Also known as:combinations in restraint of trade · restraint of trade
Written by attorneys · grounded in primary & secondary sources — see below
An agreement between two or more parties that limits competition in a business or restricts a party's ability to engage in a gainful occupation. The agreement is unreasonably in restraint of trade when ancillary to a valid transaction yet greater than needed to protect the promisee's legitimate interest or when the promisee's need is outweighed by hardship to the promisor and likely injury to the public.
Sources & Authorities
How it applies
Common Examples
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Overbroad Franchise Noncompete
Cedar Creek Farms sold its restaurant franchise to Canyon Construction under an agreement containing a post-termination clause barring Canyon from operating any food business within 150 miles of any Cedar Creek location for ten years. After termination Canyon opened a small local cafe inside the restricted zone. Cedar Creek sued to enforce the clause. The court refused enforcement because the geographic and activity restrictions exceeded what was necessary to protect Cedar Creek's legitimate interests in its brand and customer relationships.
Parallel Pricing Without Agreement
Copperfield Mining and Crown Pharmaceuticals each raised prices on overlapping product lines in the same quarter. Plaintiffs alleged only that the price increases were simultaneous and produced higher profits. The court dismissed the complaint because the allegations described independent parallel conduct rather than any agreement forming a combination in restraint of trade.
Select any source to read its text and confirm it supports the definition.
Restatements
Dictionaries
Bell Atlantic Corp. v. Twombly550 U.S. 544, 556, 127 S.Ct. 1955, 167 L. Ed. 2d 929 (2007)
Manufacturing Monopoly Challenge
Caleb Chang and Claire Campbell formed a new entity that acquired nearly all sugar-refining plants in the United States. The government sued claiming the acquisitions created a monopoly. The Court held that the combination concerned only manufacturing and therefore fell outside the reach of federal antitrust law governing restraint of trade in interstate commerce.
United States v. E. C. Knight Co.156 U.S. 1 (1895)
Stream of Commerce Restraint
Connor Clark and Christine Castro agreed that their meat-packing companies would fix prices and divide territories for livestock purchases and finished products shipped across state lines. Prosecutors charged the arrangement as a combination in restraint of trade. The Court upheld the indictment because the agreement directly affected the flow of goods in interstate commerce.
Swift & Co. v. United States196 U.S. 375 (1905)
Insurance Rate Fixing Pact
Cameron Cruz and Christopher Collins, officers of competing insurance associations, agreed on uniform premium rates and policy terms for fire insurance sold nationwide. The government prosecuted the agreement as a combination in restraint of trade. The Court held that the business of insurance constitutes interstate commerce subject to the Sherman Act.
United States v. South-Eastern Underwriters Association322 U.S. 533, 558, 64 S.Ct. 1162, 1177 (1944)
Cotton Exchange Access Limit
Copperfield Mining sought membership in the New York Cotton Exchange but was denied under an internal rule limiting new entrants. It sued claiming the rule operated as a combination in restraint of trade. The Court concluded that the exchange's membership criteria did not constitute an unlawful restraint because they regulated only internal exchange operations.
Moore v. New York Cotton Exchange270 U.S. 593, 610 (1926)
Common questions
Frequently Asked
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When is an ancillary noncompetition promise unenforceable as a restraint of trade?+
A promise ancillary to a valid transaction is unenforceable if the restraint is greater than needed to protect the promisee's legitimate interest or if that interest is outweighed by hardship to the promisor and likely injury to the public. Courts assess duration, geographic scope, and the range of prohibited activities to determine reasonableness.
Does parallel pricing alone establish a combination in restraint of trade?+
No. Parallel conduct by competitors is insufficient without additional factual context suggesting an actual agreement. A complaint must allege facts that make an agreement plausible rather than merely consistent with independent action.
What distinguishes a manufacturing monopoly from a restraint of trade in interstate commerce?+
A combination limited to manufacturing steps that occur before goods enter the stream of interstate commerce does not violate federal antitrust law. Only restraints that directly affect the purchase, sale, or transportation of goods across state lines fall within the prohibition.
Can an agreement fixing insurance premiums constitute a combination in restraint of trade?+
Yes. When the insurance business involves interstate commerce, an agreement among insurers to fix rates and policy terms is subject to the Sherman Act and may be prosecuted as an unlawful combination.
550 U.S. 544, 127 S. Ct. 1955, 167 L. Ed. 2d 929 (2007)Civil Procedure
…Souter Liability under § 1 of the Sherman Act, 15 U.S.C. § 1, requires a "contract, combination, . . . or conspiracy, in restraint of trade or commerce." The question in this putative class action is whether a § 1 complaint can survive a motion to dismiss when it alleges that major telecommunications providers engaged in…