Antitrust and real estate

California Association of Realtors, Legal Affairs Forum
January 24, 2014
Jarod M. Bona, DLA Piper
www.TheAntitrustAttorney.com

Introduction
1. The basics of antitrust law
2. Real-estate-specific issues
3. The spirit of antitrust and
competition
Jarod M. Bona www.TheAntitrustAttorney.com

US Antitrust Basics
Antitrust prohibits unreasonable restraints on trade.


US Antitrust Basics
Why should I care about antitrust law?
 Antitrust violations are not always intuitive.
 Antitrust law is often unclear and confusing.
 Defending a government antitrust investigation or civil

case is both expensive and time-consuming.
 Strong incentives built into antitrust law for private
enforcement—treble damages and attorneys’ fees.
 Antitrust violations carry serious criminal and civil
consequences.

US Antitrust Basics
 Criminal Violations

-Imprisonment of up to 10 years
-Fines of up to $100 million for corporations and $1
million for individuals
 Civil Lawsuits
-Automatic treble damages
-Injunctive relief
-government civil actions
-private lawsuits, including class actions

US Antitrust Basics
 Sherman Act, Section 1: Prohibits certain agreements and

understandings between competitors, customers and suppliers, or other
firms with business relationships
 Sherman Act, Section 2: Prohibits certain conduct by a monopolist or by
someone attempting to become a monopolist and certain other forms of
unilateral conduct
 Clayton Act:
 Section 3: Prohibits anticompetitive conditions on the sale of goods,

including “tying” and some exclusive dealing.
 Section 7: Governs mergers and acquisitions.
 FTC Act: Prohibits unfair methods of competition and unfair acts and

practices.
 State Antitrust Acts: Often follows federal antitrust laws, but there can be
some variation.


US Antitrust Basics
Sherman Act, Section 1
Prohibits agreements and understandings that

unreasonably restrict competition.
Horizontal: Agreements or understandings with
competitors.
Vertical: Agreements with customers, agents, etc.
There must be more than one economic unit involved
(e.g. combination, contract, conspiracy).
The agreements need not be formal. The evidence of
a conspiracy in a civil action or government prosecution
is often circumstantial or inferred from conduct.

US Antitrust Basics
Contract, Combination or Conspiracy
 Written agreements
 Oral agreements
 Agreements implied from circumstantial evidence
 Conduct consistent with conspiracy
 Opportunity or motive to conspire
 No independent business explanation
 Be careful at trade-association meetings

 Communication and information exchange among

competitors

US Antitrust Basics

Per Se Violations
 Illegal regardless of the reason for the activity or whether

there was any competitive harm
 Almost exclusively horizontal conduct—agreements
among competitors.
 Examples: Price-fixing, group boycotts, dividing markets or
customers, rigging bids, and certain forms of tying.


US Antitrust Basics
Most Common Per Se Violations
Price agreements: Price or any price components, including
commissions, referral fees, discounts, promotions, credit terms,
allowances, advances, mark-ups, costs, margins, or price ranges.
Market Allocation. Agreements dividing territories, products or
services, or customers (including agreements not to steal clients).
Group Boycott. Agreements not to deal with another person or
business (or to pressure that person or business to force certain
behavior).
Bid Rigging. Collusive bidding practices.
Tying. Someone with market power—or a unique advantage—
that refuses to sell a product or service in that market unless the
customer buys another type of product or service.

US Antitrust Basics
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Rule of Reason
Most conduct falls into this category.
Virtually all vertical conduct is judged under the rule
of reason.
Courts will balance the pro-competitive benefits
against any anticompetitive harm.
Quick Look review: Between rule of reason and per se
review. Courts are increasingly applying standards that
are neither pure per se or pure rule of reason.

US Antitrust Basics
Monopolization, Attempted Monopolization, and

Conspiracy to Monopolize
Monopolization:
 Monopoly Power: The ability to set prices, control output, or exclude

competitors in a given market.
 Exclusionary Conduct to acquire, maintain or enhance that power.
 It is not illegal to acquire or maintain monopoly power as a result of
superior product or business acumen.

Attempted Monopolization: A company that (1) engaged in

exclusionary conduct with a (2) specific intent to gain
monopoly power and (3) has a “dangerous probability” of
gaining monopoly power.

US Antitrust Basics
 Sherman Act violations may result in substantial
criminal penalties for certain violations.
 Monetary fines: Corporate and personal.
 Prison sentences—even for first time offenders.
 Almost exclusively based upon Section 1, per se

antitrust violations like price-fixing, marketallocation, and bid-rigging.


US Antitrust Basics
 Antitrust violations may lead to substantial civil
penalties and remedies.
 Government may obtain financial penalties.
 Private antitrust lawsuits can result in treble
damages and plaintiffs’ attorneys’ fees.
 The private lawsuits and government investigations
are expensive and distracting, even if you prevail.
 Mergers, acquisitions, and other transactions may
be threatened.

