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Realcomp II, Ltd. v. FTC

Court of Appeals for the Sixth Circuit
635 F.3d 815 (2011)
ELI5:

Rule of Law:

A policy by a Multiple Listing Service (MLS) with substantial market power that restricts the public online advertising of certain types of property listings, such as those from limited-service brokers, constitutes an unreasonable restraint of trade if it has anticompetitive effects and lacks a valid procompetitive justification.


Facts:

  • Realcomp II, Ltd. ('Realcomp') is an association of real estate brokers that operates the largest Multiple Listing Service (MLS) in southeastern Michigan.
  • The Realcomp MLS database provides property listing information to its member brokers and also disseminates these listings to popular public real estate advertising websites.
  • Some member brokers offered lower-cost, limited-service brokerage models, often using Exclusive Agency (EA) listing agreements, which competed with the traditional, full-service model.
  • In 2001, Realcomp adopted a 'website policy' that prohibited information about EA and other limited-service listings from being distributed to public websites through its MLS data feeds.
  • Realcomp began enforcing this policy in 2004, which resulted in limited-service listings receiving significantly less public exposure compared to traditional full-service listings.
  • The policy created a competitive disadvantage for discount brokers, as some of the most popular public real estate websites could only receive listings through the Realcomp MLS feed.

Procedural Posture:

  • The Federal Trade Commission's (FTC) complaint counsel issued an administrative complaint against Realcomp, alleging its policies violated Section 5 of the FTC Act.
  • Following a hearing, the FTC's Chief Administrative Law Judge (ALJ) issued an Initial Decision dismissing the complaint.
  • The FTC complaint counsel appealed the ALJ's decision to the full Federal Trade Commission.
  • The Commission unanimously reversed the ALJ's decision, found Realcomp's policies to be an unreasonable restraint of trade, and entered a cease-and-desist order against Realcomp.
  • Realcomp, as petitioner, sought review of the Commission's final order in the United States Court of Appeals for the Sixth Circuit.

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Issue:

Does a policy enacted by a real estate multiple listing service, which prohibits the distribution of limited-service property listings to public advertising websites, constitute an unreasonable restraint of trade in violation of Section 5 of the Federal Trade Commission Act?


Opinions:

Majority - Karen Nelson Moore, Circuit Judge

Yes, a policy that prohibits the distribution of limited-service property listings to public websites constitutes an unreasonable restraint of trade. Applying a full rule-of-reason analysis, substantial evidence supports the Federal Trade Commission's findings that Realcomp's website policy was anticompetitive. The court found that Realcomp possessed substantial market power, and its policy had the potential for and caused actual adverse effects on competition by suppressing lower-cost brokerage models and reducing their market share. The court rejected Realcomp's procompetitive justifications, such as preventing 'free-riding,' finding them to be unsupported and pretextual for protecting traditional brokers from price competition.



Analysis:

This decision affirms that the internal rules of professional associations, such as real estate MLSs, are subject to antitrust scrutiny. It establishes that policies which discriminate against innovative or discount business models can be deemed unreasonable restraints of trade, particularly when the association holds significant market power. The court's application of the rule of reason highlights that even indirect restraints on advertising that harm nascent competitive threats can violate antitrust law. This precedent strengthens the FTC's ability to challenge conduct by dominant industry groups that stifles competition and harms consumer choice, especially in markets transformed by the internet.

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