Exclusive Foreign Distributor Agreements--Are They Illegal

A DISTRIBUTOR'S agreement, like any other contract between two or more parties, is of primary importance to the contracting parties only and rarely concerns third parties. The "exclusive" clause of a distributor agreement, however, can be of great interest to a competitor in the territory as well as to the Department of Justice or to the Federal Trade Commission. There is a dichotomy in the antitrust statutes which is only rarely pointed out in the vast literature concerning them: certain of them are applicable to foreign trade agreements made between American exporters or manufacturers for export and foreign distributors; others are inapplicable to such agreements but apply to identical agreements made between American manufacturers and domestic distributors. The frequent use of exclusive distributor agreements in the domestic trade is demonstrated by the litigation involving Section 3 of the Clayton Act, which specifically proscribes such clauses where their effect "may be to substantially lessen competition or tend to create a monopoly in any line of commerce." Since the Clayton Act is inapplicable to contracts between American manufacturers and foreign distributors, only the general provisions of the Sherman Act are applicable to determine the legality of a foreign distributor's agreement. To date no attempt has been made to test the legality of such an agreement in the field of foreign trade. However, many exporters and manufacturers for export believe that the domestic doctrine may soon be transposed into the foreign field where exclusivity clauses are almost universally used. This article attempts a "first reflection" on the possibility of such a transposition. Most manufacturers for export have one or perhaps two distributors in each country where their products are exported, and the territory covered by the agreement is often the entire country in which the distributor is located. The agreement with each distributor is substantially identical. The purpose of the exclusivity clause in the distribution agreement is not primarily to suppress competition but rather to insure to the American manufacturer, who may be thousands of miles distant, that the distributor will promote his interests in the assigned territory, and to protect the distributor by preventing the manufacturer from putting another distributor into the