Federal Appellate Court: Realcomp's Website Policy Unreasonably Restrained Competition

The U.S. Court of Appeals for the 6th Circuit has ruled in the FTC v. Realcomp matter.  You'll recall at issue in the case is Realcomp's alleged anticompetitive treatment of non-ERTS property listings.

What seems like ages ago, an FTC Administrative Law Judge entered an initial decision in favor of Realcomp.  The FTC later vacated and reversed the ALJ's decision, and Realcomp asked the 6th Circuit to weigh in.  Last week the court denied Realcomp's petition for review.

Realcomp's Website Policy "prohibited information about exclusive agency and other nontraditional listings on Realcomp's MLS from being distributed to public real-estate advertising websites through its MLS feeds."  Such public sites include IDX participant websites and Realtor.com.

Among other things, the panel concentrated on "the effect of Realcomp's restriction on consumer choice, specifically, the reduction in competitive brokerage options available to home sellers." It concluded that the Website Policy had both potential and actual adverse effects on competition, noting the Website Policy "created barriers to the dissemination of discount listings to public websites."  The court also highlighted Realcomp's substantial market power and the anticompetitive nature of the Website Policy in finding substantial evidence supporting the FTC's ruling.

The panel also found that "the Commission properly rejected Realcomp's proffered justifications [for the Website Policy] as not 'legitimate, plausible, substantial and reasonable.'"

So far I can think of three takeaways here:

First, while Realcomp wasn't the only MLS targeted for alleged FTC Act violations, it was the only one that resisted the FTC's crackdown (the others having previously entered into consent decrees with the agency, which among other things likely saved them some serious attorneys' fees).  Sometimes the herd is right.

Second, notwithstanding NAR's supposed financial support of Realcomp's legal challenge, Realcomp's Website Policy directly violated NAR's own rule prohibiting such discriminatory practices.  Did Realcomp really think the FTC or an appeals court would bless conduct that NAR itself did not condone?  Sometimes the folks upstairs are right.

Third, and most importantly, most forms of censorship are bad.  If the effect of an MLS rule is to limit the dissemination of listings based upon listing type or terms, trouble is probably around the corner.  Consider my favorite line from the opinion:  "Restricting the online dissemination of home listings is especially pernicious because of the emerging competitive impact of the internet and of discounted brokerage services on the residential real-estate market."  In other words, think twice before going up against market and technological forces.

Missouri Real Estate Commission Wins First Battle with Kansas City Premier Apartments

Over two years after it first filed suit, Kansas City Premier Apartments, Inc. finally had its day in court earlier this year with the Missouri Real Estate Commission (here's my last pre-trial post).  During the trial, the MREC failed to prove that any of the property advertisements on the KCPA website were false or misleading, or that KCPA's rental advisors conveyed any false or misleading information about specific rental units.     

However, in a six page judgment remarkably short on reasoning, Missouri Circuit Judge Abe Shafer held that KCPA is not exempt from the restrictions and requirements of Missouri's real estate broker statute.  Specifically, the court ruled that KCPA is not exempt from the statutory definition of a real estate broker, and that the statutory provisions challenged by KCPA were not unconstitutional under the U.S. or Missouri constitutions.

In response to MREC's request for injunctive relief, the court directed that "until KCPA complies with the requirements of Chapter 339 applicable to KCPA operations," it is enjoined from:

Contracting with property owners to receive compensation in return for referring prospective tenants who rent from property owners, which is not an enforceable contract under the terms of Section 339.160, RSMo.

Any act requiring real estate licensure pursuant to the terms of [Chapter] 339 RSMo.

KCPA was also enjoined from "paying a reward or incentive to tenants who notify property owners that they were directed to the property through KCPA's services, which would violate Section 339.00.2(13) if performed by a licensed real estate broker."

KCPA's attorneys have appealed the ruling to the Missouri Supreme Court.  Stay tuned.

Showdown in Missouri

Some time ago I first wrote about an action filed by Kansas City Premier Apartments in a Missouri state court, seeking clarity on licensing issues raised by the Missouri Real Estate Commission.

The case is set for trial later this week. Here's a cute piece produced by KCPA driving home its point that criminal sanctions are entirely inappropriate in this context.  KCPA has been threatened, among other things, with prosecution under Section 339.170, RSMo, which makes it a Class B misdemeanor (punishable by up to six months in prison) to knowingly violate any of the prohibitions relating to the communication of real estate information.

Want to learn more?  Here's an op-ed recently penned by KCPA's President:

Real Estate Commission Criminalizes Helpful Advice

Can you believe that your own mother might be considered a criminal for helping you find a suitable apartment? That’s the position taken by the head of the Missouri Real Estate Commission (MREC), the government agency currently trying to ensure that people must pay a licensed real estate broker if they want help finding information about rental opportunities.

Years ago, I started Kansas City Premier Apartments (KCPA), a business designed to help people access a vast amount of useful information about renting in Kansas City, including a website with a searchable database of available rental units and a customer service team familiar with Greater Kansas City to help answer prospective renters’ questions, set appointments, and provide driving directions. All of our informational services are offered at no charge to the prospective renters.

