[Federal Register Volume 73, Number 214 (Tuesday, November 4, 2008)]
[Notices]
[Pages 65616-65681]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-25989]
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DEPARTMENT OF JUSTICE
Antitrust Division
United States v. National Association of Realtors; Response to
Public Comments on the Proposed Final Judgment
Pursuant to the Antitrust Procedures and Penalties Act, 15 U.S.C.
16(b)-(h), the United States hereby publishes the public comments
received on the proposed Final Judgment in United States v. National
Association of Realtors, No. 05-C-5140, and the response to the
comments. On October 4, 2005, the United States filed an Amended
Complaint alleging that the National Association of Realtors (``NAR'')
violated Section 1 of the Sherman Act, 15 U.S.C. 1, by adopting
policies that suppress competition from real estate brokers who use
password-protected ``virtual office Web sites'' or ``VOWs'' to deliver
high-quality brokerage services to their customers. The proposed Final
Judgment, filed on
[[Page 65617]]
May 27, 2008, requires NAR to repeal the challenged policies and to
adopt new rules that do not discriminate against brokers who use VOWs.
Copies of the Amended Complaint, proposed Final Judgment, Competitive
Impact Statement, Public Comments, the United States' Response to the
Comments, and other papers are currently available for inspection in
Suite 1010 of the Antitrust Division, Department of Justice, 450 5th
Street, NW., Washington, DC 20530, telephone: (202) 514-2481, on the
Department of Justice's Web site (http://www.usdoj.gov/atr), and the
Office of the Clerk of the United States District Court for the
Northern District of Illinois. Copies of any of these materials may be
obtained upon request and payment of a copying fee set by Department of
Justice regulations.
J. Robert Kramer II,
Director of Operations, Antitrust Division.
United States District Court for the Northern District of Illinois,
Eastern Division, United States of America, Plaintiff, v. National
Association of Realtors, Defendant
[Civil Action No. 05 C 5140]
Judge Kennelly
Response of the United States to Public Comments on the Proposed Final
Judgment
Table of Contents
I. Procedural History
II. Summary of the Allegations in the Amended Complaint
A. Overview
B. Multiple Listing Services
C. VOW Brokers
D. The Challenged Policies
III. Summary of Relief To Be Obtained Under the Proposed Final
Judgment
IV. Standard of Judicial Review
V. Summary of Public Comments and the Response of the United States
A. Comments Submitted by Entities Operating VOWs
1. Comments Submitted by ZipRealty
2. Comments Submitted by Prudential Real Estate Services
Company, LLC, and Prudential Real Estate Affiliates, Inc.
3. Comments Submitted by Home Buyers Marketing II
B. Comments Submitted by Exclusive Buyer Agents
C. Comments Submitted by MLS4owners.com
D. Comments That Do Not Address the Amended Complaint or
Proposed Final Judgment
VI. Conclusion
Index to Comments
Attachment 1: Comments submitted by Zip Realty, Inc.
Attachment 2: Comments submitted by Prudential Real Estate Services
Company, LLC, and Prudential Real Estate Affiliates, Inc.
Attachment 3: Comments submitted by Home Buyers Marketing II, Inc.
Attachment 4: Comments submitted by the National Association of
Exclusive Buyer Agents.
Attachment 5: Comments submitted by the Buyer's Broker of Northern
Michigan, LLC.
Attachment 6: Comments submitted by MLS4owners.com.
Attachment 7: Comments submitted by Realty Specialist, Inc.
Attachment 8: Anonymous comments from brokers in Montgomery County,
Pennsylvania.
Attachment 9: Anonymous comments from broker in San Jose,
California.
Pursuant to the requirements of the Antitrust Procedures and
Penalties Act (``APPA'' or ``Tunney Act''), 15 U.S.C. 16(b)-(h), the
United States responds to nine public comments concerning the proposed
Final Judgment that has been lodged with the Court for eventual entry
in this case. After review of the comments, the United States has
concluded that the proposed Final Judgment, with minor modifications to
which Defendant National Association of Realtors (``NAR'') has agreed,
will provide an effective and appropriate remedy for the antitrust
violation alleged in the Amended Complaint. The United States will move
the Court for entry of the proposed Final Judgment on November 7, 2008,
as ordered by the Court, after the comments and this Response have been
published in the Federal Register, pursuant to 15 U.S.C. 16(d).
I. Procedural History
The United States brought this civil antitrust action against NAR
on September 8, 2005, to stop NAR from violating Section 1 of the
Sherman Act, 15 U.S.C. 1, by its suppression of competition from real
estate brokers who use password-protected ``virtual office Web sites,''
or ``VOWs,'' to deliver high-quality brokerage services efficiently to
consumers. On May 27, 2008, the United States and NAR reached a
settlement. On that day, the United States filed a Stipulation and
proposed Final Judgment to eliminate the likely anticompetitive effects
of NAR's policies.
The United States and NAR have stipulated that the proposed Final
Judgment may be entered after compliance with the APPA. Pursuant to
that statute, the United States filed a Competitive Impact Statement
(``CIS'') on June 12, 2008; the proposed Final Judgment and CIS were
published in the Federal Register on August 14, 2008 \1\; and a summary
of the terms of the proposed Final Judgment and CIS, together with
directions for the submission of written comments relating to the
proposed Final Judgment, was published for seven days in the Washington
Post, from June 27th to July 3rd, and in the Chicago Tribune, from July
7th to July 13th. NAR filed the statement required by 15 U.S.C. 16(g)
on June 10, 2008.
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\1\ 73 FR 47613. An incorrectly typeset version of the proposed
Final Judgment and CIS had been published in the Federal Register on
June 25, 2008. 73 FR 36104.
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The sixty-day public comment period ended on October 13, 2008. The
United States received nine comments, which are addressed below.
II. Summary of the Allegations in the Amended Complaint
A. Overview
The United States' Amended Complaint challenged policies adopted by
NAR that restrain the ability of real estate brokers to use VOWs to
serve their customers and clients. NAR is a trade association that
promulgates rules that govern the operation of its approximately 800
affiliated multiple listing services (``MLSs'') across the United
States. The Amended Complaint alleged that, through its ``VOW Policy,''
adopted on May 17, 2003, and its ``Internet Listings Display Policy''
(``ILD Policy''), adopted on September 8, 2005 (collectively, the
``Challenged Policies''), NAR suppressed new and efficient competition
and harmed consumers. By enjoining NAR from permitting its affiliated
MLSs to adopt the Challenged Policies, innovative broker members of
NAR's 800 affiliated MLSs would be free to use VOWs to provide their
customers better service at a lower cost.
B. Multiple Listing Services
MLSs are joint ventures among virtually all residential real estate
brokers operating in local or regional areas. NAR's MLS rules require
member brokers who have been hired by home sellers to market their
properties to submit information about those listed properties to the
MLS.\2\ The MLS
[[Page 65618]]
compiles this information into a database containing all properties
listed for sale through member brokers. Member brokers can then search
the listings database for properties that prospective buyers might be
interested in purchasing.
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\2\ For this service, home sellers typically agree to pay real
estate brokers a commission based on the ultimate sales price of the
property. Listing brokers create incentives for other MLS members to
try to find buyers for their listed properties by submitting to the
MLS with each new listing an ``offer of cooperation and
compensation,'' identifying the amount (usually specified as a
percentage of the listing broker's commission) that the listing
broker will pay to any other broker who finds a buyer for the
property.
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As alleged in the Amended Complaint, MLSs possess substantial
market power because brokers regard participation in the MLS to be
critical to their ability to effectively compete with other brokers for
home buyers and sellers. By participating in the MLS, brokers can
promise seller clients that the information about the seller's property
will immediately be made available to all other brokers in the area.
Brokers who work with buyers can likewise promise them access to the
widest possible array of properties listed for sale through brokers. To
compete successfully, a broker must be an MLS member. To be a member, a
broker must adhere to any restrictions imposed by the MLS.
C. VOW Brokers
NAR's rules permit brokers to provide to prospective buyers
information from the MLS about all properties that satisfy the buyers'
expressed needs or interests. Brokers typically give this information
to buyers by hand, mail, fax, or e-mail. While many brokers who use
VOWs (``VOW brokers'') operate in most respects like other brokers,
they differ from traditional brokers in their use of their password-
protected VOWs to provide listings to consumers. A VOW broker's
customers can search for and retrieve MLS listings information on the
broker's VOW, rather than relying on the personal involvement of the
broker in all stages of the process of finding a home.
