eBay + PayPal = Restraint of Trade

David Heath
Monday, 21 April 2008 17:06

IT Industry - Market

By referring their proposed action to the ACCC and seeking exemption from specific sections of the Trade Practices Act, eBay has thrown up an impressive smoke-screen to hide a much bigger problem – it's called "Restraint of Trade."

The big problem, as far as eBay / PayPal are concerned, is that Restraint of Trade is a principle enshrined in common law – there is no “umpire” to appeal to – common law is established through a long history of cases determined by the courts.

“Restraint of Trade” can be represented in a number of ways.  For instance, AussieLegal.com.au uses this language: “A restraint of trade is any contractual term which seeks to restrict the freedom of a party to engage in business.” 

Similarly, in December 2004, Justice Einstein in Woolworths v Olsen, observed the following points:

“1. The general rule is that all restraints of trade are contrary to public policy and therefore void. However, there are exceptions and restraints of trade may be justified by the special circumstances of a particular case. Restraints of trade can only be justified if the restriction is reasonable in reference to the interests of the parties and of the public.

“2. The onus of establishing that the restraint is reasonable as between the parties lies on the person seeking to enforce the restraint.

“3. The onus of establishing that the restraint is contrary to public interest lies on the person seeking to invalidate the restraint.

“4. The court gives considerable weight to what parties have negotiated and embodied in their contracts, but a contractual consensus cannot be regarded as conclusive, even where (as in the present case), there is a contractual admission as to reasonableness. 

“5. The validity of the restraint is to be tested at the time of entering into the contract and by reference to what the restraint entitled or required the parties to do rather than what they intend to do or have actually done. The common law does not allow for the severance of an excessive and unreasonable restraint. If the restraint went beyond what was reasonable it was void and unenforceable.”