While healthy competition is part of our country’s free market tradition, there is a line that businesses or individuals should not cross in attempting to gain new business or customers. What starts as an aggressive marketing strategy can turn into a prohibited activity that seriously harms another business. Some of these prohibited activities fall under the legal doctrine of restraint of trade.
Basically, restraint of trade is any action that inhibits another party from doing business as they normally would absent such a restraint. Rather than a business tort itself, restraint of trade is a legal doctrine that encompasses a number of torts. Some examples of restraint of trade include:
- Conspiring with another party to create a monopoly
- Price fixing
- Using coercion to stop competition
- Interfering with a business contract or relationship (tortious interference)
- Using unreasonable restrictions in employment agreements to prevent someone from doing business elsewhere
The legal basis for restraint of trade is found in English common law and three major U.S. federal antitrust laws: the Sherman Antitrust Act of 1890, the Clayton Act (1914), and the Federal Trade Commission Act (1914). The Sherman Act’s restraint of trade provision specifies that “Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal.”
However, in some instances, restraints of trade may be found to be legal if they serve a legitimate purpose and are not contrary to the public interest. One example of this is a non-compete agreement that may restrict an employee’s ability to compete directly against his or her employer.
In determining the legality of such a non-compete agreement, courts will look at whether the agreement is reasonable as to the scope of activities prevented, the geographic limitation, and the time period, as well as the industry involved. What is reasonable for a non-compete agreement’s geographic location and duration in one industry may not be reasonable for another type of industry. The interest that a business is seeking to protect — such as trade secrets or confidential information — must necessitate the restrictions in the agreement.
At Williams Mestaz, L.L.P., we focus our efforts on representing your business interests throughout the duration of your case. When you need help that only an experienced business litigation attorney can offer you, contact Williams Mestaz, L.L.P., at (602) 256-9400.