The website quickly attracted the attention of people worldwide looking for just the sort of assistance we offer, helping them avoid the stress and uncertainty that frequently accompanies the search for a new rental home. Many have offered testimonials praising our services and, to our knowledge, no one we have assisted has ever expressed dissatisfaction with the information our company provided them. But, unfortunately, our business also attracted the attention of the MREC, which has asked a local court to prevent us from providing our informational services.

Fortunately, Americans enjoy constitutional protections for our freedom to exchange information and opinions – and KCPA is fighting to ensure that everyone will continue to enjoy these freedoms. The First Amendment of the United States Constitution denies governments the authority to make laws “abridging the freedom of speech.” Furthermore, the United States Supreme Court has previously recognized that this protects not only the rights of speakers who would share truthful, non-misleading information, but also the rights of those interested in hearing that information. Interpreting the First Amendment, courts have also held that governments are not generally permitted to pick and choose who is permitted to share a particular type of information. Missouri’s constitution offers even broader protections, stating that speech cannot be restricted “no matter by what means communicated; that every person shall be free to say, write, or publish, or otherwise communicate whatever he will on any subject, being responsible for all abuses of that liberty.”

We asked the MREC to explain how the useful information we provide could be considered an “abuse” of our constitutional freedoms. Rather than offering a substantive answer, the MREC responded that our question was “not relevant”. Fortunately, government bureaucrats do not have the final say in whether our constitutional freedoms can be so flippantly disregarded. We are both hopeful and confident that when the judge considers this matter, he will rule that all Missourians must remain free to enrich each others’ lives through the communication of useful information and ideas.

Tiffany Lewis is the President of Kansas City Premier Apartments, Inc.

DOJ Investigation of Hamptons Brokerages

Yesterday the New York Post reported on an inquiry being conducted by the U.S. Department of Justice's Antitrust Division involving Hamptons real estate brokerages.

Here's subsequent coverage on the New York Times' DealBook blog. 

Google Love

It was recently brought to my attention that when searching the phrase "real estate competition" on Google, this blog organically comes up third, behind the Federal Trade Commission and the Department of Justice. I have to admit that's pretty cool (although probably meaningless).

I see for myself that searching "real competition" brings this blog up in the top slot.

Notwithstanding the love Google is showing us, we don't run ads here. But as a reminder, please feel free to drop me a line if you ever come across a real estate issue or story that you think deserves some electric ink here.

-Michael

6% Commission Litigation - Update on Hyland v. Homeservices of America

Believe it or not, this case, first filed back in 2005 (and first blogged about here in 2007), is still alive and well in Louisville.  In early 2008 plaintiffs filed their Fourth Amended Complaint, alleging, in a nutshell, that “because of Defendants’ unlawful agreement alleged herein, competition on the basis of commission rates has not occurred and Plaintiffs and class members have paid inflated rates to Defendants.”

In support of their claims, plaintiffs point to the terms of franchise agreements between various defendants, anti-rebate regulations, and refusals to deal.  “[V]arious Defendants have enforced their price fixing agreement by boycotting price-cutting rivals, such as Help-U-Sell.  . . . It is being boycotted because it charges its customers a reduced fixed fee, rather than the standard percentage commission.”

Toward the end of 2008, the court certified plaintiffs’ proposed class:

All persons who paid a commission to Defendants and/or their affiliates listed in Exhibit A (Docket #242) in connection with the sale of residential real estate (excluding initial sales of newly constructed homes) located in the Commonwealth of Kentucky during the period from October 11, 2001 to October 11, 2005. This class excludes governmental entities, Defendants, their parents, subsidiaries, affiliates, and employees of Defendant or their affiliates.

Efforts to resolve the case have so far been fruitless.  Mediation efforts in early 2009 failed, and last summer Judge Russell denied (with leave to refile) a tentative settlement of claims against Re/Max International. 

The court has scheduled a jury trial in this matter to commence on April 16, 2012 (yep, that’s 2012).  Typically these cases settle before trial, and with a trial date nearly two years off, there would seem to be plenty of time to reach a deal.  However, for a variety of reasons, I would not rule out the possibility that the parties will proceed to trial. 

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)

Federal Antitrust Class Action filed against West Penn MLS & Area Brokerages

Earlier this month an antitrust class action complaint was filed against West Penn Multi-List (“West Penn MLS”) and five area real estate brokerages in a Pittsburgh federal court. Plaintiff Thomas Logue, who previously hired a broker to list his home on the West Penn MLS, alleges the defendants unlawfully restrained competition among real estate brokerages in Western Pennsylvania by “enacting and enforcing unlawful West Penn MLS rules, policies, and procedure that caused Plaintiff and the other class members to pay higher prices for real-estate-brokerage services . . . than they would have paid absent defendants’ illegal conduct.”

Specifically, Logue complains of rules that allegedly

• allow West Penn MLS representatives to refuse membership to brokerages who they might expect to compete more aggressively or in more innovative ways than West Penn MLS members would prefer;

• prevent members from providing a set of services that includes less than the full array of services that brokerages traditionally provide;

• require members to use ERTS contracts (all original listing contracts were allegedly required to be collected and retained by West Penn MLS);

• prevent non-ERTS listings from being published on West Penn MLS’s approved websites (including Realtor.com and West Penn MLS-subscriber websites); and
  

• mandate the duration of listing contracts between a broker and seller (365 days).

