FTC v. RealComp update

It has been some time since I last posted on the status of the FTC’s administrative action against RealComp. If you are interested in the nitty gritty, the FTC's complaint can be viewed here. Essentially the FTC is challenging RealComp's practice of withholding exclusive agency listings (typically used by non-traditional brokers) from its upload to Realtor.com.

Here is an update on the case:

In late April 2007 RealComp filed a Motion for Summary Decision, arguing that the FTC had failed to state a claim upon which relief can be granted. The FTC has filed a response to the Motion, and the ALJ will presumably rule upon same before the trial.

On May 7, 2007 the parties submitted another joint status report. Interestingly, the Report discloses that “Realcomp’s Board of Governors voted last week to change Realcomp’s Search Function Policy . . . Pursuant to this change, the Realcomp MLS search screen will no longer have a default with regard to listing type. The parties will address the import of this change in their respective pretrial briefs.”

A recently issued scheduling order makes no mention of a ruling on the motion to dismiss, or on the trial date, which was previously set for June 19, 2007.

Some thoughts on the FTC/DOJ Report

After reading the FTC/DOJ Competition Report cover-to-cover, one thing seemed quite clear to me: this is not the last we will be hearing from these two agencies on the subject of competition in the real estate brokerage industry. Undoubtedly Recommendations 1 and 2 of the Report are, in part, shots across the bow of continuing and future troublemakers:

1. “The Agencies should continue to monitor the cooperative conduct of private associations of real estate brokers, and bring enforcement actions in appropriate circumstances. While cooperation among brokers through a multiple listing service can provide consumers with important efficiencies, cooperation used to adopt rules that hinder rivals can be anticompetitive and, as recent Agency actions indicate, may violate the antitrust laws.” (emphasis added)

2. “The Agencies should continue to provide state legislators and industry regulators with information concerning the competitive consequences of state legislation and regulations that threaten to or already do restrict competition and consumer choice in the real estate brokerage industry, and take enforcement action in appropriate circumstances.” (emphasis added)

Also, for innovative brokers that find themselves the target of agreements among traditional brokers or others to restrain competition, remember that would-be prosecutors need solid EVIDENCE of such conduct before they will act. For example, note the quasi-invitation for evidence on page 69 of the Report (“Limiting the Effects of Steering”): “The agencies have recently investigated allegations of boycotts by groups of brokers. In those investigations, however, the Agencies have not found evidence sufficient to establish an agreement jointly to steer clients away from or boycott a particular rival and have declined to bring an antitrust case.” (emphasis added). In other words, no evidence, no case.

Private antitrust action filed against RealComp II, Ltd. and MiRealSource

On Monday a federal antitrust lawsuit was filed by Home Quarters Real Estate Group, LLC against RealComp II, Ltd. and MiRealSource in Michigan federal court. As you know, the FTC recently settled antitrust charges against MiRealSource, and is presently litigating against RealComp, in connection with allegations that the associations refused to forward certain MLS listings to public websites such as realtor.com

Plaintiff's suit explains that it is seeking damages as a result of the defendants' "prior unlawful actions and efforts to prevent [plaintiff] from providing to the public an efficient and cost-effective way to buy and sell real estate in the Detroit metropolitan area. [Plaintiff] previously operated as a licensed real estate brokerage engaged in the practice of assisting consumers with the purchase and/or sale of residential properties. [Plaintiff] provided services as an innovative realty company that developed faster and more efficient ways to provide realty services to prospective homebuyers and sellers utilizing modern internet technology. [Plaintiff] provided its customers with the same realty services and same information provided by other realtors in the State of Michigan. However, [plaintiff] did so using a different and more efficient way of doing business that passed the resulting cost savings on to its customers."

As to the defendants, whose respective memberships allegedly "overlap in substantial part," "[p]articipation in each of these MLSs, and access to MLS data provided by them, has been crucial at all relevant times for any realtor, including [plaintiff] to be able to effectively compete in the Southeastern Michigan residential real estate market (Wayne, Oakland, Macomb, Washtenaw, and Livingston Counties)."

The complaint includes individual counts against each defendant alleging violations of Section 1 of the Sherman Act, violations of the Michigan Antitrust Reform Act, and tortious interference with plaintiff's contractual relationships. Plaintiff claims that the "[d]efendants previously terminated and/or threatened to terminate [plaintiff's] right to access their MLS data as part of their efforts to destroy HQ's innovative business model and to thwart competition. Moreover, in furtherance of Defendant's boycotts denying [plaintiff] essential MLS data for conducting searches for listed properties, MiRealSource refused to permit any of [plaintiff's] listings to be posted on its MLS, and Realcomp threatened to terminate [plaintiff's] access to its MLS. These actions, among others, resulted in the cessation of [plaintiff's] business and thereby caused substantial damages to [plaintiff], including but not limited to lost market share, lost revenues and lost profits." Plaintiff asks for actual damages in excess of $10 million against each defendant, and that such amounts be trebled pursuant to federal and state law.