As alleged in the Amended Complaint, VOWs help brokers operate more
efficiently and increase the quality of services they provide. For
example, VOWs enable consumers to search for and retrieve relevant MLS
listings and educate themselves without the broker's expenditure of
time. As a result, a VOW broker can spend less time, energy, and
resources educating customers. Lower costs and increased productivity
have enabled some VOW brokers to offer commission rebates to their
buyer customers.
Some VOW brokers have differentiated themselves further from
traditional brokers by focusing solely on the high-technology aspects
of brokerage services that can be delivered over the Internet. Like
other VOW brokers, these ``referral VOWs'' allow prospective buyers to
search for homes online, but when buyers are ready to tour homes, the
referral VOW broker directs them to other brokers or agents who can
guide them through the negotiating, contracting, and closing process.
The customers of referral VOWs can benefit from the specialized service
provided by the referral VOW broker and the broker or agent to whom the
customer is referred. In some instances, referral VOW brokers have also
offered commission rebates or other financial benefits to their
customers.
D. The Challenged Policies
As alleged in the Amended Complaint, NAR's Challenged Policies
discriminate against and restrain competition from VOW brokers. They do
so, most significantly, by denying VOW brokers the ability to use their
VOWs to provide customers access to the same MLS listings that the
customer could obtain from all other brokers by other delivery methods.
Under the ``opt-out'' provisions of the Challenged Policies, NAR
permitted brokers to withhold their seller clients' listings from
display on VOWs. NAR's MLS rules otherwise do not permit one broker to
withhold listings from another broker based on how that competitor
conveys his or her listings to customers. By blocking VOW brokers from
allowing their customers to review the same set of MLS listings that
traditional brokers can provide to their customers, NAR's rules
restrained VOW brokers from competing in a way that is efficient and
desired by many customers.
The Amended Complaint also alleged that the Challenged Policies
restrained competition from referral VOW brokers. NAR's May 17, 2003
VOW Policy prohibited referral VOW brokers from receiving any
compensation for the referral of a customer to another broker. NAR's
rules do not otherwise restrict broker-to-broker referrals. In its
September 8, 2005 ILD Policy, NAR revised and reinterpreted its rule on
MLS membership to prevent referral VOW brokers from becoming members of
the MLS and obtaining access to MLS listings.
Finally, the Amended Complaint challenged restrictions on VOW
brokers' advertising activities and provisions that permitted MLSs to
degrade the data the MLS provided to VOW brokers.
III. Summary of Relief To Be Obtained Under the Proposed Final Judgment
As explained in the CIS, the proposed Final Judgment eliminates the
likely anticompetitive effects of NAR's Challenged Policies, prevents
the recurrence of anticompetitive effects associated with NAR's
Challenged Policies, and enjoins NAR from taking future actions to
discriminate against VOW brokers. The proposed Final Judgment requires
NAR to repeal its Challenged Policies and to replace them with a
``Modified VOW Policy'' (attached to the proposed Final Judgment as
Exhibit A) that makes it clear that brokers can operate VOWs without
interference from their rivals.\3\ With respect to any issues
concerning the operation of VOWs that are not explicitly addressed by
the Modified VOW Policy, the proposed Final Judgment imposes a general
obligation that NAR and its MLSs not discriminate against VOW
brokers.\4\
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\3\ See proposed Final Judgment, ]] V.A-V.D.
\4\ See id., ]] IV.A-IV.B.
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Under the Modified VOW Policy, brokers are not permitted to opt out
and withhold their seller clients' listings from display on VOWs.\5\
The Modified VOW Policy instead requires MLSs to provide to VOW
brokers, for display on their VOWs, all MLS listings information that
brokers can give customers by all other methods of delivery.\6\
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\5\ See Modified VOW Policy, ] I.4.
\6\ See id., ] III.2.
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The Modified VOW Policy that NAR must adopt under the proposed
Final Judgment also permits brokers to operate referral VOWs. Some
existing referral VOWs have established relationships with Internet
companies or other businesses and consequently have developed
significant numbers of potential buyer leads. These referral VOWs
educate those buyers on their VOWs and then refer those buyer customers
to other brokers once the customers have selected properties in which
they are interested and are ready to enter the negotiating,
contracting, and closing process. The Modified VOW Policy expressly
prohibits MLSs from impeding VOW brokers from referring customers to
other brokers for compensation.\7\
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\7\ See id., ] III.11.
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The Modified VOW Policy allows a broker, who independently
qualifies for MLS membership by actively endeavoring to provide in-
person brokerage services to buyers and sellers, to either operate its
own referral VOW or contract with an ``Affiliated VOW Partner''
(``AVP'') to operate a referral VOW on its behalf and subject to its
supervision and accountability. Under the proposed Final Judgment, a
broker who actively endeavors to obtain some seller clients for whom it
will market properties or some buyer clients to whom it will offer in-
person brokerage services can become a member of the
[[Page 65619]]
MLS and use MLS data as a member, including to populate its referral
VOW.\8\
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\8\ The proposed Final Judgment permits NAR's affiliated MLSs to
implement new requirements for MLS membership that NAR originally
adopted with its ILD Policy. See proposed Final Judgment, ] VI.A.
This revised and reinterpreted membership rule, attached to the
proposed Final Judgment as Exhibit B, contains an interpretative
note that explains that a broker who meets the new rule's membership
requirements cannot be denied membership on the grounds that the
broker operates a VOW, ``including a VOW that the [broker] uses to
refer customers to other [brokers].''
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Additionally, such a broker can designate an entity (even another
broker) as its AVP, allowing the AVP to receive MLS listings data to
operate the VOW on behalf of the designating broker.\9\ The MLS must
provide listings to the AVP on the same terms and conditions as it
would provide listings to the designating broker, although the AVP's
rights to the data would be entirely derivative of the rights of the
designating broker.\10\ An AVP, just like any broker, can, through
Internet marketing or other relationships, establish sources of
potential buyer leads. The designating broker can take some or all of
the buyer leads from its AVP on whatever compensation terms the
designating broker and AVP agree to.\11\
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\9\ See Modified VOW Policy, ] III.10.
\10\ See id.
\11\ Once an AVP refers a buyer lead to a broker or agent for
whom it operates a VOW and the buyer registers on the VOW, that
buyer becomes a customer of the broker or agent.
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Finally, the Modified VOW Policy prohibits MLSs from using an
inferior data delivery method to provide MLS listings to VOW brokers
and from unreasonably restricting the advertising and co-branding
relationships VOW brokers establish with third parties.
IV. Standard of Judicial Review
Upon the publication of the public comments and this Response, the
United States will have fully complied with the APPA and will move the
Court for entry of the proposed Final Judgment as being ``in the public
interest.'' 15 U.S.C. 16(e), as amended. Because the United States
frequently files antitrust actions and consent judgments in the
District of Columbia, the Court of Appeals for the District of Columbia
Circuit has been the primary source of judicial interpretations of the
APPA. No decision from a court in the Seventh Circuit has considered
the APPA's requirements.
In making the ``public interest'' determination, the Court should
review the proposed Final Judgment in light of the violations charged
in the Amended Complaint, see, e.g., Massachusetts School of Law at
Andover, Inc. v. United States, 118 F.3d 776, 783 (D.C. Cir. 1997)
(quoting United States v. Microsoft Corp., 56 F.3d 1448, 1462 (D.C.
Cir. 1995)), and be ``deferential to the government's predictions as to
the effect of the proposed remedies.'' Microsoft, 56 F.3d at 1461.
The APPA states that the Court shall consider in making its public
interest determination:
(A) The competitive impact of such judgment, including
termination of alleged violations, provisions for enforcement and
modification, duration of relief sought, anticipated effects of
alternative remedies actually considered, whether its terms are
ambiguous, and any other competitive considerations bearing upon the
adequacy of such judgment that the court deems necessary to a
determination of whether the consent judgment is in the public
interest; and
(B) The impact of entry of such judgment upon competition in the
relevant market or markets, upon the public generally and
individuals alleging specific injury from the violations set forth
in the complaint including consideration of the public benefit, if
any, to be derived from a determination of the issues at trial.
15 U.S.C. 16(e). See generally United States v. SBC Commc'ns, Inc., 489
F. Supp. 2d 1, 11 (D.D.C. 2007) (concluding that the 2004 amendments to
the APPA ``effected minimal changes'' to the court's scope of review
under APPA, and that review is ``sharply proscribed by precedent and
the nature of Tunney Act proceedings'').\12\
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\12\ The 2004 amendments substituted ``shall'' for ``may'' in
directing relevant factors for court to consider and amended the
list of factors to focus on competitive considerations and to
address potentially ambiguous judgment terms. Compare 15 U.S.C.
