Businesspeople Arguing in Meeting About Trade

Understanding Restraint of Trade

David H. Schwartz, INC March 22, 2023

Restraint of trade refers to any action that hinders or prevents a business from freely conducting its operations, whether that be for sales, trade, or transportation involving interstate commerce. Restraint of trade is covered federally by the Clayton Act, the Federal Trade Commission Act, and the Sherman Antitrust Act.  

In California, the Business and Professions Code covers restraints put on individuals to engage in a legal profession or trade of business, generally through non-compete agreements forced upon employees. 

Some examples of restraint of trade include price fixing to force out a competitor and interfering with someone’s agreement or contract (for instance, by luring away a supplier with promises of a higher return). Restraint of trade is usually litigated as a civil wrong, and the aggrieved party can take the other party or parties to court to sue for damages, such as lost revenue or a lost customer base. 

If your business in or around the Greater San Francisco Bay Area is the victim of restraint of trade, or if your business is on the other side and being accused of restraining trade, contact the Law Offices of David H. Schwartz, INC.   

Business litigation attorney David Schwartz has more than 45 years’ experience in disputes involving restraint of trade and other issues among competitors. He will protect your interests and exercise your rights aggressively toward the best possible outcome. He also proudly serves clients in Santa Clara, San Jose, San Mateo, Oakland, and throughout Alameda County. 

What Is Restraint of Trade? 

Restraint of trade, as mentioned above, is any effort that limits someone else’s ability to engage freely in their business. The federal laws refer to interference in any aspect of interstate commerce, including sales, trade, and even transportation. These days, due to the heavy reliance on the internet and out-of-state suppliers and vendors, virtually every business is engaged in interstate commerce. 

Examples of restraint of trade include: 

  • Creating a monopoly 

  • Coercing someone to cease their business 

  • Damaging a company’s reputation 

  • Forcing someone to change their business so it is no longer competitive 

  • Fixing prices to drive out a competitor 

  • Using non-compete clauses or other contractual clauses to prevent someone from doing business 

  • Negatively affecting someone’s ability to conduct business freely 

  • Interfering with a contract or agreement 

Is Restraint of Trade a Crime? 

The Sherman Antitrust Act of 1890 classifies restraint of trade –  i.e., any “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” – as a felony punishable by a fine of up to $350,000 for an individual and up to $10 million for a corporation.  

The act is directed at larger players – conglomerates and monopolies – as opposed to one firm conspiring against a competitor, and any criminal charge would have to be brought by the U.S. Department of Justice (DOJ). 

Mostly, restraint of trade legal actions are conducted in civil courts, where decisions do not carry criminal liability but can result in corrective orders, compensation for damages and losses, or both. Restraint of trade also borders closely on a legal concept known as tortious interference, also called a business tort. 

Reasonable Restraint of Trade 

Not all restraints are illegal or tortious. For instance, you can limit the sales of your product to a specific region or a specific retailer or distributor and that would not be a restraint of trade so long as it serves a legitimate interest of yours and doesn’t harm the public. On the other hand, if a distributor refuses to distribute your product to a certain region because of an agreement with a competitor, that could be a restraint of trade. 

Non-Compete Clauses in California 

The California Business and Professions Code states that, with some exceptions, “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.”  

This has generally meant that non-compete agreements are not valid in the Golden State, but the California Supreme Court, in a recent case known as Ixchel Pharma, LLC v. Biogen, Inc., ruled that any particular agreement should be judged by whether the agreement harms competition more than it helps. 

Get Experienced Guidance in Your Restraint of Trade Dispute 

If you feel your business is being harmed by another party through restraint of trade, or your business is being accused of restraint of trade, you need to seek knowledgeable and experienced legal guidance immediately. In the Greater San Francisco Bay Area, contact the Law Offices of David H. Schwartz, INC to review the situation and advise you of the best legal options going forward.