A restraint of trade is an illegal action designed to prevent a business competitor, or potential competitor, from operating. These actions violate antitrust law and are grounds for investigation and enforcement.
Restraint and trade
In business law, trade refers to the act of carrying out business and transactions. A classic example of a restraint of trade is a merger of two companies that creates a monopoly. That monopoly can create barriers to entry that restrain the trade of any potential competitors. Another example is two companies conspiring to fix prices at a low level to make another competitor bankrupt. Not every example of a restraint of trade is illegal. They simply form the potential basis for a claim in civil court that the parties who are affected by the restraint can file. Filing in civil court allows them to seek damages from the parties doing the restraining.
Determining legality
Whether a restraint of trade was a violation of the law and grounds for damages comes down to legal principles. The most important of these is whether or not the restraint was considered reasonable. For example, some contracts between suppliers and distributors can restrict the distributors’ territory where they can sell the product, but this restraint might be too narrow to violate the public interest, and would therefore be reasonable. Business litigation for restraint of trade often turns on questions about whether a restraint was sufficiently reasonable.
Restraint of trade can be illegal and can entitle the harmed party to damages in civil court, but individual cases vary widely in terms of their circumstances and potential outcomes.
