What is an exclusion clause?

Answer 1

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Hechanova Bugay & Vilchez, Manila Trade secrets (including so-called tricks of the trade) are commonly protected by confidentiality agreements, non-disclosure agreements and exclusivity clauses or contracts. Exclusivity clauses are often attacked as being null and void on grounds of public policy because they restrain trade or occupation unreasonably. In Avon Cosmetics Incorporated v Leticia Luna, GR No 153674, dated December 20 2006, the Supreme Court ruled on an exclusivity clause. The facts of the case are as follows: In 1978 Avon acquired Beautifont Inc, a Philippine company, where Luna was an employee. In 1985, Luna and Avon signed the so-called Supervisor's Agreement. This had the following terms: (i) that the Agreement does not make the Supervisor an employee or agent of the Company (ii) that the Supervisor is an independent retailer/dealer and has sole discretion to determine where and how Avon's products will be sold, except that the Supervisor cannot sell such products to stores, supermarkets or to any person who sells things at a fixed place of business, (iii) that the Supervisor shall sell or offer to sell, display or promote only and exclusively products sold by the Company; (iv) that either party may terminate the agreement at will, or without cause, at any time upon notice to the other. In 1988, Luna became group franchise director of Sandre Philippines, Inc, which was engaged in direct sales of vitamins and other supplements. She began to sell and promote Sandre products to Avon employees and friends. On September 23 1988, Luna asked a law firm for an opinion regarding the legal consequences of the Supervisory Agreement she had entered into with Avon. The law firm said it was contrary to law and public policy. Luna then wrote to her colleagues attaching mimeographed copies of the legal opinion, and urged them to engage in other business without fear. On October 11 1988, Avon gave Luna notice of the termination of the Supervisory Agreement on the grounds that she had violated the exclusivity clause. Aggrieved, Luna filed a complaint for damages before the regional trial court (RTC), which ruled in her favor. Avon appealed to the Court of Appeals (CA), which affirmed the RTC decision. In declaring the contract null and void for being against public policy, the CA ruled that the exclusivity clause should be interpreted as applying solely to competing products, otherwise it would result in absurdity. Disputing the conclusion of the CA, and insisting that the exclusivity clause should be interpreted literally, Avon appealed to the Supreme Court. Avon reasoned that the exclusivity clause was aimed at preventing supervisors utilizing their training and experience to sell other products and capitalizing on Avon's existing network, which had been established by Avon at great expense and effort. Citing the US Supreme Court case in Board of Trade of Chicago v US, the question to be determined is whether the restraint imposed is such as merely regulates and perhaps thereby promotes competition, or whether it is such as may suppress or even destroy competition. Since the exclusivity clause in the Supervisor's Agreement is neither directed to eliminate competitors such as Sandre Philippines, nor foreclose new entrants to the market, the Supreme Court held that the Agreement was neither invalid or contrary to public policy. The Supreme Court observed that both Avon and Sandre employ direct selling to sell their products: "It was not by chance that Sandre Philippines made respondent Luna one of its Group Franchise Directors," the Court said in its ruling. "It doesn't take a genius to realize that by making her an important part of its distribution arm, Sandre Philippines, a newly formed direct selling business, would be saving time, effort and money as it will no longer have to train and motivate supervisors and dealers. Respondent Luna who learned the tricks of the trade from petitioner Avon, will do it for them. This is tantamount to unjust enrichment. Worse, the goodwill established by Avon among its loyal customers will be taken advantaged of by Sandre Philippines. It is not so hard to imagine the scenario wherein the sale of Sandre products by Avon dealers will engender a belief in the minds of loyal Avon customers that the products they are buying have been manufactured by Avon. In other words, they will be misled into thinking that the Sandre products are in fact Avon products. From the foregoing, it cannot be said that the purpose of the subject exclusivity clause is to foreclose the competition, that is the entrance of Sandre products into the market. Therefore, it cannot be considered void for being against public policy." Editha R Hechanova

Answer 2

the definition of exclusion clauses is a term in a contract that seeks to restrict the rights of the parties to the contract.