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United States v. National Association of Realtors; Response to Public Comments on the Proposed Final Judgment

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Pursuant to the Antitrust Procedures and Penalties Act, 15 U.S.C. 16(b)-(h), the United States hereby publishes the public comments received on the proposed Final Judgment in United States v. National Association of Realtors, No. 05-C-5140, and the response to the comments. On October 4, 2005, the United States filed an Amended Complaint alleging that the National Association of Realtors (“NAR”) violated Section 1 of the Sherman Act, 15 U.S.C. 1, by adopting policies that suppress competition from real estate brokers who use password-protected “virtual office Web sites” or “VOWs” to deliver high-quality brokerage services to their customers. The proposed Final Judgment, filed on Start Printed Page 65617May 27, 2008, requires NAR to repeal the challenged policies and to adopt new rules that do not discriminate against brokers who use VOWs. Copies of the Amended Complaint, proposed Final Judgment, Competitive Impact Statement, Public Comments, the United States' Response to the Comments, and other papers are currently available for inspection in Suite 1010 of the Antitrust Division, Department of Justice, 450 5th Street, NW., Washington, DC 20530, telephone: (202) 514-2481, on the Department of Justice's Web site (http://www.usdoj.gov/​atr), and the Office of the Clerk of the United States District Court for the Northern District of Illinois. Copies of any of these materials may be obtained upon request and payment of a copying fee set by Department of Justice regulations.

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J. Robert Kramer II,

Director of Operations, Antitrust Division.

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United States District Court for the Northern District of Illinois, Eastern Division, United States of America, Plaintiff, v. National Association of Realtors, Defendant

[Civil Action No. 05 C 5140]

Judge Kennelly

Response of the United States to Public Comments on the Proposed Final Judgment

Table of Contents

I. Procedural History

II. Summary of the Allegations in the Amended Complaint

A. Overview

B. Multiple Listing Services

C. VOW Brokers

D. The Challenged Policies

III. Summary of Relief To Be Obtained Under the Proposed Final Judgment

IV. Standard of Judicial Review

V. Summary of Public Comments and the Response of the United States

A. Comments Submitted by Entities Operating VOWs

1. Comments Submitted by ZipRealty

2. Comments Submitted by Prudential Real Estate Services Company, LLC, and Prudential Real Estate Affiliates, Inc.

3. Comments Submitted by Home Buyers Marketing II

B. Comments Submitted by Exclusive Buyer Agents

C. Comments Submitted by MLS4owners.com

D. Comments That Do Not Address the Amended Complaint or Proposed Final Judgment

VI. Conclusion

Index to Comments

Attachment 1: Comments submitted by Zip Realty, Inc.

Attachment 2: Comments submitted by Prudential Real Estate Services Company, LLC, and Prudential Real Estate Affiliates, Inc.

Attachment 3: Comments submitted by Home Buyers Marketing II, Inc.

Attachment 4: Comments submitted by the National Association of Exclusive Buyer Agents.

Attachment 5: Comments submitted by the Buyer's Broker of Northern Michigan, LLC.

Attachment 6: Comments submitted by MLS4owners.com.

Attachment 7: Comments submitted by Realty Specialist, Inc.

Attachment 8: Anonymous comments from brokers in Montgomery County, Pennsylvania.

Attachment 9: Anonymous comments from broker in San Jose, California.

Pursuant to the requirements of the Antitrust Procedures and Penalties Act (“APPA” or “Tunney Act”), 15 U.S.C. 16(b)-(h), the United States responds to nine public comments concerning the proposed Final Judgment that has been lodged with the Court for eventual entry in this case. After review of the comments, the United States has concluded that the proposed Final Judgment, with minor modifications to which Defendant National Association of Realtors (“NAR”) has agreed, will provide an effective and appropriate remedy for the antitrust violation alleged in the Amended Complaint. The United States will move the Court for entry of the proposed Final Judgment on November 7, 2008, as ordered by the Court, after the comments and this Response have been published in the Federal Register, pursuant to 15 U.S.C. 16(d).

I. Procedural History

The United States brought this civil antitrust action against NAR on September 8, 2005, to stop NAR from violating Section 1 of the Sherman Act, 15 U.S.C. 1, by its suppression of competition from real estate brokers who use password-protected “virtual office Web sites,” or “VOWs,” to deliver high-quality brokerage services efficiently to consumers. On May 27, 2008, the United States and NAR reached a settlement. On that day, the United States filed a Stipulation and proposed Final Judgment to eliminate the likely anticompetitive effects of NAR's policies.

The United States and NAR have stipulated that the proposed Final Judgment may be entered after compliance with the APPA. Pursuant to that statute, the United States filed a Competitive Impact Statement (“CIS”) on June 12, 2008; the proposed Final Judgment and CIS were published in the Federal Register on August 14, 2008 [1] ; and a summary of the terms of the proposed Final Judgment and CIS, together with directions for the submission of written comments relating to the proposed Final Judgment, was published for seven days in the Washington Post, from June 27th to July 3rd, and in the Chicago Tribune, from July 7th to July 13th. NAR filed the statement required by 15 U.S.C. 16(g) on June 10, 2008.

The sixty-day public comment period ended on October 13, 2008. The United States received nine comments, which are addressed below.

II. Summary of the Allegations in the Amended Complaint

A. Overview

The United States' Amended Complaint challenged policies adopted by NAR that restrain the ability of real estate brokers to use VOWs to serve their customers and clients. NAR is a trade association that promulgates rules that govern the operation of its approximately 800 affiliated multiple listing services (“MLSs”) across the United States. The Amended Complaint alleged that, through its “VOW Policy,” adopted on May 17, 2003, and its “Internet Listings Display Policy” (“ILD Policy”), adopted on September 8, 2005 (collectively, the “Challenged Policies”), NAR suppressed new and efficient competition and harmed consumers. By enjoining NAR from permitting its affiliated MLSs to adopt the Challenged Policies, innovative broker members of NAR's 800 affiliated MLSs would be free to use VOWs to provide their customers better service at a lower cost.

B. Multiple Listing Services

MLSs are joint ventures among virtually all residential real estate brokers operating in local or regional areas. NAR's MLS rules require member brokers who have been hired by home sellers to market their properties to submit information about those listed properties to the MLS.[2] The MLS Start Printed Page 65618compiles this information into a database containing all properties listed for sale through member brokers. Member brokers can then search the listings database for properties that prospective buyers might be interested in purchasing.

As alleged in the Amended Complaint, MLSs possess substantial market power because brokers regard participation in the MLS to be critical to their ability to effectively compete with other brokers for home buyers and sellers. By participating in the MLS, brokers can promise seller clients that the information about the seller's property will immediately be made available to all other brokers in the area. Brokers who work with buyers can likewise promise them access to the widest possible array of properties listed for sale through brokers. To compete successfully, a broker must be an MLS member. To be a member, a broker must adhere to any restrictions imposed by the MLS.

C. VOW Brokers

NAR's rules permit brokers to provide to prospective buyers information from the MLS about all properties that satisfy the buyers' expressed needs or interests. Brokers typically give this information to buyers by hand, mail, fax, or e-mail. While many brokers who use VOWs (“VOW brokers”) operate in most respects like other brokers, they differ from traditional brokers in their use of their password-protected VOWs to provide listings to consumers. A VOW broker's customers can search for and retrieve MLS listings information on the broker's VOW, rather than relying on the personal involvement of the broker in all stages of the process of finding a home.

As alleged in the Amended Complaint, VOWs help brokers operate more efficiently and increase the quality of services they provide. For example, VOWs enable consumers to search for and retrieve relevant MLS listings and educate themselves without the broker's expenditure of time. As a result, a VOW broker can spend less time, energy, and resources educating customers. Lower costs and increased productivity have enabled some VOW brokers to offer commission rebates to their buyer customers.

