By Robert S. Kutner, Esq. Partner, Casner & Edwards
Antitrust claims are generally aimed at stopping combinations and conspiracies to restrain trade. Any practice that is viewed as anti-competitive could give rise to an antitrust claim. Recently most high profile antitrust cases have involved technology companies, such as Microsoft, Google, and Apple.
Microsoft was accused of using its position as a market leader in selling computer operating systems to force the purchase of other Microsoft products. Competition was restrained because consumers could not purchase the Windows operating system without also purchasing the Microsoft browser. It took Microsoft 21 years to dispose of those charges. Within the past year, the Department of Justice has thrown the book at Apple with an antitrust lawsuit that accuses the tech giant and six publishers
of collusion to drive up the price of e-books.
Because of the nature of the real estate brokerage business, REALTORS® may also find themselves in situations that could lead to allegations of anti-competitive practices unless care is taken. Such situations include discussions or agreements with competitors concerning fees. Other delicate situations are discussions among MLS participants regarding business practices of other offices.
Claims Against REALTOR® Organizations
In Massachusetts, antitrust claims have been based on allegations that the membership requirements of a REALTOR® organization were unreasonable barriers to entry into the industry and, therefore, constituted a “group boycott,” another form of a restraint of trade. This was the nature of the lawsuit that Wells Real Estate asserted against the then Greater Lowell Board, MAR and NAR in the United States District Court for the District of Massachusetts in 1972. Wells’ lawsuit was unsuccessful, but the trial and appeals lasted 16 years. Another type of claim against REALTOR® organizations has been that the requirement of REALTOR® membership to gain access to a Board-operated multiple listing service constituted an unlawful tying arrangement, requiring the purchase of unwanted Board services in order to participate in the MLS. This was the primary claim in the 1991 Atlanta-based case, Thompson v. Metropolitan Multi-List, Inc.
Other practices prohibited by the antitrust laws include conspiracies to fix prices. Conversations among agents with different companies about the fees they charge may be cited as an agreement to fix prices. In some parts of the country it has been alleged that a multiple listing service was used as a vehicle to standardize commission rates. That is one reason that fees published in the MLS do not identify the total fee that the seller has agreed to pay, but only state the percentage offered to the “selling agent.” Since 1993 it has been NAR policy to require that REALTORS® disclose to clients and customers their “general company policies regarding cooperation and compensation” with other firms, including subagents and buyers’ agents. Discussing company policies with clients and customers is permitted, but discussions with other offices should be minimized or avoided because of the antitrust implications. For example, an agreement concerning compensation to be offered could be alleged to be an agreement to fix prices. Similarly, a discussion between two different companies about whether or not to cooperate with a third office could be viewed as evidence of a group boycott, if each refuses to cooperate with the third office.
As previously stated, for an antitrust violation to occur, there must be a “combination or conspiracy” in restraint of trade. A discussion or decision solely within an office concerning what policies or fee schedules to adopt will not constitute a violation. The key is to avoid a discussion or agreement with a competitor. If several offices coincidentally adopt the same policy, suspicions are raised about whether there was an illicit agreement, because of parallel conduct.
Antitrust concerns are also raised when different companies discuss and agree upon their treatment of “discount” brokers. In a case decided in the United States District Court in Alabama, which was upheld on appeal, Orval Sheppard Real Estate Company, Inc. v. Valinda Freed and Associates, Inc., the “discount broker”, Sheppard, charged a flat commission of $1995 and offered to pay $1000 of its flat fee to any selling broker. Several other major real estate agencies whose listing commissions ranged between five and six percent refused to co-broke with Sheppard. Sheppard brought suit, claiming that their refusals violated federal antitrust laws. Fortunately for the Defendants, the Court denied the claim.
The Court held that a “real estate agency generally has a right to refuse to co-broke with a competing agency for reasons sufficient to itself, . . . provided its refusal stems from independent decision and not from some agreement, tacit or expressed.” The Court noted that Sheppard had introduced evidence of parallel conduct by the defendants. Each refused to co-broke with Sheppard. Nevertheless, the Court ruled that “parallelism by itself does not establish an agreement . . . Rather parallel conduct is a factor ‘to be weighed, and generally to be weighed heavily.’” Parallel conduct alone brings one dangerously close to an antitrust violation. The Court also dismissed the counterclaim that Sheppard’s charging of a discount fee was an attempt to monopolize the market. The Court noted that an agreement between offices is not required to establish a violation of the antitrust laws. The Court reasoned that Sheppard’s market share was not sufficient to establish that there was a substantial probability that his discount fee was intended to lead to monopolization of the market.
Applying the precedent of the Sheppard case, if a company’s policy is to offer less compensation to a discount broker than the rate offered to companies that charge a higher fee, it will be necessary to justify the disparate treatment by identifying a valid economic reason for offering a lower fee. Perhaps a different fee is justified because more work must be done by the listing office. Perhaps the seller dictated the fee to be offered other offices, not the broker. In summary, with care the risk of antitrust problems can be minimized.