Exclusive dealing contracts invite antitrust risk

Exclusive dealing contracts are a great tool for manufacturers, but a recent case from the Sixth Circuit shows that they create a risk of antitrust liability when they shut competitors out of the market.  In NicSand, Inc. v. 3M Co., NicSand was 3M's only competitor in the market for "DIY retail automotive coated abrasives".  NicSand claimed that 3M used its superior market power to enter into multi-year exclusive dealing contracts with four of the six largest retailers of those products, effectively shutting NicSand off from potential customers and sending it into bankruptcy.  3M was able to achieve that result in part by offering substantial discounts to the large retailers - and the court said those discounts "served no business purpose other than to exclude NicSand's products from the market."  While a dissenting judge argued that the discounts represented vigorous competition rather than illegal monopolization, the majority held that NicSand stated a valid antitrust claim and ordered the case to proceed to trial.  The lesson is that, when a manufacturer has a large presence in a product market, it must take care not to eliminate rivals' access to customers.