Some VOW brokers have differentiated themselves further from traditional brokers by focusing solely on the high-technology aspects of brokerage services that can be delivered over the Internet. Like other VOW brokers, these “referral VOWs” allow prospective buyers to search for homes online, but when buyers are ready to tour homes, the referral VOW broker directs them to other brokers or agents who can guide them through the negotiating, contracting, and closing process. The customers of referral VOWs can benefit from the specialized service provided by the referral VOW broker and the broker or agent to whom the customer is referred. In some instances, referral VOW brokers have also offered commission rebates or other financial benefits to their customers.

D. The Challenged Policies

As alleged in the Amended Complaint, NAR's Challenged Policies discriminate against and restrain competition from VOW brokers. They do so, most significantly, by denying VOW brokers the ability to use their VOWs to provide customers access to the same MLS listings that the customer could obtain from all other brokers by other delivery methods. Under the “opt-out” provisions of the Challenged Policies, NAR permitted brokers to withhold their seller clients' listings from display on VOWs. NAR's MLS rules otherwise do not permit one broker to withhold listings from another broker based on how that competitor conveys his or her listings to customers. By blocking VOW brokers from allowing their customers to review the same set of MLS listings that traditional brokers can provide to their customers, NAR's rules restrained VOW brokers from competing in a way that is efficient and desired by many customers.

The Amended Complaint also alleged that the Challenged Policies restrained competition from referral VOW brokers. NAR's May 17, 2003 VOW Policy prohibited referral VOW brokers from receiving any compensation for the referral of a customer to another broker. NAR's rules do not otherwise restrict broker-to-broker referrals. In its September 8, 2005 ILD Policy, NAR revised and reinterpreted its rule on MLS membership to prevent referral VOW brokers from becoming members of the MLS and obtaining access to MLS listings.

Finally, the Amended Complaint challenged restrictions on VOW brokers' advertising activities and provisions that permitted MLSs to degrade the data the MLS provided to VOW brokers.

III. Summary of Relief To Be Obtained Under the Proposed Final Judgment

As explained in the CIS, the proposed Final Judgment eliminates the likely anticompetitive effects of NAR's Challenged Policies, prevents the recurrence of anticompetitive effects associated with NAR's Challenged Policies, and enjoins NAR from taking future actions to discriminate against VOW brokers. The proposed Final Judgment requires NAR to repeal its Challenged Policies and to replace them with a “Modified VOW Policy” (attached to the proposed Final Judgment as Exhibit A) that makes it clear that brokers can operate VOWs without interference from their rivals.[3] With respect to any issues concerning the operation of VOWs that are not explicitly addressed by the Modified VOW Policy, the proposed Final Judgment imposes a general obligation that NAR and its MLSs not discriminate against VOW brokers.[4]

Under the Modified VOW Policy, brokers are not permitted to opt out and withhold their seller clients' listings from display on VOWs.[5] The Modified VOW Policy instead requires MLSs to provide to VOW brokers, for display on their VOWs, all MLS listings information that brokers can give customers by all other methods of delivery.[6]

The Modified VOW Policy that NAR must adopt under the proposed Final Judgment also permits brokers to operate referral VOWs. Some existing referral VOWs have established relationships with Internet companies or other businesses and consequently have developed significant numbers of potential buyer leads. These referral VOWs educate those buyers on their VOWs and then refer those buyer customers to other brokers once the customers have selected properties in which they are interested and are ready to enter the negotiating, contracting, and closing process. The Modified VOW Policy expressly prohibits MLSs from impeding VOW brokers from referring customers to other brokers for compensation.[7]

The Modified VOW Policy allows a broker, who independently qualifies for MLS membership by actively endeavoring to provide in-person brokerage services to buyers and sellers, to either operate its own referral VOW or contract with an “Affiliated VOW Partner” (“AVP”) to operate a referral VOW on its behalf and subject to its supervision and accountability. Under the proposed Final Judgment, a broker who actively endeavors to obtain some seller clients for whom it will market properties or some buyer clients to whom it will offer in-person brokerage services can become a member of the Start Printed Page 65619MLS and use MLS data as a member, including to populate its referral VOW.[8]

Additionally, such a broker can designate an entity (even another broker) as its AVP, allowing the AVP to receive MLS listings data to operate the VOW on behalf of the designating broker.[9] The MLS must provide listings to the AVP on the same terms and conditions as it would provide listings to the designating broker, although the AVP's rights to the data would be entirely derivative of the rights of the designating broker.[10] An AVP, just like any broker, can, through Internet marketing or other relationships, establish sources of potential buyer leads. The designating broker can take some or all of the buyer leads from its AVP on whatever compensation terms the designating broker and AVP agree to.[11]

Finally, the Modified VOW Policy prohibits MLSs from using an inferior data delivery method to provide MLS listings to VOW brokers and from unreasonably restricting the advertising and co-branding relationships VOW brokers establish with third parties.

IV. Standard of Judicial Review

Upon the publication of the public comments and this Response, the United States will have fully complied with the APPA and will move the Court for entry of the proposed Final Judgment as being “in the public interest.” 15 U.S.C. 16(e), as amended. Because the United States frequently files antitrust actions and consent judgments in the District of Columbia, the Court of Appeals for the District of Columbia Circuit has been the primary source of judicial interpretations of the APPA. No decision from a court in the Seventh Circuit has considered the APPA's requirements.

In making the “public interest” determination, the Court should review the proposed Final Judgment in light of the violations charged in the Amended Complaint, see, e.g., Massachusetts School of Law at Andover, Inc. v. United States, 118 F.3d 776, 783 (D.C. Cir. 1997) (quoting United States v. Microsoft Corp., 56 F.3d 1448, 1462 (D.C. Cir. 1995)), and be “deferential to the government's predictions as to the effect of the proposed remedies.” Microsoft, 56 F.3d at 1461.

The APPA states that the Court shall consider in making its public interest determination:

(A) The competitive impact of such judgment, including termination of alleged violations, provisions for enforcement and modification, duration of relief sought, anticipated effects of alternative remedies actually considered, whether its terms are ambiguous, and any other competitive considerations bearing upon the adequacy of such judgment that the court deems necessary to a determination of whether the consent judgment is in the public interest; and

(B) The impact of entry of such judgment upon competition in the relevant market or markets, upon the public generally and individuals alleging specific injury from the violations set forth in the complaint including consideration of the public benefit, if any, to be derived from a determination of the issues at trial.

15 U.S.C. 16(e). See generally United States v. SBC Commc'ns, Inc., 489 F. Supp. 2d 1, 11 (D.D.C. 2007) (concluding that the 2004 amendments to the APPA “effected minimal changes” to the court's scope of review under APPA, and that review is “sharply proscribed by precedent and the nature of Tunney Act proceedings”).[12]

As the Court of Appeals for the District of Columbia Circuit has held, under the APPA a court considers, among other things, the relationship between the remedy secured and the specific allegations set forth in the United States' complaint, whether the decree is sufficiently clear, whether enforcement mechanisms are sufficient, and whether the decree may positively harm third parties. See Microsoft, 56 F.3d at 1458-62 (D.C. Cir. 1995). With respect to the adequacy of the relief secured by the decree, a court may not “engage in an unrestricted evaluation of what relief would best serve the public.” United States v. BNS, Inc., 858 F.2d 456, 462 (9th Cir. 1988) (citing United States v. Bechtel Corp., 648 F.2d 660, 666 (9th Cir. 1981)); see also Microsoft, 56 F.3d at 1460-62. Courts have held that:

[t]he balancing of competing social and political interests affected by a proposed antitrust consent decree must be left, in the first instance, to the discretion of the Attorney General. The court's role in protecting the public interest is one of insuring that the government has not breached its duty to the public in consenting to the decree. The court is required to determine not whether a particular decree is the one that will best serve society, but whether the settlement is “within the reaches of the public interest.” More elaborate requirements might undermine the effectiveness of antitrust enforcement by consent decree.

