What is a Refusal to Deal?

A refusal to deal or a concerted refusal to deal is an agreement between competing companies, or between a company and an individual or business, that stipulates that they refuse to do business with another. A refusal to deal violates the Sherman Antitrust Act and other antitrust laws, and is illegal in the United States.

Types of Refusal to Deal Agreements

There can be a horizontal refusal to deal, which is an agreement between competitors not to compete; and a vertical refusal to deal, which is an attempt to control or leverage the market by only doing business with certain parties. This does not mean that a business is always prohibited from refusing to do business with another company. Businesses have the right to use their discretion in choosing whom to do business with. However, if this choice is made through a conspiracy with another competitor, business, or individual, they will likely be breaking the law.

A refusal to deal is a violation of the antitrust laws because it harms the boycotted business by cutting them off from a facility, product supply, or market. By harming the boycotted business in this way, the competing businesses controls or monopolizes the market by unreasonably restricting competition.

Ins and Outs of Refusal to Deal Agreements

A refusal to deal can be an agreement between competing companies to boycott another company by refusing to do business with them, or it can be the use of coercion to keep an individual or business from doing business with another company. A refusal to deal may be against another competitor; for example, if one business refuses to do business with another company, customer or supplier, unless they agree to cease business with another company, the agreement would be a refusal to deal. Further, courts have found that there is refusal to deal when businesses refuse to do business with a competitor when this refusal unreasonably restricts competition.

Case Studies: Understanding Refusal to Deal Agreements

Case Study 1: The Pharmaceutical Cartel

In this case, three major pharmaceutical companies, Pfizer, Novartis, and Merck, formed a cartel to harm a smaller competitor, Alpha Pharmaceuticals. The three companies jointly refused to do business with Alpha Pharmaceuticals, cutting off their supply chain and market access.

Alpha Pharmaceuticals discovered the illegal agreement and filed a complaint with antitrust authorities. After a thorough investigation, the authorities imposed hefty fines on Pfizer, Novartis, and Merck for violating antitrust laws.

Case Study 2: Beta Mart’s Exclusive Supplier Deal

In this case, the retail chain Beta Mart entered into a vertical refusal to deal agreement with the major supplier Charlie Company. Under the agreement, Charlie Company agreed not to supply its products to Beta Mart’s competitors, thereby limiting competition and product availability.

Other retailers struggled to access Company Charlie’s products, while Beta Mart benefited from increased sales. Retailer Delta, a competitor of Beta Mart, filed a complaint, leading antitrust authorities to investigate the case. The authorities imposed fines on Beta Mart and Charlie Company for violating antitrust laws.

Case Study 3: Tech Giant’s Coercion Tactics

In this case, the tech giant Delta Company held a dominant position in the market and used coercion to control market access. Delta sent threatening letters to its suppliers, forcing them not to do business with a smaller competitor, Foxtrot Company.

As a result, Foxtrot Company’s access to essential components was severely restricted. Foxtrot  Company filed a complaint with antitrust authorities, and after a thorough investigation, the authorities imposed fines on Delta Company for its illegal refusal to deal.

Getting Help

A violation of the antitrust laws can result in hefty fines for your business. If you have unanswered questions, or need more legal information about a refusal to deal you should contact an experienced business attorney for assistance.