antitrust and real estate

Antitrust and Real EstateCalifornia Association of Realtors, Legal Affairs

ForumJanuary 24, 2014

Jarod M. Bona, DLA Piperwww.TheAntitrustAttorney.com

Jarod M. Bona www.TheAntitrustAttorney.com

Introduction1. The basics of antitrust law

2. Real-estate-specific issues

3. The spirit of antitrust and competition


US Antitrust Basics

Antitrust prohibits unreasonable restraints on trade.


US Antitrust BasicsWhy 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 BasicsCriminal Violations

-Imprisonment of up to 10 years-Fines of up to $100 million for

corporations and $1 million for individualsCivil Lawsuits

-Automatic treble damages-Injunctive relief-government civil actions-private lawsuits, including class actions


US Antitrust BasicsSherman 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 BasicsSherman 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 BasicsContract, Combination or Conspiracy

Written agreementsOral agreementsAgreements implied from circumstantial

evidenceConduct consistent with conspiracyOpportunity or motive to conspireNo independent business explanationBe careful at trade-association meetingsCommunication and information exchange among

competitors



Per Se ViolationsIllegal regardless of the reason for the activity or

whether there was any competitive harmAlmost exclusively horizontal conduct—

agreements among competitors.Examples: Price-fixing, group boycotts, dividing

markets or customers, rigging bids, and certain forms of tying.



Most Common Per Se ViolationsPrice 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.



Rule of ReasonMost 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.



Monopolization, Attempted Monopolization, and Conspiracy to MonopolizeMonopolization:

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 BasicsSherman 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, market-allocation, and bid-rigging.


US Antitrust BasicsAntitrust 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 BasicsInformation 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 BasicsTrade 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 BasicsFederal 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 IssuesWhy 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.


Real-Estate Antitrust IssuesFixing Prices—Per Se Antitrust

ViolationDo 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.


Real-Estate Antitrust IssuesFixing 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).


Real-Estate Antitrust IssuesAllocating 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.


Real-Estate Antitrust IssuesBid-Rigging—Per Se Antitrust

ViolationBid Rotation: Competitors agree to

take turns being the low bidder.Bid Suppression: Competitor agrees

not to bid.Complementary Bid: Competitor

Agrees to bid high.


Real-Estate Antitrust IssuesBid-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.


Real-Estate Antitrust IssuesGroup Boycotts

Per se antitrust violations (generally) when they involve 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.


Real-Estate Antitrust IssuesMultiple Listing Service Antitrust Issues

Complex—work with an antitrust expert.Market power for MLS entities.Discrimination against brokers employing certain

business models, includingOffice location (or existence)Full or part timeFull service or partial servicePricing structure or discountsCommission splitsAdvertising or marketing practices


Real-Estate Antitrust IssuesWhat 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 CompetitionAntitrust 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.


The Spirit of Antitrust and CompetitionTo 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.


The Spirit of Antitrust and CompetitionCompete 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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