According to Logue, “[i]f defendants hadn’t restricted [] innovative brokerages from competing in the West Penn MLS Service Area, these brokerages would have provided West Penn MLS Service Area customers of real-estate-brokerage services with competitive options and, in the process, placed downward pressure on the prices charged by the brokerage defendants, who offer only traditional methods of providing real-estate-brokerage services.”

As you may recall, just over a year ago West Penn MLS reached a consent agreement with the Federal Trade Commission that, generally speaking, bars West Penn MLS from adopting or enforcing any policy, rule, practice or agreement to deny, restrict or interfere with the ability of West Penn MLS subscribers to enter into EA listings or other lawful listing agreements. I haven't examined the accompanying order, but suspect it requires West Penn MLS to eliminate most, if not all, of the rules that are the subject of this newly-filed civil suit. I note Logue’s proposed class consists of “[a]ll individuals or businesses that purchased the brokerage defendants’ real-estate brokerage services in the West Penn MLS Service Area from February 13, 2005 through February 13, 2009." (about the time West Penn MLS settled with the FTC).

Interesting that West Penn MLS apparently was enforcing a minimum service rule, notwithstanding the fact that state law provides Pennsylvania consumers with the right to waive certain brokerage services. See 63 P.S. § 455.606a(a)(3).

Given that West Penn MLS previously settled with the FTC, it will be interesting to see if a quick settlement will be reached in this civil case. I note, however, that the brokerage defendants were not parties to the FTC consent agreement.

This isn't the first civil suit to arise out of the federal government's recent enforcement activities against multiple listing services. I'll be writing about others in future posts.

What I've been up to - AgentsCompared.com

It's been awhile since I last posted here, and for good reason. Going back to the summer of 2007 I've been developing an idea I've had about helping home buyers and sellers make more informed decisions when selecting a local real estate agent. Last month it came to fruition - AgentsCompared.com. Here's the text of our launch announcement:

FOR IMMEDIATE RELEASE:

Consumer-centric AgentsCompared.com Helps Prospective Chicagoland Home Buyers and Sellers Make More Informed Decisions When Selecting a Real Estate Agent

Chicago, IL – July 7, 2009 – Consumer-centric website AgentsCompared.com, launching today in Chicagoland, helps prospective home buyers and sellers make more informed decisions when selecting a real estate agent. The site lets consumers efficiently discover, evaluate and compare – on an apples to apples basis – competing local agents on the criteria most important to them, such as an agent’s track record (success stories, relevant statistics, etc.), price (commissions, rebates, etc.), specialties (first time buyers, short sales, REOs, etc.), local market knowledge, and over a dozen others. Prospective home buyers and sellers can use AgentsCompared.com to see how a referral stacks up against competing agents, and find other local agents that may offer better value, greater expertise, etc.

“I’m not a Realtor®, but I think it’s fair to say that none of the current “Find an Agent” websites appear to have been created with the consumer firmly in mind,” explained Chicago lawyer Michael Erdman, founder of AgentsCompared.com. “The space has unfortunately become stagnant, to the detriment of both consumers and agents. AgentsCompared.com will deliver some much needed innovation to the process of selecting a local real estate agent,” Erdman added.

AgentsCompared.com is unlike existing “Find an Agent” websites. It does not restrict the number or types of agents that can join the site or appear in relevant search results, or attempt to match consumers with agents. “Featured” placements and broker advertisements are not displayed in search results. Consumers simply run a search, review the results, and choose whether to make direct contact with an agent. They are not asked to pay a fee, register, provide personal information, navigate through multiple pages, or wait for an email in order to search the site or obtain results.

“Who you choose as your real estate agent can obviously make a big difference to your bottom line, end result, and overall experience when buying or selling real estate. AgentsCompared.com helps prospective home buyers and sellers understand their choices and ask important questions when selecting an agent, something that is especially important in the current housing market,” stated Erdman.

For Chicagoland real estate agents, AgentsCompared.com offers an opportunity to stand out from competing agents, and attract prospective home buyers and sellers that are looking for a local agent, by distinguishing themselves across a variety of categories that are important to consumers, and on a level playing field.

For additional information contact:

Michael Erdman
President & Founder
AgentsCompared.com
merdman@AgentsCompared.com

or visit www.AgentsCompared.com

Features, pricing, availability and specifications set forth herein are subject to change without notice.

# # #

Overview of USA v. NAR proposed Final Judgment

Here's a quick overview of the proposed Final Judgment ("PFJ") filed earlier today in USA v. National Association of Realtors. Note that before Judge Kennelly will consider and potentially enter the judgment, one or both parties will need to formally file a motion requesting same with the Court.

