Key Takeaways

  • An exclusive contract grants one party the sole right to provide or receive certain goods or services, often to create competitive advantage.
  • Courts typically enforce exclusivity provisions if they are clear, written, and mutually agreed upon. Ambiguity can render such contracts unenforceable.
  • Sole and exclusive remedy clauses limit available legal remedies, preventing a party from seeking alternative compensation or termination.
  • Businesses should carefully draft and negotiate exclusive contract terms, including remedies, notice periods, and termination rights.
  • Case law, such as James Kemball Ltd v. “K” Line (Europe) Ltd (2022) and the JDW SSA case (2023), illustrates how courts uphold exclusivity and remedy limitations when parties have clearly defined them.

It can also apply to other types of businesses where one company agrees to do business exclusively with one company. An example of an exclusive contract is NBC's contract to broadcast the Olympics in the United States. They paid several billion dollars to obtain exclusive rights to broadcast all games until 2020.

When to Use an Exclusivity Agreement

If you're forming a partnership that includes selling and buying products, you can use an exclusive contract to formulate the contract terms. Use this type of document in these situations:

  • If you will be the exclusive provider of specific products or services to a particular business.
  • You are looking to create a competitive advantage by reducing the number of business partners your contractors can do business with.
  • Someone has consented to provide exclusive products or services to your business.

With an exclusive contract, the buyer cannot solicit or obtain the seller's products from any other seller for the duration of the contract. By restricting who else is eligible to receive those products or services, it can help create a competitive advantage for the seller. These are often used in vertical seller/buyer situations.

Exclusive vs. Non-Exclusive Contracts

An exclusive contract restricts a buyer or seller to work only with one party, while a non-exclusive contract allows multiple partnerships at once. Non-exclusive arrangements offer greater flexibility and broader market access, but they lack the competitive protection exclusivity provides. For example, a supplier with an exclusive contract may guarantee priority pricing or delivery, while a non-exclusive supplier may not.

Businesses should weigh whether the competitive advantage of exclusivity outweighs the risks of dependency. Startups, for instance, may benefit from exclusivity to secure early revenue, while established companies may prefer non-exclusive arrangements to diversify risk.

Legal Enforceability of Exclusive Contracts

For an exclusive contract to be legally enforceable, courts look for clear intent, mutual consent, and specific terms defining the scope of exclusivity. Recent cases emphasize that courts will not infer exclusivity where none is explicitly stated. For example, in a 2023 UK case involving a drinks manufacturer and a wholesaler, the court rejected claims of exclusivity under an unwritten “Master Wholesale Agreement,” finding that oral or implied exclusivity terms created uncertainty and were unenforceable.

However, where exclusivity was clearly agreed—such as in specific oral agreements (SSAs)—courts upheld them and awarded damages for breach when the manufacturer supplied customers directly. This underscores the importance of documenting exclusivity provisions in writing and defining the obligations of both parties, including notice and termination procedures.

Exclusive Contracts with Hospitals

Hospitals sometimes use exclusive agreements in contracting the management of the facility. Hospital boards of directors are afforded fairly broad discretion on how to manage the facility based on applicable corporate law principles. General principles are included in laws at both the federal and state levels, in addition to both related healthcare accreditation boards. The board's authority to enter into a contract on behalf of the hospital is granted by law, not medical staff bylaws.

Medical staff bylaws aren't the source for this authority, but they can affect the overall process and any subsequent consequences of entering into an exclusive contract. An example is when the bylaws detail the process for the Medical Executive Committee to review and add comments on service implications and clinical performance aspects of a potential exclusive agreement. The Medical Executive Committee's review and comments are strictly limited to the clinical performance aspects only. The actual terms, including the financial specifics, would never be disclosed to the committee.

Advantages and Disadvantages of Exclusive Contracts

Exclusive contracts can provide significant benefits:

  • Advantages
    • Guarantee of supply or service, reducing uncertainty.
    • Stronger, more reliable partnerships with dedicated resources.
    • Protection of investments in training, marketing, or infrastructure.
    • Simplified vendor management by limiting the number of providers.
  • Disadvantages
    • Reduced flexibility to switch providers if performance declines.
    • Increased dependency on one party, creating risk if they fail.
    • Potential for anti-competitive behavior or regulatory scrutiny.
    • Missed opportunities to test or compare competing offerings.

Hospitals often use exclusivity for efficiency and quality control, but the same risks apply: loss of flexibility, potential monopolistic effects, and challenges if the exclusive provider underperforms.