16(e) (2004), with 15 U.S.C. 16(e)(1) (2006).
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As the Court of Appeals for the District of Columbia Circuit has
held, under the APPA a court considers, among other things, the
relationship between the remedy secured and the specific allegations
set forth in the United States' complaint, whether the decree is
sufficiently clear, whether enforcement mechanisms are sufficient, and
whether the decree may positively harm third parties. See Microsoft, 56
F.3d at 1458-62 (D.C. Cir. 1995). With respect to the adequacy of the
relief secured by the decree, a court may not ``engage in an
unrestricted evaluation of what relief would best serve the public.''
United States v. BNS, Inc., 858 F.2d 456, 462 (9th Cir. 1988) (citing
United States v. Bechtel Corp., 648 F.2d 660, 666 (9th Cir. 1981)); see
also Microsoft, 56 F.3d at 1460-62. Courts have held that:
[t]he balancing of competing social and political interests affected
by a proposed antitrust consent decree must be left, in the first
instance, to the discretion of the Attorney General. The court's
role in protecting the public interest is one of insuring that the
government has not breached its duty to the public in consenting to
the decree. The court is required to determine not whether a
particular decree is the one that will best serve society, but
whether the settlement is ``within the reaches of the public
interest.'' More elaborate requirements might undermine the
effectiveness of antitrust enforcement by consent decree.
Bechtel, 648 F.2d at 666 (emphasis added) (citations omitted). Cf. BNS,
858 F.2d at 464 (holding that the court's ``ultimate authority under
the [APPA] is limited to approving or disapproving the consent
decree''); United States v. Gillette Co., 406 F. Supp. 713, 716 (D.
Mass. 1975) (noting that, in this way, the court is constrained to
``look at the overall picture not hypercritically, nor with a
microscope, but with an artist's reducing glass''). See generally
Microsoft, 56 F.3d at 1461 (discussing whether ``the remedies [obtained
in the decree are] so inconsonant with the allegations charged as to
fall outside of the `reaches of the public interest' ''). In making its
public interest determination, a district court ``must accord deference
to the government's predictions about the efficacy of its remedies, and
may not require that the remedies perfectly match the alleged
violations because this may only reflect underlying weakness in the
government's case or concessions made during negotiation.'' SBC
Commc'ns, 489 F. Supp. 2d at 17; see also Microsoft, 56 F.3d at 1461
(noting the need for courts to be ``deferential to the government's
predictions as to the effect of the proposed remedies''); United States
v. Archer-Daniels-Midland Co., 272 F. Supp. 2d 1, 6 (D.D.C. 2003)
(noting that the court should grant ``due respect to the [United
States'] prediction as to the effect of proposed remedies, its
perception of the market structure, and its views of the nature of the
case'').
Court approval of a consent decree requires a standard more
flexible and less strict than that appropriate to court adoption of a
litigated decree following a finding of liability. ``[A] proposed
decree must be approved even if it falls short of the remedy the court
would impose on its own, as long as it falls within the range of
acceptability or is `within the reaches of public interest.' '' United
States v. Am. Tel. & Tel. Co., 552 F. Supp. 131, 151 (D.D.C. 1982)
(citations omitted) (quoting United States v. Gillette Co., 406 F.
Supp. 713, 716 (D. Mass. 1975)), aff'd sub nom. Maryland v. United
States, 460 U.S. 1001 (1983); see also United States v.
[[Page 65620]]
Alcan Aluminum Ltd., 605 F. Supp. 619, 622 (W.D. Ky. 1985) (approving
the consent decree even though the court would have imposed a greater
remedy). To meet this standard, the United States ``need only provide a
factual basis for concluding that the settlements are reasonably
adequate remedies for the alleged harms.'' SBC Commc'ns, 489 F. Supp.
2d at 17.
Moreover, the district court's role under the APPA is limited to
reviewing the remedy in relationship to the violations that the United
States has alleged in the Amended Complaint, and the APPA does not
authorize the Court to ``construct [its] own hypothetical case and then
evaluate the decree against that case.'' Microsoft, 56 F.3d at 1459.
Because the ``court's authority to review the decree depends entirely
on the government's exercising its prosecutorial discretion by bringing
a case in the first place,'' it follows that ``the court is only
authorized to review the decree itself,'' and not to ``effectively
redraft the complaint'' to inquire into other matters that the United
States did not pursue. Id. at 1459-60. As the District Court for the
District of Columbia recently confirmed in SBC Communications, courts
``cannot look beyond the complaint in making the public interest
determination unless the complaint is drafted so narrowly as to make a
mockery of judicial power.'' SBC Commc'ns, 489 F. Supp. 2d at 15.
In the 2004 amendments to the APPA, Congress made clear its intent
to preserve the practical benefits of utilizing consent decrees in
antitrust enforcement, adding the unambiguous instruction ``[n]othing
in this section shall be construed to require the court to conduct an
evidentiary hearing or to require the court to permit anyone to
intervene.'' 15 U.S.C. 16(e)(2). The language effectuated what the
Congress that enacted the APPA in 1974 intended, as Senator Tunney then
explained: ``[t]he court is nowhere compelled to go to trial or to
engage in extended proceedings which might have the effect of vitiating
the benefits of prompt and less costly settlement through the consent
decree process.'' 119 Cong. Rec. 24,598 (1973) (statement of Senator
Tunney).
V. Summary of Public Comments and the Response of the United States
The United States received nine comments during the sixty-day
public comment period. Among the commentors were two significant VOW
brokers and a real estate franchisor that operates VOWs for hundreds of
its broker franchisees. These VOW operators are best positioned to
evaluate the likely effects of the proposed Final Judgment on
competition from VOW brokers, and none suggested that the public
interest would not be served by entry of the proposed Final Judgment.
On the contrary, ZipRealty, which founded its VOW-based brokerage in
1999 and currently operates in thirty-five major markets in twenty
states, submitted its comment ``in support of the [p]roposed Final
Judgment'' because it believes the proposed Final Judgment ``favors
public and consumer interests.'' Real estate franchisor Prudential,
which operates VOWs for 480 of its franchisees, also asserted in its
comments that ``entry of the Proposed Final Judgment is in the public
interest'' because it ``resolve[s] the fundamental issues raised in the
[United States' Amended] Complaint against NAR.''
Upon review and consideration of each of the nine comments, the
United States believes that nothing in the comments suggests that the
proposed Final Judgment is not in the public interest. Based on the
comments, the United States, with the support of NAR, believes two
minor modifications should be made to the Modified VOW Policy to
eliminate any ambiguity and to effectuate the intention of the
parties.\13\ The United States identifies these minor modifications and
summarizes and addresses each of the comments it received below.
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\13\ The United States and NAR have also agreed to a third,
minor modification to the proposed Final Judgment. This modification
was not precipitated by a comment from a third party. As filed with
the Court and published in the Federal Register, the proposed Final
Judgment would require NAR's local Boards or Associations of
Realtors that do not own or operate MLSs to adopt and adhere to the
Modified VOW Policy (which sets forth the rules an MLS must have for
VOWs). See proposed Final Judgment, ]] V.D & E (requiring all
``Member Boards'' to adopt the Modified VOW Policy or risk losing
coverage under NAR's insurance policy). The United States agrees
with NAR that requiring Boards or Associations of Realtors that do
not own or operate MLSs to adopt the Modified VOW Policy would serve
no purpose. As a result, the United States will move the Court to
enter a proposed Final Judgment that clarifies that only Boards or
Associations of Realtors that own or operate MLSs must adopt and
adhere to the Modified VOW Policy. This additional, minor
modification will not necessitate a second public comment period.
See Hyperlaw, Inc. v. United States, No. 97-5183, 1998 WL 388807, at
*3 (D.C. Cir. May 29, 1998) (finding that, because the proposed
modification was a ``logical outgrowth'' of the original proposed
consent decree, no additional public comment period was required).
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A. Comments Submitted by Entities Operating VOWs
1. Comments Submitted by ZipRealty
ZipRealty is a VOW broker operating in thirty-five markets
nationwide. It (along with eRealty, a company later purchased by
Prudential) was one of the first two innovative brokers that, in 1999,
launched VOWs as a way to provide better service to consumers at a
lower price than many of its competitor brokers. It submitted comments
(Attachment 1) supporting entry of the proposed Final Judgment,
asserting that the proposed Final Judgment ``favors public and consumer
interests.'' According to ZipRealty's comments, ``had the proposed NAR
policy challenged by the United States * * * been implemented,
[ZipRealty's] business would likely have faced significant
challenges.''
