It’s another alternating proprietorship/contract brewing/custom-crush Tuesday here at Libation Law Blog.  Today we’re teeing up some thoughts on non-exclusivity clauses.

A non-exclusivity clause is a portion of an agreement that the parties are not providing or exclusively utilizing the services that are the subject of the contract.  It reiterates that the parties are free to perform similar services for others.

So, in our business, a winery would be free to perform under custom-crush agreements with others, a brewery would be able to perform contract-brewing operations with others.  If the winery or the brewery also produce products under their own labels, you should consider that in drafting your clause as well.

At a minimum, you should consider acknowledging that the parties are either direct competitors in producing wines or beers, or acknowledge that the facility producing the wine or beer produces it for others who may be direct competitors.  The parties should also consider ensuring that the clause contains an express right to perform similar services with, or for, others.  Some issues to discuss prior to drafting this clause are:

  • Those competition and express rights issues addressed above;
  • Whether either party is required to utilize the services of the other for some minimum quantum of performance – e.g. a party will have the right to manufacture the first 20,000 barrels in a region, or a party will have the right to ensure that the other will not contract with competitors so as to interfere with a guaranteed quantity of 20,000 barrels;
  • Whether the acknowledgment of work for competitors includes any restrictions – e.g. that a party is not precluded from producing for a competitor, but may be precluded from introducing its own products into the market, or whether competition excludes the right to make a certain kind of product, like any other merlots or IPAs;
  • This can also be a place to consider adding additional protections for your intellectual property and trade secrets : what other information is being passed between the parties that may need to be addressed in the contract – e.g. are formulas being exchanged such that you need to ensure that the other party doesn’t use your formula, is yeast being exchanged and are they only to use your yeast in your beer, can they use your trademarks or labels on any of their advertising or products, what if you’ve tendered information about your marketing strategy, can they act in a manner that copies your goals?

As you can see, the non-exclusivity clause offers a great amount of protection and is a good location for additional information related to the party’s obligations.