Bechtel, 648 F.2d at 666 (emphasis added) (citations omitted). Cf. BNS, 858 F.2d at 464 (holding that the court's “ultimate authority under the [APPA] is limited to approving or disapproving the consent decree”); United States v. Gillette Co., 406 F. Supp. 713, 716 (D. Mass. 1975) (noting that, in this way, the court is constrained to “look at the overall picture not hypercritically, nor with a microscope, but with an artist's reducing glass”). See generally Microsoft, 56 F.3d at 1461 (discussing whether “the remedies [obtained in the decree are] so inconsonant with the allegations charged as to fall outside of the ‘reaches of the public interest’ ”). In making its public interest determination, a district court “must accord deference to the government's predictions about the efficacy of its remedies, and may not require that the remedies perfectly match the alleged violations because this may only reflect underlying weakness in the government's case or concessions made during negotiation.” SBC Commc'ns, 489 F. Supp. 2d at 17; see also Microsoft, 56 F.3d at 1461 (noting the need for courts to be “deferential to the government's predictions as to the effect of the proposed remedies”); United States v. Archer-Daniels-Midland Co., 272 F. Supp. 2d 1, 6 (D.D.C. 2003) (noting that the court should grant “due respect to the [United States'] prediction as to the effect of proposed remedies, its perception of the market structure, and its views of the nature of the case”).

Court approval of a consent decree requires a standard more flexible and less strict than that appropriate to court adoption of a litigated decree following a finding of liability. “[A] proposed decree must be approved even if it falls short of the remedy the court would impose on its own, as long as it falls within the range of acceptability or is ‘within the reaches of public interest.’ ” United States v. Am. Tel. & Tel. Co., 552 F. Supp. 131, 151 (D.D.C. 1982) (citations omitted) (quoting United States v. Gillette Co., 406 F. Supp. 713, 716 (D. Mass. 1975)), aff'd sub nom. Maryland v. United States, 460 U.S. 1001 (1983); see also United States v. Start Printed Page 65620 Alcan Aluminum Ltd., 605 F. Supp. 619, 622 (W.D. Ky. 1985) (approving the consent decree even though the court would have imposed a greater remedy). To meet this standard, the United States “need only provide a factual basis for concluding that the settlements are reasonably adequate remedies for the alleged harms.” SBC Commc'ns, 489 F. Supp. 2d at 17.

Moreover, the district court's role under the APPA is limited to reviewing the remedy in relationship to the violations that the United States has alleged in the Amended Complaint, and the APPA does not authorize the Court to “construct [its] own hypothetical case and then evaluate the decree against that case.” Microsoft, 56 F.3d at 1459. Because the “court's authority to review the decree depends entirely on the government's exercising its prosecutorial discretion by bringing a case in the first place,” it follows that “the court is only authorized to review the decree itself,” and not to “effectively redraft the complaint” to inquire into other matters that the United States did not pursue. Id. at 1459-60. As the District Court for the District of Columbia recently confirmed in SBC Communications, courts “cannot look beyond the complaint in making the public interest determination unless the complaint is drafted so narrowly as to make a mockery of judicial power.” SBC Commc'ns, 489 F. Supp. 2d at 15.

In the 2004 amendments to the APPA, Congress made clear its intent to preserve the practical benefits of utilizing consent decrees in antitrust enforcement, adding the unambiguous instruction “[n]othing in this section shall be construed to require the court to conduct an evidentiary hearing or to require the court to permit anyone to intervene.” 15 U.S.C. 16(e)(2). The language effectuated what the Congress that enacted the APPA in 1974 intended, as Senator Tunney then explained: “[t]he court is nowhere compelled to go to trial or to engage in extended proceedings which might have the effect of vitiating the benefits of prompt and less costly settlement through the consent decree process.” 119 Cong. Rec. 24,598 (1973) (statement of Senator Tunney).

V. Summary of Public Comments and the Response of the United States

The United States received nine comments during the sixty-day public comment period. Among the commentors were two significant VOW brokers and a real estate franchisor that operates VOWs for hundreds of its broker franchisees. These VOW operators are best positioned to evaluate the likely effects of the proposed Final Judgment on competition from VOW brokers, and none suggested that the public interest would not be served by entry of the proposed Final Judgment. On the contrary, ZipRealty, which founded its VOW-based brokerage in 1999 and currently operates in thirty-five major markets in twenty states, submitted its comment “in support of the [p]roposed Final Judgment” because it believes the proposed Final Judgment “favors public and consumer interests.” Real estate franchisor Prudential, which operates VOWs for 480 of its franchisees, also asserted in its comments that “entry of the Proposed Final Judgment is in the public interest” because it “resolve[s] the fundamental issues raised in the [United States' Amended] Complaint against NAR.”

Upon review and consideration of each of the nine comments, the United States believes that nothing in the comments suggests that the proposed Final Judgment is not in the public interest. Based on the comments, the United States, with the support of NAR, believes two minor modifications should be made to the Modified VOW Policy to eliminate any ambiguity and to effectuate the intention of the parties.[13] The United States identifies these minor modifications and summarizes and addresses each of the comments it received below.

A. Comments Submitted by Entities Operating VOWs

1. Comments Submitted by ZipRealty

ZipRealty is a VOW broker operating in thirty-five markets nationwide. It (along with eRealty, a company later purchased by Prudential) was one of the first two innovative brokers that, in 1999, launched VOWs as a way to provide better service to consumers at a lower price than many of its competitor brokers. It submitted comments (Attachment 1) supporting entry of the proposed Final Judgment, asserting that the proposed Final Judgment “favors public and consumer interests.” According to ZipRealty's comments, “had the proposed NAR policy challenged by the United States * * * been implemented, [ZipRealty's] business would likely have faced significant challenges.”

Based on its past experiences with MLSs that favored traditional, bricks-and-mortar brokers over VOW brokers, ZipRealty's comments caution that “it is essential that * * * MLSs reasonably interpret the terms of the Proposed Judgment and [Modified VOW] Policy to ensure that they apply the same policies, rules and regulations to Brokers operating VOWs as are applied to ‘traditional' Brokers, and that they do not subject Brokers operating VOWs to inappropriate and unreasonable additional costs, fees or restrictions not imposed on other Brokers.”

Under the proposed Final Judgment, NAR is required to direct its affiliated MLSs to adopt, maintain, act consistently with, and enforce the Modified VOW Policy.[14] It is also required to withhold insurance from and report to the United States the identity of any MLS that fails to do so.[15] NAR is also required to forward to the United States any communications it receives concerning any MLS's noncompliance with the terms of the proposed Final Judgment or Modified VOW Policy.[16] The United States believes that these provisions will cause MLSs to comply with the Modified VOW Policy and will provide the United States with the ability to detect whether MLSs are, in fact, complying. If MLSs fail to comply, the United States will be prepared to move to enforce the proposed Final Judgment in the event of NAR inaction, or to consider any additional antitrust enforcement activities, including suing the MLS directly, if necessary.[17]

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2. Comments Submitted by Prudential Real Estate Services Company, LLC, and Prudential Real Estate Affiliates, Inc.

Prudential Real Estate Affiliates is a real estate franchisor with over 600 broker franchisees across the United States. Prudential Real Estate Services Company operates Web sites, including VOWs, on behalf of 480 of Prudential's broker franchisees. These companies (“Prudential”) collectively submitted a lengthy set of comments on the proposed Final Judgment (Attachment 2).

Like ZipRealty, Prudential believes that entry of the proposed Final Judgment would be in the public interest. Prudential observes that the proposed Final Judgment, including the Modified VOW Policy resolves the “fundamental issues” raised in the United States Amended Complaint by eliminating a broker's ability to “opt out” of allowing VOW brokers to display the broker's clients' listings and by requiring MLSs to provide VOW brokers the same complete MLS listings that other brokers can give to their customers and clients by traditional delivery methods.

Prudential, however, asks that the United States use this Response to Public Comments “to clarify, or to provide interpretive guidance for certain provisions of the [p]roposed Final Judgment and the Modified VOW Policy.” Prudential then lists twelve areas on which it seeks clarification or interpretive guidance. The United States summarizes and responds to Prudential's twelve specific comments below.

