Position of law in the United Kingdom The English Law on restraint of trade can be expressed as follows 1. The fundamen fundamental tal principle principle is that that every every restraint restraint whether whether partial partial or general general is contrary contrary to public policy and is prima facie void. 2. The doctrine doctrine is not not limited to particula particularr types of contracts. contracts. It is also also capable capable of applying applying to the use of a particular piece of property as well as where it relates to the activities of an individual. But the doctrine may not be invoked where the restraint relates to the use or the disposition of property acquired by the covenanter under the very agreement under which he accepted the restraint. 3. This presump presumption tion of invalidi invalidity ty is rebutted rebutted by a proof proof of the restraint restraint being being reasonable. reasonable. 4. The restraint restraint must must be reasonable reasonable in the interest interest of both both contracting contracting parties parties and also also in the interest of the public 5. The onus onus of proving proving the reasonab reasonableness leness lies lies upon the the covenantee. covenantee. But But contracts contracts of a kind which have gained general commercial acceptance and have not been subject to the doctrine may be considered 'prima facie' reasonable. But the onus of proving that the contract tends to injure the public lies upon the covenantor. 6. The restraint restraint to be reasonab reasonable le must not not be more than what what is reasonably reasonably necessa necessary ry to protect protect the covenantee's interest. 7. Existence Existence of proprietar proprietary y interest necessa necessary ry for protection protection of the the covenantee covenantee has to be proved proved and it must be shown to the satisfaction of the court that the restraint as regards it area and time of operation and the trades against which it is directed, is not excessive. 8. Whether Whether restraint restraint is reasonab reasonable le or not is is a question question for the the court court to decide decide 9. The doctrine doctrine applies applies to restraints restraints which which operate operate during during continua continuance nce of the contract contract 10. Whether a particualr provision operates operates in restraint of trade is to be determined not by the form that the stipulation takes, but its effect in practice. Some landmark cases to be referred to are: 1. Maxim Nordenfe Nordenfelt lt Guns and and Ammun Ammunition ition Co v. v. Nordenfelt Nordenfelt [1893] [1893] 1 Ch 630 : This This is the case which lays down the test to decide whether a stipulation creates an unreasonable restraint of trade. 2. Esso Petroleum Petroleum v. Harper's Harper's Garage [1967] [1967] 1 All ER 699 3. Attorney Attorney General of the the Commonwealt Commonwealth h of Austral Australia ia v. v. Adelaid Adelaidee Steamship Steamship co. Ltd. Ltd. [1911[191113] All ER Rep 1120
Position of Law in the t he United States of America Two main laws need to be considered when dealing with restraint of trade in the USA. The Sherman Anti-Trust Anti-Trust Act of 1890 (15 U.S.C.A. §§ 1 et seq.), the first and most significant of the U.S. antitrust laws. Section 1 of the Sherman Act made agreements 'in restraint of trade' illegal. It also made it a crime to 'monopolize, or attempt to monopolize … any part of the trade or commerce.' The purpose of the act was to maintain competition in business. The act was followed by several other antitrust acts, including the CLAYTON ACT of 1914, the Federal Trade Commission Act of 1914 , and the ROBINSON-P ROBINSON- PATMAN ACT of 1936. All of these acts attempt to prohibit anticompetitive practices and prevent unreasonable concentrations of economic power that stifle or weaken competition. The Clayton Act was originally enacted to exempt unions from the scope of antitrust laws by refusing to treat human labor as a commodity or an article of commerce. Today Today,, it is used primarily to prohibit the suppression of free competition by making illegal four business practices: price discrimination, which is the sale of the same product to comparably situated buyers at different
prices; tying and exclusive dealing contracts, which are the sale of products on condition that the buyer stop dealing with the seller's competitors; corporate mergers, the acquisition of competing companies by one company; and interlocking directorates, the members of which are common members on the boards of directors of competing companies.
Although section 1 of the Sherman Act prohibits every contract in restraint of trade, only those restrictions which unreasonably restrain trade are struck down. Since the early years of this century, courts have considered this “Rule of Reason” to be the prevailing standard of analysis for determining the reasonableness of a restraint. Essentially, Essentially, the inquiry under the Rule of Reason is to determine “whether the restraint imposed is such as merely regulates and perhaps thereby promotes competition or whether it is such as may may suppress or even destroy competition.” competition.” This analysis is employed to form a judgment about about the competitive side of of the restraint . The conclusion that the restraint is unreasonable may be based either on 1) the nature or character of the contracts or 2) surrounding circumstances giving rise to the inference that they were intended to restrain trade and enhance prices. Thus, the fundamental inquiry is whether the challenged restraint suppresses or enhances competition. Whereas the rule of reason applied to conspiracies in restraint of trade is the general or default rule, over the years courts have concluded that certain types of conduct are inherently anti-competitive and therefore would not be open to justification. Thus, the courts have created, as an exception to the general rule of reason test, per se rules of illegality for certain types of conduct - in part for reasons of administrative efficiency. These practices are: price -fixing, market division, tying arrangements and group boycott. However, the per se rule is not enforced uniformly in the sense that somewhat different evidentiary standards are applied depending upon the type of practice involved. Important Cases 1) Sewell Plastics, Inc. v Coca-Cola Co., 720 F Supp 1196, 1217 (W D NC 1989) held that relevant circumstances may include a number of various factors such as the parties intentions and purposes in adopting the restriction, the structure of and competitive conditions within the affected affect ed industry, industry, the relative competitive positions of the parties, and the presence of economic barriers inhibiting the ability of competitors to respond and offset the challenged practices.” 2) Standard Oil Co. of New Jersey v United States, Stat es, 221 US 1 (1911). 3) National Society of Professional Engineers v United States, 435 US 679 (1978) 4) Lektro-Vend Corp. v Vendo Co., 660 F2d 255, 265 (7th Cir 1981) Position of Law in Canada In Canada s 45 of the Competition Act prohibits any stipulations which reduce competition. The recent case of R v. Nova Scotia Pharmaceuticals [1992] 2 S.C.R. 606,advocates an approach which involves a partial use of the rule of reason as used in the US. A combination combination between the rule of reason and the per se rule has been arrived at in this case. The seriousness of economic effects is the prime factor of this combination. For law prior to this judgment see R. v. Aetna Insurance Co., [1978] 1 S.C.R. 731 It is to be noted that acts in restraint of trade can be punished under the criminal laws of Canada.
Position of Law in Australia In Australia the provisions of the Trade Practices Act 1974, especially ss 45,46 and 47 deal with restraint of trade. Common law and the provisions of the Act are harmonious in nature.
The province of New South Wales however has a specific Restrain of Trade Act.
