Legal Definitions - refusal to deal

The term refusal to deal refers to a situation where one business decides not to engage in commercial transactions or maintain a business relationship with another business.

While companies generally have the freedom to choose their business partners and suppliers, this right is not absolute. A refusal to deal becomes legally problematic if it is part of an anti-competitive scheme, such as an attempt to create a monopoly, fix prices, or otherwise illegally restrict trade in the marketplace. In essence, a business can refuse to deal for legitimate reasons, but not if that refusal is intended to unlawfully harm competition.

• Example 1: Legitimate Business Decision

  Scenario: "Prime Parts Inc.," a manufacturer of specialized automotive components, receives an order request from "Auto Innovations," a new car manufacturer. After reviewing Auto Innovations' financial statements and credit history, Prime Parts Inc. discovers that the new company has a history of defaulting on payments to other suppliers and has insufficient capital to cover the large order.

  Explanation: Prime Parts Inc.'s decision not to supply Auto Innovations is a lawful refusal to deal. It is based on legitimate business concerns about financial risk and the new company's ability to pay, not an attempt to stifle competition or create a monopoly.

• Example 2: Illegal Refusal by a Dominant Company

  Scenario: "DataFlow Solutions" is the sole provider of a critical software component that nearly all internet service providers (ISPs) need to operate efficiently. A new, smaller ISP, "ConnectFast," enters the market and begins to offer lower prices, threatening DataFlow Solutions' existing ISP clients. To protect its clients and indirectly harm ConnectFast, DataFlow Solutions refuses to license its essential software component to ConnectFast, despite having the capacity to do so and no legitimate technical reason for the refusal.

  Explanation: DataFlow Solutions' action would likely be considered an illegal refusal to deal. As a dominant player controlling an essential resource, its refusal to supply a competitor without a valid business justification could be seen as an attempt to unlawfully maintain its market power and exclude competition, which constitutes an illegal restraint of trade.

• Example 3: Illegal Collective Refusal (Boycott)

  Scenario: Three large grocery store chains in a particular region—"FreshMart," "Daily Harvest," and "Green Grocer"—are the primary buyers for a local organic produce distributor, "Farm-to-Table Organics." Unhappy with Farm-to-Table Organics' recent price increase, the executives of FreshMart, Daily Harvest, and Green Grocer secretly meet and agree that all three chains will simultaneously stop purchasing from Farm-to-Table Organics until the distributor lowers its prices.

  Explanation: This coordinated action by the three grocery chains is an illegal refusal to deal. While any single chain could individually choose to stop buying from Farm-to-Table Organics, their collective agreement to boycott the distributor is a conspiracy to manipulate prices and restrict trade, which is an anti-competitive practice.