(i) Minor Modification Warranted

Prudential raises two provisions that the United States agrees warrant a minor modification of the proposed Final Judgment. First, Prudential seeks clarification of the requirement in paragraph II.2.c.iv of the Modified VOW Policy that a VOW brokers' customers commit, through the terms of use, not to “copy, redistribute, or retransmit” any listings data they receive on the VOW. This provision protects the MLS from someone using a VOW not to purchase a property, but to access and sell the information found on a VOW to third parties. Prudential, however, believes that this requirement as currently written is too broad and would prevent the customer of a VOW broker from saving listings to an electronic property portfolio or from forwarding copies of any listings to spouses, friends, lenders, or others who are assisting the customer in his or her home purchase.

The United States agrees that paragraph II.2.c.iv of the Modified VOW Policy is too broad as currently written and could unreasonably discriminate against VOW brokers by preventing their customers from saving copies of listings in which they might have an interest or sharing listings with persons with whom they wish to consult in making a purchase decision. Customers of traditional, bricks-and-mortar brokers are not subject to the same limitations. NAR has agreed to a minor modification to paragraph II.2.c.iv to eliminate any unintended discriminatory effect.

Current version of paragraph II.2.c.iv: That the Registrant will not copy, redistribute, or retransmit any of the data or information provided.

Revised version of paragraph II.2.c.iv: That the Registrant will not copy, redistribute, or retransmit any of the data or information provided, except in connection with the Registrant's consideration of the purchase or sale of an individual property.

Second, Prudential discussed paragraph II.5.a of the Modified VOW Policy, which permits individual property sellers, concerned with the dissemination of information about their properties over the Internet, to direct that their listings or property addresses be withheld from the Internet. This provision also states that VOW brokers are permitted to provide withheld listings to customers by any other method of delivery such as e-mail or fax. Prudential points out that this provision, as written, does not explicitly authorize VOW brokers to provide withheld property addresses as well to customers using other delivery methods.

This result was unintended. The United States intended that a VOW broker be permitted also to provide customers the property addresses withheld from VOW display, by other methods of delivery. NAR has agreed to a minor modification to paragraph II.5.a to correct this oversight.

Current version of paragraph II.5.a: No VOW shall display the listings or property addresses of sellers who have affirmatively directed their listing brokers to withhold their listing or property address from display on the Internet. The listing broker or agent shall communicate to the MLS that a seller has elected not to permit display of the listing or property address on the Internet. Notwithstanding the foregoing, a Participant who operates a VOW may provide to consumers via other delivery mechanisms, such as e-mail, fax, or otherwise, the listings of sellers who have determined not to have the listing for their property displayed on the Internet.

Revised version of paragraph II.5.a: No VOW shall display the listing or property address of any seller who has affirmatively directed its listing broker to withhold its listing or property address from display on the Internet. The listing broker or agent shall communicate to the MLS that a seller has elected not to permit display of the listing or property address on the Internet. Notwithstanding the foregoing, a Participant who operates a VOW may provide to consumers via other delivery mechanisms, such as e-mail, fax, or otherwise, the listing or property address of a seller who has determined not to have the listing or address for its property displayed on the Internet.

The United States will move the Court to enter a proposed Final Judgment with these modifications.

(ii) The Proposed Final Judgment Means What It Says

Prudential seeks clarification from the United States that, as to three different provisions of the Modified VOW Policy, the provisions literally mean what they say. It first seeks clarification concerning the requirement in paragraph II.5.a of the Modified VOW Policy that VOW brokers not display the listing or property addresses of sellers who have affirmatively directed that information about their properties be withheld from “the Internet.” Prudential says that the provision “presumably means” that information withheld from “the Internet” must mean that the information be withheld “from all forms of Internet display” and excluded from any data that the listing broker or MLS sends to any other Web sites.

Prudential has interpreted paragraph II.5.a of the Modified VOW Policy correctly. Under the Modified VOW Policy, an MLS may not permit a seller to single out individual VOWs or VOWs generally and withhold the listing or property address from only VOW Web sites. Rather, the MLS and listing broker would also be required to withhold the seller's listing or property address from all other non-VOW Web sites.

Prudential next seeks to confirm the meaning of the requirement in paragraph III.2 of the Modified VOW Policy that MLSs provide VOW brokers “all MLS non-confidential listing data.” Prudential seeks to clarify that this does not permit MLSs to refuse to provide Start Printed Page 65622VOW brokers the listings of sellers who have requested that their listings not be displayed on the Internet. It explains that, unless VOW brokers receive from the MLS even the listings they are not permitted to show on their VOWs, the VOW brokers cannot meaningfully exercise their right under paragraph II.5.a to provide their customers those seller-withheld listings by other delivery methods. Prudential expresses some concern that MLSs might interpret paragraph III.4, which refers to a “VOW-specific feed” from which the seller-withheld listings have been removed, as a basis to disregard the requirement in paragraph III.2 that MLSs provide “all MLS non-confidential listing data” to VOW brokers who request it.

Paragraph III.2 of the Modified VOW Policy is unambiguous in requiring MLSs to provide “all MLS non-confidential listing data” (emphasis added) to VOW brokers who request it. MLSs may also offer to VOW brokers, under paragraph III.4 of the Modified VOW Policy, a “VOW-specific feed” from which seller-withheld listings or addresses have been removed. Some VOW brokers might opt for the VOW-specific feed as a matter of convenience, but nothing in paragraph III.4 suggests that such a VOW-specific feed could replace the MLS's unambiguous obligation under paragraph III.2. As Prudential explains, a contrary interpretation of the Modified VOW Policy would also prevent VOW brokers from filtering seller-withheld listings and delivering those listings to customers by non-VOW methods of delivery, as expressly permitted under paragraph II.5 of the Modified VOW Policy.

The third provision on which Prudential seeks clarification is paragraph II.5.c of the Modified VOW Policy. That paragraph requires a VOW broker to disable or discontinue, at the request of a home seller, any functionality providing automated market valuations on or any third-party commenting on or reviews about the seller's property. The seller may not, under this provision, selectively target particular VOWs with requests that these activities be discontinued. Under paragraph II.5.c, such a request by a seller is applicable to “all Participants” Web sites” (i.e., all Web sites operated by any member of the MLS). Prudential seeks confirmation that this provision cannot be exercised on a selective basis as to any single broker's VOW.

There is also no ambiguity in paragraph II.5.c. A sellers's request, under that provision, to discontinue automated market valuations or third-party comments or reviews about his or her listing applies to “all Participants” Web sites,” whether VOW or non-VOW sites. This provision cannot be exercised selectively against a single VOW or against all VOWs, but would also be applicable to all non-VOW Web sites operated by all other MLS members.[18]

(iii) Nondiscrimination Provisions Apply Where Modified VOW Policy is Silent

Prudential seeks clarification or interpretative guidance with respect to two issues on which it suggests the Modified VOW Policy is silent. It first expresses concern that MLSs might interpret the requirement in paragraph II.5.e of the Modified VOW Policy, that VOW brokers refresh information on their Web sites no less frequently than every three days, to prohibit VOW brokers from refreshing the information on their VOW more frequently than every three days. Prudential states that “[o]perating a VOW with three (3) day old data is totally unacceptable in a Web based environment,” particularly when VOW brokers' traditional competitors can provide their customers listings data that is refreshed continuously by the MLS.

As Prudential observes, the Modified VOW Policy is silent as to how frequently VOW brokers may refresh the MLS listings they display on their VOWs. Paragraph II.5.e of the Modified VOW Policy states that VOW brokers “shall refresh MLS data available on a VOW not less frequently than every 3 days.” It does not state or imply that VOW brokers cannot refresh their data more frequently than every three days.

The proposed Final Judgment expressly prohibits NAR from adopting rules that discriminate against VOW brokers or that impede the operation of VOWs.[19] When issues concerning VOWs are not expressly covered by the Modified VOW Policy, these provisions would prevent NAR from filling the void with discriminatory rules. Here, the United States agrees with Prudential that, with no express provision in the Modified VOW Policy, the general nondiscrimination provisions found in paragraphs IV.A and IV.B of the proposed Final Judgment would apply to prevent MLSs from restricting the ability of VOW brokers to provide data to customers that is less current than the data that other brokers can provide to their customers.

Prudential also expresses concern that an AVP that operates VOWs for several different brokers in an MLS could be charged a separate data download fee for each broker for whom the AVP operates a VOW, even though the AVP could operate its entire network of VOWs using only a single data download.

