Exclusive dealing, tied selling and market restrictions

Exclusive dealing, tied selling, and market restriction occur when one person doing business with another imposes restrictions on how the other can conduct their business. For example:

  • Exclusive dealing is when a supplier requires or induces a customer to deal mainly or only with them, or with someone they choose.
  • Tied selling is when a vendor requires or induces a customer to buy a second product. For example, they may refuse to sell a certain product unless the customer also buys something else. Tied selling may also prevent a customer from using or distributing another product with a product supplied by a vendor.
  • Market restriction is when a supplier requires a customer to sell certain products in a defined market OR penalizes a customer for selling outside a specified market.

These days, you have to contract for virtually everything.

From waste removal to water heaters, and everything in between. Contracts can be tricky.

Clauses in contracts can be tricky too.

Sometimes clauses are right up front… and sometimes they're hidden in the fine print.

When you sign a contract as a business owner, clauses that could be lurking in the fine print could take you by surprise… limit your options… and cost you money.

Some clauses can prevent you from changing suppliers by locking you in long-term contracts.

Others may automatically renew without notice, unless you cancel within a limited window, and... some have high fees for early termination of the contract.

Here's what to watch for:

Price escalation clauses
These allow suppliers to increase the price at any time and for many reasons;
Exclusivity clauses
These require you to buy all of the product or service from the one supplier;
Or, "right of first refusal" clauses

These force you to inform your current supplier about any offers from other suppliers and stay with your current supplier if they match the best offer.

This obligation can even extend beyond the term of your contract.

You may not want these because they can limit your options and raise your costs.

At the Competition Bureau, we pay a lot of attention to these, and other restrictive clauses because we know that under certain circumstances they can hurt consumers and harm competition.

Sometimes, the use of restrictive clauses like these may contravene the Competition Act, and warrant Bureau intervention.

Before you sign on the dotted line, here's the bottom line.

You have options—and the best options include looking carefully and asking questions.

Remember, knowledge is power. So here's our advice:

  • Shop around, get multiple quotes.
  • Read the terms, conditions and fine print carefully.
  • Remember that you can amend contract clauses when negotiating the terms of your contract.
  • Ask for a copy of the contract so you can review the terms and conditions, and monitor any changes.
  • You can also use quotes from other suppliers to negotiate more favourable terms and conditions with your current service supplier even if you're under contract.

Contracts are all about the clauses—get to know them!

Video length: 2 minutes, 33 seconds

Depending on the situation, exclusive dealing, tied selling, and market restriction can either increase or decrease competition. However, under the Competition Act, this conduct is illegal if certain conditions are met. For example:

  • the conduct has been engaged in by a major supplier or is widespread in a market, and
  • it has substantially lessened competition or is likely to do so.

Exclusive dealing, tied selling, and market restriction can also be found to be an abuse of dominance.

Remedies for non-compliance

When a company is found to be misusing its market power we will usually try to obtain voluntary compliance with the law. If all parties agree on a solution to restore competition to the marketplace, a formal consent agreement is then registered with the Competition Tribunal.

Consent agreements, which have the force of a court order, are inexpensive and quicker alternatives to litigation. They enable us to resolve concerns in a timely and efficient manner while ensuring compliance with the Competition Act.

If voluntary compliance cannot be achieved, we may file an application before the Tribunal for an order to remedy the situation. For example, the Tribunal can order the non-compliant company to stop the anti-competitive practice or to take steps that will restore or stimulate competition in the market.

The Competition Act also allows private parties (individuals or corporations) to ask the Tribunal for a remedying order if they are directly and substantially affected by another company’s exclusive dealing, tied selling, or market restriction activities. The process for filing a private party application is set out in the Competition Tribunal Rules, section 115.

About the Competition Tribunal

The Competition Tribunal is a quasi-judicial body that has the power to hear and dispose of matters involving non compliance with various sections of the Competition Act.

All Tribunal hearings are open to the public; however, due to sensitive or confidential testimony, a hearing may occasionally be held “in camera,” during which members of the public are excluded. An appeal of any Tribunal decision may be filed with the Federal Court of Appeal.

How to ensure compliance with the law

If you are unsure about what complying with the Competition Act means for your business, we recommend that you seek legal advice.

You can protect your business by having an effective compliance program in place. This will help your company comply with the law and it could reduce the risks associated with non-compliance. Like an early-warning system, a compliance program can help you detect and correct unlawful conduct quickly before it damages your company, your reputation, and your bottom line.

We also facilitate compliance by providing written opinions, which are subject to fees. These provide businesses with an opinion regarding proposed activities or conduct. Written opinions are binding if all material facts have been submitted, are accurate, and remain substantially unchanged.

Further reading