Antitrust vs. Emerging Business Models: Issues to Consider and Avoid by Kristy L. Harrington, Esq., F.A.R. Senior Counsel Change is often difficult to accept. However, in Florida‟s rapidly-revolving real estate market, it is pretty much the rule, rather than the exception. One prevalent and current trend is the influx of brokerages practicing under various, new business models, such as for-sale-by- owner, limited service, MLS-only, and e-brokers, to name a few. You may disagree with, or you may embrace, these new business models. Either way, as the Department of Justice and the Federal Trade Commission have made quite clear, these new models create competition in the industry and this competition, according to the Department of Justice and Federal Trade Commission, is good. Working to destroy new business models and remove them from the industry, on the other hand, can open the door to an investigation for a possible antitrust violation. The concept of antitrust basically relates to one‟s attempts to limit, or do away with, competition by engaging in various tactics designed to chase the competition away or otherwise put them out of business. Obviously, if your company is simply doing better than your competitor‟s and your competitor closes down, you are doing something right and your competitor was not. However, if you conspire with another company (or companies) to somehow put your competitor out of business, such as through price fixing or a group boycott, you may have engaged in an antitrust violation punishable under federal and/or state law. One important point to remember is that the mere appearance of an antitrust violation is all it takes to get the Department of Justice‟s attention – you do not actually have to actively engage in antitrust activity, or even have planned to do so. If a comment, action, policy, etc. could be interpreted as price fixing, a group boycott, or some other anti-competitive activity, then you may be inviting yourself to an investigation, regardless of what your intentions really were. As local Realtor association members, you must be concerned over your fellow members‟ reactions to the arrival of new, non-traditional business models. Many licensees innocently fail to realize when they have, or may have, engaged in some sort of anti-competitive violation. Accordingly, it is imperative that you are able to recognize how an activity, as well as how the perception of that activity, could be construed as a violation of federal or state antitrust law. This article should provide an overview of various practices to avoid, as everyone adjusts to our ever-changing real estate landscape and the new business models joining in it. Antitrust is a vast area of the law which can encompass many types of activity. Two prevalent issues to avoid in the real estate industry are group boycotting efforts and price fixing, which are discussed in more detail below. Both activities can be used in attempts to influence what business models survive in a given geographical location. Unfortunately, accidentally becoming associated with a boycott or a price fixing scheme is quite easy to do. Indeed, simply having a discussion with a competitor (i.e., a broker from a different company) about your dislike for a particular business model and/or how you would like to address the issue could be considered an antitrust violation. Remember, the mere appearance of, or potential for, an anti-competitive activity is all it takes to trigger legal problems down the road. For that reason, you should always avoid activities such as: (1) having discussions with competitors about business models and/or discussing the commission rates of individual brokers; (2) allowing others to engage in conversations at meetings or gatherings regarding brokers with alternative business practices, or (3) crafting rules or regulations that could be seen as trying to keep a broker from joining your association or MLS. Group Boycotts The essential element of a group boycott is collective action. A group boycott occurs when there is agreement among competing brokers or companies to avoid working with another competitor, thereby reducing that competitor‟s business. A good rule of thumb is to never allow any discussions between competing brokers about actions that would, or could, negatively impact another broker‟s business. For example, two or more brokers are having lunch together. During lunch, they all agree that it is not in their best interests to show houses listed by the new “discount” broker in town. This is a group boycott. It is also detrimental to those brokers‟ clients, who will not have the benefit of viewing additional listings while they search for a home. As a more general example, the appearance of a group boycott could be created simply by Broker A casually commenting to his fellow brokers at his lunch table that, “we‟re going to drive that new „discount‟ broker right out of town!” or “we need to stop these kinds of companies!” Although the brokers may not have formulated a plan as to how to drive the new broker out, Broker A‟s act of making either statement could suggest intent to engage in anti- competitive activity. Moreover, if Broker A‟s statement leads his lunchmates to work to achieve the common goal of driving the new broker away, a group boycott is born. At meetings or gatherings, do not allow discussions about another broker‟s business model. All such conversations should be prohibited, whether in a casual or a formal setting. If you are present at a meeting or gathering where some of the participants begin discussing new business models or any brokers engaged in them, immediately turn the conversation away from such discussion. If you are unsuccessful in changing the