Legal Definitions - Restraint of trade

A restraint of trade refers to any action or agreement that significantly limits or prevents fair competition in a market, thereby restricting an individual's or company's ability to conduct business freely. These actions are generally illegal under antitrust laws because they harm consumers by reducing choices, increasing prices, or stifling innovation. Governments regulate restraints of trade to ensure a competitive marketplace where businesses can compete fairly and consumers have access to a variety of goods and services at reasonable prices.

• Example 1: Price-Fixing Agreement

  Imagine three major airlines secretly agreeing to charge the exact same fare for flights on a popular route, rather than competing on price. They also agree not to offer any discounts or promotions.

  Explanation: This secret agreement is a restraint of trade because it eliminates competition among the airlines. By fixing prices, they prevent consumers from benefiting from lower fares that would otherwise result from a competitive market. It also limits each airline's ability to independently set its own prices and attract customers through competitive offerings.

• Example 2: Overly Broad Non-Compete Clause

  A software engineer signs an employment contract with a tech company that includes a clause stating they cannot work for any other technology company, anywhere in the world, for five years after leaving their current job.

  Explanation: This non-compete clause is likely an unreasonable restraint of trade. While companies can protect legitimate business interests, such a broad restriction severely limits the engineer's ability to find future employment in their specialized field. It restricts their fundamental right to earn a living and enter into new employment transactions, going far beyond what would typically be considered necessary to protect the former employer's trade secrets or client relationships.

• Example 3: Market Division Scheme

  Two large construction companies, previously competing for government contracts in a specific region, secretly agree to divide the market. Company A will bid exclusively on road construction projects, and Company B will exclusively bid on bridge construction projects, promising not to compete in each other's designated area.

  Explanation: This agreement constitutes a restraint of trade because it eliminates competition between the two companies for government contracts. By dividing the market, they restrict each other's ability to bid on all types of projects and limit the government's options for competitive bids, potentially leading to higher costs for taxpayers and less innovative solutions.