Antitrust and real estate
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Transcript of 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
Jarod M. Bona www.TheAntitrustAttorney.com
US Antitrust Basics
Antitrust prohibits unreasonable restraints on trade.
Jarod M. Bona www.TheAntitrustAttorney.com
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.
Jarod M. Bona www.TheAntitrustAttorney.com
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
Jarod M. Bona www.TheAntitrustAttorney.com
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.
Jarod M. Bona www.TheAntitrustAttorney.com
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.
Jarod M. Bona www.TheAntitrustAttorney.com
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
Jarod M. Bona www.TheAntitrustAttorney.com
US Antitrust BasicsSherman Act, Section 1
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.
Jarod M. Bona www.TheAntitrustAttorney.com
US Antitrust BasicsSherman Act, Section 1
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.
Jarod M. Bona www.TheAntitrustAttorney.com
US Antitrust BasicsSherman Act, Section 1
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.
Jarod M. Bona www.TheAntitrustAttorney.com
US Antitrust BasicsSherman Act, Section 2
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.
Jarod M. Bona www.TheAntitrustAttorney.com
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.
Jarod M. Bona www.TheAntitrustAttorney.com
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.
Jarod M. Bona www.TheAntitrustAttorney.com
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.
Jarod M. Bona www.TheAntitrustAttorney.com
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.
Jarod M. Bona www.TheAntitrustAttorney.com
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.
Jarod M. Bona www.TheAntitrustAttorney.com
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.
Jarod M. Bona www.TheAntitrustAttorney.com
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.
Jarod M. Bona www.TheAntitrustAttorney.com
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).
Jarod M. Bona www.TheAntitrustAttorney.com
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.
Jarod M. Bona www.TheAntitrustAttorney.com
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.
Jarod M. Bona www.TheAntitrustAttorney.com
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.
Jarod M. Bona www.TheAntitrustAttorney.com
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.
Jarod M. Bona www.TheAntitrustAttorney.com
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
Jarod M. Bona www.TheAntitrustAttorney.com
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.
Jarod M. Bona www.TheAntitrustAttorney.com
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.
Jarod M. Bona www.TheAntitrustAttorney.com
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.
Jarod M. Bona www.TheAntitrustAttorney.com
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.
Jarod M. Bona www.TheAntitrustAttorney.com
The End
Any questions?