I have written a number of articles about the contract between advertising agency and client, covering the traditional areas such as scope of services, compensation, indemnification and termination. This article addresses one of the more difficult areas: exclusivity. Frequently, this part of the agreement provokes more discussion and dilemmas than any other.

From the agency's perspective, exclusivity offers a number of appealing features. It provides a certain amount of prestige for the agency, it certainly helps solidify financial concerns, especially where billings are either hourly based or commission based, and it offers payment protection for creative work. From the client's point of view, exclusivity ensures the loyalty of the agency and will prevent superior talent from plying its creativity and resourcefulness for a competing brand.

The problems and heated discussions arise over the issue of just how exclusive the arrangement is going to be. There is exclusivity, and then there is real exclusivity. Today, the negotiating spectrum is generally about four layers deep. Layer one is product exclusivity, layer two is category exclusivity, layer three is company exclusivity and layer four is holding company exclusivity. (Another layer sometimes involves geographic limitations, but I will not address these). Here are some of the focus points concerning these issues and some suggestions on structuring a workable contract.

For the agency, the general mind set for exclusivity is one of product or brand exclusivity. If the agency has been engaged to build a campaign for the client's popsicles, and has been named the exclusive agency for this product, then the agency would readily concede a prohibition against handling another company's advertising for popsicles or ice cream bars. This is probably the most frequent example of exclusivity. The agency, in return for being named the exclusive agency for a product or brand, agrees to exclude working for any other company marketing the same or very similar product.

Clients, however, sometimes wish to broaden the scope of the agency's forbidden products to include any which are considered to be in the same product "category". For example, popsicles could be considered to be part of the broader category of "frozen treats" products or even "snacks" in general. Under the "frozen treats" description of exclusivity, the products which the agency is forbidden to represent could include things such as slushies, milkshakes, frozen candies and the like. If "snacks" is the category description, the agency is precluded from taking on products such as candy bars, suckers, and maybe chips and nuts. At this point the better approach is to specifically identify the products which are covered by the exclusivity. Describing the prohibited items with vague or open-ended language is almost sure to present problems and arguments in the future.

Occasionally, a client will seek to prohibit an agency from representing any products from a competing company. The argument for such a position usually is the possibility of a leak of marketing plans, financial or sales information, or some similar concern about confidential information. This broad prohibition can be a real problem for the agency, and without significant additional compensation, should be resisted. The issue can sometimes be handled by including a solid and well-drafted confidentiality section in the contract. This section should be sufficient to assuage the client's fears about the wrongful or accidental dissemination of confidential information to competitors.

The last exclusion is a result of the proliferation of advertising holding companies that own multiple agencies. Here the client will seek to prevent any of the holding company's agencies from undertaking work for a product or category competitor. Because most Agencies under a holding company umbrella truly act independently, clients are seldom able to achieve this type of limitation. It is however, the reason some clients use for moving an account from one agency to another, particularly when an agency is acquired by a holding company, and the client is aware the another agency owned by this holding company represents one its chief rivals.

The best approach for both the agency and the client in dealing with exclusivity issues is to be aware of the needs of each, to recognize that exclusivity does have limits for each, and that good descriptions of the scope of exclusivity and its limits can prevent problems and misunderstandings in the future for both.

© May 2005 Jon Lee Andersen All Rights Reserved