Exclusive Dealing In Australia: Compliance Essentials

Exclusive dealing can be a smart way to protect your brand, reward loyal customers and streamline your supply chain - but it can also cross the line into anti‑competitive conduct if it shuts others out of the market.

If you’re negotiating supply terms, franchise rights or preferred partner arrangements in Australia, it’s important to understand when exclusivity is okay and when it risks breaching the Competition and Consumer Act 2010 (CCA).

In this guide, we’ll unpack what exclusive dealing is, when it’s likely to be illegal, and the practical steps you can take to stay on the right side of the law while still achieving your commercial goals.

What Is Exclusive Dealing Under Australian Law?

Exclusive dealing is when one business restricts another business’s freedom to choose who to deal with, or on what terms.

Common forms include:

• Exclusive supply or purchase obligations: A supplier sells only to you in a territory, or you agree to buy only from a particular supplier.
• “Must carry” or full‑line forcing: You can buy Product A only if you also buy Product B or you agree not to stock competing products.
• Tying and bundling: Access to one product or service depends on taking another (for example, software access only if you also purchase a support package).
• Third line forcing: Supply is conditional on buying from a nominated third party (e.g. “you must use our preferred finance provider”).
• Most‑favoured‑nation (MFN) clauses: You promise to offer one platform or distributor your best price or terms, sometimes restricting discounts elsewhere.

Under the CCA, exclusive dealing is generally prohibited when it has the purpose, effect or likely effect of substantially lessening competition in a market. That assessment looks at the broader market impact - not just the impact on one competitor.

There are also separate rules for conduct like resale price maintenance and cartel conduct, which are subject to stricter prohibitions. If your exclusivity terms touch pricing or coordinated market allocation, get targeted operating a competition advice before you proceed.

When Is Exclusive Dealing Illegal?

Exclusivity is not automatically unlawful. The key question is whether the arrangement is likely to materially harm competition - for example, by blocking a rival’s efficient access to customers, raising barriers to entry, or allowing a business with market power to lock up critical inputs or channels.

Red Flags That Increase Risk

• High market share or power: If you (or your counterparty) control a large portion of the market or a “must‑have” channel, exclusivity is more likely to lessen competition.
• Long duration and wide scope: Multi‑year terms combined with broad territorial or category exclusivity can entrench market power.
• Foreclosure of rivals: If rivals can’t realistically access customers or inputs without your channel, the risk rises.
• Tying to “must have” products: Requiring the take‑up of secondary products or services can harm competition in the tied market.
• MFNs that limit discounting: Clauses that suppress price competition across platforms can be problematic.

What About Third Line Forcing?

Historically, third line forcing was treated as automatically illegal. Today, like other exclusive dealing, it is assessed under a competition test. That means some arrangements can be acceptable if they don’t materially harm competition - but you still need to evaluate market effects and consider ACCC authorization or notification pathways where appropriate.

If your model depends on steering customers to specific lenders, insurers, or service providers, build a compliance case early and consider an ACL consultation to test your risk assumptions.

Common Business Scenarios Where Exclusive Dealing Comes Up

Exclusivity often appears in everyday commercial contracts. Here are typical scenarios and how to manage the risks.

1) Supply And Distribution Agreements

Suppliers and distributors often negotiate territorial exclusivity or category exclusivity. This can be efficient (reducing free‑riding, supporting investment and service quality) - but you need guardrails.

• Use clear, narrow definitions of territory, product category and sales channels.
• Keep terms proportionate in duration and scope, with review points and performance hurdles (so exclusivity can be reduced or removed if KPIs aren’t met).
• Avoid blanket “no competing products” bans; consider limited carve‑outs or objective quality standards instead.

Document the arrangement in a robust Distribution Agreement that balances legitimate commercial benefits with competition‑law safe‑guards.

2) Franchising

Franchisors commonly grant exclusive territories and require franchisees to buy approved products. That can be legitimate to protect brand and quality - but the more restrictive the supply rules and the longer the terms, the higher the risk.

• Ensure approved supplier lists have objective, transparent criteria and periodic re‑tendering.
• Let franchisees seek alternatives where quality and safety standards are met on equal terms.
• Stress that any “must purchase” or “no competitor stock” rules are tailored to genuine brand protection, not competitor foreclosure.

Have any franchise documents reviewed with both the Franchising Code and competition law in mind through a Franchise Agreement Review.

3) Online Platforms And MFN Clauses

Booking, marketplace or comparison platforms sometimes require merchants to offer the platform the best price or parity terms. These MFN clauses can reduce discounting on other channels.

Consider whether MFNs are truly necessary to prevent free‑riding, or whether narrower parity (e.g. parity only for publicly available rates) or shorter terms will do. Avoid parity that blocks innovation in pricing or new channels.

4) Bundles, Ties And “Preferred Partner” Programs

Requiring customers to bundle a secondary product or use a preferred partner can be efficient, but also risky if the primary product is essential or if rivals are shut out.

Focus on customer benefit (lower price, convenience, safety), offer genuine choice, and be careful with your marketing statements - they must comply with Section 18 of the Australian Consumer Law (no misleading or deceptive conduct), as well as other consumer rules about representations and refunds.

How Do You Stay Compliant? A Practical Roadmap

You can design pro‑competitive exclusivity by following a few disciplined steps.

Step 1: Define The Commercial Rationale

Write a short business case explaining why exclusivity is needed (e.g. to justify investment, ensure quality control, stop free‑riding). Keep it factual. This helps demonstrate legitimate purpose if the ACCC asks questions.