Prudential describes a “common circumstance” in which a single AVP has been designated by several different brokers in a single MLSs to operate VOWs on their behalf. According to Prudential, the AVP would, as a technical matter, need to download the MLS data only one time and could use that data to populate all of the VOWs it operates. Paragraph III.10.b of the Modified VOW Policy prohibits MLSs from charging an AVP more than it charges a VOW broker to download MLS listings, but the proposed Final Judgment and Modified VOW Policy do not expressly address whether the MLS could charge separate downloading fees to the AVP for each VOW it operates. However, because the AVP would need only a single MLS data download, a rule requiring an AVP to pay for additional unnecessary downloads would likely violate paragraph IV.D of the proposed Final Judgment as it would impose fees on the AVP in excess of the MLSs costs in delivering data to the AVP. Moreover, because downloading data imposes some costs on the MLS, a rule requiring multiple unnecessary downloads for no apparent purpose other than to impose additional costs on AVPs and the brokers for whom they operate VOWs would likely unreasonably disadvantage the AVP and VOW broker and violate paragraph IV.B of the proposed Final Judgment.

(iv) Relief Not Sought by the United States

Prudential identifies two areas in which it believes additional relief, not sought by the United States, might be warranted. First, Prudential observes that the proposed Final Judgment would bind only NAR, the sole defendant in this case, and expresses concern whether the proposed Final Judgment sufficiently compels NAR to require its affiliated MLSs to abide by the terms of the proposed Final Judgment, including Start Printed Page 65623the Modified VOW Policy. Prudential specifically questions whether paragraphs V.E and V.F of the proposed Final Judgment, which require NAR to take action against MLSs when NAR “determines” that the MLSs are not in compliance, require NAR to find out about any noncompliance in the first place or to determine whether the conduct at issue complies with the proposed Final Judgment.

The United States believes that the proposed Final Judgment adequately compels NAR to direct its affiliated MLSs to comply with the Modified VOW Policy. The second sentence of Paragraph V.E of the proposed Final Judgment clearly says that NAR shall deny coverage under its insurance policy (a consequence that Prudential does not dispute will motivate compliance by the MLS) to any MLS that “refuses to adopt, maintain, act consistently with, or enforce” the Modified VOW Policy.

The proposed Final Judgment is drafted with the assumption that NAR would find out through multiple channels about an MLS's failure to act in accordance with the decree. First, MLSs would turn to NAR and ask if their conduct was consistent with the law and the decree in order to maintain their insurance coverage. MLSs routinely turn to NAR for advice and approval on various issues in order to maintain coverage under NAR's insurance.[20] Second, brokers who feel aggrieved can complain directly to NAR (or to the United States) about an MLS's conduct.[21] And third, the United States can alert NAR to any actions by an MLS that are inconsistent with the Modified VOW Policy and ask NAR to take action. Thus, there should be little concern that if NAR acts in good faith it will fail to find out that an MLS is acting inconsistently with the Modified VOW Policy.

The proposed Final Judgment does not require NAR to act on frivolous allegations of noncompliance by an MLS. But NAR is required to act when it determines the allegations are well-founded.[22] To the extent NAR operates in bad faith, failing to reach a determination when an allegation is well-founded, the United States could move to enforce the Final Judgment. Additionally, the United States retains the right to sue any MLS directly for violations of the antitrust law.[23]

The United States believes that the enforcement scheme negotiated through these provisions of the proposed Final Judgment appropriately incentivizes NAR to evaluate any information it receives concerning MLS noncompliance and to take timely and appropriate actions to bring its MLSs into compliance. NAR understands that its failure to respond where a response is warranted may mean the initiation of an inquiry by the United States. As a membership organization, NAR will want to minimize the circumstances under which its members (as well as NAR itself) receive direct scrutiny by the United States and will act to correct instances of noncompliance that it observes. This enforcement scheme also permits NAR to decline to address allegations of noncompliance that have no merit. The United States believes that these provisions strike the appropriate balance and will ensure that MLSs do not unreasonably discriminate against VOW brokers.

Second, Prudential discusses Paragraph IV.D of the proposed Final Judgment which forbids NAR from adopting, maintaining, or enforcing rules that impose fees or costs on a VOW broker “that exceed the reasonably estimated actual costs” an MLS incurs in providing listings to a VOW broker. Under paragraph III.5 of the Modified VOW Policy, an MLS is authorized to pass along to a VOW broker “the reasonably estimated actual costs incurred by the MLS” in establishing the ability to download listings data to VOW brokers. Prudential expresses concern that, because “costs” is not defined in the proposed Final Judgment or Modified VOW Policy, MLSs might assess against VOW brokers the salaries of software programmers or compliance officers, or other substantial additional expenses incurred by the MLS. Prudential seeks a clarification that “'costs” may include only actual direct costs, and may not include any allocations of salaries, consultant fees, rent, utilities, or other overhead expenses.” It also argues that, under paragraph III.5 of the Modified VOW Policy, an MLS may not charge VOW brokers more than it charges other brokers who download listings data from the MLS for other purposes.

The proposed Final Judgment and Modified VOW Policy permit MLSs to charge VOW brokers fees no greater than the MLSs “reasonably estimated actual costs” of providing services to VOW brokers [24] and equal to the “reasonably estimated costs” the MLS incurs in adding or enhancing downloading capacity for purposes of supporting VOWs.[25] Because the circumstances and capabilities of MLSs vary, the United States does not believe it would be appropriate to attempt to express with greater precision the type or level of costs it would be permissible for MLSs to impose upon VOW brokers. The United States believes that imposing on MLSs an obligation to account for the fees they impose on VOW brokers will be adequate to prevent the imposition of exorbitant fees. Furthermore, a definition is unnecessary because the United States agrees with Prudential that the proposed Final Judgment's general nondiscrimination provisions would forbid charging VOW brokers for downloading listings information differently than other brokers, unless the costs to the MLS differed as to each recipient.

(v) Long-Standing Provisions

Prudential expresses concern about three provisions that long existed in NAR's VOW Policy but that the United States did not challenge. First, it discusses a requirement in paragraph II.2.c of the Modified VOW Policy that consumers who seek to register on a VOW “open and review” the VOW's mandatory terms of use. Prudential asserts that this provision might be interpreted to prohibit the usual practice on many Internet Web sites of opening terms of use in “a scrollable frame” that the viewer can read if he or she desires. Prudential also asserts that, because traditional brokers provide listings information to customers upon a simple request of a consumer, the registration requirement in II.2.c of the Modified VOW Policy discriminates against VOW brokers.

NAR included the “open and review” requirement in the VOW Policy it adopted on May 17, 2003, and over 200 MLSs subsequently adopted rules implementing the VOW Policy. Through its lengthy investigation and litigation of this matter, the United States neither received any complaints about this requirement nor discovered any Start Printed Page 65624evidence that it had restrained or was likely to restrain competition from any VOW broker. Had the United States proceeded to trial in this case, it would not have sought relief from the “open and review” requirement.

The United States notes, however, that it sees no inconsistency between the “open and review” requirement and the “scrollable frame” in which Prudential's franchisees currently present terms of use to their customers. In the event that MLSs in the future insist upon different and more onerous procedures from Prudential's franchisees or other VOW brokers than the “scrollable frame” currently offered, the United States would then be in a position to evaluate whether those procedures restrained competition from VOW brokers.[26]

Second, Prudential mentions paragraph II.2.d of the Modified VOW Policy, which prohibits the VOW broker from establishing any representation agreement or imposing any financial obligation upon a customer through use of a “mouse click.” According to Prudential, this provision “would be tantamount to preventing VOW operators from engaging in electronic commerce at their Web sites.”

