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Position of law in the United Kingdom

The English Law on restraint of trade can be expressed as follows

1. The fundamental principle is that every restraint whether partial or general is contrary to
public policy and is prima facie void.
2. The doctrine is not limited to particular types of contracts. It is also capable of applying to
the use of a particular piece of property as well as where it relates to the activities of an
individual. But the doctrine may not be invoked where the restraint relates to the use or the
disposition of property acquired by the covenanter under the very agreement under which he
accepted the restraint.
3. This presumption of invalidity is rebutted by a proof of the restraint being reasonable.
4. The restraint must be reasonable in the interest of both contracting parties and also in the
interest of the public
5. The onus of proving the reasonableness lies upon the covenantee. But contracts of a kind
which have gained general commercial acceptance and have not been subject to the doctrine
may be considered 'prima facie' reasonable. But the onus of proving that the contract tends
to injure the public lies upon the covenantor.
6. The restraint to be reasonable must not be more than what is reasonably necessary to protect
the covenantee's interest.
7. Existence of proprietary interest necessary for protection of the covenantee has to be proved
and it must be shown to the satisfaction of the court that the restraint as regards it area and
time of operation and the trades against which it is directed, is not excessive.
8. Whether restraint is reasonable or not is a question for the court to decide
9. The doctrine applies to restraints which operate during continuance of the contract
10. Whether a particualr provision operates in restraint of trade is to be determined not by the
form that the stipulation takes, but its effect in practice.

Some landmark cases to be referred to are:

1. Maxim Nordenfelt Guns and Ammunition Co v. Nordenfelt [1893] 1 Ch 630 : This is the
case which lays down the test to decide whether a stipulation creates an unreasonable
restraint of trade.
2. Esso Petroleum v. Harper's Garage [1967] 1 All ER 699
3. Attorney General of the Commonwealth of Australia v. Adelaide Steamship co. Ltd. [1911-
13] All ER Rep 1120

Position of Law in the United States of America

Two main laws need to be considered when dealing with restraint of trade in the USA.

The Sherman Anti-Trust Act of 1890 (15 U.S.C.A. §§ 1 et seq.), the first and most significant of the
U.S. antitrust laws. Section 1 of the Sherman Act made agreements 'in restraint of trade' illegal. It
also made it a crime to 'monopolize, or attempt to monopolize … any part of the trade or
commerce.' The purpose of the act was to maintain competition in business. The act was followed
by several other antitrust acts, including the CLAYTON ACT of 1914, the Federal Trade
Commission Act of 1914 , and the ROBINSON-PATMAN ACT of 1936. All of these acts attempt
to prohibit anticompetitive practices and prevent unreasonable concentrations of economic power
that stifle or weaken competition.

The Clayton Act was originally enacted to exempt unions from the scope of antitrust laws by
refusing to treat human labor as a commodity or an article of commerce. Today, it is used primarily
to prohibit the suppression of free competition by making illegal four business practices: price
discrimination, which is the sale of the same product to comparably situated buyers at different
prices; tying and exclusive dealing contracts, which are the sale of products on condition that the
buyer stop dealing with the seller's competitors; corporate mergers, the acquisition of competing
companies by one company; and interlocking directorates, the members of which are common
members on the boards of directors of competing companies.

Although section 1 of the Sherman Act prohibits every contract in restraint of trade, only those
restrictions which unreasonably restrain trade are struck down. Since the early years of this century,
courts have considered this “Rule of Reason” to be the prevailing standard of analysis for
determining the reasonableness of a restraint. Essentially, the inquiry under the Rule of Reason is
to determine “whether the restraint imposed is such as merely regulates and perhaps thereby
promotes competition or whether it is such as may suppress or even destroy competition.” This
analysis is employed to form a judgment about the competitive side of the restraint. The
conclusion that the restraint is unreasonable may be based either on
1) the nature or character of the contracts or
2) surrounding circumstances giving rise to the inference that they were intended to restrain trade
and enhance prices.
Thus, the fundamental inquiry is whether the challenged restraint suppresses or enhances

Whereas the rule of reason applied to conspiracies in restraint of trade is the general or default rule,
over the years courts have concluded that certain types of conduct are inherently anti-competitive
and therefore would not be open to justification. Thus, the courts have created, as an exception to
the general rule of reason test, per se rules of illegality for certain types of conduct - in part for
reasons of administrative efficiency. These practices are: price-fixing, market division, tying
arrangements and group boycott. However, the per se rule is not enforced uniformly in the sense
that somewhat different evidentiary standards are applied depending upon the type of practice

Important Cases
1) Sewell Plastics, Inc. v Coca-Cola Co., 720 F Supp 1196, 1217 (W D NC 1989) held that relevant
circumstances may include a number of various factors such as the parties intentions and purposes
in adopting the restriction, the structure of and competitive conditions within the affected industry,
the relative competitive positions of the parties, and the presence of economic barriers inhibiting the
ability of competitors to respond and offset the challenged practices.”
2) Standard Oil Co. of New Jersey v United States, 221 US 1 (1911).
3) National Society of Professional Engineers v United States, 435 US 679 (1978)
4) Lektro-Vend Corp. v Vendo Co., 660 F2d 255, 265 (7th Cir 1981)

Position of Law in Canada

In Canada s 45 of the Competition Act prohibits any stipulations which reduce competition. The
recent case of R v. Nova Scotia Pharmaceuticals [1992] 2 S.C.R. 606,advocates an approach which
involves a partial use of the rule of reason as used in the US. A combination between the rule of
reason and the per se rule has been arrived at in this case. The seriousness of economic effects is the
prime factor of this combination. For law prior to this judgment see R. v. Aetna Insurance Co.,
[1978] 1 S.C.R. 731
It is to be noted that acts in restraint of trade can be punished under the criminal laws of Canada.

Position of Law in Australia

In Australia the provisions of the Trade Practices Act 1974, especially ss 45,46 and 47 deal with
restraint of trade. Common law and the provisions of the Act are harmonious in nature.
The province of New South Wales however has a specific Restrain of Trade Act.