Articles Posted in Antitrust Counseling

Articles about antitrust counseling and training.

Law Library Books

Author: Jarod Bona

Law school exams are all about issue spotting. Sure, after you spot the issue, you must describe the elements and apply them correctly. But the important skill is, in fact, issue spotting. In the real world, you can look up a claim’s elements; in fact, you should do that anyway because the law can change (see Leegin and resale price maintenance).

And outside of a law-school hypothetical, it typically isn’t difficult to apply the law to the facts. Of course, what I like about antitrust is that the law evolves and is often unclear and applying it (whatever it is) challenges your thinking. Sometimes, you even need to ask your favorite economist for some help.

Anyway, if you aren’t an antitrust lawyer, it probably doesn’t make sense for you to advance deep into the learning curve so you are an expert in antitrust and competition doctrine. It might be fun, but it is a big commitment to get to where you would need to be, so you should consider devoting your extra time instead to something like CrossFit.

But you should learn enough about antitrust so you can spot the issues. This is important because you don’t want your company to violate the antitrust laws, which could lead to jail time, huge damage awards, and major costs and distractions. And as antitrust lawyers, we often counsel from this defensive position.

It is fun, however, to play antitrust from the offensive side of the ball. That is, utilize the antitrust laws to help your business. To do that, you need a rudimentary understanding of antitrust issues, so you know when to call us. Bona Law represents both plaintiffs and defendants in antitrust litigation of all sorts.

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Authors: Magdalena Jakubicz and Luis Blanquez

Magdalena Jakubicz is a Sr. Corporate Counsel at Cisco where she helps her business clients to achieve their goals while ensuring antitrust compliance across EMEAR and Latin America. Magdalena’s day-to-day responsibilities include the following: designing and delivering compliance programs; co-leading commercial litigations and responses to government inquiries; assisting with merger control fillings; and advising on vertical agreements and matters related to abuse of dominant position. Magdalena also provides legal support to the Cisco Brand Protection team, where she advises on parallel imports and counterfeiting. Finally, Magdalena provides advice on general commercial law matters. The views expressed in this article do not necessarily reflect the views of Cisco or any affiliate companies.

Companies often run selective distribution systems to preserve their brand image. To achieve this, for example, they may prohibit their distributors from reselling their products through third party online platforms such as Amazon or eBay. While this sort of ban may protect brands, it isn’t popular among competition authorities across the European Union (“EU”) countries.

This has been a hot topic in the EU for quite some time now, especially following the publication of Coty Germany GmbH v Parfümerie Akzente GmbH, Case C-230/16.

What is the Coty Case?

Before Coty, the European Court of Justice (“ECJ”) had already ruled that a general ban on Internet sales in the context of a selective distribution system was a so-called “hardcore” restriction (restrictions and business practices that are particularly harmful to competition) and did not comply with Article 101.1 of the Treaty of the Functioning of the European Union (“TFUE”).

This case, Pierre Fabre Dermo-Cosmétique SAS v Président de l’Autorité de la concurrence and Ministre de l’Économie, de l’Industrie et de l’Emploi, Case C-439/09, involved certain cosmetics and hygiene products, manufactured by Pierre Fabre Dermo-Cosmetique and sold mainly through pharmacists.

Pierre Fabre required that its products be sold exclusively through brick and mortar shops and in the presence of a qualified pharmacist. Pierre Fabre argued that the restriction was necessary to maintain the quality of the products. The ECJ disagreed and ruled that “the aim of maintaining a prestigious image is not a legitimate aim for restricting competition.” This case confirmed that companies may want to avoid contractual clauses that prohibit general sales over the Internet.

In Coty, which involved a company that sells luxury cosmetic products in Germany, distributors were not authorized to resell the goods through third party on-line platforms. The General Court (“GC”) held that such a prohibition may be justified provided certain conditions are met. In the GC’s view, the preservation of the company’s “luxury image” is, in fact, a valid criterion. In particular, the GC held that a ban on sales over a particular online platform does not constitute a hardcore restriction under EU competition law. The judgment caused some sensation as—although a general ban on any sales over Internet would still be contrary to the EU competition law—a ban on sales over particular online platforms may be allowed under Coty.

But, what practical implications has Coty had on businesses with a multinational footprint?

