The Department of Justice and The PLS argue that lower court should have considered Clear Cooperation Policy’s impact on brokers who directly purchase access to listing services, not on buyers and sellers.

On Wednesday, the U.S. Department of Justice put its finger on the scale in an antitrust lawsuit filed by a former pocket listing service against the National Association of Realtors and three of the nation’s largest multiple listing services, arguing that the lower court erred in dismissing the suit in February.

At the same time, the DOJ revealed it had investigated the pocket listing policy at issue in the case, but ultimately closed the investigation.

In May 2020, The PLS, formerly a private listing network for real estate agents, filed a federal lawsuit against NAR and the California Regional MLS (CRMLS), Bright MLS and Midwest Real Estate Data (MRED) over a policy designed to curb pocket listings.

The suit alleged the defendants had violated the federal Sherman Antitrust Act and California’s Cartwright Act for adopting the controversial Clear Cooperation Policy, which requires listing brokers to submit a listing to their MLS within one business day of marketing a property to the public.

In January, The PLS re-launched as a public-facing website that takes advantage of the “one business day” caveat to tout listings that appear on the site up to three days before being marketed elsewhere, since a home can be posted there on a Friday and doesn’t have to be submitted to the MLS until Monday.

In a Feb. 3 opinion, U.S. District Judge John W. Holcomb in Central California dismissed The PLS’s case with prejudice, or permanently, and without leave to amend, finding that The PLS’s arguments were so flawed that the case could not be saved.

Holcomb found that, while The PLS had alleged facts showing harm to its own business, the company did not plausibly allege harm to competition and consumers. He also found that The PLS failed to allege a plausible injury to participants on both sides of the real estate market — not just to sellers, but also to buyers.

Even accepting The PLS’s allegations as true, Holcomb opined that the Clear Cooperation Policy has “some plainly pro-competitive aspects” because it results in more information about market conditions being available to buyers, sellers and real estate professionals and therefore promotes competition among them.

On May 26, The PLS filed an opening brief appealing the decision, and on Wednesday, June 2, the DOJ Antitrust Division filed an amicus brief in support of neither party, but echoing the arguments in The PLS’s appeal.

In a footnote, the federal agency noted that a pending consent order against NAR didn’t have anything to do with the Clear Cooperation Policy, which the DOJ had investigated until Nov. 19.

“On the same day the United States filed the proposed consent judgment, it closed an investigation into the Policy,” attorneys for the DOJ told the U.S. Court of Appeals for the Ninth Circuit. “‘No inference should be drawn, however, from the Division’s decision to close its investigation into these rules, policies or practices not addressed by the consent decree.'”

Regarding the PLS case, the DOJ said it took no position on the merits of the case or the truth of its allegations, “but file this brief because the district court appears to have committed several errors of law that could adversely affect antitrust enforcement well beyond the instant context.”

The agency argued that alleging harm to competition did not require alleging immediate harm to downstream, end-user consumers. Moreover, requiring plaintiffs to define the relevant market as two-sided and to allege separate injuries to both sides of the market was “legally incorrect,” according to the DOJ.

“An MLS’s business, and PLS’s ability to compete with MLSs, depends on brokers and agents choosing on behalf of sellers to list properties on the service,” the amicus brief said. “The relevant direct ‘consumers’ in this market therefore are brokers and agents — not home buyers and sellers.”

In its opening brief, The PLS also told the appeals court that Holcomb had not considered the relevant market in his analysis: the market where real estate brokers purchase real estate listing network services, not the market where buyers and sellers purchase real estate. In other words, the brief alleged the people harmed by the policy are brokers who directly purchase access to listing services, be they MLSs or alternatives such as The PLS.

“Because historically almost all properties have been marketed through the MLSs, competing with these MLSs has been extraordinarily difficult,” attorneys for The PLS wrote.

