In the 1921 case of Standard Fashion Company v. Magrane-Houston Company, the U.S. Supreme Court ruled on a dispute involving contract law and restraint of trade. The plaintiff, Standard Fashion Co., had entered into an agreement with Magrane-Houston Co., which stipulated that the latter would not sell patterns from any other company during their contractual period or for two years after its termination in certain territories where they were operating together. However, when Magrane-Houston violated this clause by selling competitor's products within these areas, Standard sued them for breach of contract and sought to enforce it through an injunction. The lower courts sided with Standard but upon reaching the Supreme Court, it was held that such agreements constituted a restraint of trade and were thus unenforceable under federal antitrust laws (Sherman Act). The court stated that while reasonable restrictions related directly to employment contracts could be enforced; broad restraints affecting third parties or extending beyond what is necessary to protect one’s business interests are deemed unreasonable and therefore illegal.

In the dissenting opinion for Standard Fashion Company v. Magrane-Houston Company, Justice McReynolds disagreed with the majority's view that a contract limiting competition was enforceable under certain circumstances. He argued that such contracts were inherently anti-competitive and therefore violated antitrust laws, regardless of their specific terms or context. According to him, these types of agreements restrict trade by preventing businesses from freely operating in the market and limit consumer choice by reducing competition among suppliers. Therefore, he believed they should be considered illegal per se without needing to prove any actual harm or unreasonable restraint on trade as required by rule-of-reason analysis used in other cases involving restrictive business practices.