Companies that do business in Europe should consider the following implications of Coty:

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Author: Jarod Bona

We see many antitrust issues in the distribution world—and from all business perspectives: supplier, wholesale distributor, authorized retailer, and unauthorized retailer, among others. And at the retail level, we hear from both internet and brick-and-mortar stores.

The most common distribution issues that come up are resale-price-maintenance (both as an agreement and as a Colgate policy), terminated distributors/retailers, and Minimum Advertised Pricing Policies or MAP.

Today, we will talk about MAP Policies and how they relate to the antitrust laws.

What is a Minimum Advertised Price Policy (more commonly known as a MAP policy)?

A MAP policy is one in which a supplier or manufacturer limits the ability of their distributors to advertise prices below a certain level. Unlike a resale-price-maintenance agreement, a MAP policy does not stop a retailer from actually selling below any minimum price.

In a resale price maintenance policy or agreement, by contrast, the manufacturer doesn’t allow distributors to sell the products below a certain price.

As part of a “carrot” for following MAP policies, manufacturers often pair the policy with cooperative advertising funds for the retailer.

The typical targets of a MAP policy are online retailers. These policies also do not typically restrict in-store advertising. The manufacturers that employ MAP policies are usually the ones that emphasize branding in their corporate strategy or have luxury products and fear that low listed prices for those products will make them seem less luxurious. But these policies exist in many different industries.

In any event, MAP policies are accelerating in the marketplace. Indeed, brick and mortar retailers that fear “showrooming,” will often pressure manufacturers to implement either vertical pricing restrictions or MAP policies.

We receive a lot of calls and emails with questions about MAP policies, from both those that want to implement them and those that are subject to them.

Do MAP Policies Violate the Antitrust Laws?

MAP policies don’t—absent further context—violate the antitrust laws by themselves. But, depending upon how a manufacturer structures and implements them, MAP policies could violate either state or federal antitrust law. So the answer is the unsatisfying maybe.

But we can add further context to better understand the level of risk for particular MAP policies.

There is some case law analyzing MAP policies, but it is limited, so if you play in this sandbox, you can’t prepare for any one approach. I had considered going through the cases here, but I think that has limited utility.  The fact is that there isn’t a strong consensus on how courts should treat MAP policies themselves. So the best tactic is to understand the core competition issues and make your risk assessments from that.

Because of the limited case law, you should consider, as we do, that there will be a greater variance in expected court decisions about MAP policies, which creates additional risk. This may particularly be the case at the state level because state judges have little experience with antitrust.

In any event, you will need an antitrust attorney to help you through this, so the best I can do here for you to is to help you spot the issues and understand if you are moving in the right direction.

If you are familiar with resale price maintenance or Colgate policies, you will notice a lot of overlap with MAP policy issues. But there are important differences.

A minimum advertised price policy is not strictly a limit on pricing. From a competitive standpoint, that helps, but not necessarily a lot. The reality is that a MAP policy can be—for practical reasons—a significant hurdle for online distributors to compete on price for the restricted product. That is, for online retailers, sometimes the MAP policy price is the effective minimum price.

Resale Price Maintenance

Before we go further, let’s review a little bit. A resale price maintenance agreement is a deal between a manufacturer and some sort of distributor (including a retailer that sells to the end user) that the distributor will not sell the product for less than a set price. Up until the US Supreme Court decided Leegin in 2007, these types of agreements were per se illegal under the federal antitrust laws.

Resale price maintenance agreements are no longer per se federal antitrust violations, but several states, including California, New York, and Maryland may consider them per se antitrust violations under state law, so most national manufacturers avoid the risk and implement a unilateral Colgate policy instead.

Under federal law, courts now usually analyze resale-price-maintenance agreements under the antitrust rule of reason.

Colgate Policies

Colgate policies are named after a 1919 Supreme Court decision that held that it is not a federal antitrust violation for a manufacturer to unilaterally announce in advance the prices at which it will allow its product to be resold, then refuse to deal with any distributors that violate that policy. You can read our article about Colgate policies here.

The bottom line with Colgate is that in most situations the federal antitrust laws do not forbid one company from unilaterally refusing to deal with another. There are, of course, exceptions, so don’t rely on this point without consulting an antitrust lawyer.

