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What does "Restraint of Trade" Mean?

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  • Written By: Mary McMahon
  • Edited By: O. Wallace
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  • Last Modified Date: 14 November 2016
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Restraint of trade is anything that impedes or restricts normal business activities. Many nations have laws that prohibit this, with antitrust laws being a widespread example. In nations where there are no laws in place to prevent it, these practices may limit the function of businesses and such nations may potentially be viewed as hostile business climates for new companies because they would have a difficult time becoming established. Countries that lack these types of laws may be required to enact them before joining economic pacts, treaties, or agreements so that they are not unfairly positioned in relation to other nations in such agreements.

A number of activities may be considered restraint of trade, and anything that impedes trade, transport, and related activities, for example, could potentially be barred by law. Monopolies, price fixing, and other tactics used to inhibit competition are also examples. Things that might interfere with the functions of the free market can also potentially be considered restraint of trade.

Some things which people might think of as restraint of trade are actually not classified as such. For example, no compete clauses are not illegal under such laws. These clauses are considered reasonable because a business has a legitimate interest and concern and it wants to protect things like trade secrets. However, a no compete clause can be challenged on the grounds that it is too broad or impedes someone's ability to work.

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Governments may pursue antitrust actions when they believe that companies are engaging in restraint of trade that could hurt the economy or damage businesses. Likewise, businesses may also bring suit against each other on these grounds. For example, an independent gas station could sue a corporation on the grounds of price fixing, arguing that it is using business practices which interfere with the independent station's ability to do business.

Legal professionals who specialize in handling restraint of trade cases and other cases related to business practices can provide consultation for companies concerned about this issue, including legal consultation for companies that may be fighting suits accusing them of inappropriate business practices such as price fixing, or challenges to planned mergers on the grounds of concerns about monopolies. Legal departments within major companies also usually provide advice and recommendations before such companies move forward on deals and other activities, confirming that such actions will not violate the law.

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hamje32
Post 4

@everetra - I seriously doubt we have real freedom from monopolies, regardless of the laws in place that seek to prohibit restraint of trade.

The problem is that while you can legally break up a monopoly, you can’t always fundamentally change how the free market works.

Take Microsoft as an example. It’s been the subject of plenty of litigation because of its monopoly status. Yet the reality is that still, most of us buy Microsoft products.

Few of my friends want to dive into Linux, and Mac seems to be the domain of graphics arts professionals. The way I see it, Microsoft is still a monopoly from a practical perspective.

everetra
Post 3

@nony - I always sign a non compete clause in a consulting service contract when I do work for a software company, but I seriously doubt any of these agreements are enforceable.

I’ve never had to worry about it, though, because I’ve never violated the letter or spirit of the law so it doesn’t matter either way. I do find it amusing to read the verbose legalese I’m forced to sign, which stipulates that the company owns all of the “ideas” I create on the job.

How could they possibly do that? Ideas live in my head, and I don’t think they are going to give me a lobotomy when I leave. I realize it’s meant to protect them from unfair competition but the language is a bit overkill in my opinion.

nony
Post 2

@Charred - If they’re only adding ten cents, then the wholesale price is high to begin with – who sets that price?

The fact is oil is traded like a commodity on the open market and that’s what determines its price. What’s especially shameless is when a natural disaster like a hurricane hits an area, and gas stations start spiking the price of gasoline really high.

In my opinion, that’s price gouging and it’s illegal. The owners claim it’s supply and demand; that they might run out otherwise. I say, if they run out, let them run, but at least set the price so that the gasoline is still accessible to people who can afford it.

Charred
Post 1

Sometimes people think that a company has violated a restraint law when it hasn’t. When gas prices rise, as an example, everyone wants to shout at the oil companies and accuse them of exploitation or greed.

The reality, at least from what I understand, is that they don’t set the gas prices. The stations do. However, as the article points out, sometimes the station’s corporation (if it’s part of a franchise) may dictate what the price should be, in which case that would certainly come close to price fixing.

But people should quit blaming the oil companies for prices at the pump, as good as it may feel otherwise to do so. As for what gas stations use to set the price, I’ve heard that they add ten cents or so to the wholesale price, which isn’t exactly an obscene profit in my opinion.

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