Restraint of trade

In an old leading case of Mitchel v Reynolds (1711) Lord Smith LC said,[1] it is the privilege of a trader in a free country, in all matters not contrary to law, to regulate his own mode of carrying it on according to his own discretion and choice.

[citation needed] It intends to protect trade secrets or proprietary information but is enforceable only if it is reasonable with reference to the party against whom it is made and if it is not contrary to public policy.

So in the early 17th century case of Rogers v Parry[4] it was held that a promise by a joiner not to trade from his house for 21 years was enforceable against him since the time and place was certain.

In times of such slow communications and commerce around the country it seemed axiomatic that a general restraint served no legitimate purpose for one's business and ought to be void.

So in the Nordenfelt case,[2] Lord Macnaghten ruled that while one could validly promise to "not make guns or ammunition anywhere in the world" it was an unreasonable restraint to "not compete with Maxim in any way".

This approach in England was confirmed by the House of Lords in Mason v The Provident Supply and Clothing Co.[8] In the US, the first significant discussion occurred in the Sixth Circuit's opinion by Chief Judge (later US President and still later Supreme Court Chief Justice) William Howard Taft in United States v. Addyston Pipe & Steel Co.[9] Judge Taft explained the Sherman Antitrust Act of 1890[10] as a statutory codification of the English common-law doctrine of restraint of trade, as explicated in such cases as Mitchel v Reynolds.

The Court therefore endorsed the rule of reason enunciated in Addyston Pipe, which in turn derived from Mitchel v Reynolds and the common law of restraints of trade.

In one recent case, a court rejected a credit card issuer's attempted justification of a restriction against competitive dealings said to be reasonably necessary to promote "loyalty" and "cohesion.

Though the restraint of trade doctrine is still valid, the current use has been limited by modern and economically oriented statutes of competition law in most countries.