WASHINGTON — The National Association of Realtors has taken a lead role in negotiating a proposed $7.5 million licensing agreement that’s intended to provide blanket protection for multiple listing services and the industry as a whole from patent infringement claims by a company that has already sued Realtor.com operator Move Inc. and two major MLSs.
The company, CIVIX-DDI LLC, filed a lawsuit in December 2005 against NAR, Move Inc. and Hotels.com. The suit claimed Move and NAR had infringed on four patents by providing location-based search services on Realtor.com. Move settled the suit in December 2009 for an undisclosed sum.
More recently, CIVIX has filed lawsuits against two of the nation’s largest MLSs — Illinois-based Midwest Real Estate Data LLC (MRED), and Maryland-based Metropolitan Regional Information Services Inc. (MRIS). MRIS and its lead MLS vendor, Tarasoft, chose to settle the lawsuit against them by entering into a licensing agreement with CIVIX.
In the last few weeks, many MLSs served by Rapattoni have received letters from CIVIX demanding they pay a licensing fee of $6 per member per year for four years.
Now, with the backing of approximately 50 MLSs, NAR has taken the lead in negotiating a licensing agreement with CIVIX that would protect all MLSs and MLS vendors, Realtor associations, franchisors, brokers and agents from patent infringement claims by the company on existing patents.
Faced with the prospect that CIVIX would continue to seek settlements from individual MLSs and vendors, “We decided to get out front of this instead of waiting for them to pick us off one by one,” said Ann Bailey, a former Move vice president turned industry consultant, who briefed MLS executives on the proposal Wednesday.
“Our emotional decision was, ‘We’re going to fight these guys to the death,’ ” said Bailey, who works with MLSs that belong to the MLS Cooperative Venture, or COVE.
As a practical matter, patent disputes are risky, and smaller vendors — who often agree to indemnify MLSs against lawsuits — might go bankrupt if they end up in court, Bailey said. A business decision was made, and COVE asked NAR to “head up the effort to get a license for the entire industry,” Bailey said.
NAR General Counsel Laurie Janik, who led the negotiations, called the proposed licensing agreement “interesting,” with CIVIX granting a license to NAR, and NAR providing sublicenses to interested parties.
Participation would be voluntary, but if NAR can’t collect the full $7.5 million demanded by CIVIX, only those who chip in will be protected by the licensing agreement.
The agreement calls for the first $2.5 million to be collected by June 6, the second $2.5 million to be in by July 6, and all $7.5 million collected by Aug. 6.
If the initial $2.5 million can’t be raised, the deal is off and all licensing fees collected by NAR will be refunded. If the first $2.5 million is raised but the deadline for raising $5 million is not met, NAR will stop working toward the $7.5 million goal and only those who have paid licensing fees will be protected.
“CIVIX was willing to grant a license on a hope and a prayer,” Janik said of the unusual arrangement. “(That company is) willing to exit the real estate industry if we can meet (its) $7.5 million target.”
The cost of purchasing a license will come out to about $9 per MLS subscriber, NAR estimates. Because each MLS has a primary vendor that NAR estimates provides 60 to 80 percent of the software requiring licenses, MLS vendors will have the opportunity to purchase a license for $5.43 to $7.24 per subscriber, with the MLS picking up the difference.
“I’ve had some (MLS executives) say, ‘I’ll let the MLS vendor handle this, it’s their problem,” Bailey said. “Well, it’s partially their problem, but not completely. All of the software you use is not provided by (a single) MLS vendor.”
Although language of the proposed licensing agreement isn’t expected until Monday at the earliest, NAR and CIVIX have signed a letter of intent to move forward with the deal, Bailey said.
“For this license agreement to work, it will require outstanding and expeditious leadership from each MLS and each vendor in the marketplace,” NAR said in a summary of the proposed agreement distributed to MLS executives Wednesday. “At the end of the day, this is a business decision that each organization must make.”
“The time frame is not negotiable,” Bailey said. “If we don’t have $2.5 million (within) 30 days … the deal is off the table.”
John Leonardi, CEO of Buffalo Niagara Realtors and WNY Real Estate Information Services, wondered if the burden of the licensing fee might be reduced if NAR “reached out” to listing portals like Trulia and Zillow.
Janik said CIVIX would have demanded more for a license that also covered listing portals like Trulia and Zillow.
“That was factored into negotiations,” Janik said.
If the $7.5 million target is met, Janik said, the licensing agreement will provide coverage for all MLSs — Realtor-affiliated or not — and Realtor associations, MLS participants and subscribers, Realtors, franchisors, brokers, brokerage firms and agents.
Cameron Paine, CEO of the Connecticut Statewide MLS (CTMLS), worried that by giving up without a fight, MLSs might send the wrong signal to the law firm representing CIVIX. “We’re setting a precedent that they can roll us,” he said.
Janik said patent lawsuits have to be looked at on a case-by-case basis. NAR has been sued three times by companies making patent infringement claims, she said, settling one lawsuit and “vigorously defending” two others.
In March, a federal court of appeals ruled that a patent held by Real Estate Alliance Ltd. was broad enough that REAL should be allowed to prove allegations that Realtor.com and other real estate website operators infringed on it. Move, NAR and the National Association of Home Builders filed suit against REAL in California after REAL sued a Pennsylvania Realtor and allegedly threatened similar suits against users of Move Inc. websites.
“Will they know we have a settlement? Yes,” Janik said. “But we don’t have a history of rolling.”
MRIS President and CEO David Charron let it be known that while his MLS’s decision to settle with CIVIX was a difficult one, he thought the licensing agreement negotiated by NAR for the rest of the industry “is a pretty good deal — I applaud you guys.”
Charron said, “We believe this is a patent that should never have been awarded, but in fact it was, so we chose to settle. I stand ready to fight the next guy who comes over the transom.”
Bob Hale, CEO of the Houston Association of Realtors, called the proposed licensing agreement “one of the greatest things NAR has done” for MLSs.
“I look at Realtor.com, and the biggest MLS in the world — they settled. Who in this room really believes they are bigger and stronger and feistier than either of those guys?” Hale said. “The problem is, not enough people in the room have been sued yet. If you haven’t been in a good lawsuit lately, you don’t know what pain is.”
In its complaint against Move, CIVIX claimed the company and NAR infringed on U.S. patents 6,385,622, 6,408,307, 6,415,291, and 6,473,692.
In its 2009 annual report to investors, Move said it settled the CIVIX lawsuit and another patent infringement case brought by Tren Technologies Holdings LLC in 2002 for $4.86 million. Move, NAR and NAHB took that case to a federal appeals court before paying for a license.