It’s not surprising that the federal government sued the National Association of Realtors over alleged antitrust violations – trade groups can be a breeding ground for anticompetitive activities, and Realtors have clashed with regulators before on antitrust issues, say legal experts, adding that it won’t be surprising if an agreement is reached before the lawsuit goes to trial.

On Sept. 7, the U.S.

It’s not surprising that the federal government sued the National Association of Realtors over alleged antitrust violations – trade groups can be a breeding ground for anticompetitive activities, and Realtors have clashed with regulators before on antitrust issues, say legal experts, adding that it won’t be surprising if an agreement is reached before the lawsuit goes to trial.

On Sept. 7, the U.S. Justice Department‘s Antitrust Division filed a lawsuit against the 1.2 million-member Realtor trade group to try to bar it from enforcing rules that antitrust officials say restrain competition. The suit specifically challenges NAR’s policies related to the display of property listings on the Internet.

An earlier policy adopted by the trade group enabled brokers to pick and choose which competitors could display their property listings online.

While the Realtor group, in response to a Justice Department investigation over its earlier policy, enacted a new Internet listings policy on Aug. 31 for all Realtor-owned MLSs, this new policy continues “to discriminate against brokers who use the Internet to more efficiently and cost effectively serve home sellers and buyers,” the Justice Department alleges. Realtor-owned MLSs must adopt and implement the trade group’s new policy by July 1, 2006, and some provisions of the new policy are optional.

Earlier lawsuits, dating back to the 1950s, have alleged that Realtor groups have conspired to fix commission rates. Industry research has found that real estate commission rates have dropped slightly over the past several years from the historic average of 6 percent, though home-price increases have risen more than enough to offset this drop in many markets.

In addition to this latest lawsuit against the Realtor trade group, the Justice Department and Federal Trade Commission this year issued letters opposing Realtor-backed legislation in several states that would impose new real estate service requirements and essentially ban some discount business models.

Also, the Justice Department filed a lawsuit in March over real estate rebate restrictions in Kentucky, which led that state to lift its rebate ban. And South Dakota also loosened its rebate restrictions this year in response to a separate Justice Department investigation.

Trade groups “are kind of a hotbed of antitrust activity – they are by their nature a gathering of competitors,” said Robert M. Cohan, a lawyer who is chairman of the antitrust group and a partner in the Jackson Walker law firm’s Dallas office. “There are many good things that trade associations do but there is always a danger that when you get competitors together they’re going to do things they shouldn’t do, such as agree on price.”

He added, “There is certainly a history of challenges to real estate multiple listing services and the way Realtor associations operate. There has been some history of tension between the industry and the regulators. What the Justice Department seems to be suggesting is that the Realtor association is protecting Realtors who may still be doing business the old-fashioned way.”

Federal antitrust cases can be “tremendously expensive to litigate” and can be drawn out for years if groups aggressively fight the charges, and Cohan said it’s fairly common for the parties in such cases to settle before the cases reach trial.

Sutton Keany, a partner and antitrust lawyer who works in the New York office of the Pillsbury Winthrop Shaw Pittman law firm, said the Justice Department has already had some success in prompting the Realtor group to rethink its Internet listings policy. The lawsuit may have provided inspiration for NAR to move more quickly in its adoption of new rules, he said, adding that “(The Justice Department) has had success at least on one point – if the purpose of the complaint is to shake up practices in the area.”

He added, “It is generally thought that most markets operate more efficiently as the availability of information is increased. If participants in that market get together to try to exclude certain brokers or to restrict the flow of information or to reward non-technological advances, it raises questions. In the end that’s what is motivating the Department of Justice.”

Tim Greaney, a law professor at Saint Louis University in Missouriwho worked in the Justice Department’s Antitrust Division for 10 years during the 1980s, said the lawsuit against the Realtors appears to be “really a classic case of changing market conditions and innovation having a major potential impact on an industry, and an industry’s reaction being to resist it because it certainly has the potential to disrupt the way business has been conducted in the past.”

While property information continues to be vital for the business of real estate brokerage, “nothing cheapens information quite as much as the Internet,” Greaney said, which poses challenges for companies that have relied on brick-and-mortar investments.

MLSs can benefit consumers by providing widespread property listings information, but such joint ventures can be anticompetitive if they serve as devices for exclusion, he said. If the lawsuit is settled, Greaney expects it would be in the form of a court-enforced consent decree, which could lessen the chances for extensive future litigation related to this case.

Legal experts say that federal antitrust cases can be the basis for private litigation, and if the Justice Department prevails in the case there may be a trailing wave of class-action or individual lawsuits by real estate companies or groups.

The federal government is not seeking any damages in the lawsuit, but aims to restrain and enjoin the Realtor association from requiring rules that restrict how a broker interacts with customers, competitors or others, according to the Justice Department complaint.

The lawsuit also seeks to prevent the trade group from requiring affiliated boards and MLSs to adopt specific Internet listings policies – such as the ability for brokers to selectively withhold listings from some competing brokers – that the Justice Department considers to be anticompetitive.

Theodore “Ted” Bolema, a lawyer in the Finance and Law Department at Central Michigan University who served in the Justice Department’s Antitrust Division from 1992-2000, said the lawsuit against the Realtor group appears to be at the “intersection of antitrust laws and (intellectual) property rights,” as it relates to the ownership control of property listings information.

“It strikes me as one of the most interesting antitrust cases we’ve seen in some time because of the rather unique issues in it,” he said.

Antitrust cases can take longer to resolve than average court cases, Bolema said, and the Justice Department must present a very detailed factual analysis to support its case. “(These cases) are very fact specific. Courts have held that it’s really the economic impact that is critical in determining whether there is a violation or not.” While some antitrust cases seek damages for past violations, the case against the Realtor trade group does not.

The American Antitrust Institute, an independent, non-profit research and advocacy group that promotes fair competition, has commended the Justice Department for bringing the lawsuit against the Realtor association. Albert Foer, president of the institute, said, “I think that the Realtors are going to have a very difficult time in prevailing. There is a context of an industry in which commissions appear to have been stable for a long time, even as the price of housing has escalated. That tips us off that something is wrong in terms of how competition is working.”

But, he also said, “At this stage it’s hard to prejudge the outcome. We supported the idea that (the Justice Department) brought the case because we think this is a really important issue for consumers and it ought to get the fullest possible airing.”

Legal experts have said that Washington politics should not have a major bearing on this case – despite the Realtor group’s powerful presence in congressional lobbying and financial support for federal elections.

But Justice Department officials, Foer said, “are clearly aware of the political power of the Realtors. And nonetheless they put forward the case – one assumes they’ve done a lot of thinking and a lot of preparation and have a lot to offer.”

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Send tips or a Letter to the Editor to glenn@inman.com or call (510) 658-9252, ext. 137.

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