Each case of trade restriction is different. It is impossible to know in advance how a court could rule on a trade restrictions case. the circumstances of the present case are unique. What is a trade restriction? Restricting trade is a type of economic damage that involves interfering with someone else`s ability to do business freely. 3 min read Trade restriction is an issue in non-competition clauses and other restrictive agreements, including non-solicitation and non-disclosure agreements. Under a non-compete obligation, an employee or business owner agrees to an agreement (sometimes in exchange for remuneration) so as not to compete with the former employer or new business owner in a certain field and type of work for a certain period of time. Non-compete obligations come into play in several circumstances: Overall, trade restriction is any activity that prevents someone from doing normal business without restrictions. Trade restriction is not an offence in itself, but a legal doctrine (based on customary law) that refers to a relatively wide and fluid range of offences. For example, unauthorized interference is a type of commercial offense in which a party interferes in a contract or business relationship.
The party directly affected by the disruption may seek damages limited to the specific transaction by making a claim for unauthorized interference. However, the applicant may also make a request for limitation if he can prove that the interference has impeded his legal capacity in the broad sense. For example, if the interference with a contract has damaged the company`s reputation, it may result in a claim of business restriction. Any business owner who believes that another party has violated their right to trade can take legal action for trade restriction. To constitute an effective restriction on trade, both parties must have provided valuable consideration for their agreement to be enforceable. In the Dyer case, a dyer had given a guarantee not to carry on business in the same city as the plaintiff for six months, but the plaintiff had promised nothing in return. When Judge Hull heard the plaintiff`s attempt to enforce this restriction, he exclaimed, „According to God, if the plaintiff were here, he would have to go to jail until he had paid a fine to the king. It is the privilege of a trader in a free country, in all matters that do not violate the law, to regulate his own way of proceeding at his own discretion and choice. If the law has regulated or restricted the way it does so, the law must be followed. But no power other than the general law should limit its free discretion. For example, even if a restriction within the meaning of Mitchel and Addyston Pipe is necessary and incidental, it may nevertheless constitute an unreasonable restriction on trade if its anti-competitive effects and the resulting adverse effect on the public interest outweigh its benefits. As Justice Ginsburg said in Polygram: The Sherman Antitrust Act explicitly contains a section on trade restriction and declares it illegal.
The law also affects other trade restrictions, including non-compete obligations, especially if they are used to set prices or to drive out other companies. Some trade restrictions are legitimate and appropriate. For a restriction to be appropriate and valid, it must serve a legitimate interest and must not be contrary to the public interest. The concept of trade restriction has been established in English customary law under the Clayton Act, the Federal Trade Commission Act and numerous antitrust laws. The Sherman Antitrust Act of 1890 made it illegal to participate in inappropriate economic restrictions. In fact, some state laws consider trade restriction a crime, and any party participating in the restriction can be sued in a civil court. The 1911 Supreme Court decision in Standard Oil Company of New Jersey v. United States was based on Taft`s analysis of the rule of reason. In this case, the court found that a contract violates the Sherman Act only if the contract „unreasonably” restricts trade, that is, if the contract has monopolistic consequences. A broader meaning, according to the Court, would prohibit normal and customary treaties and thus violate freedom of contract.
The Court thus upheld the rule of reason set out in Addyston Pipe, supra, which in turn flowed from Mitchel v. Reynolds and the Common Law of Restraints of Trade. Any activity that tends to restrict trade, sale or transport in interstate trade is considered a restriction of trade. In the light of the above, the High Court was not wrong to conclude that the doctrine of trade restriction was not applied to the facts. The public interest in binding the parties to a freely negotiated contract outweighed the effect of restricting the appellant`s ability to act. There was therefore no reason to intervene in the conclusion that the agreements were reasonable and the appeal was dismissed. A related question is whether, even if a restriction is necessary and incidental, there are ways available to achieve the desired result that are less harmful. The ftC-DOJ 2000 Guidelines for Competitor Collaborations state that determining whether a restriction is „reasonably necessary” is „determining whether practical and much less restrictive means were reasonably available at the time the agreement was entered into.”  In some cases, a trade restriction is indeed legitimate and enforceable in court if it is deemed appropriate. To be reasonable and therefore legally binding, a trade restriction must meet a number of requirements, including: In general, there are two categories of trade restrictions: vertical restraint and horizontal restraint.
A vertical restraint exists when an undertaking acquires control of another undertaking which was previously its customer or supplier. The controlling company has the right to impose certain anti-competitive restrictions on the company it acquires. Here are some examples of vertical trade restrictions: To determine whether a contract constitutes a restriction on trade, a court will consider three factors: Government regulations: The trade restriction can also violate state regulations, such as the Sherman Antitrust Act of 1890 and other antitrust laws. In addition, some state laws do not allow agreements that restrict competitive business activity. For the restriction to be appropriate, (i) the restriction had to provide adequate protection to the party for whom it was imposed, (ii) without harming the public in any way. The Court ruled in paragraph 1. It was stated in paragraph 65 of the judgment that the party wishing to invoke the restriction had an obligation to demonstrate the appropriateness of the agreement. To the extent that the party wishing to invoke the restriction demonstrated that the restriction was proportionate, responsibility was transferred to the party wishing to challenge the restriction in order to demonstrate that the restriction was contrary to the public interest. Reasonableness had to be assessed at the time of entering into the contract. For example, owners of two competing companies who discuss their pricing strategies during a round of golf have the freedom to say what they think. While they can`t explicitly express their intentions, the subtext of their conversation can be interpreted as a price-fixing conspiracy if it`s ultimately the result of the conversation.
In the event that pricing results in the departure of a third competitor, that company has the right to bring an action for trade restriction. The doctrine of trade restriction is rooted in English customary law and codified under U.S. laws (particularly the Clayton Act and the Federal Trade Commission Act) and various state antitrust laws. .