For a period of ten years, the settlement would prohibit NAR from adopting, maintaining or enforcing any rule, or entering into or enforcing any agreement or practice, that directly or indirectly:

• prohibits a Broker from using a VOW or prohibits, restricts, or impedes a Broker who uses a VOW from providing to Customers on its VOW all of the Listing Information that a Broker is permitted to Provide to Customers by hand, mail, facsimile, electronic mail, or any other methods of delivery;
  
  
• unreasonably disadvantages or unreasonably discriminates against a Broker in the use of a VOW to Provide to Customers all of the Listing Information that a Broker is permitted to Provide to Customers by hand, mail, facsimile, electronic mail, or any other methods of delivery;
  
  
• prohibits, restricts, or impedes the referral of Customers whose identities are obtained from a VOW by a Broker who uses a VOW to any other Person, or establishes the price of any such referral;
  
  
• imposes fees or costs upon any Broker who operates a VOW or upon any Person who operates a VOW for any Broker that exceed the reasonably estimated actual costs incurred by a Member Board in providing Listing Information to the Broker or Person operating the VOW or in performing any other activities relating to the VOW, or discriminates in such VOW related fees or costs between those imposed upon a Broker who operates a VOW and those imposed upon a Person who operates a VOW for a Broker, unless the MLS incurs greater costs in providing a service to a Person who operates a VOW for a Broker than it incurs in providing the same service to the Broker; or
  
  
• is inconsistent with the Modified VOW Policy (an exhibit to the PFJ).
  

Furthermore, NAR must (i) repeal the ILD Policy and direct each Member Board that adopted Rules implementing the ILD Policy to repeal such Rules; (ii) direct Member Boards that adopted Rules implementing the VOW Policy to repeal such Rules; (iii) adopt the Modified VOW Policy; (iv) direct Member Boards to adopt the Modified VOW Policy, and to thereafter maintain, act consistently with, and enforce Rules implementing the Modified VOW Policy; and (v) direct Member Boards not to adopt, maintain, or enforce any Rule or practice that NAR would be prohibited from adopting, maintaining, or enforcing pursuant to the PFJ. In other words, out with the VOW Policy and its successor, the ILD Policy. In with the Modified VOW Policy, a ten pager attached to the PFJ as an exhibit.

I haven't studied it yet, but the Modified VOW Policy appears to be based upon the original 2003 VOW Policy adopted by NAR on May 17, 2003. The 2003 VOW Policy was rescinded on August 31, 2005 in favor of the ILD Policy. If/when the Court enters the PFJ, I will highlight the changes contained in the Modified VOW Policy in a separate post.

The PFJ also gives NAR the green light to effectuate changes to the definition of “Participation” contained in the Statement of MLS Policy and previously adopted by NAR on 8/31/05 . This change impacts the definition of MLS Participant, which will now presumably read, in part, as follows:

[U]nder no circumstances is any individual or firm, regardless of membership status, entitled to MLS ‘Membership’ or ‘Participation’ unless they hold a current, valid real estate broker’s license and offer or accept cooperation and compensation to and from other Participants or are licensed or certified by an appropriate state regulatory agency to engage in the appraisal of real property. (emphasis added).

A "Note" accompanies the revised definition and directs that “[t]he requirement that an individual or firm ‘offers or accepts cooperation and compensation’ means that the Participant actively endeavors during the operation of its real estate business to list real property of the type listed on the MLS and/or to accept offers of cooperation and compensation made by listing brokers or agents in the MLS.” The PFJ prohibits member boards from suspending or expelling any broker on account of the new definition until May 27, 2009.

Here's a link to the DOJ's press release.

Settlement in USA v NAR?

A stipulation signed by attorneys for both parties and a proposed final judgment (not yet entered by Judge Kennelly) just appeared on the Court's online docket.

Perhaps the July 7 trial, which was to last approximately a month, has been averted? Keep in mind that a final judgment and/or other dispositive order has not yet been entered by the Court. In a related filing today, the United States stated that it will be filing a motion for entry of the proposed Final Judgment.

UPDATE: Read a summary of the proposed settlement.

Ninth Circuit: Roommates.com largely unprotected by Section 230

Earlier today the U.S. Court of Appeals for the Ninth Circuit, in Fair Housing Council of San Fernando Valley, et al v. Roommate.com, LLC, issued an en banc ruling that rejects the majority of the website's assertions of Section 230 immunity. For purposes of this (lengthy) post, I will assume you are familiar with the facts of the case and previous rulings. If that's not the case, check out my May 2007 summary of the three judge panel's decision reversing the District Court's application of Section 230 immunity.

The en banc panel here consisted of eleven Circuit Judges: Alex Kozinski, Stephen Reinhardt, Pamela Ann Rymer, Barry G. Silverman, M. Margaret McKeown, William A. Fletcher, Raymond C. Fisher, Richard A. Paez, Carlos T. Bea, Milan D. Smith, Jr. and N. Randy Smith.

The Court's opinion was authored by Chief Judge Kozinski, and a partial Concurrence/partial Dissent was issued by Judge McKeown, who was joined by Judges Rymer and Bea.

The bottom line you ask? Jump to page 28 of the slip opinion, wherein the Court advises that "[t]he message to website operators is clear: If you don’t encourage illegal content, or design your website to require users to input illegal content, you will be immune." Now for the loooong version, which excludes any consideration of the partial concurrence/dissent (maybe later).

We are of course dealing with a statute here, and the Court appropriately begins by asking what Congress had in mind when it enacted the law.

