Section 1 of the Sherman Act, which is codified at 15 U.S.C. § 1, forbids any restraint of trade imposed by contract, combination, or conspiracy. A few trade restraints are unlawful per se, but most trade restraints are condemned under Section 1 only if they are shown to lessen competition substantially in a properly defined relevant market.
The term “restraint of trade” was developed at common law in England and refers to conspiracies in restraint of trade and contracts in restraint of trade, which are distinct categories of trade restraints.
A conspiracy in restraint of trade refers to competing sellers (or competing buyers) who collude with one another to allocate sales or fix prices rather than compete for the business of customers (or suppliers).
A contract in restraint of trade typically refers to restrictive covenants set forth in a contract that protect the covenantee from the future competition of the covenantor. Under classical antitrust law, these contracts were illegal restraints of trade when the restriction of future competition was not narrowly tailored to promote the success of a legitimate transaction or collaboration memorialized by the contract: the restriction must have been truly ancillary and subordinate to a legitimate purpose (e.g., the sale of a business, a partner’s departure from a business, an employee’s departure from a business, etc.). It must also have been narrowly tailored to facilitate the success of the legitimate purpose, or else it was unlawful per se in violation of Section 1.
Under modern standards, a contract in restraint of trade can be deemed a violation of Section 1 only if the restraint is wholly unrelated to the underlying transaction or contract or when it is accompanied by a showing of “harm to competition” under the consumer-welfare standard.
We have litigated and advised clients about many different kinds of trade restraints during the past thirty-five years. Our particular focus has been contracts in restraint of trade, including the following categories of contractual restraints:
• Platform restraints – i.e., restrictive conditions imposed by platform operators on those who use their platforms.
• Non-compete restraints, which include non-compete covenants, non-solicitation covenants that operate as de facto non-compete covenants, and no-poaching restraints (agreements between rival employers not to compete for employees).
• Tying arrangements.
• Exclusive-dealing provisions, including provisions that establish de facto exclusive dealing.
• Product-bundling provisions and loyalty discounts.
• MRP and MAP provisions — i.e., contracts that oblige resellers to charge minimum prices.
We also have substantial experience litigating and advising clients about the following kinds of conspiracies in restraint of trade:
• Group boycotts.
• Horizontal price-fixing.
• Horizontal market-allocation.
• Bid-rigging.
• Misuse of standard-essential patents.