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Real Estate Listing Company Adequately Alleged That Rival Listing Company Engaged In Illegal Anticompetitive Conduct
Most real estate agents pay monthly fees to access multiple listing services (MLSs), which are databases of homes for sale in certain geographic areas. Most MLSs are owned and controlled by members of the National Association of Realtors (NAR), a trade association to which the vast majority of residential real estate agents belong. Most sellers prefer to list their homes on NAR-affiliated MLSs to reach the widest range of buyers. Some sellers prefer not to do so because they do not want to share details about their home with an entire MLS. Listings that are not shared on a NAR-affiliated MLS are sometimes called “pocket listings.”
A group of real estate agents created PLS, which was a database similar to an MLS but allowed sellers to choose how much information to share, including listings anywhere in the United States instead of a particular geographic region. PLS was open to any agents, and charged less than MLSs.
Even before PLS was launched, NAR grew concerned with the growth of pocket listings. Two years after PLS launched, an advisory board at NAR voted to recommend that NAR adopt a policy that would require agents posting listings on competing services to also post those listings on the appropriate MLS. Regional MLSs adopted policies consistent with the advisory board’s recommendation and a number of NAR-affiliated MLSs discussed the competitive threat of pocket listings at a conference.
A month later, NAR adopted the Clear Cooperation Policy (Policy) which requires that listing brokers must submit listings to the MLS, and agents who did not comply would face severe penalties, including several-thousand dollar fines, or suspension from or termination of their access to the MLS. NAR-affiliated MLSs admitted that the purpose of the Policy was to maintain market dominance and specifically exclude PLS. After the Policy was adopted, listings were removed from PLS and submitted to NAR-affiliated MLSs. Agent participation in PLS also declined.
PLS filed suit against NAR, alleging that the Policy was an unreasonable restraint of trade in violation of Section 1 of the Sherman Act and of California antitrust laws. PLS also sought treble damages for lost profits and a permanent injunction prohibiting NAR from enforcing the Policy. NAR filed a motion to dismiss the lawsuit. The trial court granted the motion to dismiss because PLS did not allege antitrust injury and denied PLS the ability to amend its complaint. PLS appealed.
The Ninth Circuit Court of Appeals held that the trial court erred in granting the motion to dismiss. Under the Sherman Act, private parties can assert a claim when the claimed injury flows from acts harmful to consumers. The Ninth Circuit held that the trial court erroneously required PLS to allege that the Policy directly harmed the “ultimate consumers” – which the trial court identified as the home buyers and sellers – to allege antitrust injury. The Court reasoned that consumer is not limited to “ultimate consumer” – businesses that use a product or service as an input to provide another product or service can be “consumers” for antitrust purposes.
The Ninth Circuit then analyzed whether PLS adequately alleged a Sherman Act violation. To allege an antitrust injury, a plaintiff must allege (1) unlawful conduct, (2) causing an injury to the plaintiff, (3) that flows from that which makes the conduct unlawful, and (4) that is of the type the antitrust laws were intended to prevent. The Supreme Court of the United States has interpreted the Sherman Act to prohibit “unreasonable restraints of trade.” Most claims of unreasonable restraints of trade require courts to conduct a market analysis to assess the restraint’s actual effect on competition. A group boycott, which is a concerted attempt by a group of competitors to protect themselves from nongroup members, is generally a per se unreasonable restraint of trade and therefore, does not require a market analysis.
The Ninth Circuit held that PLS adequately alleged a Sherman Act violation because the Policy is a classic group boycott. The Policy was enacted for the express purpose of preventing PLS, a new entrant to the real estate market after decades of little to no competition, from competing with the MLSs. The Policy impaired PLS’s ability to compete against MLSs in the market for sellers’ listings because it required the vast majority of PLS suppliers (sellers’ agents who are members of a NAR-affiliated MLS) to supply to PLS’s dominant competitors (NAR-affiliated MLSs). Regardless of what PLS could do – e.g., charging less to list properties – agents who belong to NAR-affiliated MLS may not list on PLS without also listing on an MLS. Essentially, the Policy eliminates competition for most sellers’ agents’ listings between NAR-affiliated MLSs and rival services.
The Ninth Circuit also held that PLS adequately alleged an antitrust injury. The Court explained that the Sherman Act prohibits group boycotts because they are designed to drive existing competitors out of the market or prevent new competitors from entering, leaving consumers with fewer choices, higher prices, and lower-quality products. The Ninth Circuit held that PLS alleges that is what happened with the Policy – the Policy prevented PLS from entering the marketing and made it virtually impossible for new competitors to enter, leaving agents with fewer choices, high prices, and lower quality products. Therefore, PLS adequately alleged an antitrust injury.
Ultimately, the Ninth Circuit found in favor of PLS and reversed the trial court’s motion to dismiss.
PLS.Com, LLC v. Nat’l Ass’n of Realtors (9th Cir. 2022) 32 F.4th 824.
Antitrust laws are intended to promote maximum competition in the private sector. Antitrust issues for private K-12 schools, colleges, and universities can arise in many circumstances, such as agreements to fix compensation provided to employee recruits, joint recruiting schedules, joint establishment of financial aid methodologies and joint admissions protocols, agreements to set tuition prices, and group boycotts of ranking organizations. We would remind schools to be careful to ensure that their collegial collaboration with other schools does not cross the line into an unlawful violation of antitrust laws.