Based on its past experiences with MLSs that favored traditional,
bricks-and-mortar brokers over VOW brokers, ZipRealty's comments
caution that ``it is essential that * * * MLSs reasonably interpret the
terms of the Proposed Judgment and [Modified VOW] Policy to ensure that
they apply the same policies, rules and regulations to Brokers
operating VOWs as are applied to `traditional' Brokers, and that they
do not subject Brokers operating VOWs to inappropriate and unreasonable
additional costs, fees or restrictions not imposed on other Brokers.''
Under the proposed Final Judgment, NAR is required to direct its
affiliated MLSs to adopt, maintain, act consistently with, and enforce
the Modified VOW Policy.\14\ It is also required to withhold insurance
from and report to the United States the identity of any MLS that fails
to do so.\15\ NAR is also required to forward to the United States any
communications it receives concerning any MLS's noncompliance with the
terms of the proposed Final Judgment or Modified VOW Policy.\16\ The
United States believes that these provisions will cause MLSs to comply
with the Modified VOW Policy and will provide the United States with
the ability to detect whether MLSs are, in fact, complying. If MLSs
fail to comply, the United States will be prepared to move to enforce
the proposed Final Judgment in the event of NAR inaction, or to
consider any additional antitrust enforcement activities, including
suing the MLS directly, if necessary.\17\
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\14\ See proposed Final Judgment, ] V.D.
\15\ See id.
\16\ See id., ] V.H.
\17\ The United States has not been reluctant to sue MLSs to
bring an end to violations of the antitrust laws. The United States
recently brought actions against two MLSs in South Carolina that are
among the approximately 200 MLSs in the country not affiliated with
NAR. On May 2, 2008, the United States brought an antitrust action
against the MLS in Columbia, South Carolina, alleging that its rules
restrain competition among real estate brokers in that area and
likely harm consumers. See Complaint in United States v.
Consolidated Multiple Listing Service, Inc., No 3:08-cv-01786-SB
(D.S.C. May 2, 2008), available at http://www.usdoj.gov/atr/cases/f232800/232803.htm. The United States challenged similar allegedly
anticompetitive rules imposed by the MLS in Hilton Head, South
Carolina, also not affiliated with NAR. See Complaint in United
States v. Multiple Listing Service of Hilton Head Island, Inc., No.
9:07-cv-03435-SB (D.S.C. Oct. 16, 2007), available at http://www.usdoj.gov/atr/cases/f226800/226869.htm. The MLS in Hilton Head
agreed to settle the case by repealing the challenged rules and
agreeing to other conduct restrictions, and the court entered the
Final Judgment in the case on May 28, 2008. See Final Judgment in
United States v. Multiple Listing Service of Hilton Head Island,
Inc., No. 9:07-cv-03435-SB (D.S.C. May 28, 2008), available at
http://www.usdoj.gov/atr/cases/f233900/233901.htm.
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[[Page 65621]]
2. Comments Submitted by Prudential Real Estate Services Company, LLC,
and Prudential Real Estate Affiliates, Inc.
Prudential Real Estate Affiliates is a real estate franchisor with
over 600 broker franchisees across the United States. Prudential Real
Estate Services Company operates Web sites, including VOWs, on behalf
of 480 of Prudential's broker franchisees. These companies
(``Prudential'') collectively submitted a lengthy set of comments on
the proposed Final Judgment (Attachment 2).
Like ZipRealty, Prudential believes that entry of the proposed
Final Judgment would be in the public interest. Prudential observes
that the proposed Final Judgment, including the Modified VOW Policy
resolves the ``fundamental issues'' raised in the United States Amended
Complaint by eliminating a broker's ability to ``opt out'' of allowing
VOW brokers to display the broker's clients' listings and by requiring
MLSs to provide VOW brokers the same complete MLS listings that other
brokers can give to their customers and clients by traditional delivery
methods.
Prudential, however, asks that the United States use this Response
to Public Comments ``to clarify, or to provide interpretive guidance
for certain provisions of the [p]roposed Final Judgment and the
Modified VOW Policy.'' Prudential then lists twelve areas on which it
seeks clarification or interpretive guidance. The United States
summarizes and responds to Prudential's twelve specific comments below.
(i) Minor Modification Warranted
Prudential raises two provisions that the United States agrees
warrant a minor modification of the proposed Final Judgment. First,
Prudential seeks clarification of the requirement in paragraph
II.2.c.iv of the Modified VOW Policy that a VOW brokers' customers
commit, through the terms of use, not to ``copy, redistribute, or
retransmit'' any listings data they receive on the VOW. This provision
protects the MLS from someone using a VOW not to purchase a property,
but to access and sell the information found on a VOW to third parties.
Prudential, however, believes that this requirement as currently
written is too broad and would prevent the customer of a VOW broker
from saving listings to an electronic property portfolio or from
forwarding copies of any listings to spouses, friends, lenders, or
others who are assisting the customer in his or her home purchase.
The United States agrees that paragraph II.2.c.iv of the Modified
VOW Policy is too broad as currently written and could unreasonably
discriminate against VOW brokers by preventing their customers from
saving copies of listings in which they might have an interest or
sharing listings with persons with whom they wish to consult in making
a purchase decision. Customers of traditional, bricks-and-mortar
brokers are not subject to the same limitations. NAR has agreed to a
minor modification to paragraph II.2.c.iv to eliminate any unintended
discriminatory effect.
Current version of paragraph II.2.c.iv: That the Registrant will
not copy, redistribute, or retransmit any of the data or information
provided.
Revised version of paragraph II.2.c.iv: That the Registrant will
not copy, redistribute, or retransmit any of the data or information
provided, except in connection with the Registrant's consideration
of the purchase or sale of an individual property.
Second, Prudential discussed paragraph II.5.a of the Modified VOW
Policy, which permits individual property sellers, concerned with the
dissemination of information about their properties over the Internet,
to direct that their listings or property addresses be withheld from
the Internet. This provision also states that VOW brokers are permitted
to provide withheld listings to customers by any other method of
delivery such as e-mail or fax. Prudential points out that this
provision, as written, does not explicitly authorize VOW brokers to
provide withheld property addresses as well to customers using other
delivery methods.
This result was unintended. The United States intended that a VOW
broker be permitted also to provide customers the property addresses
withheld from VOW display, by other methods of delivery. NAR has agreed
to a minor modification to paragraph II.5.a to correct this oversight.
Current version of paragraph II.5.a: No VOW shall display the
listings or property addresses of sellers who have affirmatively
directed their listing brokers to withhold their listing or property
address from display on the Internet. The listing broker or agent
shall communicate to the MLS that a seller has elected not to permit
display of the listing or property address on the Internet.
Notwithstanding the foregoing, a Participant who operates a VOW may
provide to consumers via other delivery mechanisms, such as e-mail,
fax, or otherwise, the listings of sellers who have determined not
to have the listing for their property displayed on the Internet.
Revised version of paragraph II.5.a: No VOW shall display the
listing or property address of any seller who has affirmatively
directed its listing broker to withhold its listing or property
address from display on the Internet. The listing broker or agent
shall communicate to the MLS that a seller has elected not to permit
display of the listing or property address on the Internet.
Notwithstanding the foregoing, a Participant who operates a VOW may
provide to consumers via other delivery mechanisms, such as e-mail,
fax, or otherwise, the listing or property address of a seller who
has determined not to have the listing or address for its property
displayed on the Internet.
The United States will move the Court to enter a proposed Final
Judgment with these modifications.
(ii) The Proposed Final Judgment Means What It Says
Prudential seeks clarification from the United States that, as to
three different provisions of the Modified VOW Policy, the provisions
literally mean what they say. It first seeks clarification concerning
the requirement in paragraph II.5.a of the Modified VOW Policy that VOW
brokers not display the listing or property addresses of sellers who
have affirmatively directed that information about their properties be
withheld from ``the Internet.'' Prudential says that the provision
``presumably means'' that information withheld from ``the Internet''
must mean that the information be withheld ``from all forms of Internet
display'' and excluded from any data that the listing broker or MLS
sends to any other Web sites.