In passing section 230 . . . Congress sought to immunize the removal of user generated content, not the creation of content: “[S]ection [230] provides ‘Good Samaritan’ protections from civil liability for providers . . . of an interactive computer service for actions to restrict . . . access to objectionable online material." (quoting from a 1996 Conference Report)

I'm not so sure the "Good Samaritan" phrase is properly applied to Section 230(c)(1), but I think the point being made here is valid: In the online context, acting as an editor is generally protected. Acting as an author is not.

The Court proceeds to consider the challenged portions of the Roommates.com website. As to the questions asked of prospective subscribers during registration (disclosure of sex, family status, and sexual orientation), including the choice of answers provided by Roommates.com and offered in pull-down menus, the Court opines that

Roommate created the questions and choice of answers, and designed its website registration process around them. Therefore, Roommate is undoubtedly the “information content provider” as to the questions and can claim no immunity for posting them on its website, or for forcing subscribers to answer them as a condition of using its services. . . . The CDA does not grant immunity for inducing third parties to express illegal preferences. Roommate’s own acts—posting the questionnaire and requiring answers to it—are entirely its doing and thus section 230 of the CDA does not apply to them. Roommate is entitled to no immunity.”

Although it is purportedly just focused on the question of whether immunity applies, the Court further notes that "asking questions certainly can violate the Fair Housing Act and analogous laws in the physical world." More on this apparent divergence from the topic at hand (immunity) later.

The Court treats subscriber profiles the same way:

Although it is the subscriber that has answered the questions that are ultimately displayed in his or her profile, same “does not preclude Roommate from also being an information content provider by helping “develop” at least “in part” the information in the profiles. . . . By any reasonable use of the English language, Roommate is “responsible” at least “in part” for each subscriber’s profile page, because every such page is a collaborative effort between Roommate and the subscriber.

In other words, Roommates.com has again crossed the Section 230 line:

By requiring subscribers to provide the information as a condition of accessing its service, and by providing a limited set of pre-populated answers, Roommate becomes much more than a passive transmitter of information provided by others; it becomes the developer, at least in part, of that information. And section 230 provides immunity only if the interactive computer service does not “creat[e] or develop[]” the information “in whole or in part.”

The Court also declines to extend immunity to Roommate.com’s operation of its search system and email notification system. Observing that “Roommate designed its search system so it would steer users based on the preferences and personal characteristics that Roommate itself forces subscribers to disclose[,]” the Court addresses head-on the question of when does a website create or develop information:

We believe that both the immunity for passive conduits and the exception for co-developers must be given their proper scope and, to that end, we interpret the term “development” as referring not merely to augmenting the content generally, but to materially contributing to its alleged unlawfulness. In other words, a website helps to develop unlawful content, and thus falls within the exception to section 230, if it contributes materially to the alleged illegality of the conduct.” [this holding presumably explains the Court's delving into the underlying legality of some of Roommate.com's alleged actions here].

The preceding paragraph is a significant development in Section 230 jurisprudence, and merits close attention. What it seems to be saying is that for purposes of determining whether Section 230 immunity applies, we don't just look at whether the site created or developed the subject content. We must also examine whether the website "contributed materially to the alleged illegality of the conduct."

Based upon this new standard, the Court rules that Roommate.com "is sufficiently involved with the design and operation of the search and email systems—which are engineered to limit access to housing on the basis of the protected characteristics elicited by the registration process—so as to forfeit any immunity to which it was otherwise entitled under section 230." Rejected again.

However, the Court does rule that Roommate.com is immune to claims based upon third party submissions under the “Additional Comments” section of the site.

The case concludes with what could be construed as both a warning to the plaintiffs' bar and an encouraging word (?) to website operators:

[T]here will always be close cases where a clever lawyer could argue that something the website operator did encouraged the illegality. Such close cases, we believe, must be resolved in favor of immunity, lest we cut the heart out of section 230 by forcing websites to face death by ten thousand duck-bites, fighting off claims that they promoted or encouraged—or at least tacitly assented to—the illegality of third parties . . .. [I]n cases of enhancement by implication or development by inference—such as with respect to the “Additional Comments” here—section 230 must be interpreted to protect websites not merely from ultimate liability, but from having to fight costly and protracted legal battles.

The Court remands the case to the District Court for a consideration of the claims not immunized by Section 230.

I'm still digesting this thing (and may alter some of this post upon further reflection), but will say that I definitely anticipate a certiorari petition in the not too distant future. In the meantime, I recommend you give it a read. Check out the favorable language directed at search engines and sites that, like Roommate.com and the one in Carafano, classify user data. Also look for several generic examples offered by the Court of situations where immunity would and would not apply, and "clarifications" of two prior Ninth Circuit rulings (Carafano and Batzel).

I'm looking forward to getting through Judge McKeown's accompanying opinion and hearing what others have to say about the case.

Victory for ZeroBrokerFees.com in New Hampshire

Yesterday Magistrate Judge James Muirhead ruled in favor of ZeroBrokerFees.com in the website's suit challenging the applicability of the New Hampshire Real Estate Practice Act - specifically the licensure requirement - to the operation of ZeroBrokerFees.com. The court ruled that pursuant to a statutory exemption for newspapers, ZeroBrokerFees.com was not obligated to obtain a brokerage license in New Hampshire before advertising real estate online.

