Exclusivity

A workable exclusivity clause has four elements, and the missing ones are always the same.

Scope. What exactly is exclusive: which products, which territory, which channels. Whether online sales into the territory are included is the question everybody forgets.

Duration. A fixed period, with renewal only on stated conditions rather than automatically.

Minimum performance. Volume targets, revenue thresholds or activity commitments the exclusive party must meet.

Consequences. What happens if they are not met: the exclusivity converts to non exclusive, the territory shrinks, or the agreement can be terminated.

Without the last two, exclusivity becomes a right to do nothing. A distributor who takes exclusive rights for five years and then loses interest in year one can lock a manufacturer out of the market for four more, and the manufacturer's only remedy is whatever the contract gave them, which is usually nothing.

For exclusivity in a transaction, the equivalent protections are a short period, a hard end date and a break fee where the cost of the process is significant.

Distribution is where Nigerian exclusivity disputes cluster.

A foreign manufacturer appoints a Nigerian distributor as exclusive for the country. The distributor performs modestly, the manufacturer becomes frustrated, and the agreement has no performance targets and no clean exit. What follows is either years of underperformance or a termination dispute.

The answer is minimum volumes and a conversion right, agreed at the outset while the manufacturer still has leverage.

Online sales are the second recurring issue. An exclusive territory agreement written before e commerce mattered says nothing about a customer in Lagos ordering from a website abroad, and both sides then argue about whether that breaches the exclusivity. Address it expressly.

In investment, exclusivity granted to an investor during due diligence is where Nigerian founders lose runway. Ninety days of exclusivity to an investor who then slows down leaves a company unable to run a parallel process while cash burns. Keep the period short, tie it to milestones, and make it terminable if the investor stops progressing.

Competition law is the further consideration. The Federal Competition and Consumer Protection Act 2018 addresses agreements that restrain competition, and an exclusivity arrangement that forecloses a market can attract scrutiny.

Three levels of exclusivity, and the middle one is routinely misdescribed.

Non exclusive means the grantor can appoint others and can operate in the territory themselves. The appointee has no protection from competition.

Sole means the grantor will not appoint anybody else, but reserves the right to operate in the territory themselves. It is the middle position and it is what many parties actually intend when they say exclusive.

Exclusive means nobody else, including the grantor. The grantor is shut out of their own territory for the duration.

The difference between sole and exclusive is worth real money, and contracts frequently use the word exclusive while describing sole rights, or the reverse. Say which of the three you mean, and say expressly whether the grantor may sell directly.

Exclusivity binds the grantor for the term, and commercial circumstances change faster than contract terms.

Enforcing it is also awkward. Where a manufacturer breaches by supplying somebody else, the distributor's remedy is damages, and proving the loss caused by a parallel supplier is difficult.

Minimum performance obligations can be gamed. A distributor who meets the minimum and does nothing more has complied with the letter while frustrating the purpose, which is why targets should escalate.

And competition law limits how far exclusivity can go, particularly where the parties have significant market share and the arrangement forecloses competitors.