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Real Estate Association Website Policies Found Anticompetitive Under FTC Act

Posted in Recent Cases, Supreme Court

In an opinion examining website policies restricting access to certain types of real-estate brokerage information, the Sixth Circuit ruled that such policies were anticompetitive under Section 5 of the FTC Act.  In Realcomp II, Ltd. v. FTC (6th Cir. 09-4596) [PDF], a unanimous panel affirmed a ruling of the Federal Trade Commission (“FTC”) and found that the website policy of Realcomp II, Ltd. (“Realcomp”), a real-estate brokerage association in southeastern Michigan, violated Section 5 by unreasonably restricting access to lower-cost, limited-service brokerage services found in Realcomp’s database.

Realcomp had a membership of 14,000 residential real estate brokers, and, as a service to its members, operated a database of property listings known as a multiple listing service (“MLS”). Because MLSs such as that of Realcomp enable consumers to self-supply certain real estate brokerage services, they exert pressure on the traditional real estate model, in which brokers represent buyers and sellers alike in a system of flat fees and commissions. Broker services are commonly governed by exclusive right to sell (“ERTS”) or exclusive agency (“EA”) agreements, with the former providing a wider scope of services to the customer and the latter providing fewer services but at a discounted price. The FTC filed a complaint against Realcomp, alleging that its website policy was anticompetitive under Section 5 of the FTC Act, 15 U.S.C. § 45, because Realcomp prohibited information about EA and other nontraditional listings on its MLS from being distributed to public real-estate advertising websites.  In addition, Realcomp excluded EA and other nontraditional listings from the default search setting on the MLS; in order to find an EA listing, a broker would have to undertake a more specific search on the database.  Finally, Realcomp required that, in order for a listing to be labeled ERTS, a broker would have to provide full-service brokerage services in connection with the listing.  In a lengthy ruling [PDF] an administrative law judge for the FTC dismissed the complaint, finding that, while Realcomp’s website policy was likely anticompetitive, the FTC failed to show any significant anticompetitive effects.  The FTC unanimously reversed [PDF], finding under its “quick-look approach” that Realcomp’s policies were inherently suspect and presumptively unlawful and, alternatively under more searching analysis, that Realcomp’s market power combined with the anticompetitive nature of its website policy to render its website policies unreasonable.  The FTC entered a cease and desist order, and Realcomp appealed to the Sixth Circuit.

Writing for a unanimous panel that included Judges Siler and Griffin, Judge Moore affirmed the FTC’s ruling. Employing a substantial-evidence standard of review, the Court did not reach the FTC’s “quick-look” analysis, but instead affirmed the commission’s more searching, rule-of-reason analysis.  The Court agreed with the FTC that Realcomp possessed substantial market power and also that, by “limit[ing] access to internet marketing and impos[ing] additional costs on the marketing of discount listings,” Realcomp’s website policy had an anticompetitive nature.  Because both showings had been made, Realcomp’s policy demonstrated “the potential for genuine adverse effects on competition” and, thus, could properly be found to violate Section 5.  The Court also found that, alternatively, Section 5 was violated because the FTC demonstrated “actual detrimental effects” of Realcomp’s policies.  Specifically, the Court credited FTC evidence showing that the share of EA listings in Realcomp’s MLS declined by 50% after initiation of Realcomp’s website policies, thereby showing “substantial consumer harm.”  Finally, the Court found that Realcomp had not shown any “countervailing procompetitive virtue” of its website policies, rejecting claims that the policies were designed to solve free-rider or bidding-disadvantage problems.  On these bases, the Court affirmed the FTC ruling.

With so many information-based services currently provided over the Internet, the ruling in Realcomp II provides businesses reason for caution when developing and implementing policies governing access to such information.