US Antitrust Basics
Information Sharing Generally
Any information sharing among competitors can create the
possibility of an antitrust violation.
Information-sharing may facilitate a per se antitrust
violation.
DO NOT share any of the following types of information
with competitors (except as necessary for individual
transaction):
 Pricing, promotions, costs, market shares;

 Past, current, or future marketing, pricing, plans, etc.


US Antitrust Basics
Trade Associations
 Counsel should be present at all meetings.
 Written agenda should be prepared, approved in

advance, and followed.
 No agreement (express or implied) that limits each
member’s right to make independent decisions.
 If there is any inappropriate discussion, announce you
are leaving and walk out.
 Be careful what you say at social gatherings.


US Antitrust Basics
Federal Government Antitrust Agencies
 Federal Trade Commission (FTC): Civil actions
only, but can utilize Section 5 of the FTC Act to

enforce competition policy behind traditional
antitrust laws.
 Department of Justice, Antitrust Division: Civil
and Criminal Enforcement.


Real-Estate Antitrust Issues
Why does antitrust matter to real-estate professionals?
 Competitor brokers both compete and cooperate on a
daily basis.
 Prices (particularly commission splits) are often
announced and well-known.
 Tension and battles between the traditional business
model and new business models.
 Large role in industry for associations and MLS
entities.
 Heavy government antitrust scrutiny.

Fixing Prices—Per Se Antitrust Violation
 Do not agree, directly or tacitly, with other
brokers or competitors to set certain or
minimum commissions.
 Do not discuss commissions with
competitors, outside the context of a
specific transaction.

Fixing Prices—Per Se Antitrust Violation
 Do not discuss or agree with competitors on
rebates or other discounts, credit terms, service
charges, or any fees.
 Do not imply or represent that commissions are
fixed by any group or organization.
 Do not discuss or agree with competitors on
commission splits or referral fees (outside the
context of a specific transaction).

Allocating Markets—Per Se Antitrust Violation
 Do not discuss or agree with competitors to divide
territories— “you stay north of the river and I will stay
to the south.”
 Do not discuss or agree with competitors to refrain
from offering any type of product or service.
 Do not discuss or agree with competitors to refrain
from competing for particular clients, including each
others’ clients or former clients.

Bid-Rigging—Per Se Antitrust Violation
 Bid Rotation: Competitors agree to take
turns being the low bidder.
 Bid Suppression: Competitor agrees not to
bid.
 Complementary Bid: Competitor Agrees to
bid high.

 Bid-Rigging—Per Se Antitrust Violation
 Wide-ranging DOJ criminal investigation into
foreclosure-auction bid-rigging among real-estate
investors in Northern California.

 Over 40 guilty pleas already.
 Conspirators rigged bids at the public auctions,
then had their own private auctions among the

conspirators.


Group Boycotts
 Per se antitrust violations (generally) when they involve
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agreements among competitors.
Do not discuss or agree with competitors to decline to deal
with a certain or class of broker.
Do not discuss or agree with competitors to pressure these
brokers to take or refrain from any actions (like raising
prices)
Often arises in relation to brokers that offer discounts or
unique-business models.
The MLS antitrust cases often have a group-boycott
component.

Multiple Listing Service Antitrust Issues
 Complex—work with an antitrust expert.
 Market power for MLS entities.
 Discrimination against brokers employing certain business
models, including
 Office location (or existence)
 Full or part time
 Full service or partial service
 Pricing structure or discounts

 Commission splits
 Advertising or marketing practices

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What should we do?
Develop, follow, and enforce an antitrust compliance
policy for your organization.
Antitrust compliance training for employees or
members—it just takes one employee to take down an
organization under the antitrust laws.
Compete on the merits for the customer not at the
competitor.
Call me or another antitrust attorney with questions.

The Spirit of Antitrust and Competition
 Antitrust is full of jargon, economic theories, and legal

doctrines.
 It evolves, sometimes quickly, in a common-law way
that is attached to both academic theory and
economics.
 Cases and doctrine merely reflect how courts at that
point decide to address specific types of challenged
conduct.
 The doctrine is important, but it merely serves an
underlying spirit.

 To determine whether an action fits within the spirit of

antitrust and competition, ask whether it adds
competition to the world, or subtracts it?
 Does the action add value to the customer? Or does it

instead merely make it more difficult for a competitor to
compete? Does it harm the customer?

 In most cases, the answer to the bolded question will

determine whether you have an antitrust violation.
 It isn’t often an easy question to answer, but it is always
the first question I ask myself when presented with a
set of facts.

 Compete by adding value for your customer, or do a

better job letting your customer know about the value
you can provide.
 Resist the temptation to direct your actions toward
your competitors—in either a collusive or malicious
way.
 Your competitor is neither your enemy nor your
friend—direct your energies toward the customer.


The End
Any questions?


Antitrust and real estate

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