The complaint plus two exhibits (consisting of the defendants' rulebooks) is in excess of fifty pages, and was filed in two parts (Part One and Part Two).

Summary of the Roommates.com decision

The United States Court of Appeals for the Ninth Circuit ruled yesterday in Fair Housing Council of San Fernando Valley, et al v. Roommate.com, LLC. Signaling the differing viewpoints on the issues presented, the three judge panel - Circuit Judges Reinhardt, Kozinski and Ikuta - issued three separate opinions in the case. Circuit Judge Kozinski wrote for the Court.

Roommate.com, LLC operates an online roommate matching website - www.roommates.com (“Roommate” or “Roommates.com”). As the court explained, “[t]his website helps individuals find roommates based on their descriptions of themselves and their roommate preferences. Roommates.com has approximately 150,000 active listings and receives about a million page views per day.” Two California-based housing councils (“Councils”) alleged that Roommate violates the Fair Housing Act by (1) posting its questionnaires on its website and requiring individuals who want to take advantage of its services to complete them; (2) posting and distributing by email its members’ profiles; and (3) posting the information its members provide on a “Additional Comments” form. Thus the allegations are somewhat similar to those made in the craigslist case filed last year in Illinois and presently on appeal to the Seventh Circuit.

At issue before the Ninth Circuit was whether and to what extent the Communications Decency Act (“CDA”), 47 U.S.C. § 230(c), immunizes Roommate’s actions. Section 230(c) provides that “[n]o provider . . . of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.” Because the Councils do not deny that Roommate is a provider of an interactive service, “the question is whether Roommate is “responsible, in whole or in part, for the creation or development of [the] information” set forth in each category, and thus ineligible for immunity. In other words, immunity is available if Roommate “merely publishes information provided by its members[,]” but Roommate “is not immune for publishing materials as to which it is an “information content provider” (defined as “any person or entity that is responsible, in whole or in part, for the creation or development of information provided through the Internet.”)

Questionnaires. The Court concluded that Roommate is ‘responsible’ for the questionnaire because “it created or developed the forms and answer choices. As a result, Roommate is a content provider of these questionnaires and does not qualify for CDA immunity for their publication.” The Court left it to the district court to determine if same violates the Fair Housing Act.

Profiles. As for the user profiles, the Court declined to apply the rationale in the Ninth Circuit’s prior decision in Carafano, where (i) a prankster provided information about someone else that (ii) was not solicited by the operator of the website. Instead, the Court noted that Roommate’s “search mechanism and email notifications mean that it is neither a passive pass-through of information provided by others nor merely a facilitator of expression by individuals. By categorizing, channeling and limiting the distribution of users’ profiles, Roommate provides an additional layer of information that it is “responsible” at least “in part” for creating or developing.” Concluding that CDA immunity was not available, the Court remanded for a determination of whether the profile allegations, if proven, violate the FHA.

Additional Comments. As for the third category identified by the Councils, the Court concluded that because Roommate is not “responsible, in whole or in part, for the creation or development of its users’ answers to the open-ended 'Additional Comments' form,” it is immune from liability for publishing these responses.

We’ll have to wait and see what this means for the craigslist appeal. Of course a rehearing before the panel or en banc consideration may be forthcoming. However, to the extent the Seventh Circuit is persuaded by yesterday’s ruling (note that the Seventh Circuit is not often persuaded by the Ninth Circuit as to anything), it would seem that a careful comparison of the Roommates and craigslist mechanisms would be critical in resolving the craigslist case. Regardless, given some of the language and examples used in the Ninth Circuit’s opinion, certain sites that have garnered much attention recently – www.ripoffreport.com and www.dontdatehimgirl.com – for publishing user critiques of bad business and dating experiences, respectively, should study the Ninth Circuit's opinion carefully.

Ninth Circuit's Roommates.com ruling

While I have not yet reviewed the opinion, the Ninth Circuit has issued its decision in the Roommates.com case. Eric Goldman's very thoughtful and timely discussion of the opinion can be found here.

The Court determined that Section 230 "does not immunize Roommate for all of the content on its website and in its email newsletters." The Court remanded the case to the district court to ascertain whether Roommates.com's "non-immune publication and distribution of information violates the [Fair Housing Act]." The Court also vacated the dismissal of certain state law claims, thereby permitting the district court to reconsider whether to exercise its supplemental jurisdiction in light of" today's ruling on the federal claims.

I believe this is the first Court of Appeals to rule on the intersection of Section 230 (part of the C0mmunications Decency Act passed by Congress in 1996) and the Fair Housing Act. It will be interesting to see what happens with the Craigslist case which is presently pending before the 7th Circuit. There have not been any oral arguments yet, and the latest docket entry suggests that briefing has been suspended.