Tuesday, May 4, 2010

Federal Trade Commission vacates ALJ's Realcomp decision

Remember the Federal Trade Commission's complaint against Realcomp (a southeast Michigan-based multiple listing service)?   The complaint alleged, among other things, that Realcomp prohibited information on EA listings (and other forms of nontraditional listings) from being sent from the MLS to public real estate websites (the "Website Policy").  Here's a link to the Commission's administrative docket.

In late 2007 the FTC's Administrative Law Judge issued an initial decision, concluding that, “[d]espite Realcomp’s market power and the implementation of the Website Policy, discount EA brokerage services continue to be widely available in the established relevant market.  As such, there is insufficient evidence that consumer welfare has in fact been unduly diminished or otherwise significantly harmed as a result of the challenged policy."  As for Realcomp's Search Function Policy, which by default excluded EA and other nontraditional listings from search results, the ALJ found that there had not been a showing that “the nature of the alleged restraint was anticompetitive or unduly hindered consumer choice.”

Fast forward to late 2009.  Noting that “an especially important application of antitrust law is to see that incumbent service providers do not use improper means to suppress innovation-driven competition that benefits consumers,” the FTC reversed and vacated the ALJ’s initial decision.  “We find that the practices at issue improperly limit consumers’ access to information about the availability of [] lower-priced alternatives, and we conclude that the association’s acts and practices unreasonably restrain trade in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1, and Section 5 of the Federal Trade Commission Act, 15 U.S.C. § 45.”

I'm not going to delve into the legal standards and analysis contained in the FTC's ruling, but thought I'd highlight some of its most interesting findings and conclusions.  As you may know, Realcomp has appealed the decision to a federal appellate court.

Realcomp Disregarded National Association of Realtors' Amended IDX Rule

Toward the end of 2006, NAR amended its rules to require MLSs to “include all current listings,” including discount listings, in its IDX feeds, meaning EA listings could not be excluded from IDX feeds without violating NAR’s rules.  Realcomp objected to the rule, arguing that without the Website Policy, Realcomp would become a public utility.  NAR was unconvinced, opining that including EA listings on the IDX feeds would not detract from the purpose of an MLS.  Still, in April 2007, Realcomp refused to adopt NAR’s new IDX policy (interestingly, the FTC would later discover, after litigation commenced, that “none of the Realcomp Governors knows why the Board adopted the Website Policy and Search Function Policy.”)

Realcomp's Minimum Service Requirement

This restriction hasn't received a lot of attention, but apparently up until April 2007 Realcomp maintained a Minimum Service Requirement “which compelled brokers to provide full brokerage services in order to have their listing included in data feeds to public websites and the default search setting in the Realcomp MLS, and to gain access through Realcomp to publicly accessible real estate websites.”  The FTC found that these requirements "add to and increase the price floor of ERTS listings by setting a minimum level of brokerage services that the listing broker must offer under ERTS listings."  Perhaps the repeal of Realcomp's minimum service requirement contributed to Michigan's passage of a (waivable) minimum service bill in 2008? Regardless, this is just the most recent of multiple statements from the FTC regarding the anticompetitive nature of minimum service restrictions.  

Anticompetitive Effects of Realcomp’s Policies

The FTC summed up its findings regarding the effects of the aforementioned policies:
The combined effect of Realcomp’s three Policies was to limit exposure of EA listings to brokers searching the MLS for homes to present to potential buyers, and to consumers searching public websites for homes to purchase. The Search Function Policy operated to suppress EA listings from the MLS’s default search results and thus limit their exposure to brokers. In conjunction with the Minimum Service Requirement, the Search Function Policy also operated to exclude all brokers who did not have full service listings from disclosure on the MLS default setting.  In conjunction with the Minimum Service Requirement, the Website Policy excluded brokers without an exclusive right to sell from exposure, through Realcomp, to the general public through publicly available websites such as Realtor.com, MoveInMichigan.com, and broker websites. . . .As a group these Policies improperly constrained competition between discount listings and full-service listings. (italics added)

FTC's Order

Finding Realcomp in violation of the FTC Act and the Sherman Act, the Commission entered an Order “which, among other things, prohibits Realcomp from restricting nontraditional listings from the full range of services which it offers," and incorporates the parties’ stipulation regarding the repeal of Realcomp's Search Function Policy. 

Going Forward
As noted above, Realcomp has appealed the FTC’s ruling to the United States Court of Appeals for the Sixth Circuit.  The parties recently finished briefing the appeal (Realcomp's brief and FTC's brief), and we might see a ruling from the 6th Circuit later this year.  Stay tuned.

May 10, 2010 UPDATE: The fact that Realcomp is pursuing an appeal already tells us what it thinks of the FTC's ruling. But in case there was any doubt, note this excerpt from an email Realcomp circulated to its members several day ago:  "Realcomp has received word from the 6th Circuit Court of Appeals that our ‘request for partial stay’, which would have allowed us to maintain our current rules until our appeal is heard by the court, has been denied. Unfortunately, this means Realcomp is being required to change its MLS rules regarding Internet advertising and include Exclusive Agency listings in our Internet advertising program."  (emphasis added)

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