Sound's new dry dock, upon which Sound was relying to increase its business. Sound agreed to pay at Hoboken an annual rent $14,770 higher than the combined cost of rent plus the yearly premium demanded by Bethlehem at Mariner's Harbor. Subsequent to leasing the property at Hoboken, Sound's financial condition deteriorated and it went out of business.
Section 1 of the Sherman Act provides that "every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States or with foreign nations, is hereby declared to be illegal . . . ."
Courts have uniformly read the act to prohibit only unreasonable restraints.
Courts have distinguished "naked" covenants not to compete, deemed per se violations of the Sherman Act, from covenants merely ancillary to a main lawful contract. The latter, unlike the former, must be examined to determine if they are so unreasonable as to violate the antitrust laws. United States v. Addyston Pipe & Steel Co., 85 F. 271 (6th Cir. 1898), aff'd, 175 U.S. 211, 44 L. Ed. 136, 20 S. Ct. 96 (1899); Orbo Theatre Corp. v. Loew's, Inc., 156 F. Supp. 770 (D.D.C. 1959), aff'd, 104 U.S. App. D.C. 262, 261 F.2d 380 (1959), cert. denied, 359 U.S. 943, 79 S. Ct. 725, 3 L. Ed. 2d 677 (1959).
The distinction rests upon a judicial recognition that a seller of a business or property may legitimately need to protect himself by the use of reasonable means from injury at the hands of the buyer.
A distillation of Addyston and its progeny identify four primary indicia of reasonableness of a restrictive covenant.
1. The restraint is ancillary to the main purpose of a lawful contract.