By: Wayne Selogy
November 14, 2022
In March 2022, The New York Times reported that in December 2021 there were more Realtors than there were homes for sale in the United States. The National Association of Realtors (NAR), the United States’ largest trade group by membership, calls its member real estate agents “Realtors “–denoting that they are more than just state licensed real estate agents, but a better choice for consumers because they are bound by the NAR code of ethics. NAR’s ability to attract real estate agents to join the trade group—illustrated by there being more members than there are houses to sell—and persuade consumers to hire only “Realtors” has allowed NAR to eliminate any meaningful competition in the residential real state brokerage market in the United States. NAR’s strangle hold on the market has asphyxiated all meaningful competition.
The Canadian analogue to NAR is the Canadian Real Estate Board (CREB) and it is indistinguishable from Its American counterpart, NAR. The two trade groups utilize the same branding, technology, and business model. Until 2016, CREB, like NAR, enjoyed similar market control, and hands-off approach from antitrust regulators. But in 2016, the Canadian Competition Tribunal ruled that the Toronto Real Estate Board (TREB), a subsidiary of the CREB, violated the Canadian Competition Act, Canada’s version of the Sherman Antitrust Act, when it refused to share certain data with members of the TREB. Canadian regulators based their decision on the Essential Facilities Doctrine. Recently, the Biden Justice Department withdrew from a settlement with NAR regarding their anticompetitive activities. The Biden Justice Department should consider using the Essential Facilities Doctrine in it enforcement of NAR’s anticompetitive activities. This post will briefly survey the history of the Essential Facilities Doctrine in the United States and Canada, then it will explain why the United States should consider re-adopting certain aspects of the doctrine to help regulate the residential real estate brokerage industry in the United States like Canada has, but first a brief primer on how the industry functions in the United States and Canada.
One reason for NAR and CREB’s market domination is their control over the Multiple Listing Service (MLS). As the saying goes, real estate is best done close to home, NAR and CREB have adopted this adage in building their market dominance. Throughout the US and Canada NAR and CREB, respectively, establish local Boards of Realtors to control the regional MLS boards. The MLS is the online marketplace that only Realtors can access to list properties for sale. Think of Zillow, but always perfectly up to date, accurate, and exclusively accessed by Realtors. The MLS is one stop shopping for Realtors representing sellers and buyers. Realtors representing sellers can post on the MLS and know Realtors representing buyers will start and end their search for their buyers on the MLS. Because the MLS is the only game in town, literally, the data generated is second to none since Realtors must keep listings price up-to-date, must continuously update where the home is in the selling process (listed, under contract, sold), must accurately list the homes specifications (how many bedrooms, etc.), and must indicate how much the buyer’s Realtor will be paid in commission. NAR than collects this data from the regional MLS Boards and is in the driver seat when it comes to understanding market dynamics, changes, and trends. This data is key to success in the market and the foundation to Canada’s decision to more closely regulate the MLS in Toronto.
The phrase Essential Facility Doctrine was first used in a Seventh Circuit Court of Appeals decision in MCI Communications Corp. v. AT&T Co. There, the Seventh Circuit ruled that AT&T’s refusal to permit MCI Communication Corp use of its “Long Lines,” infrastructure used to make long distance telephone calls before the cellphone age, was a violation of the Sherman Antitrust Act. Michael G. Osborne describes the essential facilities doctrine as “where a firm owns a facility that is an essential input for firms producing a downstream product, competition law will in certain circumstances force the owner of the upstream facility to share that facility.” Before the Seventh Circuit used the phrase, the United State Supreme Court articulated the doctrine in three cases leading up to MCI Communications. Mr. Osborne summarizes the cases: In US v. Terminal Railroad Association of St. Louis the United States Supreme Court ruled that a single railroad association controlling all bridges to cross the Mississippi river and pass through St. Louis was a violation of the Sherman Antitrust Act and the Court compelled the association to admit other railway members to utilize the bridges and passthroughs. The bridges and pass throughs were the essential facility. In Associated Press v. US the Court ruled that the Associated Press’ membership program where stories from one AP member newspaper were circulated to other member papers around the country, but only permitting one paper to join from each geographic market violated the Sherman Antitrust Act. The network of sharing news stories was the essential facility. The Court held in Otter Trail Power Co v. US that Otter Trail’s refusal to sell wholesale electricity to towns that sought to start municipal power companies when the municipalities franchise agreement with Otter Trail expired. The essential facility in this case was the power distribution network.
But in 2004 the Essential Facilities Doctrine began to fall out of favor with the United States Supreme Court. In Verizon Communications Inc v. Law Offices of Curtis V Trinco, LLP Justice Scalia, writing for the Court, explained antitrust law generally does not force market participants to share facilities with their rivals. The first substantial blow to the doctrine. The Ninth Circuit in Pacific Bell Telephone Co. v. Linkline Communications, relying on Trinco, laid the final blow on the Essential Facilities Doctrine by holding that AT&T charging Linkline, an internet service provider, more to use DSL internet lines than AT&T charged its retail customers for use was not a violation of the Sherman Antitrust Act. It is safe to say, that in nearly all circumstances, the Court would reject the logic used by the MCI court relegating the Essential Facilities Doctrine to the pages of legal history.
Canada has taken a different approach to the Essential Facilities Doctrine. Canada’s Anticompetitive Act, passed in 1986, enshrined the Essential Facilities Doctrine concepts into law in several sections, but relevant for this discussion is section 79 dealing with abuse of dominance. Here, The Canadian Competition Tribunal determined the Toronto Real Estate Board’s “restricting access to certain Multiple Listing Service Information . . . on password protected virtual office websites . . . and by restricting the manner in which its Members may display and use information . . . .” constituted a violation of section 79 of the Canadian Competition Act. The Commission “concluded that TREB substantially or completely controls the supply of MLS-based residential real estate brokerage service.” And “that TREB has engaged in, and continues to engage a practice of anti-competitive acts . . . .” There is no difference in the function of TREB and the hundreds of local MLS boards in the United States. The Courts should retrench from Trinco and revert to MCI communication Corps logic.
A re-establishment of the Essential Facilities Doctrine is necessary because the doctrine came and went before the internet had become the center of global life. Permitting one firm to dominate the residential real estate brokerage industry through its relentless grip on the MLS, an internet platform, stifles competition, increase consumer prices, and eliminates innovation. Imagine if the hotel industry had centralized the booking for every hotel room in the United States to one platform and allowed only travel agents to access the platform, Airbnb may have never gotten of the ground. Would Uber have become the ubiquitous services consumers expect if the cab industry required you book your cab only through a centralized database that only licensed cab drivers could offer a ride on? I guess we’ll never know, but what we do know is the residential real estate brokerage industry has been stagnant for decades; it is time for a change in our laws to spur innovation. Eliminating NAR’s market hegemony is the first step.
