UNDERSTANDING ANTITRUST LAWS Jenny Pakula, J.D. Vice President Legal Affairs & Business Development Oregon Association of REALTORS Antitrust Law The purpose of the Antitrust laws is to promote competition in the marketplace. Competition benefits consumers by keeping prices low and the quality of goods and services high. Federal Antitrust Law Sherman antitrust statute prohibits any contract, combination, or conspiracy which: Unreasonably restrains trade Tends toward monopolization of a market Discriminates with an anti-competitive effect Constitutes an unfair or deceptive trade practice Most states have a Little Sherman Act 1
Violations Violations Per se (illegal on the face) Anti-competitive effect need not exist, only an agreement is needed. Example: verbal or written agreement between two competitors to fix prices Rules of Reason Court determines whether the restrictive practice imposes an unreasonable restraint of trade Price Fixing Conspiracies to fix prices (e.g. commissions or fees) Per se violation meaning the court doesn t care why you did it. Beware of variable rate commissions Group Boycotts Against Competitors Group boycotts Per se violation Two or more firms agree not to cooperate or to cooperate on less favorable terms with a third firm Limited service brokerage Commissions discrimination IDX & VOWs Making false or disparaging remarks or comparisons about competitors creates evidence of boycott 2
Group Boycotts Against Service Providers Second verse, same as the first Advertising providers Lockbox vendors Inspectors, appraisers and the like The difference between market forces and a conspiracy is a loud mouth Tying Agreements Monopolistic behavior Requires market dominance Requires two distinct products You get A only if you also agree to B Re-list agreements Board membership and MLS REALTOR organizations win some and lose some Board Interaction Participation in board meetings Make sure board is not a walking conspiracy Some subjects are just off limits Be careful discussing mixed subjects Use and abuse of Code of Ethics Misuse of Code to harm competitors Use of Code to dictate business practices 3
The Jack Foley Case Jack Foley was the incoming President of the Baltimore Maryland Association of REALTORS He held a reception for incoming Directors at his house to build his Leadership Team He decided to share his reasons for raising the commission rate charged to sellers, quoting market forces and the need to maintain his bottom line The Jack Foley Case What Happened Next Two years passed Two other REALTORS who had been present at the reception also raised their commission rates A complaint was filed by local citizens concerned about the high rate of commissions charged Jack Foley was arrested and handcuffed at his house in front of his children Headline in the Baltimore News REALTORS Conspire to Rip Off Public Sentenced to 3 months in jail and fine of $100,000 Spent over $750,000 in defense costs, most of which were not covered by insurance Penalties Civil: Pay three times the plaintiff s actual damages Pay plaintiff s attorney fees Court supervision of your business for up to 10 years Criminal: Up to 3 years in prison plus a substantial fee 4
Importance of Antitrust Compliance Brokers must have an office policy Antitrust liability cannot be avoided by a brokerage simply because a price fixing scheme of the sales associates was not authorize Ignorance or lack of intent are never an excuse for any violation Keys to Avoiding Antitrust Allegations Regarding Real Estate Commissions Establish compensation policies independently Insure that when the company s brokers or salespeople discuss fees with clients, they clearly convey that the company prices its services independently Dangerous Language This is the rate every firm charges I d like to lower my commission but no one else in MLS will show your house unless the commission is X% I have to charge you this rate because this is the rate the board of REALTORS set for all real estate agents Before you list with XYZ Realty you should know that nobody works on their listings 5
Focus on Positive Aspects of Your Business Practices I have a marketing program that gets results. Let me explain my sixty day marketing plan and all it includes Our company has been in business for Y years and has serviced thousands of clients with the highest level of professionalism We choose to charge X% and our clients have chosen to pay X% because of the service provided 6