Restraint of trade is any agreement or business practice that limits competition in a market, and federal law makes certain forms of it, such as price-fixing, bid-rigging, and dividing up customers, a felony punishable by corporate fines up to $100 million and prison sentences up to 10 years.1Office of the Law Revision Counsel. 15 USC 1 – Trusts, Etc., in Restraint of Trade Illegal; Penalty The concept reaches further than criminal cartels. It also covers employment non-competes, exclusive dealing contracts, tying arrangements, and mergers that threaten competition. Whether a specific restraint is lawful depends on its type, how broadly it sweeps, and its actual effect on the market.
Horizontal and Vertical Restraints
Restraints fall into two groups, and the group matters because it changes how courts treat them. Horizontal restraints are agreements between competitors. Vertical restraints are agreements between businesses at different levels of a supply chain, such as a manufacturer and a retailer. Horizontal restraints face the harshest scrutiny.
Horizontal Restraints
Price-fixing is the clearest example. When competing businesses agree to set, raise, or stabilize prices instead of competing independently, the agreement itself is illegal regardless of whether the resulting prices seem reasonable.2Federal Trade Commission. Price Fixing Agreements to restrict production work the same way, because cutting supply pushes prices up.
Market allocation occurs when competitors divide territories or customer lists so they don’t compete with each other. Bid-rigging is coordination among companies that are supposed to be bidding independently. Group boycotts, in which competitors jointly refuse to deal with a target, can also violate antitrust law, particularly when the boycotting group has market power or when the boycott is used to enforce a price-fixing scheme.3Federal Trade Commission. Group Boycotts
Vertical Restraints
Tying arrangements force a buyer to purchase a second product in order to get the one they actually want. When the seller has significant market power in the tying product, the arrangement can be unlawful. Courts once treated some tying arrangements as automatically illegal, though more recent decisions tend to weigh competitive effects.4Federal Trade Commission. Tying the Sale of Two Products
Exclusive dealing contracts require a buyer or seller to deal only with one partner, shutting competitors out. Federal law prohibits these when the effect may substantially lessen competition or tend to create a monopoly.5Office of the Law Revision Counsel. 15 USC 14 – Sale, Etc., on Agreement Not to Use Goods of Competitor Resale price maintenance, in which a manufacturer dictates the minimum or maximum price its retailers can charge, is another vertical restraint. Courts now review both minimum and maximum resale price agreements under the rule of reason rather than treating them as automatically illegal.
Restraints in Employment Contracts
Non-compete clauses prevent a departing employee from working for a competitor or starting a competing business, usually within a defined area and time period. Non-solicitation clauses are narrower, blocking a former employee from recruiting the old employer’s clients or staff. Both are forms of restraint of trade, but courts analyze them differently from cartel conduct. Employment restraints are mostly governed by state contract law, and their enforceability varies widely.
Courts that enforce non-competes generally look at three things: whether the employer has a genuine interest worth protecting, such as trade secrets, proprietary client relationships, or specialized training investments; whether the restriction is proportional in time and geography to that interest; and whether it leaves the person able to earn a living. A non-compete covering one metro area for 12 months is far more likely to hold up than one covering an entire industry nationwide for five years. Durations of six months to two years are commonly accepted; anything beyond two years draws heavy skepticism.
When a Restraint Is Legal
Plenty of agreements technically restrict competition and remain perfectly lawful. The question courts usually ask is whether the restraint is reasonable and protects a legitimate business interest without going further than necessary.
For commercial agreements, rule of reason analysis asks whether the pro-competitive benefits outweigh the anti-competitive harms. A franchise agreement that limits where franchisees can open stores restrains trade in a technical sense, but it can be justified as encouraging investment and promoting competition between brands. The restraint has to be proportional to the benefit.
Where a court finds a non-compete overbroad, the outcome depends on the jurisdiction. Some states follow a “blue pencil” doctrine that lets a court strike offending language and enforce what remains. Others void the whole clause if any part is unreasonable. Still others let the court rewrite the terms, shrinking a five-year restriction to two years or a nationwide scope to a single region.
Per Se Rule vs. Rule of Reason
Courts use two frameworks to decide whether a particular restraint violates antitrust law.
Some practices are so reliably harmful that courts treat them as automatically illegal. No analysis of market conditions or business justifications is required; the agreement itself is the violation. Price-fixing is the textbook example. Once a plaintiff or prosecutor proves that competitors agreed on prices, the defendants cannot argue that the prices were fair or that competition was actually improved.2Federal Trade Commission. Price Fixing Bid-rigging and horizontal market allocation get the same treatment, and group boycotts can qualify when they’re used to enforce a price-fixing scheme or to keep a competitor out of the market.3Federal Trade Commission. Group Boycotts
Everything else is analyzed under the rule of reason. The court looks at the relevant market, the parties’ market power, and whether the restraint’s anticompetitive effects outweigh its legitimate pro-competitive benefits. Vertical restraints, joint ventures, licensing arrangements, and most non-compete clauses fall here. The analysis is fact-intensive, case-specific, and often hard to predict.