Back to MAP Policies and Antitrust

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Antitrust Superhero

Author: Jarod Bona

Some lawyers focus on litigation. Other lawyers spend their time on transactions or mergers & acquisitions. Many lawyers offer some sort of legal counseling. And another group—often in Washington, DC or Brussels—spend their time close to the government, usually either administrative agencies or the legislature.

But your friendly antitrust attorneys—the superheroes of lawyers—do all of this. That is part of what makes practicing antitrust so fun. We are here to solve competition problems; whether they arise from transactions, disputes, or the government, we are here to help. Or perhaps you just want some basic advice. We do that too—all the time. We can even help train your employees on antitrust law as part of compliance programs.

Perhaps you are a new attorney, or a law student, and you are considering what area to practice? Try antitrust and competition law. Not only is this arena challenging and in flux—which adds to the excitement—but you also don’t pigeonhole yourself into a particular type of practice. You get to do it all—your job is to understand the essence of markets and competition and to help clients solve competition problems.

For those of you that aren’t antitrust attorneys, I thought it might be useful if I explained what it is that we do.

Antitrust and Business Litigation

Although much of our litigation is, in fact, antitrust litigation, much of it is not. In the business v. business litigation especially, even in cases that involve an antitrust claim, there are typically several other types of claims that are not antitrust. As an example, we explain here how we see a lot of Lanham Act False Advertising claims in our antitrust and competition practice.

Businesses compete in the marketplace, but they also compete in the courtroom, for better or worse. And when they do, their big weapon is often a federal antitrust claim (with accompanying treble damages and attorneys’ fees), but they may also be armed with other claims, including trade secret statutes, Lanham Act (both false advertising and trademark), intellectual propertytortuous interference (particularly popular in business disputes), unfair competition, unfair and deceptive trade practices, and others.

In many instances, in fact, we will receive a call from a client that thinks they may have an antitrust claim. Perhaps they read this blog post. Sometimes they do, indeed, have a potential antitrust claim. But in other instances, an antitrust claim probably won’t work, but another claim might fit, perhaps a Lanham Act claim for false advertising, or tortuous interference with contract, or some sort of state unfair trade practice claim.

Antitrust lawyers study markets and competition and are the warriors of courtroom competition between competitors. If you have a legal dispute with a competitor, you should call your friendly antitrust attorney.

Antitrust litigation itself is great fun. The cases are usually significant, document heavy, with difficult legal questions and an emphasis on economic testimony. Some of them even involve class actions or multi-district litigation.

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Author: Jarod Bona

You might have a Lanham Act claim if your competitor is making false statements to promote its products or services in a way that deceives customers and injures you because you lost business, for example, as a result.

Although many people think of the Lanham Act as a trademark statute—and it is—it also allows competitors to sue each other for false advertising.

So the Lanham Act is on the battlefield for competition as competitors often use lawsuits as part of their arsenal to gain whatever advantage they can.

The Lanham Act is particularly interesting because it allows competitor standing when the true harm is done to consumers, so long as the plaintiff suffered lost profits or something similar because of the false statements.

Indeed, Congress designed the competitor enforcement mechanism because competitors have both the knowledge and motivation to enforce the Lanham Act. The Supreme Court explained this enforcement rationale in its POM Wonderful LLC v. Coca-Cola case, which you can read about here:

Competitors who manufacture or distribute products have detailed knowledge regarding how consumers rely upon certain sales and marketing strategies. Their awareness of unfair competition practices may be far more immediate and accurate than that of agency rulemakers and regulators.”

Importantly, however, the Supreme Court clarified in its Lexmark decision that the plaintiff need not necessarily be a competitor, so long as they suffered “an injury to a commercial interest in sales or business reputation proximately caused by the defendant’s misrepresentations.” This is an important opening and you can read more about our discussion of the Supreme Court’s Lexmark standing decision here.

The Lanham Act is, however, primarily a statute that competitors use to sue each other. You also see this in antitrust law—of course—and intellectual property law (including trade secret and trademark cases). And, under state law, competitors sue for tortious interference, of some sort, along with state statutes that prohibit false advertising and antitrust. And there are other causes of action, state and federal, that come up in specific circumstances.

