While the largest national real estate trade group mounts its defense against an antitrust lawsuit brought by the U.S. Department of Justice, a commission created by Congress is evaluating whether federal antitrust laws require remodeling.
The Antitrust Modernization Commission, formed in April 2004, is tasked to study “whether the need exists to modernize U.S. federal antitrust laws,” and to seek input and prepare a report to Congress and the president that includes findings, conclusions and “recommendations for legislative or administrative action.”
The real estate industry is no stranger to antitrust complaints, and some industry participants have watched the Antitrust Modernization Commission’s progress. The commission’s focus is not industry-specific, though some topics that the commission is considering have relevance to the real estate industry.
For example, the commission has hosted discussions on the topic of the “state action doctrine” provision of federal law, which extends some immunity to states for federal antitrust law violations. Such discussions are potentially relevant to measures that numerous state legislatures and real estate regulators have passed requiring real estate professionals to provide a minimum level of service to consumers while effectively banning some forms of real estate business models that do not provide these services.
These so-called minimum-service measures, backed by Realtor trade groups, have in several cases led the U.S. Justice Department and Federal Trade Commission to send out advocacy letters urging state officials not to pass the measures as they potentially could limit consumer choice and harm competition in the real estate industry.
Federal officials have opposed Realtor-backed minimum-service measures in Alabama, Missouri, Oklahoma and Texas, charging that the legislation was anticompetitive and anti-consumer, though legislators and governors in all four states passed the measures last year despite these objections, and other states are considering similar measures.
Laurie Janik, general counsel for the National Association of Realtors, in April 2005 issued a memo to all state Realtor association executives advising them that the Justice Department and FTC cannot successfully challenge such minimum-service laws once they are enacted because of protections provided in federal antitrust law. These protections are among those the Antitrust Modernization Commission is revisiting.
A study group formed by the Antitrust Modernization Commission has considered whether the state action doctrine, which generally shields states from federal antitrust actions, should “be clarified or otherwise changed.”
A 2003 report by the State Action Task Force, a group formed by the FTC, recommended that there be “clarification and re-affirmation of the original purposes of the state action doctrine to help ensure that robust competition continues to protect consumers.”
While this doctrine generally shields sovereign activities of states,including the actions of legislatures, governors and state supreme courts instances, the task force stated that “some courts now apply the doctrine with little or no evidence that the state intended to restrain competition.”
And while the state action doctrine extends to state regulatory commissions and licensing boards, the task force noted that these state entities must show that their conduct “is in conformity with a clearly articulated state policy and has been actively supervised by the state” to be immune from federal antitrust laws.
Steve Cook, a spokesman for the National Association of Realtors, said the trade group has not made any comments to the Antitrust Modernization Commission “and has no plans to do so.”
In September 2005, the Justice Department announced that it was suing the trade group for antitrust violations, charging that the group’s policies relating to the online display and sharing of property listings restrict competition.
The antitrust commission is scheduled to adopt its findings and recommendations, and to complete a draft of its report to Congress by Dec. 6, to submit its report by April 2, 2007, and to end its work in May 2007.
In September 2005, Maureen K. Ohlhausen, director of the Office of Policy Planning for the FTC, presented testimony to the commission about the state action doctrine. “As you know, in recent years the FTC has been examining certain state and local regulations that may restrain competition. This effort has necessarily entailed a reexamination of the state action doctrine,” she said.
While the doctrine is clear that the federal antitrust laws were “not intended to reach the conduct of a state legislature,” she said, “it is less clear that it was not intended to reach, for example, the conduct of a board of professional licensure, which may be dominated by market participants with a vested financial interest in particular regulatory outcomes.” Ohlhausen said that some courts have “expanded the protection of the state action doctrine well beyond its original scope,” and she referenced the State Action Task Force recommendations.
R. Hewitt Pate, then-assistant attorney general for the Justice Department’s Antitrust Division, also offered a comment to the Antitrust Modernization Commission about the state action doctrine. “Government-created impediments to competition are the most durable and harmful, and state-created impediments that impose harm on consumers in other states can be especially pernicious,” he stated. The commission should study, he said, how the doctrine could be “cabined to avert anticompetitive harm while preserving (its) legitimate purposes.” For example, the commission might consider how to exclude “quasi-governmental self-regulatory organizations and the activities of states as market participants” from protection under the doctrine, he said.
The Justice Department has taken action against state real estate regulatory agencies. For example, the department’s Antitrust Division filed a civil antitrust lawsuit in March 2005 against the Kentucky Real Estate Commission, charging that the state commission was enforcing a real estate rebate policy that was anti-consumer and anti-competitive.
And a separate Justice Department investigation last year prompted the South Dakota Real Estate Commission to repeal and cancel earlier rulings that related to real estate rebates in that state.
Mason Kalfus, an antitrust law expert, said he has followed the Antitrust Modernization Commission’s progress. “I would hope that the commission would come out with a solution to deal with the problem of state agencies that are supporting monopolization of real estate services,” Kalfus said.
The state action doctrine “is outdated and completely unneeded. Antitrust laws are supposed to protect consumers, not industries that are good at lobbying,” he added, and the doctrine has become “a tool of interest groups” including real estate and healthcare, among other industries.
David Barry, a San Francisco lawyer who has filed numerous antitrust lawsuits against Realtor organizations across the country, said the Antitrust Modernization Commission could address whether to strengthen the state action doctrine to require state entities to provide more justification for taking action that is potentially a violation of federal antitrust law. For example, he said, a real estate board or commission might be required to provide specific findings before passing laws that require real estate professionals to perform more services.
The antitrust commission could recommend that state entities be required “to actually make some supported findings showing there is a problem in the first place,” Barry said.
The American Antitrust Institute, a non-profit education, research, and advocacy organization that promotes competition and the “vigorous use of antitrust,” issued a comment to the Antitrust Modernization Commission that supports “clarification and revision” of the state action doctrine, alleging that courts have expanded the doctrine “beyond its intended reach, (which) could potentially lead to more ambitious anticompetitive conduct.”
Attorneys general for 42 U.S. jurisdictions also offered comment to the commission, and supported the continuing role of states as active enforcers of antitrust laws.
“Particularly in the aftermath of the Microsoft litigation, state attorneys general have been criticized for playing an enforcement role that either duplicates or is inconsistent with that of the federal government,” the attorneys general wrote. “Yet, recognizing the sovereignty of the states, our system of antitrust jurisdiction contemplates that federal and state enforcers will exercise independent judgment in determining which activities present the greatest risk of harm to competition.”
In all, the Antitrust Modernization Commission has selected about 25 major issues for study, and commissioners have sought public comment and comments from antitrust lawyers, according to Andrew J. Heimert, executive director and general counsel for the commission. While the formal public comment period has expired, the commission is still welcoming public input, he said.
An act passed by Congress in November 2002 led to the formation of the commission. The act was passed in the same month that the federal government announced a final judgment in its contentious antitrust case against technology powerhouse Microsoft Corp. That case, launched in 1998 by the U.S. Justice Department and 20 states, was one of the largest antitrust cases of the century.
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