This provision was included in the 2003 VOW Policy. Discovery in this case revealed no evidence that this provision had restrained or was likely to restrain competition from VOW brokers. Additionally, the Modified VOW Policy recognizes explicitly that Web sites maintained by VOW brokers “may also provide other features, information, or services in addition to VOWs.” [27] And, as Prudential concedes, the Modified VOW Policy would not prevent VOW brokers from “engaging in electronic commerce” on those non-VOW portions of their Web sites. Thus, the United States disagrees with Prudential that paragraph II.2.d of the Modified VOW Policy is likely to restrain competition from VOW brokers or to “prevent[ ] VOW operators from engaging in electronic commerce at their Web sites.”

Third, Prudential mentions paragraph II.6 of the Modified VOW Policy, which requires VOW brokers to “make the VOW readily accessible to the MLS and to all MLS Participants for purposes of verifying compliance with this Policy.” Prudential expresses concern that MLSs might, under this provision, demand intrusive access to VOW brokers' systems and files and it asserts that MLSs should be permitted to observe only the password-protected portions of the VOW accessible by any customer of the VOW broker.

NAR included a nearly identical provision in its 2003 VOW Policy, which was adopted by over 200 MLSs. The United States heard no complaints nor uncovered any evidence that that provision had been exercised by any MLS in the manner about which Prudential expresses concern. Nevertheless, the United States agrees with Prudential and hereby clarifies that paragraph II.6 of the Modified VOW Policy, by its terms, cannot be used for purposes other than to verify compliance with NAR's policies and it should not provide a basis for MLSs to harass VOW brokers or to conduct a detailed examination of VOW brokers' business files or computer systems.

In over four years of investigation and litigation concerning the Challenged Policies, the United States had neither received complaints nor uncovered evidence that these three provisions had been used in the manner Prudential describes. But, by way of clarification and guidance, the United States reiterates that, to the extent that MLSs discriminate against and harm VOW brokers through these provisions in the future, the proposed Final Judgment allows the United States to investigate and bring an antitrust enforcement action as appropriate.[28]

3. Comments Submitted by Home Buyers Marketing II

Home Buyers Marketing II (“HBM II”) is a VOW broker operating in approximately 400 markets throughout the United States. HBM II's comments (Attachment 3) identify “particular anticompetitive practices” and seek confirmation that the proposed Final Judgment, including the Modified VOW Policy, would prohibit MLSs from engaging in those practices.[29]

HBM II expresses concern about paragraph II.3 of the Modified VOW Policy, which requires that VOW brokers “be willing and able to respond knowledgeably to inquires from [customers].” It seeks clarification that an MLS would not be permitted to demand a greater level of knowledge from a VOW broker concerning properties it displays to customers than the MLS demands from other brokers.

Because the Modified VOW Policy does not define the level of knowledge that a VOW broker must possess when responding to customer inquiries, the United States agrees with HBM II that the proposed Final Judgment's general nondiscrimination provisions would prevent MLSs from demanding greater knowledge from VOW brokers than they demand of other brokers.[30]

HBM II also comments on paragraph IV.1.e of the Modified VOW Policy. Under that provision, an MLS may limit to a “reasonable number” the listings that VOW brokers can provide to customers in response to a customer's query, but the number can be no fewer than 100 listings or five percent of all listings in the MLS, whichever is lower. HBM II suggests that even a limit of 100 listings would be unreasonable if the MLS permitted consumers to search without such limits on other Web sites populated with data provided by the MLS.

The Modified VOW Policy does not define when a limitation on the number of listings a VOW broker could provide to customers would be unreasonable. While Paragraph IV.1.e of the Modified VOW Policy sets 100 listings or five percent of all listings in the MLS as a floor below which an MLS cannot go, the use of the reasonableness limitation suggests that, in some circumstances, a limitation set higher than the floor could still be impermissible. HBM II suggests one such circumstance: A 100-listing limitation applicable to VOWs would be unreasonable if the MLS permitted non-VOW Web sites to show a greater number of listings to customers. The United States agrees with HBM II that, if an MLS were to restrict the number of listings a VOW broker could provide his or her customers but did not restrict in the same way other Web sites on which it permits its listings to be displayed, the MLS would unreasonably disadvantage VOW brokers and would violate the proposed Final Judgment's nondiscrimination provisions.

Finally, HBM II observes that the proposed Final Judgment or Modified VOW Policy do not define the word “cost.” HBM II seeks confirmation that Start Printed Page 65625MLSs could not charge VOW brokers for the entire cost of items or services used only partially to support the use of VOWs.

As stated above, because MLSs vary, the United States has not sought to prescribe the types or levels of costs that MLSs could reasonably allocate to VOW-related activities for purposes of establishing fees applicable to VOW brokers. The United States agrees with HBM II, however, that the proposed Final Judgment would prohibit an MLS from “allocat[ing] the cost of facilities (or staff time) used for other purposes exclusively or disproportionately to the VOW feed.” Such an allocation would exceed the “reasonably estimated actual costs” incurred by the MLS in performing services for VOW brokers and would unreasonably disadvantage VOW brokers in violation of the proposed Final Judgment's nondiscrimination provisions.

B. Comments Submitted by Exclusive Buyer Agents

Two groups of exclusive buyer agents sent comments. Both expressed concerns that NAR's revision and reinterpretation of its membership rule, attached to the proposed Final Judgment as Exhibit B, might be interpreted to exclude them as members of the MLS. The United States has confirmed that such concerns are unfounded.

The first commentor, the National Association of Exclusive Buyer Agents (“NAEBA”), consists of real estate brokers and agents “who represent buyers only and who never list property for sale or represent sellers.” The second commentor, the Buyer's Broker of Northern Michigan, LLC, is a member of the NAEBA. Both the NAEBA and the Buyer's Broker of Northern Michigan submitted comments that are similar in substance. (Attachments 4 and 5).

The NAEBA began its comment by commending the Department for its “efforts on behalf of the nation's consumers to address some of the anticompetitive practices in the real estate marketplace today.” But both commentors expressed concern that, under NAR's revised membership rule, brokers or agents who commit to work exclusively with buyers and to be compensated exclusively by buyers, rather than receiving a share of the commission from the listing broker, might be precluded from joining the MLS. They worry that, because NAR's revision to its membership rule opens MLS membership only to licensed brokers who actually “offer or accept cooperation and compensation to and from other [MLS members],” they could be prevented from participating in the MLS.

First, even though exclusive buyer brokers do not list properties or represent sellers, they usually are compensated, at least in part, by a share of the commission that the listing broker offers to the broker who finds a buyer for the property. In such a circumstance, the buyer broker would be accepting cooperation and compensation and would be entitled to MLS membership under NAR's revised membership rule. Additionally, NAR's revised membership rule does not prevent, as the commentors feared, an exclusive buyer broker from accepting the commission offered by the listing broker (even if the offer is zero percent) and supplementing that commission with payment directly from the buyer. Moreover, NAR has told the United States that it does not interpret its revised membership rule to exclude a buyer broker who always refuses the share of the commission offered by the listing broker and chooses to be compensated entirely by the buyer. NAR recognizes that an exclusive buyer broker is still “cooperating” with the listing broker to sell the property and has stated that it will advise its MLS members in writing that such a broker is not to be excluded from the MLS.[31] Finally, if NAR changes its interpretation so that its MLSs begin to exclude exclusive buyer brokers from MLS membership in the future, the United States remains free to challenge such conduct as anticompetitive.[32]

C. Comments Submitted by MLS4owners.com

MLS4owners.com is a broker operating in the State of Washington. According to its comment (Attachment 6), it is a “flat-fee, limited-service brokerage.” Its comment concerns the third paragraph of the preamble to the proposed Final Judgment, which states that “the United States does not allege that Defendant's Internet Data Exchange (IDX) Policy in its current form violates the antitrust laws.” MLS4owners.com believes that NAR's IDX Policy does violate the antitrust laws, by permitting brokers operating IDX Web sites to exclude exclusive agency or limited-service listings from their own IDX Web sites.