Common Legal Disputes Over Exclusive Contracts

Disputes commonly arise when one party breaches exclusivity by engaging with competitors or when one side feels locked into an unfair deal. A landmark 2022 case, James Kemball Ltd v. “K” Line (Europe) Ltd, illustrated how sole and exclusive remedy clauses can restrict termination rights. The court found that a contract clause making a surcharge the “sole and exclusive remedy” for non-performance prevented the claimant from terminating the agreement altogether.

The ruling reinforced that courts will uphold such provisions when they are professionally drafted and mutually agreed, even if one party later views them as unfair. Businesses must therefore understand that signing an exclusive agreement can limit their ability to seek broader remedies, including termination or damages beyond what is written in the contract.

Court Views on Hospital Exclusive Contracts

Some courts can view exclusive agreements as “quasi-legislative” actions rather than “adjudicatory” that is aimed at a specific physician which could give rise to a hearing. Provided the hospital board acts reasonably when utilizing these types of actions, the courts will typically defer back to the hospital board's recommendations and judgment.

What's an “Incident to and Coterminous” Provision in Hospital Contracts?

This provision is one that essentially says that a physician's appointment and clinical privileges to provide services under the exclusive agreement are “incident to and coterminous.” This means that if the exclusive contract is terminated and not renewed, both the physician's appointment and his or her clinical privileges will automatically expire. This will also apply if the physician opts to leave the group that has the contract. His or her privileges and appointment will automatically expire.

There is also a due process provision that applies in situations where a physician's professional conduct or his or her competence is called into question when an adverse action is reported to the National Practitioner Data Bank.

Deceptive Value of an Exclusive Contract

You need to create an incentive for the bigger party of any contract by structuring the deal so that at the contract's termination, there is still a minimum payment required if a threshold isn't met. This protects you, and the larger party has an additional incentive to uphold their end of the contract. If they are hesitant to commit, it is a sign that they don't have faith that they can deliver the value they promise.

A good rule of thumb is 20% of the initial agreement. If the minimum isn't enough to cover expenses or offset the costs of the exclusive contract, do not proceed with the deal. In the event you're a pre-revenue startup and the bigger party wants global exclusivity for a specified period of time, include a demand that they offer an equity investment which shows they are serious and committed to the agreement.

Key Provisions in Exclusive Contracts

To be effective and enforceable, exclusive contracts should contain certain provisions, such as:

  • Scope of exclusivity – define whether it applies to specific products, services, or geographic regions.
  • Duration and renewal terms – clarify contract length and renewal procedures.
  • Termination clauses – outline when and how the agreement may be ended.
  • Exceptions – allow limited carve-outs (e.g., emergencies in healthcare or supply shortages in commerce).
  • Remedies for breach – specify damages, penalties, or equitable relief if a party violates exclusivity.

Well-drafted provisions reduce the risk of disputes and ensure fairness, especially when exclusivity impacts competition or professional privileges.

Exclusive Remedy Clauses and Negotiation Tips

Many exclusive contracts include a “sole and exclusive remedy” clause, which specifies that only certain remedies are available in case of breach—commonly replacement, repair, or service continuation. According to Morgan Lewis’s Contract Corner, these clauses are often applied in breach of warranty, indemnification, and performance failure contexts.

When negotiating, consider the following:

  • Buyers should seek to limit or remove exclusive remedy clauses to preserve their right to broader legal remedies.
  • Suppliers or sellers may favor including them to limit exposure to potentially large damage claims.
  • Ensure exclusive remedy clauses are carved out from cumulative remedies provisions; otherwise, enforceability may be challenged.

A well-balanced exclusive contract specifies what constitutes a breach, details acceptable remedies, and provides clear exit terms to minimize future disputes.

Frequently Asked Questions

  1. What is an exclusive contract?
    An exclusive contract is an agreement that restricts one party from dealing with competitors, giving the other party sole rights to provide or receive specific goods or services.
  2. Are oral exclusive contracts enforceable?
    Generally, they are difficult to enforce. Courts prefer written agreements explicitly outlining exclusivity terms to avoid ambiguity or implied obligations.
  3. What are sole and exclusive remedy clauses?
    These clauses limit the remedies available for breach to those listed in the contract, preventing the injured party from seeking other forms of compensation or termination.
  4. Can exclusive contracts be terminated early?
    Yes, but termination rights depend on the contract’s terms. Some exclusive contracts restrict termination through “sole remedy” clauses that specify limited recourse options.
  5. How can businesses avoid disputes in exclusive agreements?
    By clearly defining scope, remedies, and termination procedures, and ensuring both parties understand their obligations before signing. Consulting an attorney—such as those available on UpCounsel—can help ensure the contract is fair and enforceable.

If you need help with an exclusive contract, you can post your legal need on UpCounsel's marketplace. UpCounsel only accepts the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.