For better or worse, business competition often takes a detour to the courthouse and companies use litigation to their advantage. Filing a lawsuit for the sake of filing one, without a meritorious claim, could subject you to actions for malicious prosecution, abuse of process, and even antitrust liability in certain circumstances. But companies with prima facie claims against their competitors often relish the opportunity to carry the market fight to the legal forum. We’ve seen this from both sides, many times, over the years.

Sometimes antitrust lawyers call themselves antitrust and competition lawyers. The reason for that is that in the United States our laws that govern competition are called “Antitrust” laws (because of the unique history of the federal statutes that went after the “Trusts” back in the day). In Europe and much of the rest of the world, by contrast, these law are called, straightforwardly, “Competition” laws. And the lawyers that practice in this area are called Competition Lawyers.

But there is a second great reason for US antitrust lawyers to more accurately describe themselves as antitrust and competition lawyers. That is because when you represent clients that compete in a marketplace, you experience their hard-core focus on competition and, necessarily, their competitors.

You help them manage the rules of competition, with your own tools. Many of those involve antitrust knowledge and experience. But—to really help your clients—you also need to understand and have experience with the other causes of action that come up among and between competitors. And that includes, of course, the Lanham Act.

So—while we can accurately call ourselves antitrust lawyers, we are really antitrust and competition lawyers because we advise clients on the rules of competition generally, which are much broader than simply the antitrust laws. We are soldiers on the legal battlefield of competition. Antitrust laws are great weapons, but they aren’t the only ones.

As sort of a related aside, I’ve been thinking a lot lately about what I have learned advising clients in antitrust and competition law. Over time, you experience competition in all forms. You see different ways that competitors try to knock each other out of the market, or otherwise take market share. Sometimes this is about competing better, but it is often about competing differently—that is, adjusting your service and product to not only differentiate yourself, but to create a new market altogether.

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Global Antitrust

Author: Jarod Bona

Just because your company isn’t based in the United States doesn’t mean it can ignore US antitrust law. In this interconnected world, there is a good chance that if you produce something, the United States is a market that matters to your company.

For that reason, I offer five points below that attorneys and business leaders for non-U.S. companies should understand about US antitrust law.

But maybe you aren’t from a foreign company? Does that mean you can click away? No. Keep reading. Most of the insights below matter to anyone within the web of US antitrust law.

This article is cross-posted in both English and French at Thibault Schrepel’s outstanding competition blog Le Concurrentialiste

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The FTC Headquarters in Washington, DC. The cornerstone to the building was laid in 1937 by Franklin Roosevelt, reportedly using the same trowel George Washington used to lay the cornership of the U.S. Capital in 1793. In the spirit of competition, the National Gallery of Art has set its sights on expanding into the FTC building, and in 2016, the General Services Adminsitration has been investigating the proposal. The FTC has strongly resisted this form of competition for its space.

Author: Steven Levitsky

Under US antitrust Law, parties to certain mergers and acquisitions must prepare what is called a Hart-Scott-Rodino (HSR) filing for the antitrust agencies.

In an earlier article, we mentioned that HSR filings, at least for voting securities and LLC interests, are not triggered by the literal “size-of-transaction” amount.

Instead, they are triggered by a combination of (1) all existing holdings in a target plus (2) what you intend to buy in that target. (In HSR lingo, this is called “aggregation.”) Plus, you need to calculate the total existing holdings across the entire control group. (In HSR lingo, this means all the entities controlled by the “ultimate parent entity.”) When you don’t, you run the risk of being fined $40,654 per day.

Here’s a great example, based on a real-life case. Alpha Fund owns $84 million of Bravo Ltd’s voting securities. Alpha Fund is controlled by Mr. Smith. Because of this control, Mr. Smith is the hedge fund’s “ultimate parent entity,” and he is deemed to “hold” everything in his control group.

Based on his fund’s holdings, Mr. Smith was appointed to the Board of Bravo Ltd. As a board member, he was given stock options for 10,000 voting shares and exercised them. Let’s assume that those shares were worth $50 each, so that the entire option acquisition was only $500,000. This is 0.0059% of the HSR threshold of $84.4 million. But that’s not the way the HSR system works.

