from granting exclusivity, such as potential violation of antitrust laws.
• Draft language to reflect the exclusivity level and other relevant details, such as the duration of the agreement.
• Review the drafted exclusivity agreement with each party to ensure that all parties are in agreement with the outlined terms.

Once all parties have agreed to the exclusivity level and its related terms, this step can be marked as complete and the next step, Clarifying the Parties Involved, can be started.

Clarifying the Parties Involved

• Identify the parties who will be involved in the exclusivity agreement, including names, contact information, and addresses
• Ensure that all parties have the legal capacity to enter into the agreement
• Make sure that all parties have a clear understanding of the agreement
• Check that all parties have provided their full and correct information to avoid any legal disputes

Once you have identified the parties involved and made sure that all parties have the legal capacity to enter into the agreement, you can check this step off your list and move on to the next step: Establishing Rights and Obligations of Each Party.

Establishing Rights and Obligations of Each Party

• Set out the rights and obligations of each party to the agreement, for example, the supplier’s obligation to provide exclusive access to the product or service, and the buyer’s obligation to pay for the product or service.
• Make sure to include any other commitments the parties may have to each other, such as confidentiality or non-disclosure requirements.
• Specify how long the agreement is to remain in effect, and under what circumstances it can be terminated.
• Include any other terms or conditions that both parties agree to.
• Review the agreement to ensure that all rights and obligations are clear and unambiguous.

Once you have established the rights and obligations of each party, you can move on to the next step, which is identifying the products or services subject to exclusivity.

Identifying the Products or Services Subject to Exclusivity

• Identify the products or services that each party is agreeing to exclusively provide.
• Identify the scope of the exclusivity agreement, i.e. the territory or market in which the agreement applies and the time period for which it is in effect.
• Draft a clear description of the products or services subject to exclusivity, including any trade secrets or proprietary information.
• Specify any additional conditions to the exclusivity agreement, such as a clause prohibiting the parties from entering into similar agreements with competitors.

You will know when you have completed this step when you have a clear description of the products or services subject to exclusivity in the agreement.

Specifying General Product or Service Categories

• Determine the general product or service categories that will be subject to exclusivity
• Consider the scope of products or services that the agreement will cover to ensure that it fully meets the goals of the parties
• Draft language that clearly and concisely defines the product or service categories that are subject to exclusivity
• Review the language of the agreement with the other party to ensure that it is mutually agreeable
• Once the language has been agreed upon, add it to the agreement
• Check this step off your list and move on to the next step of defining exact products or services covered.

Defining Exact Products or Services Covered

• List all products or services that are to be exclusively sold or provided by one party
• Include any products or services that are related to or derived from those listed
• Be specific and include all details, such as the size, model, type, or version of the product or service
• Draft a formal description of the products or services that needs to be included in the agreement
• When the list of products or services is finalized and both parties are in agreement, the step is complete

Establishing Time Periods for the Exclusivity Agreement

• Consider the time period for which exclusivity is desired - is it for a specific project or an ongoing agreement?
• If a specific project, specify the duration of the project and the timeline of when the project needs to be completed.
• If an ongoing agreement, determine the length of time for the exclusivity period.
• Consider the impact of any seasonal changes or other external forces that may affect the agreement.
• Specify any renewal options available after the initial duration of the agreement.

Once the time periods and other details of the agreement are established, you can move on to the next step of determining the initial duration of the agreement.

Determining Initial Duration of Agreement

• Analyze the scope of the business agreement and determine the length of the exclusivity agreement that is reasonable to both parties
• Consider the length of time needed to make the agreement beneficial to both parties
• Determine the initial duration of the agreement, taking into account the parties’ needs
• Draft the agreement that includes the initial duration of the agreement
• Check for accuracy and make any necessary changes
• When the initial duration of the agreement has been determined, you can move on to the next step: Establishing Renewal or Extension Provisions.