Prudential has interpreted paragraph II.5.a of the Modified VOW
Policy correctly. Under the Modified VOW Policy, an MLS may not permit
a seller to single out individual VOWs or VOWs generally and withhold
the listing or property address from only VOW Web sites. Rather, the
MLS and listing broker would also be required to withhold the seller's
listing or property address from all other non-VOW Web sites.
Prudential next seeks to confirm the meaning of the requirement in
paragraph III.2 of the Modified VOW Policy that MLSs provide VOW
brokers ``all MLS non-confidential listing data.'' Prudential seeks to
clarify that this does not permit MLSs to refuse to provide
[[Page 65622]]
VOW brokers the listings of sellers who have requested that their
listings not be displayed on the Internet. It explains that, unless VOW
brokers receive from the MLS even the listings they are not permitted
to show on their VOWs, the VOW brokers cannot meaningfully exercise
their right under paragraph II.5.a to provide their customers those
seller-withheld listings by other delivery methods. Prudential
expresses some concern that MLSs might interpret paragraph III.4, which
refers to a ``VOW-specific feed'' from which the seller-withheld
listings have been removed, as a basis to disregard the requirement in
paragraph III.2 that MLSs provide ``all MLS non-confidential listing
data'' to VOW brokers who request it.
Paragraph III.2 of the Modified VOW Policy is unambiguous in
requiring MLSs to provide ``all MLS non-confidential listing data''
(emphasis added) to VOW brokers who request it. MLSs may also offer to
VOW brokers, under paragraph III.4 of the Modified VOW Policy, a ``VOW-
specific feed'' from which seller-withheld listings or addresses have
been removed. Some VOW brokers might opt for the VOW-specific feed as a
matter of convenience, but nothing in paragraph III.4 suggests that
such a VOW-specific feed could replace the MLS's unambiguous obligation
under paragraph III.2. As Prudential explains, a contrary
interpretation of the Modified VOW Policy would also prevent VOW
brokers from filtering seller-withheld listings and delivering those
listings to customers by non-VOW methods of delivery, as expressly
permitted under paragraph II.5 of the Modified VOW Policy.
The third provision on which Prudential seeks clarification is
paragraph II.5.c of the Modified VOW Policy. That paragraph requires a
VOW broker to disable or discontinue, at the request of a home seller,
any functionality providing automated market valuations on or any
third-party commenting on or reviews about the seller's property. The
seller may not, under this provision, selectively target particular
VOWs with requests that these activities be discontinued. Under
paragraph II.5.c, such a request by a seller is applicable to ``all
Participants'' Web sites'' (i.e., all Web sites operated by any member
of the MLS). Prudential seeks confirmation that this provision cannot
be exercised on a selective basis as to any single broker's VOW.
There is also no ambiguity in paragraph II.5.c. A sellers's
request, under that provision, to discontinue automated market
valuations or third-party comments or reviews about his or her listing
applies to ``all Participants'' Web sites,'' whether VOW or non-VOW
sites. This provision cannot be exercised selectively against a single
VOW or against all VOWs, but would also be applicable to all non-VOW
Web sites operated by all other MLS members.\18\
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\18\ Prudential also suggests that such an election by a seller
should apply to automated market valuations or third-party comments
or reviews permitted by non-broker Web sites that display MLS-
supplied listings. Paragraph II.5.c. applies only to MLS
``Participants' Web sites.'' While an MLS could require third-party
Web sites, as a condition of receiving MLS data, to discontinue
valuations, comments, or reviews, the United States believes the
potential cost to third-party Web sites outweighs the benefits of
such a requirement and elected not to insist on such a term in its
proposed Final Judgment. As written, this provision strikes the
appropriate balance among (i) Permitting sellers some ability to
limit the extent to which their properties might be marketed in a
bad light, (ii) preventing VOW brokers' competitors from directing
sellers to target VOWs with requests to discontinue these services,
and (iii) minimizing the effect on third parties.
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(iii) Nondiscrimination Provisions Apply Where Modified VOW Policy
is Silent
Prudential seeks clarification or interpretative guidance with
respect to two issues on which it suggests the Modified VOW Policy is
silent. It first expresses concern that MLSs might interpret the
requirement in paragraph II.5.e of the Modified VOW Policy, that VOW
brokers refresh information on their Web sites no less frequently than
every three days, to prohibit VOW brokers from refreshing the
information on their VOW more frequently than every three days.
Prudential states that ``[o]perating a VOW with three (3) day old data
is totally unacceptable in a Web based environment,'' particularly when
VOW brokers' traditional competitors can provide their customers
listings data that is refreshed continuously by the MLS.
As Prudential observes, the Modified VOW Policy is silent as to how
frequently VOW brokers may refresh the MLS listings they display on
their VOWs. Paragraph II.5.e of the Modified VOW Policy states that VOW
brokers ``shall refresh MLS data available on a VOW not less frequently
than every 3 days.'' It does not state or imply that VOW brokers cannot
refresh their data more frequently than every three days.
The proposed Final Judgment expressly prohibits NAR from adopting
rules that discriminate against VOW brokers or that impede the
operation of VOWs.\19\ When issues concerning VOWs are not expressly
covered by the Modified VOW Policy, these provisions would prevent NAR
from filling the void with discriminatory rules. Here, the United
States agrees with Prudential that, with no express provision in the
Modified VOW Policy, the general nondiscrimination provisions found in
paragraphs IV.A and IV.B of the proposed Final Judgment would apply to
prevent MLSs from restricting the ability of VOW brokers to provide
data to customers that is less current than the data that other brokers
can provide to their customers.
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\19\ See proposed Final Judgment, ]] IV.A-IV.B.
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Prudential also expresses concern that an AVP that operates VOWs
for several different brokers in an MLS could be charged a separate
data download fee for each broker for whom the AVP operates a VOW, even
though the AVP could operate its entire network of VOWs using only a
single data download.
Prudential describes a ``common circumstance'' in which a single
AVP has been designated by several different brokers in a single MLSs
to operate VOWs on their behalf. According to Prudential, the AVP
would, as a technical matter, need to download the MLS data only one
time and could use that data to populate all of the VOWs it operates.
Paragraph III.10.b of the Modified VOW Policy prohibits MLSs from
charging an AVP more than it charges a VOW broker to download MLS
listings, but the proposed Final Judgment and Modified VOW Policy do
not expressly address whether the MLS could charge separate downloading
fees to the AVP for each VOW it operates. However, because the AVP
would need only a single MLS data download, a rule requiring an AVP to
pay for additional unnecessary downloads would likely violate paragraph
IV.D of the proposed Final Judgment as it would impose fees on the AVP
in excess of the MLSs costs in delivering data to the AVP. Moreover,
because downloading data imposes some costs on the MLS, a rule
requiring multiple unnecessary downloads for no apparent purpose other
than to impose additional costs on AVPs and the brokers for whom they
operate VOWs would likely unreasonably disadvantage the AVP and VOW
broker and violate paragraph IV.B of the proposed Final Judgment.
(iv) Relief Not Sought by the United States
Prudential identifies two areas in which it believes additional
relief, not sought by the United States, might be warranted. First,
Prudential observes that the proposed Final Judgment would bind only
NAR, the sole defendant in this case, and expresses concern whether the
proposed Final Judgment sufficiently compels NAR to require its
affiliated MLSs to abide by the terms of the proposed Final Judgment,
including
[[Page 65623]]
the Modified VOW Policy. Prudential specifically questions whether
paragraphs V.E and V.F of the proposed Final Judgment, which require
NAR to take action against MLSs when NAR ``determines'' that the MLSs
are not in compliance, require NAR to find out about any noncompliance
in the first place or to determine whether the conduct at issue
complies with the proposed Final Judgment.
The United States believes that the proposed Final Judgment
adequately compels NAR to direct its affiliated MLSs to comply with the
Modified VOW Policy. The second sentence of Paragraph V.E of the
proposed Final Judgment clearly says that NAR shall deny coverage under
its insurance policy (a consequence that Prudential does not dispute
will motivate compliance by the MLS) to any MLS that ``refuses to
adopt, maintain, act consistently with, or enforce'' the Modified VOW
Policy.
The proposed Final Judgment is drafted with the assumption that NAR
would find out through multiple channels about an MLS's failure to act
in accordance with the decree. First, MLSs would turn to NAR and ask if
their conduct was consistent with the law and the decree in order to
maintain their insurance coverage. MLSs routinely turn to NAR for
advice and approval on various issues in order to maintain coverage
under NAR's insurance.\20\ Second, brokers who feel aggrieved can
complain directly to NAR (or to the United States) about an MLS's
conduct.\21\ And third, the United States can alert NAR to any actions
by an MLS that are inconsistent with the Modified VOW Policy and ask
NAR to take action. Thus, there should be little concern that if NAR
acts in good faith it will fail to find out that an MLS is acting
inconsistently with the Modified VOW Policy.