“Secure behind these previously-impregnable entry barriers, MLSs have become old and slow monopolists. The unrestrained exercise of market power by NAR-affiliated MLSs created demand for alternatives to the MLS system. To better serve their customers, real estate brokers demanded enhanced privacy protection, lower costs, more innovative services, and the creation of a national listing network.

“However, due to the entry barriers protecting the NAR-affiliated MLSs, demand for alternatives to the MLS system went unmet because the NAR-affiliated MLSs could ignore these demands for a more competitive future.”

The policy harms competing listing network services like PLS by cutting them off from real estate listings, which they need to compete, they added.

“Excluding PLS and the other listing network services that had threatened Defendants by competing with pocket listings allowed the NAR-affiliated MLSs to maintain their market power — to the direct detriment of brokers who preferred the option to list through these excluded alternatives,” they wrote.

In its amicus brief, the DOJ stressed that, contrary to what the lower court seemed to indicate, reduced prices or fewer services are not the only recognized anticompetitive effects.

“That proposition is legally incorrect because there are more types of cognizable anticompetitive effects, including reductions in quality, consumer choice, innovation, and harm to the competitive process,” the amicus brief said.

The DOJ said PLS had plausibly alleged each of those effects. For instance, the agency noted that PLS alleged that NAR-affiliated MLSs have been “slow to innovate and unresponsive to consumer demand,” with “obsolete” software and “outdated technology.”

“PLS attributes this inefficiency in part to the regionally-fragmented nature of the NAR-MLS system,” the amicus brief said. “NAR’s Policy, by impeding the growth of national listing networks like PLS, perpetuates the fragmented and inefficient status quo.”

The PLS’s appeal brief also argued that the Clear Cooperation Policy prevents brokers from offering a specific set of services: pocket listings marketed through listing networks.

“Clear Cooperation eliminates this specific bundle of services from the market, simultaneously injuring PLS, harming competition in the listing network services market, and restricting the provision of brokerage services,” the brief said.

In this way, The PLS argued that the policy does actually hurt consumers, by preventing brokers from offering a service consumers want.

“In the listing network services market, competition from listing networks such as PLS that competed with the MLSs was eliminated, maintaining the ability of the MLSs to set the price of listing network services to brokers above competitive levels and frustrating broker demand for new and innovative listing network services,” the brief said.

“In the brokerage services market, consumer demand for pocket listings marketed through listing networks was frustrated, reducing consumer choice and welfare.”

Citing a Supreme Court case known as FTC v. Indiana Federation of Dentists, the brief said, “[C]ompetitors may not agree to withdraw a desired service from the market by ‘pre-empt[ing] the working of the market by deciding for [themselves] that … customers do not need that which they demand.'”

The PLS acknowledged that the Clear Cooperation Policy doesn’t forbid brokers and agents from marketing their listings on PLS or prevent them from choosing which listing services to use.

“But the relevant antitrust question is whether Clear Cooperation has the ‘practical effect’ of deterring real estate brokers from using competing listing networks such as PLS, not whether it does so expressly or on its face, as the District Court seemed to require,” the brief said — an assertion that the DOJ appeared to agree with.

In dismissing the case, Holcomb pointed to the policy’s exemption for office exclusives, or listings marketed entirely within a brokerage without submitting them to an MLS. Some real estate brokers have threatened mutiny over the office exclusives exception to the Clear Cooperation Policy, which they argue inadvertently benefits large, national brokerages at the expense of smaller, independent brokerages.

Holcomb said that because “marketing a private listing within a large nationwide brokerage under the office exclusive exception provides significant exposure of the property in an off-MLS setting,” the Clear Cooperation Policy “does not” have the effect of reducing output of services to consumers. But neither The PLS nor the DOJ were swayed by this. For the DOJ, the exception still had an impact on consumer choice.

“The upshot of the Policy, as the district court recognized, … is that sellers wanting to market their homes through agents but off the MLS system must either (1) use the ‘office listing,’ which in practice means hiring a large brokerage that the seller may not prefer, or that may not include the agent that the seller prefers, or (2) hire one of the minority of brokers and agents who are not NAR members,” the amicus brief said.

