Antitrust Alert: FTC Finds Michigan Realtors' Policies Violated Antitrust Laws in Far Reaching Decision for Joint Ventures
Last week the Federal Trade Commission ruled that a Michigan realtors' group violated federal antitrust law by limiting the publication of certain types of real estate listings within its Multiple Listing Service (MLS) and publicly accessible real estate web sites. Reversing a 2007 ruling by an Administrative Law Judge, on November 2 the FTC ordered the group, Realcomp II Ltd. (Realcomp), to amend its publication policies to avoid discriminating against listings by brokers employing lower-priced alternative brokerage arrangements. Of broader significance, the decision highlights the agency's willingness to prosecute specific conduct it deems "inherently suspect," even within the context of a legitimate joint venture, without significant inquiry into the traditional antitrust elements of market power and competitive effects.
Realcomp is a joint venture of seven realtor associations that operate the largest MLS in Michigan, its members comprising almost half the realtors in the state. In October 2006, the FTC issued a complaint challenging three Realcomp policies that it alleged unlawfully restricted the dissemination of "limited service listings" – that is, those posted by discount brokers –on Realcomp's MLS and on certain publicly accessible real estate web sites. According to the Commission, the direct effect of these policies was to prevent member real estate agents from effectively offering consumers lower-priced alternatives to traditional real estate services and to limit the information consumers received about listings available under such alternative arrangements.
This FTC's approach would give antitrust plaintiffs the upper hand in challenges to "inherently suspect" restraints imposed among joint venture participants.
Three Faces of the Rule of Reason
In reversing the ALJ, the Commission analyzed Realcomp's policies using three related approaches. First, it relied upon a line of FTC cases to find the policies unlawful under an abbreviated or "quick look" rule of reason analysis (including California Dental Ass'n v. FTC, 526 U.S. 756 (1999) and Polygram Holding, Inc. v. FTC, 416 F.3d 29 (D.C. Cir. 2005)). Under this approach, the Commission deemed the restraints at issue to be "inherently suspect" and thus subject to summary condemnation in the absence of a legitimate procompetitive justification. Second, the agency conducted a somewhat fuller rule-of-reason inquiry, again finding the policies unlawful as likely to cause anticompetitive effects, in light of Realcomp's actual market power, the nature of the restraints, and the characteristics of the market. Third, applying a complete rule-of-reason analysis, the Commission found "direct evidence of ‘actual, sustained adverse effects on competition' in the relevant markets," which it held to be sufficient as an alternative basis for liability under the rule of reason.
While the Commission reasoned that each of these analytical approaches provides a distinct and sufficient basis for liability, it devoted primary attention to the abbreviated rule-of-reason analysis – which the ALJ had rejected as inapplicable to the case. The prominence of this mode of analysis in the Commission's opinion is curious, given that FTC complaint counsel had expressly disclaimed reliance upon it on appeal and that Realcomp essentially had conceded that it possesses market power. One may surmise that the Commission thought it important to reinforce its "quick look" paradigm as appropriate in the wake of the ALJ's rejection of the framework.
Inherently Suspect Conduct
Although traditional rule-of-reason analysis in antitrust cases requires a showing of market power and actual or likely anticompetitive effects, the abbreviated paradigm allows the court (or agency) to dispense with both the market power and effects inquiries in certain limited cases in which the conduct at issue is deemed to be "inherently suspect," unless the defendants can offer some legitimate procompetitive justification. This offers a substantial potential procedural benefit to plaintiffs.
The contours of the "inherently suspect" category are far from well defined. In its Polygram decision, the FTC articulated the concept as applying to "behavior that past judicial experience and current economic learning have shown to warrant summary condemnation," due to its "likely tendency to suppress competition." Here, however, the Commission made clear that prior judicial experience with the precise form of conduct at issue is not required. Rather, the agency analyzed the context of the restraining policies, including the market circumstances under which they were adopted and their likely effect on competition from discount brokers. It concluded that the MLS' policies fit the inherently suspect category because they could be likened to inherently suspect restrictions on advertising and on other types of dissemination of information to consumers, conduct previously condemned as having "the effect of limiting the availability of competitively relevant information to consumers or raising the cost of obtaining such information." The Commission asserted that the MLS's policies "discriminated against members who offer a product that creates ‘price pressure' against the offerings of other members" and thus "impede the emergence of a new business model that has considerable benefits for consumers."
The Commission extended the inherently suspect label to MLS restrictions on discount brokers' real estate listings based upon a "close family resemblance" to restrictions on advertising of music albums, the hours of operation of auto dealerships, and participation in a marine boat show. This shows a breathtaking willingness to draw presumptive conclusions about various types of restraints, including restraints "that courts had not precisely seen before."
Conduct Not Saved By Procompetitive Nature of Realcomp Joint Venture
The case also is a reminder of the FTC's willingness to segregate and strike down specific features of an otherwise lawful joint venture. Although it recognized that MLS services such as Realcomp "produce genuine economic efficiencies and improve economic performance in the sale and purchase of homes," those benefits played no role in the agency's scrutiny of the specific policy provisions it found troubling. "The existence of a legitimate joint venture does not preclude antitrust scrutiny of all measures the venture undertakes…. [I]t may not use the collaboration as a means to impose inappropriate limits on individual competitive initiative."
Joint venture participants should beware that even limited restraints on competition may give rise to antitrust liability and that the FTC is willing to isolate restraints it deems are not reasonably ancillary to the creation and operation of a procompetitive venture. Even restraints that initially were lawful may later be deemed unlawful if the nature of the joint venture changes. The reasoning in Realcomp reaffirms the result in its 2008 Dick's Sporting Goods matter – if the restraints are deemed by the FTC to be "inherently suspect" based on a contextual analysis, they may subject the venture and its partners to liability even if they do not actually have market power.
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Michael H. Knight
+1.202.879.5553
Washington
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