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\20\ The proposed Final Judgment also requires NAR to educate
its MLSs about the terms of the proposed Final Judgment by providing
briefing materials on the ``meaning and requirements'' of the
proposed Final Judgment and by holding an annual program that
includes a discussion of the proposed Final Judgment. See proposed
Final Judgment, ]] V.G.4-V.G.5.
\21\ Note that NAR is required under the proposed Final Judgment
to furnish to the United States copies of any communications it
receives from an MLS or an aggrieved third party concerning
allegations of noncompliance by an MLS with the proposed Final
Judgment or Modified VOW Policy. See proposed Final Judgment, ] V.H.
The United States' access to such records will ensure that the
United States knows what NAR knows about any instances of MLS
noncompliance and will allow the the United States to make sure NAR
fulfills its obligations.
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The proposed Final Judgment does not require NAR to act on
frivolous allegations of noncompliance by an MLS. But NAR is required
to act when it determines the allegations are well-founded.\22\ To the
extent NAR operates in bad faith, failing to reach a determination when
an allegation is well-founded, the United States could move to enforce
the Final Judgment. Additionally, the United States retains the right
to sue any MLS directly for violations of the antitrust law.\23\
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\22\ See proposed Final Judgment, ]] V.E and V.F.
\23\ See id., ] IX.
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The United States believes that the enforcement scheme negotiated
through these provisions of the proposed Final Judgment appropriately
incentivizes NAR to evaluate any information it receives concerning MLS
noncompliance and to take timely and appropriate actions to bring its
MLSs into compliance. NAR understands that its failure to respond where
a response is warranted may mean the initiation of an inquiry by the
United States. As a membership organization, NAR will want to minimize
the circumstances under which its members (as well as NAR itself)
receive direct scrutiny by the United States and will act to correct
instances of noncompliance that it observes. This enforcement scheme
also permits NAR to decline to address allegations of noncompliance
that have no merit. The United States believes that these provisions
strike the appropriate balance and will ensure that MLSs do not
unreasonably discriminate against VOW brokers.
Second, Prudential discusses Paragraph IV.D of the proposed Final
Judgment which forbids NAR from adopting, maintaining, or enforcing
rules that impose fees or costs on a VOW broker ``that exceed the
reasonably estimated actual costs'' an MLS incurs in providing listings
to a VOW broker. Under paragraph III.5 of the Modified VOW Policy, an
MLS is authorized to pass along to a VOW broker ``the reasonably
estimated actual costs incurred by the MLS'' in establishing the
ability to download listings data to VOW brokers. Prudential expresses
concern that, because ``costs'' is not defined in the proposed Final
Judgment or Modified VOW Policy, MLSs might assess against VOW brokers
the salaries of software programmers or compliance officers, or other
substantial additional expenses incurred by the MLS. Prudential seeks a
clarification that ``'costs'' may include only actual direct costs, and
may not include any allocations of salaries, consultant fees, rent,
utilities, or other overhead expenses.'' It also argues that, under
paragraph III.5 of the Modified VOW Policy, an MLS may not charge VOW
brokers more than it charges other brokers who download listings data
from the MLS for other purposes.
The proposed Final Judgment and Modified VOW Policy permit MLSs to
charge VOW brokers fees no greater than the MLSs ``reasonably estimated
actual costs'' of providing services to VOW brokers \24\ and equal to
the ``reasonably estimated costs'' the MLS incurs in adding or
enhancing downloading capacity for purposes of supporting VOWs.\25\
Because the circumstances and capabilities of MLSs vary, the United
States does not believe it would be appropriate to attempt to express
with greater precision the type or level of costs it would be
permissible for MLSs to impose upon VOW brokers. The United States
believes that imposing on MLSs an obligation to account for the fees
they impose on VOW brokers will be adequate to prevent the imposition
of exorbitant fees. Furthermore, a definition is unnecessary because
the United States agrees with Prudential that the proposed Final
Judgment's general nondiscrimination provisions would forbid charging
VOW brokers for downloading listings information differently than other
brokers, unless the costs to the MLS differed as to each recipient.
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\24\ Proposed Final Judgment, ] IV.D.
\25\ Modified VOW Policy, ] III.5.
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(v) Long-Standing Provisions
Prudential expresses concern about three provisions that long
existed in NAR's VOW Policy but that the United States did not
challenge. First, it discusses a requirement in paragraph II.2.c of the
Modified VOW Policy that consumers who seek to register on a VOW ``open
and review'' the VOW's mandatory terms of use. Prudential asserts that
this provision might be interpreted to prohibit the usual practice on
many Internet Web sites of opening terms of use in ``a scrollable
frame'' that the viewer can read if he or she desires. Prudential also
asserts that, because traditional brokers provide listings information
to customers upon a simple request of a consumer, the registration
requirement in II.2.c of the Modified VOW Policy discriminates against
VOW brokers.
NAR included the ``open and review'' requirement in the VOW Policy
it adopted on May 17, 2003, and over 200 MLSs subsequently adopted
rules implementing the VOW Policy. Through its lengthy investigation
and litigation of this matter, the United States neither received any
complaints about this requirement nor discovered any
[[Page 65624]]
evidence that it had restrained or was likely to restrain competition
from any VOW broker. Had the United States proceeded to trial in this
case, it would not have sought relief from the ``open and review''
requirement.
The United States notes, however, that it sees no inconsistency
between the ``open and review'' requirement and the ``scrollable
frame'' in which Prudential's franchisees currently present terms of
use to their customers. In the event that MLSs in the future insist
upon different and more onerous procedures from Prudential's
franchisees or other VOW brokers than the ``scrollable frame''
currently offered, the United States would then be in a position to
evaluate whether those procedures restrained competition from VOW
brokers.\26\
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\26\ See proposed Final Judgment, ] IX.
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Second, Prudential mentions paragraph II.2.d of the Modified VOW
Policy, which prohibits the VOW broker from establishing any
representation agreement or imposing any financial obligation upon a
customer through use of a ``mouse click.'' According to Prudential,
this provision ``would be tantamount to preventing VOW operators from
engaging in electronic commerce at their Web sites.''
This provision was included in the 2003 VOW Policy. Discovery in
this case revealed no evidence that this provision had restrained or
was likely to restrain competition from VOW brokers. Additionally, the
Modified VOW Policy recognizes explicitly that Web sites maintained by
VOW brokers ``may also provide other features, information, or services
in addition to VOWs.'' \27\ And, as Prudential concedes, the Modified
VOW Policy would not prevent VOW brokers from ``engaging in electronic
commerce'' on those non-VOW portions of their Web sites. Thus, the
United States disagrees with Prudential that paragraph II.2.d of the
Modified VOW Policy is likely to restrain competition from VOW brokers
or to ``prevent[ ] VOW operators from engaging in electronic commerce
at their Web sites.''
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\27\ Modified VOW Policy, I.3.
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Third, Prudential mentions paragraph II.6 of the Modified VOW
Policy, which requires VOW brokers to ``make the VOW readily accessible
to the MLS and to all MLS Participants for purposes of verifying
compliance with this Policy.'' Prudential expresses concern that MLSs
might, under this provision, demand intrusive access to VOW brokers'
systems and files and it asserts that MLSs should be permitted to
observe only the password-protected portions of the VOW accessible by
any customer of the VOW broker.
NAR included a nearly identical provision in its 2003 VOW Policy,
which was adopted by over 200 MLSs. The United States heard no
complaints nor uncovered any evidence that that provision had been
exercised by any MLS in the manner about which Prudential expresses
concern. Nevertheless, the United States agrees with Prudential and
hereby clarifies that paragraph II.6 of the Modified VOW Policy, by its
terms, cannot be used for purposes other than to verify compliance with
NAR's policies and it should not provide a basis for MLSs to harass VOW
brokers or to conduct a detailed examination of VOW brokers' business
files or computer systems.
In over four years of investigation and litigation concerning the
Challenged Policies, the United States had neither received complaints
nor uncovered evidence that these three provisions had been used in the
manner Prudential describes. But, by way of clarification and guidance,
the United States reiterates that, to the extent that MLSs discriminate
against and harm VOW brokers through these provisions in the future,
the proposed Final Judgment allows the United States to investigate and
bring an antitrust enforcement action as appropriate.\28\
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\28\ See proposed Final Judgment, IX.