For The PLS, the exception illuminates NAR’s alleged true purpose: to reduce competition against MLSs.

“The office exclusive exception does nothing to mitigate the harm to competition from Clear Cooperation in the listing network services market,” PLS’s attorneys wrote.

“Indeed, the office exclusive exception illuminates the anticompetitive purpose and effect of Clear Cooperation by showing that NAR does not object to its members marketing pocket listings — provided those members do not use listing networks that compete with the MLSs controlled by NAR’s members.”

Top Agent Network, another private listing network that has also sued NAR over the Clear Cooperation Policy, recently took aim at the office exclusives exception in its third amended complaint against the trade group.

The PLS asked the appeals court to reverse the lower court’s decision to dismiss the case with prejudice or, at minimum, grant the company leave to amend its complaint. Defendants must submit an answer to the opening brief by July 26.

In an emailed statement, NAR told Inman the trade group continues to believe that The PLS’s lawsuit “has no legal merit and will continue to vigorously contest it.”

“As affirmed by the district court, the MLS system creates competitive, efficient markets that benefit home buyers and sellers alike,” Mantill Williams, NAR’s vice president of communications, said.

“As a leading advocate for homeownership, NAR firmly believes in equal opportunity in housing. The Clear Cooperation Policy was created in order to protect the best interest of consumers and promote equal opportunity for all. It ensures that publicly marketed property listings are widely available and accessible to all consumers. The Clear Cooperation Policy also ensures that a broker receives the seller’s consent when they choose to keep their property off the MLS and therefore waive the benefits of the MLS.

“While NAR believes that marketing a property on the MLS serves the best interests of the vast majority of sellers and buyers, the Clear Cooperation Policy still allows for flexibility for those with privacy concerns. We regularly review our rules and policies to protect consumers and provide transparency as well as address new information and developments and will continue to do so.”

Regarding the DOJ’s filing, NAR’s Williams said, “As is stated in the DOJ amicus brief, they have no position on the merits of PLS’s antitrust claims or on the truth of its allegations but are presenting their point of view on antitrust enforcement well beyond the instant context.”

In an emailed statement responding to The PLS’s appeals brief, Bright MLS told Inman, “Bright remains confident that the appeals court will affirm the district court’s dismissal with prejudice.”

CRMLS declined to comment for this story. The PLS and MRED did not respond to emailed requests for comment.

Email Andrea V. Brambila.

Like me on Facebook | Follow me on Twitter

MLS | NAR | realtors
Show Comments Hide Comments

Comments

Sign up for Inman’s Morning Headlines
What you need to know to start your day with all the latest industry developments
By submitting your email address, you agree to receive marketing emails from Inman.
Success!
Thank you for subscribing to Morning Headlines.
Back to top
×
Log in
If you created your account with Google or Facebook
Don't have an account?
Forgot your password?
No Problem

Simply enter the email address you used to create your account and click "Reset Password". You will receive additional instructions via email.

Forgot your username? If so please contact customer support at (510) 658-9252

Password Reset Confirmation

Password Reset Instructions have been sent to

Subscribe to The Weekender
Get the week's leading headlines delivered straight to your inbox.
Top headlines from around the real estate industry. Breaking news as it happens.
15 stories covering tech, special reports, video and opinion.
Unique features from hacker profiles to portal watch and video interviews.
Unique features from hacker profiles to portal watch and video interviews.
It looks like you’re already a Select Member!
To subscribe to exclusive newsletters, visit your email preferences in the account settings.
Up-to-the-minute news and interviews in your inbox, ticket discounts for Inman events and more
1-Step CheckoutPay with a credit card
By continuing, you agree to Inman’s Terms of Use and Privacy Policy.

You will be charged . Your subscription will automatically renew for on . For more details on our payment terms and how to cancel, click here.

Interested in a group subscription?
Finish setting up your subscription