Restraint Of Trade Definition and Legal Meaning

On this page, you'll find the legal definition and meaning of Restraint Of Trade, written in plain English, along with examples of how it is used.

What is Restraint Of Trade?

(n) Restraint Of Trade is an activity which limits the scope of trade or commerce with an intention to restrict free trade or commercial practice thereby eliminating the growth of healthy competition. For example an agreement between a seller and buyer by which seller agree not sell goods to anybody else than the buyer or his associates.

History and Meaning of Restraint of Trade

The restraint of trade is a common law concept that refers to any contract or agreement between parties that impedes or prevents the carrying on of trade or business with anyone else to a reasonable degree. This concept was initially recognized and developed by English courts in the early seventeenth century, as a result of the practice of monopolies operated by the British Crown. The monopolies were seen as a significant impediment to free trade and innovation, which led to protests from merchants, and in response, the courts started recognizing the concepts of competition and fair dealing as important for a flourishing economy.

Today, the doctrine of restraint of trade is considered an antitrust law concept that has been codified in various statutes to prohibit agreements that restrict trade, such as price-fixing, market allocation, and group boycotts. In the United States, the Sherman Act and the Clayton Act are two federal laws that are often invoked by courts to prevent anti-competitive behavior and promote fair competition in the marketplace.

Examples of Restraint of Trade

  • A group of small bookstores in a town agree among themselves to sell new releases only at full price and not to discount them to compete with each other.
  • An employer forces his employees to sign a non-compete agreement that prevents them from working with competing businesses in the same field for a certain period after leaving the employer.
  • A large pharmaceutical company agrees with its competitors not to release a new drug until the rival company's similar medication patent expires.
  • An industry association restricts its members from advertising or offering special discounts below a certain level to avoid price wars and to maintain profit margins.

Legal Terms Similar to Restraint of Trade

  • Monopoly: A situation where one seller or group dominates the market and hence has a significant impact on the price and product availability.
  • Price fixing: An agreement between competitors to set the price of goods or services at an agreed-upon level.
  • Antitrust laws: Statutes that aim to promote fair competition by prohibiting anticompetitive behavior, such as monopolies, mergers that affect competition, and unfair business practices.