As MLS4owners.com itself correctly observes, “the IDX Policy was NOT the subject of the DOJ's pre-complaint investigation, complaint, amended complaint or discovery” (emphasis in original). The United States takes no position as to the permissibility under the antitrust laws of NAR's IDX Policy; paragraph three of the preamble to the proposed Final Judgment reflects that this case involved only VOWs and not the IDX Web sites about which MLS4owners.com is concerned.[33]

To the extent that MLS4owners.com suggests that the United States' Amended Complaint should have challenged NAR's IDX Policy, its argument should be rejected. Review under the APPA should not involve an examination of possible competitive harms the United States did not allege. See, e.g., Microsoft, 56 F.3d at 1459 (stating that the district court may not “reach beyond the complaint to evaluate claims that the government did not make”). Start Printed Page 65626

D. Comments That Do Not Address the Amended Complaint or Proposed Final Judgment

The United States received three additional comments that do not address the Amended Complaint or proposed Final Judgment.

Bernard Tompkins of Realty Specialist Inc. submitted a comment (Attachment 7) critiquing a report published jointly in 2007 by the Department of Justice and the Federal Trade Commission entitled “Competition in the Real Estate Brokerage Industry.” [34] Mr. Tompkins' comments are not relevant to the Court's APPA inquiry.

The United States also received comments (Attachment 8) submitted anonymously by brokers from Montgomery County, Pennsylvania. These commentors propose relief, unrelated to the allegations in the Amended Complaint or the subject of this case, that they contend would “prevent[ ] the loss of competition” and “better serv[e] the public interest.” They suggest that brokers should be prohibited from referring customers to mortgage lenders, that brokers provide “maximum exposure” for listed properties, and that properties on NAR's Realtor.com Web site include home addresses. Whatever the merits of these suggestions, they do not address the allegations in the Amended Complaint or the relief obtained in the proposed Final Judgment.

Finally, an anonymous broker from San Jose, California, submitted a comment (Attachment 9) complaining about an unrelated rule adopted by his MLS that prevents him from publishing on the Internet the same median sold price information that brokers are permitted to publish in the newspaper. This allegation is not related to the United States' Amended Complaint or to the proposed Final Judgment and has no role in the Court's evaluation under the APPA.

VI. Conclusion

After careful consideration of the public comments, the United States concludes that, with the minor modifications identified above, the entry of the proposed Final Judgment will provide an effective and appropriate remedy for the antitrust violations alleged in the Complaint and is therefore in the public interest. Accordingly, on November 7th, after this Response to Comments has been published in the Federal Register pursuant to 15 U.S.C. 16(b) and (d), the United States will move this Court to enter the proposed Final Judgment.

Dated: October 23, 2008.

Respectfully submitted,

David C. Kully,

Owen M. Kendler,

U.S. Department of Justice, Antitrust Division, 450 5th Street, NW., Suite 4000, Washington, DC 20530, Tel: (202) 307-5779, Fax: (202) 307-9952.

Certificate of Service

I, David C. Kully, hereby certify that on this 23rd day of October, 2008, I caused a copy of the foregoing Response of the United States to Public Comments on the Proposed Final Judgment to be served by ECF on counsel for the defendant identified below.

Jack R. Bierig, Sidley Austin LLP, One South Dearborn Street, Chicago, IL 60603, (312) 853-7000, jbierig@sidley.com.

David C. Kully.

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John R. Read, Chief,

Litigation III Section, Antitrust Division,

U.S. Department of Justice,

450 Fifth Street NW.,

Washington, DC 20530.

Via: John.Read@USDOJ.gov; cc: David.Kullly@USDOJ.gov

RE: Proposed Final Judgment U.S. v NAR Civil Action No. 05 C 5140

Dear Mr. Read:

I respectfully request that in addition to the protection provided to VOW's in the proposed judgment that the Judgment be expanded such that any information a broker is allowed to publish in the mass media also be publishable to the Internet without qualification. It appears the proposed judgment will protect the large VOW's new and creative practices in an effort to provide the consumer with more choices and potentially better and/or cheaper services. Unfortunately, the proposed judgment doesn't appear to protect the creative practices of sole proprietors and small independent brokerages that also utilize the Internet.

In many markets, these small brokerages provide service to consumers for 50+% of the transaction sides. These small brokerages often develop unique market services that utilize the Internet and benefit the consumer with an even wider choice of different, better and/or cheaper services. Technological and data feed costs required to establish and then operate a password protected VOW can be shared by each transaction. For large VOW brokerages addressed in this proposed judgment, these costs become insignificant. But for a sole proprietor and small brokerages, these same costs on a per transaction basis are significant and become prohibitively expensive. Consequently, most small brokerages do not and cannot operate a cost effective password protected VOW.

MLSlistings Inc., allows their subscribers to freely publish the median Sold Price in newspapers, but prohibits publication of that same information on the Internet. MLSlistings Inc.'s restriction has no MLS business reason and artificially restricts MLSlistings Inc's subscribers and consumers from fully benefiting from the use of the Internet. MLSlistings Inc.'s Internet restriction only applies to non-VOW sites that don't have a bulk download agreement.

I investigated the costs of providing a password protected VOW site and found them not economical. Subsequently, I decided to make some of my basic market information available via my public (non-password protected) web page. This allowed anyone to freely benefit from this market information and insight. I chose to reserve more frequent updates and additional information for people that find my public information useful and are willing to develop an agency relationship. This had worked well for me and the consumers without the need of a VOW.

This changed in early May 2008 when MLSlistings Inc, using MLS Rules that become effective on April 30, 2008 started citing me with violating the new MLS Rules. The new MLS Rules allow me to continue to provide the same market information (such as the County median sold price) to anyone that walks into my office. I can also email or fax this information to whoever I chose. I can even publish this market information in the mass media including the San Jose Mercury News. This market information is also available to any web savvy consumer via the MLS's own non-restricted public web site. Clearly, anyone without qualification has access to this market information. However, MLSlistings Inc claims the new MLS Rules specifically prohibit a subscriber from publishing this same market information on the Internet if the web page is accessible to public without any qualification and without a costly download agreement. NAR approved MLSlistings Inc.'s new MLS Rules that includes this restraint of trade provision that clearly favors large brokerages.

The amount of data needed using the 2000 methodology is equivalent to only eight current agent full listings. For an MLS, which restricts subscribers to 500 matching listings and currently has 19,500 active listings, to consider the data equivalent to 8 listings to require a bulk download agreement is ridiculous. Having learned a different methodology in 2000, the amount of data needed now is significantly less. Adding to the absurdity of this arbitrary rule, the data used to determine the market information isn't even in the bulk download data set.

I'm requesting the current proposed judgment be expanded such that any information a broker is allowed to publish in the mass media can also be published to the Internet without qualification. This would be similar to IDX/BLE that allows any brokerage to display certain basic listing information to the public without qualification. Basically, MLS rules shouldn't favor any particular type or size brokerage.

Should you have any questions, I can be reached at icare_dou@yahoo.com.

End Preamble

Footnotes

1.  73 FR 47613. An incorrectly typeset version of the proposed Final Judgment and CIS had been published in the Federal Register on June 25, 2008. 73 FR 36104.

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2.  For this service, home sellers typically agree to pay real estate brokers a commission based on the ultimate sales price of the property. Listing brokers create incentives for other MLS members to try to find buyers for their listed properties by submitting to the MLS with each new listing an “offer of cooperation and compensation,” identifying the amount (usually specified as a percentage of the listing broker's commission) that the listing broker will pay to any other broker who finds a buyer for the property.

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3.  See proposed Final Judgment, ¶¶ V.A-V.D.

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4.  See id., ¶¶ IV.A-IV.B.

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5.  See Modified VOW Policy, ¶ I.4.

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6.  See id., ¶ III.2.

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7.  See id., ¶ III.11.

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8.  The proposed Final Judgment permits NAR's affiliated MLSs to implement new requirements for MLS membership that NAR originally adopted with its ILD Policy. See proposed Final Judgment, ¶ VI.A. This revised and reinterpreted membership rule, attached to the proposed Final Judgment as Exhibit B, contains an interpretative note that explains that a broker who meets the new rule's membership requirements cannot be denied membership on the grounds that the broker operates a VOW, “including a VOW that the [broker] uses to refer customers to other [brokers].”

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9.  See Modified VOW Policy, ¶ III.10.

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10.  See id.