conversation, excuse yourself from the room as quickly as possible. If the meeting is being recorded, insist that your leaving, as well as your reason for leaving, be noted on the record. Along these same lines, if another real estate licensee makes a comment to you or tries to begin a conversation about a new business model (or a broker engaging in it), be sure you are able to explain why the conversation must stop. The reason, of course, is to avoid even giving the appearance of engaging in anti-competitive activity, whether you ever thought of doing so or not. Local association employees should understand how to respond if a licensee complains about a broker who is “doing business differently.” If a licensee contacts the association, or you as an association leader, to complain about or “report” another broker‟s business model, simply advise him/her that they can file an ethics complaint against the other broker, so long as they believe the Code of Ethics was violated. The bottom line is that you should advise everyone acting on behalf of your association that they should never encourage group boycotting of any kind, be it over a particular broker or business model, or over a product or a service offered to the real estate community. This includes boycotts of other associations, as well as entities such as newspapers or the radio, where licensees may wish to advertise. For example, a boycotting conspiracy between associations could include two associations agreeing to exclude a third association from participation in a joint program or from use of particular products or services. An example of a boycott against a particular service may be two or more competitors agreeing to cease advertising in the local newspaper because they feel the paper charges too much, or because a “discount broker”/competitor also advertises in that publication. Price Fixing Price fixing is a multi-faceted concept which can occur in a number of ways. Foremost, remember that two or more competitors cannot engage in any conversations about their fees or other charges. Additionally, always avoid making, or allowing someone else to make, comments such as “everyone charges this rate,” or “the Board makes us charge this.” An association or MLS cannot agree with a neighboring association or MLS on how to set their dues or other fees. Pricing must always be done independently, because it is illegal for two or more competitors to come together and agree to set prices. You must also avoid any appearance that two or more competitors have worked together to set fees. For example, two leaders from neighboring associations are having dinner together and Association A‟s leader casually comments to Association B‟s leader that Association A is raising its fees. Shortly thereafter, Association B decides to raise its fees as well. The fact that the association leaders had their conversation suggests a price fixing conspiracy, regardless of whether Association B‟s fee increase had anything at all to do with that conversation. Additionally, an association or MLS cannot set unreasonable dues or fees in order to discourage membership by licensees in other parts of the state. If an association or MLS wishes to impose higher dues or fees on different classes of membership or MLS participation, it must be able to justify this activity. The mere perception that an association or MLS has created a barrier to membership by a particular broker, or group of brokers, is enough to spark an investigation. An important question to consider is “would an outsider perceive that policies are changed based on the circumstances?” Just as two or more associations or MLS‟s cannot agree to set dues or fees, two or more competing brokers cannot agree on a “standard” commission rate to charge their clients. This is impermissible because all commissions are negotiable between the broker and the seller. Of course, this also comes back to the concept that competitors cannot join together to set prices. Likewise, two or more competitors cannot agree to a set commission they will each offer to cooperating brokers in the MLS. This is true whether they set a general cooperating commission across the board, or whether they agree to each pay x% to all cooperating brokers, but to pay a lesser amount to Broker B, who practices under a new, non-traditional business model. (Note that the companies‟ agreement to set a lower cooperating commission for Broker B also suggests a boycott.) Avoid allowing anyone to make comments such as “everyone splits 50/50, so you should too,” or “by refusing to split 50/50, you‟re going against Board rules.” (It is, of course, also wrong to tell another broker‟s seller that no one will show or sell the seller‟s listing because of the particular commission split the seller has authorized.) Conclusion Considering the boom in the real estate industry over the last several years, it is highly probable we will continue to witness the emergence of many new and non-traditional business models. Hopefully, with diligence and attention to the day-to-day business practices you employ and endorse for others, you will avoid becoming associated with anti-competitive activity geared to affect these business models, or for any other purpose. Remember that if a particular activity could negatively affect another broker‟s business, it is likely something you want to avoid discussing with your competitors, much less engaging in yourself. Indeed, it is always best to remove yourself from any situation in which discussion of this sort arises. Staying alert to the various types of anti-competitive behavior and their potential warning signs is a valuable asset which can only assist in avoiding liability somewhere down the ever-changing real estate road.