Also known as: unreasonable restraints on trade · restraint of trade · unreasonable restraint of trade
Written by attorneys — see sources below.
A promise that limits competition in a business or restricts a person from pursuing a gainful occupation. Such a promise is unenforceable on public policy grounds when it is ancillary to a valid transaction or relationship 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.
Elliot left Apex Capital after signing a withdrawal agreement that barred him for three years from any lending, investing, or advising role anywhere in North America. Apex sought to enforce the clause to protect its deal pipelines. A court found the continent-wide ban on an entire profession exceeded what was necessary to safeguard Apex's specific interests and imposed undue hardship on Elliot, rendering the restraint unenforceable.
After selling his local delivery business to Regional Logistics, Sam signed a covenant not to operate any competing service within a five-state area for seven years. Regional Logistics sought to enforce the clause to protect customer relationships acquired in the sale. A court found the geographic and temporal scope exceeded what was necessary to safeguard those relationships and imposed undue hardship on Sam, rendering the restraint unenforceable.
In 1971 petitioners, husband and wife, contracted to buy a home in Fairfax County, Virginia. The financing agency required them to secure title insurance, which in turn required a title examination that only a member of the Virginia State Bar could legally perform. Petitioners contacted a lawyer who quoted them the precise fee suggested in a minimum-fee schedule published by respondent Fairfax County Bar Association, amounting to one percent of the value of the property. They then sent letters to thirty-six other Fairfax County lawyers requesting their fees for the title examination. Nineteen replied, and none indicated that he would charge less than the rate fixed by the schedule. The fee schedule is a list of recommended minimum prices for common legal services. The County Bar is a purely voluntary association of attorneys with no formal power to enforce the schedule. Respondent Virginia State Bar is the administrative agency through which the Virginia Supreme Court regulates the practice of law, and membership is required to practice in the state. The State Bar published reports condoning fee schedules. It issued ethical opinions indicating that evidence an attorney habitually charges less than the suggested minimum fee schedule adopted by his local bar association raises a presumption that such lawyer is guilty of misconduct. Because petitioners could not find a lawyer willing to charge a fee lower than the schedule dictated, they had their title examined by the lawyer they had first contacted. They then brought this class action against the State Bar and the County Bar alleging that the operation of the minimum-fee schedule as applied to fees for legal services relating to residential real estate transactions constitutes price fixing in violation of section 1 of the Sherman Act. After a trial solely on the issue of liability the district court held that the minimum-fee schedule violated the Sherman Act as to the County Bar but exempted the State Bar. The court of appeals reversed as to liability. The Supreme Court granted certiorari.
View caseAfter leaving a software partnership, Dana was barred by the partnership agreement from developing any competing application worldwide for five years. The remaining partners sought to enforce the clause to protect shared code. A court found the worldwide ban exceeded what was necessary to safeguard the partnership's specific interests and imposed undue hardship on Dana, rendering the restraint unenforceable.
Respondents Glen Theatre, Inc. and Kitty Kat Lounge, Inc. operate establishments in South Bend, Indiana, that provide adult entertainment including live performances by nude or seminude dancers viewed through glass panels or on stage. Darlene Miller worked at the Kitty Kat Lounge on commission and sought to dance totally nude to increase her earnings. Gayle Ann Marie Sutro performed at Glen Theatre after a professional career in dancing and modeling. In 1985 the city enacted an ordinance banning public nudity, defined as the showing of genitals, pubic area, buttocks, or female nipples with less than full opaque covering, which required dancers to wear pasties and G-strings. Respondents filed suit in the United States District Court for the Northern District of Indiana alleging that the ordinance violated the First Amendment by prohibiting totally nude dancing. The District Court originally granted respondents' prayer for an injunction, finding that the statute was facially overbroad. On remand after the Seventh Circuit's initial reversal, the District Court concluded that the type of dancing these plaintiffs wish to perform is not expressive activity protected by the Constitution of the United States. It rendered judgment in favor of the defendants. The case was again appealed to the Seventh Circuit, and a panel of that court reversed the District Court, holding that the nude dancing involved here was expressive conduct protected by the First Amendment. The Supreme Court granted certiorari to resolve a conflict among the Courts of Appeals on the question whether nude dancing is expressive conduct protected by the First Amendment.
View caseA noncompete ancillary to a valid relationship such as employment or partnership withdrawal is unenforceable if its scope is greater than needed to protect the promisee's legitimate interest or if the promisee's need is outweighed by hardship to the promisor and likely injury to the public.
No. Even when an employer has a legitimate interest in protecting client lists or trade secrets, the restraint must still be no broader than necessary in duration, geography, and scope of prohibited activity.
The court asks whether the restraint exceeds what is needed to protect the employer's specific confidential propulsion designs and whether the breadth imposes undue hardship on the employee or harms the public.
Yes. Courts may decline to enforce terms that conflict with the public policy against unreasonable restraints of trade, independent of any statutory antitrust claim.
…impose Sherman Act liability. 497 F. 2d, at 21 (Craven, J., concurring and dissenting). Of course, an alleged participant in a restraint of trade may have so insubstantial a connection with the restraint that liability under the Sherman Act would not be found, see United States v. National Assn. of Real Estate Boards , 339 U. S., at…