The Federal Antitrust Statutes
Three federal laws form the backbone of restraint-of-trade enforcement.
Section 1 of the Sherman Act makes it illegal to enter into any contract, combination, or conspiracy that restrains trade across state lines or with foreign nations.1Office of the Law Revision Counsel. 15 USC 1 – Trusts, Etc., in Restraint of Trade Illegal; Penalty Section 2 targets monopolization: it is a felony to monopolize, attempt to monopolize, or conspire to monopolize any part of interstate or foreign commerce, with the same penalties as Section 1.6Office of the Law Revision Counsel. 15 USC 2 – Monopolizing Trade a Felony; Penalty Being a monopoly on its own isn’t illegal; using anticompetitive tactics to gain or keep monopoly power is.
The Clayton Act fills in gaps. Section 3 prohibits exclusive dealing and tying arrangements whose effect may substantially lessen competition or tend to create a monopoly.5Office of the Law Revision Counsel. 15 USC 14 – Sale, Etc., on Agreement Not to Use Goods of Competitor Section 7 blocks mergers and acquisitions whose effect may substantially lessen competition or tend to create a monopoly in any line of commerce.7Office of the Law Revision Counsel. 15 USC 18 – Acquisition by One Corporation of Stock of Another The “may be” language is intentional; the government doesn’t have to wait for actual harm.
Section 5 of the FTC Act declares unfair methods of competition unlawful and gives the Federal Trade Commission authority to enforce the prohibition.8Office of the Law Revision Counsel. 15 USC 45 – Unfair Methods of Competition Unlawful The FTC uses administrative proceedings and can issue cease-and-desist orders, but it does not bring criminal cases. Criminal antitrust enforcement belongs exclusively to the Department of Justice.
Penalties and Private Lawsuits
A corporation convicted under the Sherman Act faces fines up to $100 million. An individual faces up to $1 million in fines and up to 10 years in prison.1Office of the Law Revision Counsel. 15 USC 1 – Trusts, Etc., in Restraint of Trade Illegal; Penalty Those statutory caps are not always the ceiling. Under the Alternative Fines Act, a court can impose a fine up to twice the defendant’s gross gain from the offense, or twice the gross loss suffered by victims, whichever is greater.9Office of the Law Revision Counsel. 18 USC 3571 – Sentence of Fine In large cartel cases, this routinely drives fines well past $100 million.
Anyone injured by an antitrust violation can file a private lawsuit and recover three times their actual damages, plus attorney’s fees and court costs.10Office of the Law Revision Counsel. 15 USC 15 – Suits by Persons Injured Treble damages serve two purposes: compensating the victim and deterring future violations. To win, a plaintiff has to prove a violation occurred, that it caused injury to their business or property, and quantify the harm.
Injunctive relief is also available. A court can order a party to stop ongoing or threatened violations where the plaintiff shows imminent irreparable harm, provided the plaintiff posts a bond to cover damages if the injunction later proves unwarranted.11Office of the Law Revision Counsel. 15 USC 26 – Injunctive Relief for Private Parties
Non-Competes After the Failed FTC Rule
In 2024, the FTC issued a rule that would have banned most non-compete agreements nationwide. Federal courts blocked it, and in September 2025 the Commission voted to dismiss its appeals. The rule was formally removed from the Code of Federal Regulations effective February 12, 2026.12Federal Register. Revision of the Negative Option Rule, Withdrawal of the CARS Rule, Removal of the Non-Compete Rule To Conform These Rules to Federal Court Decisions
With no federal ban in place, non-compete enforceability is a state-by-state question. Six states ban non-competes outright. Most other states enforce them only when the duration, geographic scope, and protected interest are reasonable. Statutory caps on duration in states that allow non-competes typically run 12 to 18 months, and courts rarely uphold restrictions longer than two years.
Reporting a Suspected Violation
Two federal agencies handle complaints. The FTC’s Bureau of Competition accepts antitrust complaints through an online intake form. The agency does not act on behalf of individual complainants or give legal advice, but complaints help identify patterns worth investigating.13Federal Trade Commission. Antitrust Complaint Intake
The DOJ’s Antitrust Division handles criminal cases and runs a Leniency Program for insiders. The first company to report its participation in an illegal antitrust conspiracy, before the Division has learned about it from any other source, can avoid criminal charges entirely. Its current directors, officers, and employees also receive protection if they cooperate fully and truthfully.14Department of Justice. Antitrust Division Leniency Policy and Procedures To qualify, the company must have reported promptly after discovering the activity, cannot have been the leader or organizer of the conspiracy, and must make good-faith efforts to compensate victims and improve its compliance program. Companies that come forward after the first reporter may still receive leniency, but protection for individual employees is not guaranteed.