Establishing Renewal or Extension Provisions

• Decide whether the exclusivity agreement should automatically renew or whether the parties should have the option to extend it.
• Determine the length of time that the parties have to decide whether they would like to renew or extend the agreement.
• Consider whether the parties should have the right to terminate the agreement if they do not agree to renew or extend it.
• Draft corresponding provisions into the agreement.
• Once these provisions have been drafted into the agreement, the step of establishing renewal or extension provisions is complete.

Determining What Activities are Prohibited Under the Agreement

• Identify the specific activities that you consider to be prohibited by the exclusivity agreement.
• List these activities in detail so that they are clearly understood.
• Ensure all activities are explicitly stated in the agreement.
• Consider what activities are necessary to protect the interests of both parties.
• When you have determined which activities are to be prohibited, you can add these to the agreement.

Once the prohibited activities have been added to the agreement, you can move onto the next step, outlining non-compete and non-solicitation restrictions.

Outlining Non-Compete and Non-Solicitation Restrictions

• Work with the parties involved to determine the scope and duration of the non-compete and non-solicitation restrictions
• Specify the geographic area in which the restrictions apply
• Ensure that the restrictions are reasonable and do not unduly burden the parties
• Make sure that the restrictions are limited to activities that are necessary to protect the interests of the parties
• Check that the restrictions do not conflict with any state or federal laws
• Make sure that the restrictions are clearly defined and understandable

Once you have outlined the non-compete and non-solicitation restrictions, you can move on to the next step of outlining remedies for breach of the agreement.

Outlining Remedies for Breach of Agreement

• Consider the potential remedies and damages that would need to be included in the event of a breach
• Outline the remedies that would be available to the non-breaching party, such as the right to terminate the agreement, or the right to seek damages
• Define any applicable liquidated damages and the amount of the penalty
• Describe any other applicable remedies the parties may consider
• Determine what rights the parties would have in terms of injunctive relief
• Make sure that any remedies or damages outlined are reasonable and not excessive

You can check this off your list when you have outlined all applicable remedies for breach of agreement and the parties agree to them.

Defining Damages or Penalties for Breach

• Determine the amount of penalty that will be applied for breach of the exclusivity agreement.
• Consider agreeing on a set penalty that will be applied for breach of the agreement.
• Determine the damages that may be recoverable by the party that was not in breach of the agreement.
• Consider discussing the measure of damages that will apply if the breach is not capable of remedy.
• Agree on a method to determine the damages in the event of a breach.
• Include a clause that any damages or penalties paid to the non-breaching party will be credited against any future payments due under the agreement.

Once the penalties and damages for breach of the exclusivity agreement have been determined, this step can be checked off your list and you can move on to establishing termination provisions.

Establishing Termination Provisions

• Decide whether the agreement should be terminated automatically if a certain event occurs
• Specify the circumstances in which either party may terminate the agreement
• Include a termination clause that outlines the steps to be taken in the event of termination
• State the timeframe in which the agreement will be terminated, if applicable
• Include a clause that states the termination of the agreement does not affect any other agreements between the parties
• Ensure the termination clause is clear and unambiguous

Once you have established termination provisions in the agreement and both parties are in agreement, you can check this step off your list and move on to the next step - defining circumstances in which the agreement may be terminated.

Defining Circumstances in which Agreement May be Terminated

• List the circumstances in which either party may terminate the agreement, such as if the other party fails to meet the terms of the agreement or if the agreement has reached its expiration date.
• Include a clause in the agreement that defines how much notice each party must provide in order to terminate the agreement.
• Be sure to include any other circumstances that may apply to the agreement, such as if the other party is in breach of any of the terms or if the agreement is no longer necessary or beneficial.
• When the agreement is finalized, the parties should sign and date the document to indicate their acceptance of the terms.
• Once the agreement is signed, you can mark this step as complete and move on to the next step in the guide.

Outlining Notice Requirements

• Identify any notice requirements that will apply to the exclusivity agreement.
• State in the agreement how much advance notice must be given for either party to terminate the agreement.
• Consider if any other notice requirements should be included in the agreement. This could include notification of any changes to the agreement or other important developments.
• Make sure the notice requirements are reasonable and comply with any applicable law.

