What is a Horizontal Territorial Agreement?

Under the Sherman Act 1, a territorial agreement that allocates geographical areas among competitors may be a horizontal restraint of trade. In a horizontal territorial agreement, competing businesses enter into an agreement not to compete with or infringe upon another competitor within an exclusive geographic territory. The agreement not to compete is generally a naked restraint of trade that has no pro-competitive justification. As such, it is per se illegal under the Sherman Act.

Example: ABC Steel Inc., and 123 Steel Inc., are large steel suppliers in the US. They agree to allow ABC to services the entire Northeast and California markets, while 123 is allowed to service the rest of the US. Each company agrees not to sell in the others territory. This would be a naked restraint of trade with no apparent pro-competitive justification.