Step 2: Assess The Market

• Identify the relevant product and geographic markets.
• Estimate market shares, barriers to entry, and availability of alternative channels or suppliers.
• Ask: could this arrangement substantially lessen competition? Would rivals be foreclosed from a significant portion of customers or inputs?

Where the risk looks more than low, get early advice and consider ACCC authorization or notification pathways.

Step 3: Tailor The Contract

• Limit scope (narrow product categories, specific channels, well‑defined territories).
• Limit duration, add review/termination triggers, and define performance criteria for exclusivity.
• Use non‑discriminatory, objective approval criteria (e.g. for suppliers or sub‑distributors) rather than blanket bans.
• Avoid RPM and pricing coordination. If pricing promises are necessary, revisit the risk with specialist competition advice.

Step 4: Build Consumer‑Law Compliance In

Your advertising and customer communications must be clear, accurate and not misleading. Bundle discounts, “only available here” claims and parity promises should be supported by evidence and aligned with the Australian Consumer Law.

Consider your warranty and after‑sales practices too; a documented Warranties Against Defects Policy helps ensure your team’s scripts and collateral match your legal obligations.

Step 5: Check Contract Fairness (UCT Risk)

If you deal with consumers or small businesses, your standard‑form contracts must avoid unfair terms. Penalties for unfair contract terms now apply nationally, so it’s wise to run a periodic UCT review across your key templates, especially where exclusivity, auto‑renewals or unilateral variation rights appear.

Step 6: Train Your Team And Monitor

Sales, procurement and franchise support teams should understand what they can and cannot say or enforce. Build a simple playbook, schedule annual refreshers and monitor compliance (including spot‑checking local promotions and partner comms).

What Legal Documents Should You Review Or Update?

The right documents make it easier to implement pro‑competitive exclusivity and avoid missteps.

• Distribution Agreement: Sets territory, channels, performance metrics, quality standards and narrowly tailored exclusivity. Start with a fit‑for‑purpose Distribution Agreement and build from there.
• Terms of Trade: Clear trading terms (delivery, risk, returns, promotion rules) help avoid ad‑hoc restrictions that may create competition‑law risk. If you trade on standard terms, ensure your Terms of Trade reflect your current approach.
• Franchise Agreement And Manuals: If you license your brand, ensure supply and territory provisions are objective, reviewable and compliant. A tailored Franchise Agreement Review can align your network standards with competition rules.
• Customer Contract Or Platform Terms: Where you operate a marketplace or subscription, ensure any MFN or parity terms are narrowly drafted and evidence‑based, and your marketing aligns with the ACL.
• Warranties And Consumer Guarantees: Align your warranties, scripts and collateral with consumer rights using a practical Warranties Against Defects Policy.
• Competition‑Law Playbook: A short internal guide for sales, procurement and franchise support covering “do’s and don’ts”, escalation paths and record‑keeping.

If you need broader advice on how the consumer law and competition rules intersect with your contracts, our team offers a practical ACL consultation to work through the details.

Investigations, Penalties And Fixing Issues

The Australian Competition and Consumer Commission (ACCC) actively monitors vertical restraints (like exclusivity, MFNs and tying), particularly in concentrated markets or where digital platforms are involved.

What Happens If The ACCC Knocks?

• Information requests: You may receive voluntary or compulsory notices seeking contracts, communications and market data. Respond carefully and on time.
• Interviews: Train staff to escalate any contact from the ACCC and avoid “off‑the‑cuff” commentary. Stick to the facts and your documented rationale.
• Remedies: Many matters resolve via undertakings, removing or narrowing problematic clauses, refunds or improved processes. More serious cases may proceed to court.

Penalties Can Be Significant

Court‑ordered penalties for breaches of competition and consumer law can be substantial, and unfair contract terms now attract penalties too. This is why embedding compliance up‑front is a much better strategy than fixing problems later.

Self‑Assessments And “Clean‑ups”

If you suspect a clause is risky, you can often reduce exposure by narrowing scope, adding review triggers or offering genuine choice to customers or partners.

Where the arrangement is central to your business model and risk can’t be engineered away, discuss the ACCC’s authorization or notification options with a competition lawyer - a pathway that’s easier to navigate if you’ve already built a strong, pro‑competitive rationale and documented benefits to customers.

Remember, your marketing should also stay inside the ACL guardrails - especially around comparative claims, savings, “exclusive offer” language and bundles - to avoid problems under false or misleading representation rules like those in Sections 18 and 29 of the ACL. If in doubt, align campaigns with your contracts and sanity‑check claims against the ACL using an ACL consultation.

Key Takeaways

• Exclusive dealing is lawful in Australia when it doesn’t substantially lessen competition; risk rises with market power, long duration and broad scope.
• Design exclusivity around a clear, evidence‑based commercial rationale, and tailor it narrowly by product, territory, channel and term.
• Build compliance into your documents - use robust frameworks like a Distribution Agreement and update your Terms of Trade and franchise materials to reflect objective, reviewable standards.
• Train your team, monitor execution and keep your marketing consistent with the Australian Consumer Law, including unfair contract terms and misleading conduct rules.
• If a clause feels risky, narrow it, add review triggers or consider ACCC authorization/notification; early competition advice will save time and cost.

If you’d like a consultation on exclusive dealing compliance for your business, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no‑obligations chat.