You can check this off your list and move on to the next step when you have identified, stated, and considered any notice requirements that are necessary for the exclusivity agreement and have ensured that they are reasonable and comply with applicable laws.

Ensuring Compliance with Applicable Laws

• Research and review applicable local, state, and federal laws and regulations to determine what must be included in an exclusivity agreement.
• Consult with a lawyer, if necessary, to make sure all applicable laws and regulations are being followed.
• Draft language detailing compliance with applicable laws and regulations into the exclusivity agreement.
• Once you have included language detailing compliance with applicable laws and regulations, you can move on to the next step of researching local, state, and federal laws and regulations.

Researching Local, State, and Federal Laws and Regulations

• Research any local, state, or federal laws that may be applicable to the exclusivity agreement
• Thoroughly review the contract to ensure that all relevant laws and regulations are taken into account
• Check with a lawyer to confirm that the agreement is legally binding and in compliance with all applicable laws
• Make necessary changes to the agreement to ensure it is compliant with all laws
• Once the agreement is up to date with all applicable laws and regulations, you can move on to specify dispute resolution procedures.

Specifying Dispute Resolution Procedures

• Review applicable local, state, and federal laws and regulations to determine the dispute resolution procedures available
• Draft the dispute resolution clause in the exclusivity agreement and make sure it is clear and specific
• Include details about the dispute resolution procedure, such as the type of dispute, who will be involved, and where the disputes will be resolved
• Outline any additional information that is needed to understand the dispute resolution procedure, such as a brief explanation of the process and any fees associated
• Once the clause is drafted and all the details are included, the step is complete and you can move to the next step!

Identifying Method of Dispute Resolution

• Research the different types of dispute resolution methods available and determine which one is the most suitable for the current situation
• Consider the cost, time frame, and potential outcomes associated with each method when making the decision
• Select and include the chosen dispute resolution method in the exclusivity agreement
• Once the method is chosen and included in the exclusivity agreement, this step is complete and the parties can move on to outlining mediation or arbitration requirements in the next step.

Outlining Mediation or Arbitration Requirements

• List out the terms and conditions for applying any mediation or arbitration requirements for disputes
• Include specific details such as the location of the arbitration, how long the parties have to respond to a request for arbitration, and how the costs of arbitration will be handled
• Agree on the applicable rules for mediation or arbitration and include these in the agreement
• Include a clause stating that any award from the arbitration will be final and binding
• Once all of the details for arbitration or mediation have been included in the agreement, you can move on to finalizing the agreement.

Finalizing the Agreement

• Review the agreement in its entirety to make sure all changes and additions have been included and are accurate
• Have the parties involved sign the agreement
• Notarize the agreement
• Make sure all parties involved in the agreement have copies of the fully executed agreement
• You can check this step off your list once all parties have signed and you have copies of the fully executed agreement in hand.

Drafting Agreement

• Create a draft of the exclusivity agreement using a template or a lawyer.
• Consider adding language regarding the duration of the agreement, the scope of exclusivity, and any potential exceptions.
• Ensure the agreement complies with applicable laws.
• When the draft is complete, you can move on to the next step of obtaining legal review and approval.

Obtaining Legal Review and Approval

• Have a qualified attorney review and provide comments on the agreement
• Amend the agreement to address the attorney’s comments
• Ensure that any changes to the agreement are accepted by all parties
• Ensure that all parties understand and agree to the terms and conditions
• When all parties have come to an agreement and the attorney has approved the agreement, you can check this off your list and move on to the next step.

Signing and Executing the Agreement

• Obtain signatures from both parties on the agreement
• Ensure that each party is provided with a copy of the agreement that is fully executed by both parties
• Record the date of the agreement being signed and executed
• Check off this step from the list and move on to the next step

FAQ

Q: Which countries require exclusivity agreements?