For a refresher, see my post from last May.

Here is a copy of ZBF's lawyers' announcement, and a copy of the court's 33 page order.

7th Circuit rules in favor of Craigslist

Here's the decision. It looks like my prediction was pretty much on the mark.

In an opinion by Judge Easterbrook, the 7th Circuit has affirmed Judge St. Eve's grant of Craigslist's motion for judgment on the pleadings. In other words, the Court ruled that Section 230 protects Craigslist from the Fair Housing Act claims contained in plaintiff's complaint.

In emphasizing that Section 230(c)(1) does not grant absolute immunity, though, Judge Easterbrook takes the opportunity to cite some of his dictum in Doe v. GTE. This did not seem necessary, particularly given the fact that today's ruling does not adopt the 'definitional' reading of Section 230(c)(1) that was first presented in Doe.

Instead the Court concedes that "subsection (c)(2) does not deal with the liability of speakers and publishers, the subject of subsection (c)(1). We read each to do exactly what it says." Noting that "'information' is the stock in trade of online service providers," the opinion concludes that "given §230(c)(1) [appellant] cannot sue the messenger just because the message reveals a third party’s plan to engage in unlawful discrimination." In other words, appellant sought to treat Craigslist as a publisher of third party content, and Section 230(c)(1) forbids such treatment.

What I found most interesting was the fact that, in the course of rejecting appellant's argument that Craigslist 'caused' the discriminatory ads (a term that appears in the Fair Housing Act provision at issue in this case), the Court alluded to a scenario where a website may indeed become a 'causer' (not just a publisher) and thus expose itself to liability:

Nothing in the service craigslist offers induces anyone to post any particular listing or express a preference for discrimination; for example, craigslist does not offer a lower price to people who include discriminatory statements in their postings.

While the statement was made in reference to the FHA, this sentence suggests that website inducement combined with certain statutory language could result, in some cases, in website liability. We'll probably here more about this point in the Ninth Circuit's much anticipated en banc Roommate.com decision.

Illinois anti-rebate legislation (HB 4313)

An Illinois broker recently informed me that State Representative Robert Molaro (who himself does not appear to be a licensed broker or salesperson in Illinois) has introduced anti-rebate legislation in Springfield. The bill is scheduled to be heard this Thursday by the Judiciary I - Civil Law Committee.

Here's the synopsis offered on the legislature's website:

Amends the Real Estate License Act of 2000. Provides that no licensee shall give or pay cash rebates, cash gifts, or cash prizes to an unlicensed person who is a party to a contract to buy or sell real estate. Provides that a licensee may offer compensation, including prizes, merchandise, services, rebates, discounts, or other consideration to an unlicensed person who is a party to the lease of real estate, so long as the offer complies with certain provisions of the Act. Effective immediately.

If you have any additional information, please share it here.

Seventh Circuit considers whether Section 230 protects Craigslist from Fair Housing Act claims

Last Friday the U.S. Court of Appeals for the Seventh Circuit, based here in Chicago, heard oral arguments in the plaintiff’s appeal of Chicago Lawyers’ Committee for Civil Rights Under Law, Inc. (“CLC”) v. Craigslist Inc. (“Craigslist”). CLC, as you may recall, is appealing District Judge St. Eve’s ruling that Section 230 protects Craigslist from liability for housing ads placed on the site by third parties that allegedly violated the federal Fair Housing Act ("FHA"). The case, the last one scheduled for the week, was clearly the most popular one of the day, with at least forty people in attendance in the gallery (none of whom left early notwithstanding an ominous, overhead announcement that interrupted the arguments, advising that a fire had been reported in another part of the twenty-seven story building, but that an evacuation was unnecessary). It apparently was a false alarm, but given I arguably risked my life to hear the arguments in their entirety, which took place on the 27th floor mind you, please show me some love and let me know where you think this case is headed (and/or if you think I'm a moron for sticking around to the end).

The three judge panel consisted of Judges Frank H. Easterbrook, Diane P. Wood and Terence T. Evans. You may recall that both Judges Easterbrook and Wood were on the panel that heard Doe v. GTE Corp. in 2003, the only other Section 230 case argued before the Seventh Circuit. Attorney Stephen D. Libowsky argued on behalf of CLC, and Attorney Patrick Carome argued on behalf of Craigslist. Each attorney was allotted fifteen minutes (with appellant CLC going first), and CLC’s counsel was offered an additional one minute for rebuttal. Of course the case was fully briefed before Friday's arguments.

Judge Wood didn’t waste any time. Sure, Congress, when it enacted Section 230, did not want online services to be penalized for filtering objectionable content. But does it follow, she asked, that Congress wanted to make life more difficult for online services that do not employ blocking technologies? She asked CLC’s counsel why is it that a service that takes a neutral position regarding filtering is subject to liability?

CLC's counsel's response seemed to be that, like it or not, this is what the statute provides. In some cases where an online service employs filtering, it may be immune pursuant to 230(c)(2). But if such immunity does not apply, there is no protection for the online service under Section 230. In other words, CLC’s position seems to be that Section 230(c)(1) does not offer any protection for an online service that does not employ any filtering mechanisms. This of course flies in the face of over a dozen federal appellate decisions ruling to the contrary.

