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04/11/2008
| VOW Policy: Worth Fighting For -- News Analysis NAR could face a legal battle with the federal government over whether brokers can choose to keep their listings off of others’ Web sites (WASHINGTON, D.C.) May 11, 2005 -- An antitrust investigation by the U.S. Department of Justice into the National Association of REALTORS’® virtual office Web site (VOW) policy has been proceeding for 20 months now and could come to a resolution soon. The investigation could conclude that NAR’s VOW policy hands brokers appropriate control over how their listings are marketed on the Internet, including the right to decide whether or not to allow other brokers to post their listings on their VOW. But it’s also possible that the investigation could close with a lawsuit against NAR as the federal government seeks to change the provision in the policy that lets brokers control on whose VOW their listings appear. A lawsuit by the federal government is a serious matter, and NAR continues to cooperate with the department in its investigation to avoid that result, says Laurie Janik, NAR general counsel, who will meet again today with Department of Justice attorneys in Washington, D.C., who are conducting the investigation. At the same time, NAR stands behind its VOW policy as both legal and necessary to the right of sellers and the real estate professionals they work with to decide where their listings are shown on the Internet. “A fundamental issue is at stake here,” says NAR President Al Mansell. “We believe real estate professionals should retain the right to control whether and how their own listings may be used or displayed by other real estate professionals. A broker’s decision to participate in the MLS should not require that the broker also consent to the use of his or her listings by competitors in any way whatsoever. Should the Department of Justice seek to order NAR to eliminate the opt-out provision in its VOW policy, that move would violate these basic rights and we are confident a court of law will uphold our view on this matter.” How did we get to this point, and what does it mean to you if DOJ proceeds with a lawsuit? Conducting business online The NAR Board of Directors passed its VOW policy in May 2003 after more than a year of research and debate within the industry. The action was intended to meet a pressing need at that time for a clearly stated policy governing the display of MLS content on VOWs around the country. VOWs are Web sites operated by MLS participants that enable the participants to provide real estate brokerage services over the Internet. In a way that tries to simulate the experience in a bricks-and-mortar brokerage office, customers accessing VOWs can search and view MLS data after registering and providing their name and e-mail address. Data from MLSs flow directly into VOWs and VOW operators are permitted to display most MLS data fields with the exception of information intended only for other brokers, such as showing instructions and broker-to-broker offers of compensation. VOWs differ slightly from brokers’ use of MLS data to advertise listings of other brokers on their Web sites, through what are known as Internet data exchanges (IDX) sites. In an IDX display, fewer fields of data for each listing may be posted online, and consumers are free to browse the listings without registering as a customer with the IDX host. And, as with any advertising medium, and as required by law, brokers maintain the right to decide on which, if any, IDX displays of other brokers their listings appear. Today, IDX displays of listings are the dominant method through which brokers share their listings with one another over the Internet. A 2004 survey of MLSs by the Center for REALTOR Technology found about 27 percent of brokers used IDX, up from about 25 percent in 2003. By comparison, VOWs appear to comprise a much smaller percentage of the market, according to industry analysts, though exact numbers are hard to determine because not everyone defines a VOW in the same way. Opt-out and restraint of trade Until it concludes its investigation, it’s impossible to know what anti-competition issues, if any, DOJ sees behind NAR’s VOW policy. But the policy’s opt-out provision as a restraint on trade is likely to be at the heart of any concerns it has, say NAR analysts. Under the VOW policy, brokers can choose from two opt-out options: -- A blanket opt-out, in which listing brokers allow no display of company listings on any VOW, and, -- A selective opt-out, in which brokers decide on which VOWs their listings can appear. Antitrust issues arise more acutely from selective opt-outs because of the potential for broker agreement about particular VOWs to which their “opt out” may apply, NAR analysts say. DOJ appears to believe that letting brokers decide on which VOWs their listings may be posted could impact the ability of some VOW operators to compete in the real estate marketplace, NAR analysts say. From DOJ’s perspective, letting brokers decide on which VOWs their listings appear could be seen as unlawful even if brokers who “opt out” do so completely