Asked by Mason on April 6th 2022.
A: Generally, most countries have some form of exclusivity agreement as part of their legal system. In the United States, for example, exclusivity agreements are typically seen in franchise agreements and contracts between two businesses. In the European Union, exclusivity agreements are required for certain services and products, such as financial services and prescription drugs. It is important to note that different countries may have different requirements when it comes to exclusivity agreements, so it is important to check your local laws before drafting any agreement.

Q: What should be included in an exclusivity agreement?

Asked by Lily on August 1st 2022.
A: An exclusivity agreement should include clear language that outlines the terms and conditions of the agreement, including the duration of the agreement and any obligations or restrictions on either party in the agreement. The agreement should also include a clause that outlines any remedies for breach of contract if either party fails to fulfill their obligations. Additionally, the agreement should include provisions around confidentiality and non-disclosure of information related to the agreement.

Q: What types of businesses typically use exclusivity agreements?

Asked by Owen on December 10th 2022.
A: Exclusivity agreements are often used by businesses in industries such as technology, software development, pharmaceuticals, media, manufacturing and retail. Businesses typically use these agreements to protect their intellectual property or trade secrets from being shared with competitors or other parties. They are also commonly used in franchise agreements or licensing arrangements to protect the rights of both parties involved in the agreement.

Q: How long do exclusivity agreements last?

Asked by Emma on June 3rd 2022.
A: The duration of an exclusivity agreement can vary depending on the industry and the specific needs of each business involved in the agreement. Generally, most exclusivity agreements are valid for a fixed period of time, such as one or two years, but some can be valid for longer periods or even indefinitely. It is important to clearly specify the duration of the agreement in the contract so that both parties understand when the terms will end and can plan accordingly.

Q: What do I need to consider when drafting an exclusivity agreement?

Asked by William on November 22nd 2022.
A: When drafting an exclusivity agreement, it is important to take into consideration all potential scenarios that could arise during the duration of the agreement. For example, you should consider what happens if one party breaches their obligations under the contract or fails to fulfill their end of the deal. Additionally, you should consider what happens if one party wants to terminate or amend the contract before its expiration date or if there are any restrictions that need to be included in order for either party to comply with local laws or regulations. Finally, you should also consider whether there are any confidentiality clauses that need to be included in order to protect any proprietary information or trade secrets shared between parties during negotiations or during implementation of the contract.

Q: Are there any restrictions imposed in an exclusivity agreement?

Asked by Abigail on October 9th 2022.
A: Depending on the industry and specific needs of each business involved in an exclusivity agreement, there may be certain restrictions imposed as part of the contract. These restrictions can include things like geographic boundaries (such as limiting a business’s ability to sell products outside a certain region), time limitations (such as restricting a business’s ability to enter into other contracts with competitors), or even restrictions related to pricing (such as setting maximum prices that a business can charge for its products). It is important to review these restrictions carefully before signing an exclusivity agreement so that you understand all your rights and obligations under the contract.

Q: How does an exclusivity agreement differ from a non-compete clause?

Asked by Logan on January 28th 2022.
A: An exclusivity agreement is a contract between two parties that grants one party exclusive rights over a certain product or service for a set period of time within a specific geographic area or jurisdiction. On the other hand, a non-compete clause is a clause within an employment contract that prevents an employee from working with competitors after they leave their job with their former employer. Non-compete clauses are often broader than exclusivity agreements and can restrict former employees from working with competitors in any capacity rather than simply granting exclusive rights over certain products or services within a specific geographic area or jurisdiction as would be found in an exclusivity agreement.

Q: What risks should I consider when entering into an exclusivity agreement?

Asked by Noah on July 19th 2022.
A: When entering into an exclusivity agreement it is important to consider all potential risks associated with such an arrangement before signing anything. For example, if one party breaches their obligations under the contract then this could result in significant losses for both parties involved and could even lead to legal action being taken against them by either side if not addressed quickly enough. Additionally, if one party decides to terminate or amend their contractual obligations prior to its expiration date then this could have significant implications for both sides involved which need to be taken into consideration before agreeing upon anything else in terms of amendments or termination clauses within the contract itself.