Judge Easterbrook - who wrote the court's opinion in Doe v. GTE, which was heavy on dictum and suggested that Section 230(c)(1) indeed may only be definitional and not substantive - followed up, asking whether liability here boils down to whether Craigslist is a publisher (in other words, if liability requires treating Craigslist as a publisher, there can be no liability per Section 230). CLC’s counsel disagreed, asserting that under the FHA all Craigslist has to be is a “causer” of certain prohibited conduct. Judge Easterbrook acknowledged cases where newspapers were found liable (presumably under the FHA), such papers being the publishers of certain materials. But CLC's counsel countered that those courts did not specify the basis for liability, and that in one case the court referred to a newspaper as having “carried” an ad. CLC's counsel acknowledged, however, that such phrase does not appear in the FHA.

Judge Easterbrook noted that Section 230(c)(1) is not, contrary to what other courts have held, an immunity provision (technically it’s hard to argue with him given the paragraph makes no express reference to immunity). Instead (c)(1) is saying that an ISP cannot be treated as a publisher in some cases. This left me with the impression, when factoring in his line of questioning, that Judge Easterbrook may have had a partial change of heart since he wrote Doe v. GTE Corp., wherein he suggested in dictum that (c)(1) may just be definitional and a lead-in to the immunity provision contained in paragraph (2). Now he seems to be saying that (c)(1) can do some real work (not immunization, mind you). If I had to guess, if CLC, to prove a violation of the FHA, must show that Craigslist published a discriminatory ad, Judge Easterbrook would likely conclude that Section 230(c)(1) shields Craigslist from liability. But he probably wouldn't use the word "immunize."

Judge Evans then joined the discussion, asking how could Craigslist, with its 30 million posts per month and 30 employees, possibly be expected to filter each posting. He quickly dismissed CLC’s counsel’s comparison to the responsibility of newspapers, again emphasizing the massive number of postings made on Craigslist. He seemed to disregard CLC’s counsel’s assertions that Craigslist has essentially conceded that filtering is possible, given its purported efforts in this area to date, and that Craigslist could reduce the occurrence of inappropriate ads by employing dropdown menus (for example (mine), one could choose to exclude smokers, but would have no way to indicate a desire to exclude minorities, because that wouldn't be among the dropdown choices).

Judge Easterbrook similarly did not buy the filtering argument. He offered an example of someone looking to rent out an apartment located near a Buddhist church. Should Craigslist prevent that person from using the word “Buddhist” in describing nearby landmarks, because the term could also be used in a discriminatory fashion? Of course such filtering is technically possible, but does the FHA require Craigslist to do so?

CLC’s counsel's response was that (c)(1) is not absolute, and that it must be read in conjunction with (c)(2). By that I think CLC is saying that Craigslist – as a carrier or “causer” – is beyond the scope of (c)(1) protection (if any such protection exists), and that (c)(2) immunity is not available here because Craigslist did not filter, or attempt to filter, the allegedly discriminatory ads. CLC's counsel also referred to Doe v. GTE, seemingly hoping Judge Easterbrook would stand by his suggestions therein that (c)(1) does not in and of itself offer any protection, and that the alternative reading would "gut" (c)(2). From my vantage point I did not get the impression that any of the panelists accepted these arguments.

Next up was Craigslist’s counsel. He directed the panel’s attention to Congressional committee reports prepared in connection with the 2002 Dot Kids statute which expressed approval for the federal courts' interpretation of Section 230 to date, citing the Zeran decision in particular.

Judge Easterbrook again asked whether there was any way that Craigslist could be liable if it could not (per Section 230) be treated as a publisher. Craigslist’s counsel responded, of course, in the negative. Pressing the issue, Judge Easterbrook returned to the newspaper cases, asking whether the website could somehow be held liable as a carrier. Judge Easterbrook offered the hypothetical of a phone bank being employed to put out discriminatory messages. Would the phone company be liable in such a case for FHA violations? To my surprise, Craigslist’s counsel responded “maybe.” Putting aside for the moment whether it's appropriate to compare carrier cases to ISP (or, more properly, Interactive Computer Service) cases, I have a hard time conjuring up a scenario where AT&T would be liable for a third party's use of its phone lines to make calls spewing discriminatory statements.

My overall take? Judge Evans didn’t say much, but what he did volunteer was favorable to Craigslist. Based upon her articulated understanding of the statute, Judge Wood also seems inclined to side with Craigslist. Last, but certainly not least, I’m thinking that Judge Easterbrook was not persuaded by CLC's arguments. However, and to his credit, he did demonstrate a willingness to consider an alternative basis for liability that would not implicate Section 230 protections. But I don't think CLC satisfied its burden in this regard.

I expect a unanimous ruling affirming Judge St. Eve’s decision that will relieve concerns website operators may have about some of the four year old dictum in Doe v. GTE. Your thoughts?

Click here to listen to the oral arguments yourself (QuickTime streaming).

Oral Argument in Craigslist Litigation

The Seventh Circuit will hear oral argument (fifteen minutes per side) in Chicago Lawyers Committee for Civil Rights Under the Law, Inc. v. Craigslist Inc. on February 15, 2008. We won’t know the panel’s composition until the morning of, but I’m crossing my fingers Judge Easterbrook will be selected so we can see how his thinking has evolved, if at all, since the Circuit’s 2003 GTE ruling. The GTE panel also included Circuit Judges Bauer and Wood.