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3. Comments Submitted by Home Buyers Marketing II
Home Buyers Marketing II (``HBM II'') is a VOW broker operating in
approximately 400 markets throughout the United States. HBM II's
comments (Attachment 3) identify ``particular anticompetitive
practices'' and seek confirmation that the proposed Final Judgment,
including the Modified VOW Policy, would prohibit MLSs from engaging in
those practices.\29\
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\29\ Three issues raised by HBM II repeat concerns expressed by
Prudential. HBM II repeats Prudential's comment concerning how
frequently VOW brokers may update the MLS listings that populate
their Web sites, the meaning of the requirement in paragraph II.2 of
the Modified VOW Policy that MLSs provide VOW brokers ``all MLS
nonconfidential listing data,'' and whether the United States and
NAR intended, in paragraph II.2.c.iv of the Modified VOW Policy, to
prevent a VOW brokers' customers from sharing listings with friends,
family, lenders, or others with whom they need to consult in their
home purchase decision. The United States addressed each of these
issues fully in its response to Prudential's comments.
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HBM II expresses concern about paragraph II.3 of the Modified VOW
Policy, which requires that VOW brokers ``be willing and able to
respond knowledgeably to inquires from [customers].'' It seeks
clarification that an MLS would not be permitted to demand a greater
level of knowledge from a VOW broker concerning properties it displays
to customers than the MLS demands from other brokers.
Because the Modified VOW Policy does not define the level of
knowledge that a VOW broker must possess when responding to customer
inquiries, the United States agrees with HBM II that the proposed Final
Judgment's general nondiscrimination provisions would prevent MLSs from
demanding greater knowledge from VOW brokers than they demand of other
brokers.\30\
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\30\ As HBM II points out, NAR's general counsel explained in a
June 16, 2008, speech that brokers cannot ``always be expected to
have the answer right there'' when they receive inquiries from
customers. ``In many instances, * * * you may have to say, 'I'll
find that information out and I'll get back to you.' That would be
responding knowledgeably.''
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HBM II also comments on paragraph IV.1.e of the Modified VOW
Policy. Under that provision, an MLS may limit to a ``reasonable
number'' the listings that VOW brokers can provide to customers in
response to a customer's query, but the number can be no fewer than 100
listings or five percent of all listings in the MLS, whichever is
lower. HBM II suggests that even a limit of 100 listings would be
unreasonable if the MLS permitted consumers to search without such
limits on other Web sites populated with data provided by the MLS.
The Modified VOW Policy does not define when a limitation on the
number of listings a VOW broker could provide to customers would be
unreasonable. While Paragraph IV.1.e of the Modified VOW Policy sets
100 listings or five percent of all listings in the MLS as a floor
below which an MLS cannot go, the use of the reasonableness limitation
suggests that, in some circumstances, a limitation set higher than the
floor could still be impermissible. HBM II suggests one such
circumstance: A 100-listing limitation applicable to VOWs would be
unreasonable if the MLS permitted non-VOW Web sites to show a greater
number of listings to customers. The United States agrees with HBM II
that, if an MLS were to restrict the number of listings a VOW broker
could provide his or her customers but did not restrict in the same way
other Web sites on which it permits its listings to be displayed, the
MLS would unreasonably disadvantage VOW brokers and would violate the
proposed Final Judgment's nondiscrimination provisions.
Finally, HBM II observes that the proposed Final Judgment or
Modified VOW Policy do not define the word ``cost.'' HBM II seeks
confirmation that
[[Page 65625]]
MLSs could not charge VOW brokers for the entire cost of items or
services used only partially to support the use of VOWs.
As stated above, because MLSs vary, the United States has not
sought to prescribe the types or levels of costs that MLSs could
reasonably allocate to VOW-related activities for purposes of
establishing fees applicable to VOW brokers. The United States agrees
with HBM II, however, that the proposed Final Judgment would prohibit
an MLS from ``allocat[ing] the cost of facilities (or staff time) used
for other purposes exclusively or disproportionately to the VOW feed.''
Such an allocation would exceed the ``reasonably estimated actual
costs'' incurred by the MLS in performing services for VOW brokers and
would unreasonably disadvantage VOW brokers in violation of the
proposed Final Judgment's nondiscrimination provisions.
B. Comments Submitted by Exclusive Buyer Agents
Two groups of exclusive buyer agents sent comments. Both expressed
concerns that NAR's revision and reinterpretation of its membership
rule, attached to the proposed Final Judgment as Exhibit B, might be
interpreted to exclude them as members of the MLS. The United States
has confirmed that such concerns are unfounded.
The first commentor, the National Association of Exclusive Buyer
Agents (``NAEBA''), consists of real estate brokers and agents ``who
represent buyers only and who never list property for sale or represent
sellers.'' The second commentor, the Buyer's Broker of Northern
Michigan, LLC, is a member of the NAEBA. Both the NAEBA and the Buyer's
Broker of Northern Michigan submitted comments that are similar in
substance. (Attachments 4 and 5).
The NAEBA began its comment by commending the Department for its
``efforts on behalf of the nation's consumers to address some of the
anticompetitive practices in the real estate marketplace today.'' But
both commentors expressed concern that, under NAR's revised membership
rule, brokers or agents who commit to work exclusively with buyers and
to be compensated exclusively by buyers, rather than receiving a share
of the commission from the listing broker, might be precluded from
joining the MLS. They worry that, because NAR's revision to its
membership rule opens MLS membership only to licensed brokers who
actually ``offer or accept cooperation and compensation to and from
other [MLS members],'' they could be prevented from participating in
the MLS.
First, even though exclusive buyer brokers do not list properties
or represent sellers, they usually are compensated, at least in part,
by a share of the commission that the listing broker offers to the
broker who finds a buyer for the property. In such a circumstance, the
buyer broker would be accepting cooperation and compensation and would
be entitled to MLS membership under NAR's revised membership rule.
Additionally, NAR's revised membership rule does not prevent, as the
commentors feared, an exclusive buyer broker from accepting the
commission offered by the listing broker (even if the offer is zero
percent) and supplementing that commission with payment directly from
the buyer. Moreover, NAR has told the United States that it does not
interpret its revised membership rule to exclude a buyer broker who
always refuses the share of the commission offered by the listing
broker and chooses to be compensated entirely by the buyer. NAR
recognizes that an exclusive buyer broker is still ``cooperating'' with
the listing broker to sell the property and has stated that it will
advise its MLS members in writing that such a broker is not to be
excluded from the MLS.\31\ Finally, if NAR changes its interpretation
so that its MLSs begin to exclude exclusive buyer brokers from MLS
membership in the future, the United States remains free to challenge
such conduct as anticompetitive.\32\
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\31\ NAR's rules already prohibit MLSs from excluding buyer
brokers. See National Association of Realtors, Handbook on Multiple
Listing Policy (2008), at 25 (``Since the MLS is an association
service by which the participants make blanket unilateral offers of
cooperation and compensation to the other participants with respect
to listings for which they are an agent, no association or
association MLS may make or maintain a rule which would preclude an
individual or firm, otherwise qualified, from participating in an
association MLS solely on the basis that the individual or firm
functions, to any degree, as the agent of potential purchasers under
a contract between the individual (or firm) and the prospective
purchaser (client).'').
\32\ In its penultimate paragraph, NAEBA expressed an additional
concern about provisions IV.1.d and IV.1.f of the Modified VOW
Policy, which allow MLSs to require VOW brokers to include the name
of the listing broker or agent in any listings the VOW broker
displays on its VOW. NAEBA believes this requirement would force an
exclusive buyer broker who operates a VOW to advertise its
competition--the broker who listed the property. However, NAR
included these provisions in its 2003 VOW Policy and the United
States chose not to challenge them as there did not appear to be any
significant effects from notifying a customer of the identity of the
listing agent. Additionally, the proposed Final Judgment allows MLSs
to adopt these provisions only if the MLS imposes the same
requirements on brokers who provide listings by more traditional
methods of delivery. Thus, the MLS cannot use these provisions to
discriminate against VOW brokers.
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C. Comments Submitted by MLS4owners.com
MLS4owners.com is a broker operating in the State of Washington.
According to its comment (Attachment 6), it is a ``flat-fee, limited-
service brokerage.'' Its comment concerns the third paragraph of the
preamble to the proposed Final Judgment, which states that ``the United
States does not allege that Defendant's Internet Data Exchange (IDX)
Policy in its current form violates the antitrust laws.''