independently, and without acting in agreement with other brokers to prohibit selected VOW operators from displaying their listings. The opportunity for brokers to act in agreement has been a concern of NAR leaders from the start of their deliberations on VOWs, says Janik, and it’s the reason that communications about the policy issued by NAR have emphasized the need for brokers to act independently in choosing to opt out, or not. To guard against brokers colluding against certain VOW operators, either in appearance or fact, NAR‘s policy of selective opt-outs requires brokers to keep opt-out decisions private. Brokers must send a private communication to a VOW operator, prohibiting the display of the broker’s listings. “We agree that, if brokers collectively agree to withhold listings from VOW operators, that would be illegal,” says Janik. “But the VOW policy expressly prohibits that.” In any case, most brokers will likely want their listings displayed as widely as possible and thus available to consumers visiting all VOWs, say NAR analysts. In other words, the opt-out provision is a safety valve that brokers are likely to use only rarely. The policy puts the onus for action on brokers who don’t want their listings displayed rather than on brokers who want to stay in. Under the policy, brokers are in by default and it’s up to them to say otherwise. That said, there will always be sellers and brokers who want their listings—or certain data about their listings—kept off competing brokers’ VOWs. “You can imagine that some brokerages won’t want to have their listings attract customers to a VOW operator that would otherwise have gone to them,” says Janik. “Why would a brokerage want to help a competitor compete against it with its own listings?” More fundamentally, though—and brokers made this clear during debate on the VOWs policy—not having an opt-out option would leave brokers that don’t want to participate no choice but to pull out of the MLS. “That’s clearly a bad thing,” says Janik. “Losing brokers saps the vitality of the MLS, and everyone who knows the residential real estate industry knows the MLS is a good thing.” A good thing and also a fragile thing, because at its heart, the MLS can be successful only if it’s collaborative spirit is maintained, says Mansell. “MLSs are not public utilities,” he says. “They are private data bases created, maintained, and paid for by real estate professionals to help their clients buy and sell property, and nobody wants to do anything that strikes at the trust and collaborative spirit necessary to sustain this system.” What this means for you What lies ahead for NAR and its members should DOJ move forward with a lawsuit? For REALTORS, nothing will change in the next several months. The VOW policy remains voluntary, and although some 200 REALTOR associations at the local level have adopted it, there are few VOWs operating among the membership of those associations. These associations are free to continue enforcing the policy until they’re told otherwise by DOJ, should the government sue NAR and prevail in the lawsuit. Nor would there be anything prohibiting associations from adopting the policy while a lawsuit proceeds, although they would have to take that action with the understanding that DOJ, should its view prevail, could later direct them to drop the opt-out portion of the policy. Mandatory adoption by all associations, a key feature of the VOW policy, has been delayed twice by NAR’s Board of Directors because of the DOJ investigation. Currently, associations are required to adopt the policy by July 1, 2005, but that deadline will likely be pushed back another six months or a year if DOJ proceeds with the lawsuit, say NAR analysts. Brokers belonging to associations with no VOW policy in place would continue dealing with VOWs in an unregulated environment, as they are now. Certainly, that’s not what many brokers want to hear. “No one wants to continue operating in a cloud of uncertainty,” says Laurie Janik, NAR general counsel. “The desire for clarity is what drove the development of the VOW policy in the first place.” But NAR has little choice but to keep policy adoption voluntary until the legality of the policy is settled, says Janik. Lawsuit outcome If NAR is sued by the federal government, it’s likely to take a year or more to get a ruling in the case, which is typical in antitrust lawsuits, NAR analysts say. Once a ruling is made, the losing side has the option to appeal, which could push final resolution back another year. Whether NAR would appeal after a loss at the trial level would depend on the nature of the decision. If, for example, the DOJ challenges three to four aspects of the VOW policy and the court finds only one in violation, and the one provision isn’t seen as crucial to the integrity of the policy, NAR might simply eliminate the offending provision from the policy, NAR analysts say. Or, if the court specifies reasons for finding one of the provisions in violation of antitrust laws, and NAR could address the court’s concerns without changing the character of the policy, it could choose to do that. (For details on how a lawsuit could proceed, see “Legal