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Does This Verbal Exclusivity Agreement Still Hold Up?

Since the agreement was made, new retailers, similar lines and diminishing sales have changed the equation.

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LEO, A FRAME REP for a well-known independent line, was meeting a friend and fellow rep for lunch in a cafe near the highway. It had been a challenging month and they were both ready to vent about work.

Vanessa was already seated at a patio table when Leo arrived at the restaurant. After a server took their food order they settled in with cups of coffee.

ABOUT REAL DEAL

Real Deal scenarios are inspired by true stories but are changed to sharpen the dilemmas involved and should not be confused with real people or places. Responses are peer-sourced opinions and are not a substitute for professional legal advice. Please contact your attorney if you have any questions about an employee or customer situation in your own business.

ABOUT THE AUTHOR

NATALIE TAYLOR is owner of Artisan Eyewear in Meredith, NH. She offers regional private practice consulting and ABO/COPE approved presentations. Email her at [email protected]

“Do you mind if I go first?” Leo asked.

Vanessa nodded encouragement. “Go for it.”

“Thanks. Okay, I have this account in a rural part of the state. They brought my line in when they opened three years ago, a healthy buy-in, and they’ve maintained 50 pieces, which is decent considering how small the shop is.”

“Okay, I’m with you so far,” she said.

“When the account was opened we verbally agreed to exclusivity. And to be fair they’ve been on top of their bills, no issues on that side,” he said. “However, in the last two years, two new optical shops have opened within a 20 mile radius, and one of them has been hounding me for the last six months to let them carry the line.”

“Ah, that’s tough,” Vanessa said.

“It gets more complicated,” Leo continued. “My account maintains good board space but they only sell through maybe 30 pieces a year, and have requested two big exchanges in as many years. A few weeks ago I stopped in to show them the new releases, only to find they’ve added a very similar line!”

Vanessa nodded. “So you’re trying to figure out if they still deserve exclusivity?”

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Leo leaned back in his chair. “No, see, I know the answer is no. They haven’t technically stepped outside the verbal agreement, but it’s also just that – verbal. As soon as I saw the line I spoke to the owner and explained why I couldn’t maintain exclusivity.”

“How did that go over?” she said, chuckling.

“She did not want to see things from my side. She said ‘Am I supposed to run all my new lines by you?’ and I said no of course not, but when you have competing lines of course sales will suffer. Right?” Leo asked, waiting for Vanessa to nod.

“That’s a tough spot Leo but at least you know you have a new account ready and waiting,” she said.

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“That’s the thing! Yes, that other office wants to bring the line in, and they want written exclusivity AND they’ve agreed to a minimum purchase of 50 pieces yearly. Great, right? But the first practice owner, the one that’s now really mad at me, contacted the third local office and is arranging to sell them her whole collection at a 50% discount, presumably out of spite.”

Vanessa’s jaw dropped. “I can see why you wanted to vent!” she exclaimed.

The Big Questions

  • How valid are verbal exclusivity agreements, and was Leo wrong to consider breaking his?
  • If you were the practice begging to open an account, would knowing these details make you think twice?
  • What should Leo do about the involvement of the third optical shop and his resale goods?
Ike I.
Houston, TX

1. Very valid if both parties are honest and uphold their integrity in their dealings. It’s fair that Leo consider his options.
2. Definitely, it’s worth noting so as to facilitate a sound business decision.
3. It’s a very tough question but he can’t do anything since the first shop pays him what they owe him. I suggest he renegotiate with the first shop in order to accommodate the second optical shop going forward.

John L.
Nashville, IN

Do anything, say anything to open an account. Leo should have known that those types of agreements will come back to bite you in the … I work in a rural area and a restriction of 20 miles for exclusivity is unreasonable. Since the first party is not making the money you need to hold your line exclusive, open the account with the second office. As far as the third office, no account, no warranty, no customer service.

Barry S.
Seaford, NY

There’s a tiered situation that’s a solution here:

1. Let the first/older account continue to carry the line and be on the dealer locator.
2. Let the newer account carry the line but not be on the locator.

Review in one year. If the original account isn’t selling anywhere near the new account, reverse their positions on the locator.

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Natalie Taylor is an experienced optometry practice manager for Advanced Care Vision Network and a consultant with Taylor Vision. Learn more at tayloreye.com.

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