Exclusive-dealing can constitute an antitrust violation under certain circumstances. If a firm becomes the exclusive dealer of a good, it can be held liable under Section 1 of the Sherman Act, which condemns only practices that have already harmed competititve processes, and it can also be held liable under Section 3 of the Clayton Act, which condemns practices that are shown to pose a probable future threat to competitive processes. If the firm is the exclusive seller of services, it can be pursued only under Section 1 of the Sherman Act.
Here is a short explanation of the doctrine. Under limited circumstances, a firm that holds substantial market power in a relevant market commits the antitrust offense of “exclusive dealing” if it enters into contact or business arrangement with one or more customers by which it becomes the only or principal provider of a good or service to the affected customer(s). Such a contract does not give rise to any arguable antitrust offense unless it forecloses a substantial percentage of overall competition in the relevant market at issue and thereby harms competitive processes in the market by permitting the exclusive dealer to avoid long-term competition on price and quality. If an exclusive-dealer uses exclusive-dealing contracts with more than one customer, the challenge can be made to the cumulative effect of all of its exclusive-dealing contracts.
When reviewing an exclusive-dealing arrangement, the court will reject the claim unless the plaintiff can make a prima facie showing of wrongful exclusive-dealing, but if the court considers the claim it will review a number of circumstances, including the following: (1) the exclusive-dealer’s business justifications for the practice; (2) whether the exclusive-dealer’s competitors can avail themselves of alternative methods of distributing their product or service; (3) whether in the market at issue the relevant competition is to become the exclusive-provider of each customer; (4) whether the challenged exclusive-dealing will prevent competitors from attaining economies of scale that they require to become or remain viable competitors; and (5) whether the duration of the exclusive-dealing contract(s) at issue is so long as to discourage future competition unreasonably. See generally ZF Meritor, LLC v. Eaton Corp., 696 F.3d 254, 268-72 (3d Cir. 2012) cert. denied, 133 S. Ct. 2025 (2013) (a leading case on exclusive-provider arrangements that offers an extended discussion of the doctrine) (“an exclusive dealing arrangement is unlawful only if the ‘probable effect’ of the arrangement is to substantially lessen competition, rather than merely disadvantage rivals.”) (citing United States v. Dentsply Int’l, Inc., 399 F.3d 181, 191 (3d Cir. 2005) (“The test [for determining anticompetitive effect] is not total foreclosure, but whether the challenged practices bar a substantial number of rivals or severely restrict the market’s ambit.”).