Realcomp II, Ltd.: Michigan MLS Defeats Government Antitrust Action

An administrative law judge has considered whether a REALTOR® multiple listing service violated federal antitrust law through its policies regarding the treatment of exclusive agency listings.

Realcomp II, Ltd. (“MLS”), a regional multiple listing service located in southeastern Michigan and 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 Federal Trade Commission (“FTC”) began a nonpublic investigation of the MLS’s EAL policies and eventually filed a complaint against the MLS in October 2006. The FTC argued that the MLS’s policies discriminated against discount brokers utilizing EAL listings by limiting the distribution of 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. None of the policies prohibited 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 ERSL to go into 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 check a box on the search screen. 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.

An administrative law judge (“ALJ”) held a hearing on the FTC’s allegations. Both sides submitted evidence and presented testimony over a ten-day period. 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. However, the settlement did not effect the Website Policy and so the ALJ considered whether that policy produced the anticompetitive effects claimed by the FTC.

The ALJ found that the Website Policy did not have the anticompetive effects claimed by the FTC nor did it harm consumers. The ALJ also ruled that the Search Policy also did not have the alleged anticompetive effects. Therefore, the ALJ dismissed the FTC’s complaint.

First, the ALJ looked at the legal standards that applied to this case. The FTC had the burden of proof in this case and also had to establish the relevant geographic and product markets. The FTC argued that there were two relevant product markets in this case: the market for residential real estate brokerage services and the market for the supply of multiple listing services. The relevant geographic market for the services were the four counties in southeastern Michigan: Wayne, Oakland, Livingston, and Macomb. The ALJ accepted the FTC’s market definitions.

Next, the ALJ considered the proper standard under which to evaluate this case. There are three standards used in antitrust cases: per se analysis, when the restraint is obviously anticompetitive; quick-look analysis, for restraints with some procompetitive justifications; and the rule of reason, for restraints where the effect on competition is harder to determine. The court found that the policies at issue were not obviously anticompetitive because the policies did not prohibit brokers who use EAL from accessing the MLS nor did it prohibit them from submitting these listings to the MLS. Therefore, the ALJ determined that the rule of reason was the proper standard under which to evaluate the MLS’s policies.

For antitrust violations, the FTC needed to show that the policies were the result of a “contract, combination, or conspiracy” which unreasonably restrained trade. The MLS admitted that the FTC could show a combination, since the MLS is a combination of competitors. Therefore, the issue was whether the policies were anticompetitive. To make this determination, the ALJ would need to consider whether the restraints were anticompetive and, if so, what effect the restraints had on competition.

The ALJ determined that the policies did not have an anticompetitive effect on competition. The ALJ found that the Search Policy was not anticompetitive, as requiring MLS participants to check an additional box prior to launching a property search of the MLS database was not anticompetitive. The ALJ also found that while the FTC had made the initial case that the Website Policy could have anticompetitive effects, the FTC had not produced evidence demonstrating that the policies had a negative impact on competition in the southeastern Michigan market. Financially, the alleged broker victims of the Website Policy actually had increased revenues and experienced business growth during the years in which the Website Policy was in effect. The Website Policy did not exclude other participants from the MLS or from utilizing public websites like realtor.com; instead, the policy required that a broker using EAL incur minimal additional costs for such dual listing activity, which is not against the antitrust laws.

The ALJ also found the procompetitive justifications offered by the MLS persuasive and narrowly tailored to accomplish their intended goal. The MLS argued that the Website Policy was necessary to prevent “free riders”, or prevent sellers who do not pay a commission to a MLS participant from receiving advertising provided by the MLS but without paying dues to the MLS like all other MLS participants must. The MLS’s policy of excluding the EAL from public websites and IDX addressed this problem. The court also agreed with the procompetitive justification that the Website Policy protected buyers who used a cooperating broker, since those buyers might otherwise be disadvantaged because the seller may not want to pay a commission and would prefer to work with unrepresented buyers. Therefore, the ALJ ruled that the MLS’s policies were not anticompetitive and so dismissed the FTC’s complaint.

Realcomp II, Ltd., No. 9320 (F.T.C. Dec. 10, 2007).

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

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