While I don’t expect to be live-blogging the argument, I will certainly be there scratching out some notes. Please tap me (the tie-less guy) on the shoulder if you’re able to make it to Court that day.

For a refresher, check out my 2006 guest post on May It Please The Court. Interested in reading the appellate briefs? Click here, and enter the case number (07-1101).

Realcomp wins Round 1 with the FTC

Here's an excerpt from today's press release from the Federal Trade Commission:

In an initial decision filed on December 10, 2007 and announced today, Chief Administrative Law Judge (ALJ) Stephen J. McGuire dismissed a Federal Trade Commission complaint issued last year against a realtors’ group in southeast Michigan, ruling that “upon review of the totality of the evidence . . . it is determined that Complaint Counsel has not met its burden” of demonstrating that the policies of Realcomp II, Ltd. (Realcomp) have unreasonably restrained or substantially lessened competition in the relevant market. McGuire accordingly concluded that Complaint Counsel had not shown that the group’s policies resulted in “actionable consumer harm” in violation of Section 5 of the FTC Act.

Here's a link to ALJ McGuire's initial decision (be patient, it's a 144 page, 11mb file).

I have looked over the decision, and note the following-

• While the “dual-listing” option noted in the Initial Decision may get an Exclusive Agency listing on Realtor.com, it will not get such a listing on MoveInMichigan.com or Realcomp’s IDX feed, both popular methods for Michigan consumers to view listings. And as for that Realtor.com listing, it will be inferior to the same listing that would show up on Realtor.com if it was submitted directly by Realcomp. This is because different MLSs use different data fields, and certain local data (i.e., the names of appropriate schools) will not appear on such dual-listings. Perhaps most importantly, the dual-listing option is dependent upon the “bypass” MLS maintaining its current Realtor.com upload policies. Such policies are likely to change should this Initial Decision stand.
  

• I have a hard time accepting the procompetitive justifications offered by Realcomp for its Website Policy, in light of the National Association of Realtors’ prior statement that Exclusive Agency listings on IDX feeds “would not detract from the purposes of the MLS.”
  

• To sum it up, this ruling essentially concludes that Realcomp’s Website Policy reasonably restrains the public exposure of non-Exclusive Right to Sell listings. I don’t think there is very much reasonable about it.

Another MLS settles with the FTC over alleged anticompetitive practices

From the Federal Trade Commission's press release of earlier today:

The Federal Trade Commission today charged Multiple Listing Service, Inc. (MLS), a group of real estate professionals based in Milwaukee, Wisconsin, with violating the antitrust laws by adopting rules that withheld valuable benefits of the multiple listing service it controls from consumers who chose to enter into non-traditional listing contracts with real estate brokers. The rules blocked non-traditional, less-than-full-service listings from being transmitted by MLS to popular Internet web sites, but provided this important benefit for traditional forms of listings.

In settling the charges, MLS is barred from adopting or enforcing any rule that treats one type of real estate listing agreement more advantageously than any other, and from interfering with the ability of its members to enter into any kind of lawful listing agreement with home sellers. The order applies not only to MLS, but to other entities it controls, including MetroMLS and any affiliated Web site it operates. The settlement announced today follows the FTC’s 2006 announcement of a sweep alleging similar conduct by multiple listing services in other local areas in several states.

“The Commission action announced today reconfirms our commitment to ensuring that consumers can freely enter into lawful agreements with real estate brokers for help in selling their homes,” said Jeffrey Schmidt, Director of the FTC’s Bureau of Competition. “Homeowners should be able to lawfully contract with a broker on the terms that they choose, without facing interference by the broker’s competitors.”

For those of you interested, here are links to the FTC's complaint, order and analysis.

Judgment entered against Idaho class on tying claims

It's been over six months since anything material has come out of the four class actions pending in federal district court in Idaho. You'll recall the court previously certified the following class in these cases, which allege that each defendant illegally tied the purchase of undeveloped land to payment of a commission based upon the value of the land plus anticipated development thereon:

All persons who: (1) bought an undeveloped lot in a subdivision in either Ada, Boise, Canyon, Gem or Owyhee county, Idaho between August 18, 2001 and February 28, 2006 in which Defendant has or had the exclusive right to market or sell the subdivision lots on behalf of the developer; (2) were required to build a house on the lot in order to buy the lot; and (3) were required to pay Defendant a commission based on the cost of the lot plus the actual or estimated cost of the house in order to buy the lot.

The wait is over. Last Friday District Judge Winmill granted summary judgment in favor of the four defendants on the state and federal tying claims. After identifying the relevant legal issue as "whether Defendants, in allegedly forcing Plaintiffs to buy Defendants' services on the sale of the subject homes built on the lots, foreclosed other brokerages from selling the same product to Plaintiffs," the court concluded that the defendants demonstrated that plaintiffs “lack evidence of foreclosure by pointing out that Plaintiffs did not want to purchase the tied product from any source.”

The plaintiffs' Idaho Consumer Protection Act claims remain before the court at this time.