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11.  Once an AVP refers a buyer lead to a broker or agent for whom it operates a VOW and the buyer registers on the VOW, that buyer becomes a customer of the broker or agent.

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12.  The 2004 amendments substituted “shall” for “may” in directing relevant factors for court to consider and amended the list of factors to focus on competitive considerations and to address potentially ambiguous judgment terms. Compare 15 U.S.C. 16(e) (2004), with 15 U.S.C. 16(e)(1) (2006).

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13.  The United States and NAR have also agreed to a third, minor modification to the proposed Final Judgment. This modification was not precipitated by a comment from a third party. As filed with the Court and published in the Federal Register, the proposed Final Judgment would require NAR's local Boards or Associations of Realtors that do not own or operate MLSs to adopt and adhere to the Modified VOW Policy (which sets forth the rules an MLS must have for VOWs). See proposed Final Judgment, ¶¶ V.D & E (requiring all “Member Boards” to adopt the Modified VOW Policy or risk losing coverage under NAR's insurance policy). The United States agrees with NAR that requiring Boards or Associations of Realtors that do not own or operate MLSs to adopt the Modified VOW Policy would serve no purpose. As a result, the United States will move the Court to enter a proposed Final Judgment that clarifies that only Boards or Associations of Realtors that own or operate MLSs must adopt and adhere to the Modified VOW Policy. This additional, minor modification will not necessitate a second public comment period. See Hyperlaw, Inc. v. United States, No. 97-5183, 1998 WL 388807, at *3 (D.C. Cir. May 29, 1998) (finding that, because the proposed modification was a “logical outgrowth” of the original proposed consent decree, no additional public comment period was required).

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14.  See proposed Final Judgment, ¶ V.D.

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15.  See id.

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16.  See id., ¶ V.H.

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17.  The United States has not been reluctant to sue MLSs to bring an end to violations of the antitrust laws. The United States recently brought actions against two MLSs in South Carolina that are among the approximately 200 MLSs in the country not affiliated with NAR. On May 2, 2008, the United States brought an antitrust action against the MLS in Columbia, South Carolina, alleging that its rules restrain competition among real estate brokers in that area and likely harm consumers. See Complaint in United States v. Consolidated Multiple Listing Service, Inc., No 3:08-cv-01786-SB (D.S.C. May 2, 2008), available at http://www.usdoj.gov/​atr/​cases/​f232800/​232803.htm. The United States challenged similar allegedly anticompetitive rules imposed by the MLS in Hilton Head, South Carolina, also not affiliated with NAR. See Complaint in United States v. Multiple Listing Service of Hilton Head Island, Inc., No. 9:07-cv-03435-SB (D.S.C. Oct. 16, 2007), available at http://www.usdoj.gov/​atr/​cases/​f226800/​226869.htm. The MLS in Hilton Head agreed to settle the case by repealing the challenged rules and agreeing to other conduct restrictions, and the court entered the Final Judgment in the case on May 28, 2008. See Final Judgment in United States v. Multiple Listing Service of Hilton Head Island, Inc., No. 9:07-cv-03435-SB (D.S.C. May 28, 2008), available at http://www.usdoj.gov/​atr/​cases/​f233900/​233901.htm.

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18.  Prudential also suggests that such an election by a seller should apply to automated market valuations or third-party comments or reviews permitted by non-broker Web sites that display MLS-supplied listings. Paragraph II.5.c. applies only to MLS “Participants' Web sites.” While an MLS could require third-party Web sites, as a condition of receiving MLS data, to discontinue valuations, comments, or reviews, the United States believes the potential cost to third-party Web sites outweighs the benefits of such a requirement and elected not to insist on such a term in its proposed Final Judgment. As written, this provision strikes the appropriate balance among (i) Permitting sellers some ability to limit the extent to which their properties might be marketed in a bad light, (ii) preventing VOW brokers' competitors from directing sellers to target VOWs with requests to discontinue these services, and (iii) minimizing the effect on third parties.

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19.  See proposed Final Judgment, ¶¶ IV.A-IV.B.

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20.  The proposed Final Judgment also requires NAR to educate its MLSs about the terms of the proposed Final Judgment by providing briefing materials on the “meaning and requirements” of the proposed Final Judgment and by holding an annual program that includes a discussion of the proposed Final Judgment. See proposed Final Judgment, ¶¶ V.G.4-V.G.5.

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21.  Note that NAR is required under the proposed Final Judgment to furnish to the United States copies of any communications it receives from an MLS or an aggrieved third party concerning allegations of noncompliance by an MLS with the proposed Final Judgment or Modified VOW Policy. See proposed Final Judgment, ¶ V.H. The United States' access to such records will ensure that the United States knows what NAR knows about any instances of MLS noncompliance and will allow the the United States to make sure NAR fulfills its obligations.

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22.  See proposed Final Judgment, ¶¶ V.E and V.F.

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23.  See id., ¶ IX.

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24.  Proposed Final Judgment, ¶ IV.D.

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25.  Modified VOW Policy, ¶ III.5.

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26.  See proposed Final Judgment, ¶ IX.

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27.  Modified VOW Policy, I.3.

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28.  See proposed Final Judgment, IX.

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29.  Three issues raised by HBM II repeat concerns expressed by Prudential. HBM II repeats Prudential's comment concerning how frequently VOW brokers may update the MLS listings that populate their Web sites, the meaning of the requirement in paragraph II.2 of the Modified VOW Policy that MLSs provide VOW brokers “all MLS nonconfidential listing data,” and whether the United States and NAR intended, in paragraph II.2.c.iv of the Modified VOW Policy, to prevent a VOW brokers' customers from sharing listings with friends, family, lenders, or others with whom they need to consult in their home purchase decision. The United States addressed each of these issues fully in its response to Prudential's comments.

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30.  As HBM II points out, NAR's general counsel explained in a June 16, 2008, speech that brokers cannot “always be expected to have the answer right there” when they receive inquiries from customers. “In many instances, * * * you may have to say, 'I'll find that information out and I'll get back to you.' That would be responding knowledgeably.”

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31.  NAR's rules already prohibit MLSs from excluding buyer brokers. See National Association of Realtors, Handbook on Multiple Listing Policy (2008), at 25 (“Since the MLS is an association service by which the participants make blanket unilateral offers of cooperation and compensation to the other participants with respect to listings for which they are an agent, no association or association MLS may make or maintain a rule which would preclude an individual or firm, otherwise qualified, from participating in an association MLS solely on the basis that the individual or firm functions, to any degree, as the agent of potential purchasers under a contract between the individual (or firm) and the prospective purchaser (client).”).

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32.  In its penultimate paragraph, NAEBA expressed an additional concern about provisions IV.1.d and IV.1.f of the Modified VOW Policy, which allow MLSs to require VOW brokers to include the name of the listing broker or agent in any listings the VOW broker displays on its VOW. NAEBA believes this requirement would force an exclusive buyer broker who operates a VOW to advertise its competition—the broker who listed the property. However, NAR included these provisions in its 2003 VOW Policy and the United States chose not to challenge them as there did not appear to be any significant effects from notifying a customer of the identity of the listing agent. Additionally, the proposed Final Judgment allows MLSs to adopt these provisions only if the MLS imposes the same requirements on brokers who provide listings by more traditional methods of delivery. Thus, the MLS cannot use these provisions to discriminate against VOW brokers.

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33.  VOWs are password protected Web sites through which brokers provide brokerage services to customers or clients, including the opportunity to search MLS listings and other information. NAR's “Internet Data Exchange” or “IDX” rules govern Web sites operated by brokers through which they can advertise listings to consumers with whom the broker has not yet established a customer or client relationship. As Prudential explains in its comments, “[b]ecause any Web visitor can view a broker's IDX pages without having any direct contact with the broker who owns the site, the IDX listing information is the functional equivalent of newspaper or magazine advertising directed to the general public at large. * * * [A]n MLS' IDX data feed does not necessarily include all properties in the MLS' database compilation [or] all of the information about a listed property that MLS participants may delivery to customers or clients. * * * .”

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[FR Doc. E8-25989 Filed 11-3-08; 8:45 am]

BILLING CODE 4410-11-P