MLS4owners.com believes that NAR's IDX Policy does violate the
antitrust laws, by permitting brokers operating IDX Web sites to
exclude exclusive agency or limited-service listings from their own IDX
Web sites.
As MLS4owners.com itself correctly observes, ``the IDX Policy was
NOT the subject of the DOJ's pre-complaint investigation, complaint,
amended complaint or discovery'' (emphasis in original). The United
States takes no position as to the permissibility under the antitrust
laws of NAR's IDX Policy; paragraph three of the preamble to the
proposed Final Judgment reflects that this case involved only VOWs and
not the IDX Web sites about which MLS4owners.com is concerned.\33\
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\33\ VOWs are password protected Web sites through which brokers
provide brokerage services to customers or clients, including the
opportunity to search MLS listings and other information. NAR's
``Internet Data Exchange'' or ``IDX'' rules govern Web sites
operated by brokers through which they can advertise listings to
consumers with whom the broker has not yet established a customer or
client relationship. As Prudential explains in its comments,
``[b]ecause any Web visitor can view a broker's IDX pages without
having any direct contact with the broker who owns the site, the IDX
listing information is the functional equivalent of newspaper or
magazine advertising directed to the general public at large. * * *
[A]n MLS' IDX data feed does not necessarily include all properties
in the MLS' database compilation [or] all of the information about a
listed property that MLS participants may delivery to customers or
clients. * * * .''
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To the extent that MLS4owners.com suggests that the United States'
Amended Complaint should have challenged NAR's IDX Policy, its argument
should be rejected. Review under the APPA should not involve an
examination of possible competitive harms the United States did not
allege. See, e.g., Microsoft, 56 F.3d at 1459 (stating that the
district court may not ``reach beyond the complaint to evaluate claims
that the government did not make'').
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D. Comments That Do Not Address the Amended Complaint or Proposed Final
Judgment
The United States received three additional comments that do not
address the Amended Complaint or proposed Final Judgment.
Bernard Tompkins of Realty Specialist Inc. submitted a comment
(Attachment 7) critiquing a report published jointly in 2007 by the
Department of Justice and the Federal Trade Commission entitled
``Competition in the Real Estate Brokerage Industry.'' \34\ Mr.
Tompkins' comments are not relevant to the Court's APPA inquiry.
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\34\ A copy of this report is available at http://www.usdoj.gov/atr/public/reports/223094.pdf.
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The United States also received comments (Attachment 8) submitted
anonymously by brokers from Montgomery County, Pennsylvania. These
commentors propose relief, unrelated to the allegations in the Amended
Complaint or the subject of this case, that they contend would
``prevent[ ] the loss of competition'' and ``better serv[e] the public
interest.'' They suggest that brokers should be prohibited from
referring customers to mortgage lenders, that brokers provide ``maximum
exposure'' for listed properties, and that properties on NAR's
Realtor.com Web site include home addresses. Whatever the merits of
these suggestions, they do not address the allegations in the Amended
Complaint or the relief obtained in the proposed Final Judgment.
Finally, an anonymous broker from San Jose, California, submitted a
comment (Attachment 9) complaining about an unrelated rule adopted by
his MLS that prevents him from publishing on the Internet the same
median sold price information that brokers are permitted to publish in
the newspaper. This allegation is not related to the United States'
Amended Complaint or to the proposed Final Judgment and has no role in
the Court's evaluation under the APPA.
VI. Conclusion
After careful consideration of the public comments, the United
States concludes that, with the minor modifications identified above,
the entry of the proposed Final Judgment will provide an effective and
appropriate remedy for the antitrust violations alleged in the
Complaint and is therefore in the public interest. Accordingly, on
November 7th, after this Response to Comments has been published in the
Federal Register pursuant to 15 U.S.C. 16(b) and (d), the United States
will move this Court to enter the proposed Final Judgment.
Dated: October 23, 2008.
Respectfully submitted,
David C. Kully,
Owen M. Kendler,
U.S. Department of Justice, Antitrust Division, 450 5th Street, NW.,
Suite 4000, Washington, DC 20530, Tel: (202) 307-5779, Fax: (202)
307-9952.
Certificate of Service
I, David C. Kully, hereby certify that on this 23rd day of October,
2008, I caused a copy of the foregoing Response of the United States to
Public Comments on the Proposed Final Judgment to be served by ECF on
counsel for the defendant identified below.
Jack R. Bierig, Sidley Austin LLP, One South Dearborn Street, Chicago,
IL 60603, (312) 853-7000, [email protected].
David C. Kully.
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John R. Read, Chief,
Litigation III Section, Antitrust Division,
U.S. Department of Justice,
450 Fifth Street NW.,
Washington, DC 20530.
Via: [email protected]; cc: [email protected]
RE: Proposed Final Judgment U.S. v NAR Civil Action No. 05 C 5140
Dear Mr. Read:
I respectfully request that in addition to the protection provided
to VOW's in the proposed judgment that the Judgment be expanded such
that any information a broker is allowed to publish in the mass media
also be publishable to the Internet without qualification. It appears
the proposed judgment will protect the large VOW's new and creative
practices in an effort to provide the consumer with more choices and
potentially better and/or cheaper services. Unfortunately, the proposed
judgment doesn't appear to protect the creative practices of sole
proprietors and small independent brokerages that also utilize the
Internet.
In many markets, these small brokerages provide service to
consumers for 50+% of the transaction sides. These small brokerages
often develop unique market services that utilize the Internet and
benefit the consumer with an even wider choice of different, better
and/or cheaper services. Technological and data feed costs required to
establish and then operate a password protected VOW can be shared by
each transaction. For large VOW brokerages addressed in this proposed
judgment, these costs become insignificant. But for a sole proprietor
and small brokerages, these same costs on a per transaction basis are
significant and become prohibitively expensive. Consequently, most
small brokerages do not and cannot operate a cost effective password
protected VOW.
MLSlistings Inc., allows their subscribers to freely publish the
median Sold Price in newspapers, but prohibits publication of that same
information on the Internet. MLSlistings Inc.'s restriction has no MLS
business reason and artificially restricts MLSlistings Inc's
subscribers and consumers from fully benefiting from the use of the
Internet. MLSlistings Inc.'s Internet restriction only applies to non-
VOW sites that don't have a bulk download agreement.
I investigated the costs of providing a password protected VOW site
and found them not economical. Subsequently, I decided to make some of
my basic market information available via my public (non-password
protected) web page. This allowed anyone to freely benefit from this
market information and insight. I chose to reserve more frequent
updates and additional information for people that find my public
information useful and are willing to develop an agency relationship.
This had worked well for me and the consumers without the need of a
VOW.
This changed in early May 2008 when MLSlistings Inc, using MLS
Rules that become effective on April 30, 2008 started citing me with
violating the new MLS Rules. The new MLS Rules allow me to continue to
provide the same market information (such as the County median sold
price) to anyone that walks into my office. I can also email or fax
this information to whoever I chose. I can even publish this market
information in the mass media including the San Jose Mercury News. This
market information is also available to any web savvy consumer via the
MLS's own non-restricted public web site. Clearly, anyone without
qualification has access to this market information. However,
MLSlistings Inc claims the new MLS Rules specifically prohibit a
subscriber from publishing this same market information on the Internet
if the web page is accessible to public without any qualification and
without a costly download agreement. NAR approved MLSlistings Inc.'s
new MLS Rules that includes this restraint of trade provision that
clearly favors large brokerages.
The amount of data needed using the 2000 methodology is equivalent
to only eight current agent full listings. For an MLS, which restricts
subscribers to 500 matching listings and currently has 19,500 active
listings, to consider the data equivalent to 8 listings to require a
bulk download agreement is ridiculous. Having learned a different
methodology in 2000, the amount of data needed now is significantly
less. Adding to the absurdity of this arbitrary rule, the data used to
determine the market information isn't even in the bulk download data
set.
I'm requesting the current proposed judgment be expanded such that
any information a broker is allowed to publish in the mass media can
also be published to the Internet without qualification. This would be
similar to IDX/BLE that allows any brokerage to display certain basic
listing information to the public without qualification. Basically, MLS
rules shouldn't favor any particular type or size brokerage.
Should you have any questions, I can be reached at [email protected].
[FR Doc. E8-25989 Filed 11-3-08; 8:45 am]
BILLING CODE 4410-11-P