The Federal Trade Commission (“FTC”) has reviewed an opinion by an FTC administrative law judge (“ALJ”), who had dismissed the FTC’s complaint against an MLS because of the MLS’s allegedly anticompetitive policies.

Realcomp II, Ltd. (“MLS”), a regional multiple listing service located in southeastern Michigan that is wholly owned by REALTOR associations, had several policies addressing the treatment of “exclusive agency listings” (“EAL”), or listings where the listing broker is the exclusive broker working to sell the home but the seller reserves the right to the sell home on his/her own without paying a commission to the listing broker. An EAL is contrasted with an “exclusive right-to-sell” listing (“ERSL”), where the listing broker will receive a commission if the property is sold during the listing period, regardless of who produced the buyer. Some brokers entering into EAL with their clients allow the clients to select the level of service they will receive from the broker, including MLS-entry only service.

The FTC filed a complaint against the MLS over its EAL policies. The FTC argued that the MLS’s policies discriminated against discount brokers utilizing EAL listings by limiting their distribution and making it more difficult for other MLS participants to locate these listings. In particular, the FTC identified two policies which caused the alleged harm: the Website Policy and the Search Function Policy. The MLS policies did not prohibit the submission of EAL to the MLS; rather, the policies addressed how the MLS would treat the listings after submission.

The Website Policy stated that the MLS would only transmit ERSL to public websites, such as the MLS’s public website and realtor.com, and would only allow in the IDX feed sent to other MLS participants. The Search Policy created a default on the MLS’s internal website where MLS participants would only search ERSL. If an MLS participant wanted to search EAL or all listings in the MLS, they had to change the default search. Incorporated into these two policies was a third policy challenged by the FTC, the Minimum Services Requirement. This policy required brokers using ERSL to provide certain mandated services to their clients.

The ALJ held a ten day trial. Following the trial, the MLS entered into a settlement with the FTC where it agreed to change the Search Policy and also drop the Minimum Service Requirement for ERSL. The ALJ found that the Website Policy did not have the anticompetitive effects claimed by the FTC nor did it harm consumers. The ALJ also ruled that the Search Policy also did not have the alleged anticompetitive effects. Therefore, the ALJ dismissed the FTC’s complaint and the FTC appealed the ALJ’s rulings to the full commission.

In a unanimous decision, the FTC reversed the ALJ and ordered the MLS to not enforce the policies. Looking at the ALJ’s finding that nontraditional brokers created “price pressure” against the offerings of other participants, the Commissioners determined that the policies unreasonably hindered the ability of EAL brokers to advertise and disseminate information about their listings. The policies limited the ability of these brokers to have their listings available on various public websites, putting these listings at a disadvantage. Because of these restrictions, the Commissioners determined that the policies were “inherently suspect” of being anticompetitive because they favored one type of listing over another.

Once a policy is determined to be inherently suspect, the other party has a chance to offer a procompetitive justification for the policy. If the justifications are both “cognizable” and “plausible”, then the party may be able to justify the “suspect” policy. The MLS offered two justifications for its policies: first, the policies eliminated the “free-riding” from homeowners who use EAL and then complete the transaction without paying a commission; and second, the policies helped to remove a “bidding disadvantage” by buyers who used cooperating brokers, since sellers would favor unrepresented buyers so they wouldn’t need to pay a cooperative commission.

The Commissioners rejected both of the MLS’s procompetitive justifications. First, the court rejected the “free-riding” argument because there was no “free-riding” for brokerage services, as both EAL and ERSL brokers pay the same fees to the MLS for their listings. While EAL brokers may lose a commission because the seller finds a buyer on his/her own, the EAL broker has agreed to that risk through the EAL agreement. ERSL brokers may lose listings to the EAL brokers, but the Commissioners stated they aren’t losing these listings through a pricing disadvantage but rather through competition between the two brokerages and protecting competition is the goal of the antitrust laws enforced by the FTC.

The Commissioners also rejected the “bidding disadvantage” argument. Simply because one buyer may be more attractive to a seller because of potentially lower costs does not make the competition unfair; instead, this is exactly the type of competition that the antitrust laws are intended to protect. The MLS’s justification for the policy did not serve to promote competition, but rather to protect cooperative commissions to other MLS participants. Therefore, the Commissioner’s rejected the MLS’s procompetitive justifications.

The Commissioners next addressed the ALJ’s findings that despite the fact the MLS’s policies may have an anticompetitive effect, there was no evidence that the policies had caused any harm to competition. The ALJ had found the analysis of the FTC’s expert unpersuasive because he had not included enough variables in his analysis. The Commissioners rejected this conclusion as well as other conclusions the ALJ drew from the evidence to determine that the policies did not have an anticompetitive effect. Rather, the Commissioners concluded that the FTC’s expert had properly analyzed the data to find that the policies did have an anticompetitive effect on the market. Therefore, the FTC entered an order prohibiting the MLS from enforcing the various policies against brokers with EAL or any other form of nontraditional listing.

Realcomp II, Ltd., No. 9320 (F.T.C. Nov. 11, 2009).

Editor’s Note: NAR contributed financial support to the MLS, per the recommendation of NAR's Legal Action Committee.