wrangling 101” below) In whatever manner the case proceeds, the end result could mean removal of the opt-out provision or changing it in such a way that the effect would be the same as removal. Since VOWs today represent only a fraction of the displays through which brokers make listings accessible, a loss in the courts may not measurably impact consumers initially, because the ruling would have little impact on consumers’ ability to get listing information online. But as a matter of principle, a loss in the courts would be a tremendous blow to the collaborative character of the MLS, says Laurie Janik, NAR general counsel. Should brokers—even if only a small minority—quit the MLS rather than relinquish their right to keep their listings off of some or all VOWs, the rationale of the MLS would be undermined. “We can’t take for granted the integrity of the MLS system, which since its birth 120 years ago has been based on voluntary participation by real estate professionals,” says Mansell. That’s why NAR is prepared to fight in court to preserve brokers’ opt-out rights. “We owe it to our members and their customers to obtain a decision from a court on the legal merits of the case,” says Mansell. “Some principles are worth fighting for, and this is one of them.” Legal wrangling 101 How might an antitrust lawsuit by the U.S. Department of Justice against the opt-out provision in NAR’s virtual office Web site (VOW) policy unfold? For NAR, it would unfold in three stages: 1) answering the federal government’s complaint, 2) preparing for trial, 3) and, if necessary, appealing the trial court ruling. Answering the complaint Who. The complaint would be filed by the antitrust division within DOJ. Where. The complaint would most likely be filed in the Federal District Court, District of Columbia, because NAR’s Washington, D.C. office gives jurisdiction in the case to that court. The Federal District Court for the Nothern District of Illinois also has jurisdiction because of NAR’s headquarters in Chicago. But D.C. is seen as the likelier venue in part because DOJ is headquartered there. What. The DOJ complaint would include statements of fact concluding violation of the law. In its answer, NAR will go through each allegation and either admit or deny the facts and then defend its position. When. NAR will have a specified period of time to file its answer, typically around 30 days. That can be extended, generally by another 30 days. Preparing for trial Discovery. This period starts after NAR files its answer. In this phase, both sides can request documents and depose witnesses and ask questions of the other side. Disputes can arise during this process and, in some cases, require one side to go back to the court to compel the other side to release information. In this case, few disputes about the underlying facts are expected, because NAR and DOJ have been dealing with each other for 18 months and extensive information gathering has already occurred. But both sides will undoubtedly develop their own economic analyses of the impact of the VOW policy, which are likely to have substantial differences. Filing for summary judgment. Both DOJ and NAR could file motions for summary judgment once NAR answers the allegations in the complaint. Summary judgment is attractive to both sides because it can save the expense of a trial. A summary judgment can be granted if there are no disputed facts in the case. Summary judgment denial. In this case, the court is unlikely to approve summary judgment, because it’s not clear there are no disputed facts. As noted above, DOJ and NAR will each likely dispute the economic analyses offered by the other. In this example, a trial will involve a considerable “war over economic analyses,” NAR analysts say. Appealing the decision Adverse ruling. In a decision against NAR, the court would likely issue an order directing NAR to modify its VOW policy to eliminate the opt-out provision, or otherwise create a fix that eliminate that or other provisions the court found unlawful. Factors in an appeal. Whether NAR would appeal after a loss at the trial level would depend on the nature of the decision. If, for example, the DOJ challenges three to four aspects of the VOW policy and the court finds only one in violation, and the one provision isn’t seen as crucial to the integrity of the policy, NAR might simply modify the policy to amend that one provision, NAR analysts say. Or, if the court specifies reasons for finding one of the provisions in violation of antitrust laws, and NAR could fix that provision without changing the character of the policy, it could choose to do that. If the court declares that the VOWs opt-out provision to be a restraint on trade, a position NAR rejects, the association is more likely to file an appeal. A DOJ appeal. The right to appeal extends to DOJ as well if the ruling goes against its position. If NAR prevails and DOJ declines to appeal, or if DOJ appeals and loses, NAR would be free to proceed with its plans to make its VOW policy mandatory, and would set a deadline to that effect. -- Robert Freedman, REALTOR® Magazine Online |
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