What Mr. Smith should have done (or rather, what his lawyers should have done) was combine, or “aggregate,” all his existing holdings ($84,000,000) with the options he was about to convert $500,000). In other words, as a result of his option transaction, Mr. Smith now “held” $85,000,000 of voting securities in Bravo Ltd. But he never made an HSR filing. In this case, the FTC fined him $250,000.

This is actually a simplified version of the real story. In fact, Alpha Fund had previously failed to make an mandatory HSR filing, and had made a corrective filing only later, only proving that it is hard to keep track of acquisitions across a control group. As part of the settlement of the corrective (after-the fact) filing, the FTC always imposes an obligation to create and maintain a compliance program for future acquisitions. The FTC takes the position that a second failure to file proves that the compliance program was not complied with.

By the way, there was absolutely no competitive issue involved in this violation. The control group’s collective holdings in Bravo Ltd. were too low for it to be able to exert any control. Furthermore, Bravo Ltd. granted the options with one single day to exercise them. There was no possibility for Mr. Smith to have made an HSR filing. Despite all these mitigating factors, the fine was imposed simply because there had been an acquisition that required an HSR filing, and no filing was made.

Here’s another complication from the same story. Let’s assume that Alpha Fund bought the shares at $50,000,000, and that over time they appreciated in value to $84,000,000. It’s not clear, but it seems possible that Alpha and Mr. Smith had considered the original acquisition cost of the stock ($50,000,000 plus $500,000). That was another serious mistake, because the HSR rules require you to calculate the current value of your existing holdings. In other words, if your original $50,000,000 investment grows to $85,000,000 through appreciation, you don’t need to do a thing. But you can’t acquire a single dollar more of stock in the same target without making a filing.

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Aspen Mountains

Author: Jarod Bona

Yes, in certain narrow circumstances, refusing to do business with a competitor violates Section 2 of the Sherman Act, which regulates monopolies, attempts at monopoly, and exclusionary conduct.

This probably seems odd—don’t businesses have the freedom to decide whether to do business with someone, especially when that person competes with them? When you walk into a store and see a sign that says, “We have the right to refuse service to anyone,” should you call your friendly antitrust lawyer?

The general rule is, in fact, that antitrust law does NOT prohibit a business from refusing to deal with its competitor. But the refusal-to-deal doctrine is real and can create antitrust liability.

So when do you have to do business with your competitor?

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Sculpture Man Controlling Trade

This 1942 sculpture by Michael Lantz, 17-feet long, is meant to suggest a heroic figure (the FTC) restraining violent and untamed American commerce.

Author: Steven Levitsky

If you liked the old computer game, “Minesweeper,” then you’re ready to take on Hart-Scott-Rodino (HSR) filings for antitrust review of mergers & acquisitions. Both have rules. And both can produce unexpected catastrophes even if you think you’re following the rules. In fact, major clients, advised by major law firms, have been hit with hundreds of thousands of dollars in fines for mistakes that no one thought of at the time.

Let’s start with the 50,000 foot view of HSR compliance. You might know the basics: (a) you need to make an HSR filing when one side of the transaction has sales or assets of at least $16.9 million; (b) the other side has sales or assets of at least $168.8 million; (c) the transaction size is greater than $84.4 million; and (d) no exemptions apply. (These are 2018 figures).

An example to consider

Here’s an example of how things can work out badly. Let’s assume you get a call from the CEO of your client, Alpha Co. Alpha Co. is a small and relatively new company and the CEO tells you:

  1. Alpha’s annual sales and assets are $15 million.
  2. Alpha plans to buy $80 million of the voting securities of Bravo Ltd. (Alpha’s borrowing $65 million to do the deal.)
  3. Based on this, he wants to know if they need to make an HSR filing.

Applying what you know, you conclude that the “size-of-person” and “size-of-transaction” tests are both not met, so no HSR filing is required. Alpha Co. goes ahead and closes the deal.

Three months later, your client hears from the FTC. The FTC tells them that they violated the HSR Act by not filing, and that the fine is $41,484 per day, or $3,733,560 in all. What went wrong? (We’ll explain in detail in Point 2.)

But generally, what went wrong is that the 50,000 foot view is not enough. HSR rules are extremely technical and, some would say, not exactly logical. A lot of HSR terms don’t have a common sense meaning. You need to check and cross-reference the definitions and rules. And these, by the way, are not organized in any friendly or rational way, but seem to read like the Tax Code.