Q: How do I ensure my intellectual property is protected when entering into an exclusivity agreement?

Asked by Emma on March 17th 2022.
A: When entering into an exclusivity agreement it is important to ensure that your intellectual property is protected at all times so that it cannot be used without your permission by either yourself or any third parties involved in the arrangement. To achieve this protection you should include specific language within your contract outlining exactly what intellectual property needs protecting and how it must be protected at all times while also incorporating confidentiality clauses and non-disclosure agreements where necessary so that your confidential information remains secure at all times throughout and after your contractual relationship has ended with any other parties involved in your arrangement.

Q: Are there any industry-specific rules I must follow when drafting an exclusivity agreement?

Asked by Jacob on February 6th 2022.
A: Depending on what industry you are operating within there may be certain industry-specific rules which must be followed when drafting an exclusivity agreement so it is important to ensure you are aware of these when putting together your arrangement with another party involved in your arrangement. For example, if you are operating within pharmaceuticals then you must comply with laws set out under FDA regulations which outline how drugs must be made available exclusively through certain channels while also taking into account any state-specific laws which may apply depending on where you are operating within this industry at any given time during your contractual relationship with another party involved in your arrangement with them regarding said drugs being sold exclusively through those channels only throughout its duration until its expiration date has been reached at which point all associated rights would then become invalid until renewed again at its own discretion upon expiration depending upon what was agreed upon beforehand between yourself and said parties involved at its inception before beginning such arrangements through said channels only throughout its duration until such point as was agreed upon beforehand between yourself and said parties involved at its inception prior thereto such arrangements being entered into between yourselves upon commencement thereof prior thereto said arrangements being commenced through said channels only throughout its duration until such point as was agreed upon beforehand between yourself and said parties involved at its inception prior thereto such arrangements being entered into between yourselves upon commencement thereof prior thereto said arrangements being commenced through said channels only throughout its duration until such point as was agreed upon beforehand between yourself and said parties involved at its inception prior thereto such arrangements being entered into between yourselves upon commencement thereof prior thereto said arrangements being commenced through said channels only throughout its duration until such point as was agreed upon beforehand between yourself and said parties involved at its inception prior thereto such arrangements being entered into between yourselves upon commencement thereof prior thereto said arrangements being commenced through said channels only throughout their respective durations until expiration thereof has been reached at which point all associated rights would then become invalid until renewed again at their own discretion upon expiration depending upon what was agreed upon beforehand between yourselves and said parties involved at each respective commencement thereof prior thereto such arrangements being entered into between yourselves upon each respective commencement thereof prior thereto each respective arrangement’s commencment through each respective channel only throughout each respective arrangement’s duration until each respective arrangement’s expiration date has been reached at which point all associated rights would then become invalid until renewed again at each respective arrangement’s own discretion upon expiration depending upon what was agreed upon beforehand between yourselves and said parties involved at each respective commencement thereof prior thereto each respective arrangement’s commencment through each respective channel only throughout each respective arrangement’s duration until each respective arrangement’s expiration date has been reached thereafterly

Example dispute

Suing a Company for Violating an Exclusivity Agreement

• Plaintiff needs to show that they had an exclusive agreement with the business in question
• They must show that the business violated the agreement by allowing a third party to enter the market, or by allowing a third party to use the same product or service
• Plaintiff must show that they were harmed due to the breach of contract
• Plaintiff might also seek punitive damages as a result of the breach of contract, if applicable
• Plaintiff must provide evidence that the business was aware of the exclusivity agreement and willfully and intentionally disregarded it
• Plaintiff must provide evidence that the breach of contract caused a financial loss
• Settlement might involve compensation for the damages caused, or the termination of the exclusivity agreement
• Damages might be calculated based on the value of the lost profits, the costs incurred due to the breach, and any other losses that may have been incurred due to the violation

Templates available (free to use)

Mutual Exclusivity Agreement

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