Here are some basic HSR concepts that might help you avoid the worst minefields.

  1. What are the basic HSR tests?

There are two tests to see if a filing is required.

First, “size-of-person.” Normally, you don’t need to file for the antitrust enforcers unless one side of the deal has sales or assets of at least $16.9 million and the other side has sales or assets of at least $168.8 million. (This are 2018 figures; these numbers change every February.)

But, as we’ll see soon in Point 2, the size-of-person test does not mean the size of the transaction party. Instead, it means the size of the buyer’s entire business group, or everything under the control of its highest entity (see §5). Don’t fall into the trap of measuring an incomplete control group.

Second, the “size-of-transaction” must be over $84.4 million (again, this is 2018; the numbers change every February). But there are several other filing thresholds that cover more purchases in the same target and could require successive filings. These include $168.8 million; $843.9 million; 25% of the target — but only if the size-of-transaction is more than $1.688 million; and 50% of the target — or control. Once you get control, you can buy as much more of the target as you want without ever filing again.

But, as we’ll see soon in Point 2, the “size-of-transaction” does not really mean the size of the transaction. Instead, it means (1) the combination of existing holdings and planned acquisitions, (2) that the entire buyer control group will have in the target control group after the deal closes (see §2). This includes voting stock acquired years before, that has to be analyzed at its current value. Don’t fall into the trap of measuring the wrong amount.

  1. What is an “ultimate parent entity” and why does it matter?

The “ultimate parent entity” is the top controlling entity of an entire business group.

The “ultimate parent entity” matters to your antitrust filing for the following reason. The purpose of the HSR filing system is to let the antitrust agencies know of significant shifts in competitive power. As a result, they don’t care about the names on the contract, which may be only small subs or special purpose vehicles. The antitrust agencies want to know what is really happening in terms of changes of competitive power.

To give the agencies that information, you must identify the entire control group of your transaction party. You do this by tracing control upwards from the transaction party (Alpha Co., in our case) to the very highest control level of the business group. That entity at the top, that isn’t controlled by anyone else, is the “ultimate parent entity,” which can be a company or an individual. The “ultimate parent entity” makes the filing. Its collective size and holdings affect the “size-of-person” and “size-of-transaction” tests we discussed in Point 1.

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Author: Jarod Bona

Sometimes parties will enter a contract whereby one agrees to buy (or supply) all of its needs (or product) to the other. For example, maybe a supplier and retailer agree that only the supplier’s product will be sold in the retailer’s stores? This usually isn’t free as the supplier will offer something—better services, better prices, etc.—to obtain the exclusivity.

If you compete with the party that receives the benefit of the exclusive deal, this sort of contract can seem quite aggravating. After all, you have a great product, you offer a competitive price, and you know that your service is better. Then why is the retailer only buying from your competitor? Shouldn’t you deserve at least a chance? Isn’t that what the antitrust laws are for?

Maybe. But most exclusive-dealing agreements are both pro-competitive and legal under the antitrust laws. That doesn’t mean that you can’t bring an antitrust action and it doesn’t mean you won’t win. But, percentage-wise, most exclusive-dealing arrangements don’t implicate the antitrust laws.

You can read our article about exclusive dealing at the Bona Law website here.

It is important that I deflate your expectations a little bit at the beginning like this because if you are on the outside looking in at an exclusive dealing agreement, you are probably quite angry and feel helpless. From your perspective, it will certainly seem like an antitrust violation. And your gut feeling about certain conduct is a good first filter about whether you have an antitrust claim. What I am trying to tell you is that with regard to exclusive dealing, your gut may give you some false positives.

So what is an exclusive dealing agreement?

An exclusive dealing agreement occurs when a seller agrees to sell all or most of its output of a product or service exclusively to a particular buyer. It can also occur in the reverse situation: when a buyer agrees to purchase all or most of its requirements from a particular seller. Importantly, although the term used in the doctrine is “exclusive” dealing, the agreement need not be literally exclusive. Courts will often apply exclusive dealing to partial or de facto exclusive dealing agreements, where the contract involves a substantial portion of the other party’s output or requirements.

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