WEBCommentary Contributor

Author: Michael J. Gaynor
Date:  September 5, 2007

Topic category:  Other/General

LaLa Wang v. Goliath: The Battle Continues

As a staunch advocate for consumers and an intrepid innovator of business models, Ms. Wang quickly ran afoul of entrenched real estate interests in New York. As a result, she was forced to litigate against both REBNY and the New York State Department of State, the government agency that regulates the real estate industry – just in order to offer services that, as the real estate publication Inman News recently pointed out, have now become common in other states. She was vindicated when her ten-year battle against the Department of State ended with the reinstatement of her real estate license and now she is suing REBNY.

REBNY is the Real Estate Board of New York, a real estate industry trade association and a genuine goliath.

Klickads, Inc. d/b/a BrokersNYC is a small listings information technology (IT) firm that sells listing and other information technology to real estate brokerage firms in New York and is suing REBNY and others.

LaLa Wang is an e-commerce pioneer and chief executive officer of Klickads, Inc. and MLX. One of the first real estate brokers to realize the Internet’s potential to enhance efficiency and consumer choice in the real estate market, as well as one of the first to experiment with alternative, pro-consumer business models, Ms. Wang introduced the concept of the open real estate market where buyers, sellers, renters, landlords, and brokers could connect with each other online.

As CEO of MLX and Klickads, real estate-related businesses, Ms. Wang is responsible for the strategic direction and daily operations of those businesses (providing management solutions and services for real estate consumers and professionals) and continuing to offer innovative solutions to participants in the real estate market.

MLX established the first online real estate partnerships with media firms including Yahoo!, Primedia/New York Magazine, New York Observer, and crainsny.com and is an investment of Internet.com Venture Fund I.

As a staunch advocate for consumers and an intrepid innovator of business models, Ms. Wang quickly ran afoul of entrenched real estate interests in New York. As a result, she was forced to litigate against both REBNY and the New York State Department of State, the government agency that regulates the real estate industry – just in order to offer services that, as the real estate publication Inman News recently pointed out, have now become common in other states. She was vindicated when her ten-year battle against the Department of State ended with the reinstatement of her real estate license and now she is suing REBNY.

A former banker, Ms. Wang is a graduate of Smith College and Harvard Business School, a participant on real estate panels and a guest speaker at real estate courses. In 2003, Ms. Wang was recognized by Fast Company magazine as a Fast 50 Innovator--"Wang's passionate commitment to free trade and marketplace competition is drawing supporters from public policy and antitrust groups. Even the FTC and DOJ are investigating Wang's allegations of restraint of trade by real estate special interest groups....Wang and MLX have the potential to shake up the real estate market for the betterment of all consumers." Ms. Wang was featured in Entrepreneur magazine.

In “Real-Time Dragnet: Cracking down on Internet innovation,” a May 6, 2003 article in National Review Online, Braden Cox, technology counsel with the Competitive Enterprise Institute's Project on Technology and Innovation, highlighted a costly problem and paid due homage to Ms. Wang for her exceptional entrepreneurial spirit, innovative ability and inspiring tenacity in fighting a well-entrenched, well-financed and well-protected special interest, REBNY.

Mr. Cox:

“'To serve and protect' is a longstanding slogan of police departments everywhere. It's also an accurate description of a political dragnet against e-commerce, a scenario playing out right now in the New York City real-estate market.

“State governments often pass legislation to serve and protect narrow constituencies, making it harder for new companies with innovative business models to compete with entrenched businesses. One innovative company feeling this effect is MLX.com.

“MLX.com provides New York City property seekers with private accounts for managing their apartment searches and connecting them to landlords, owners, brokers, and MLX.com advisers. Founded by LaLa Wang, a gutsy female entrepreneur, MLX.com allows renters and buyers to find matched listings accessible via the web and e-mail and hosts message centers that offer a place to exchange questions and opinions.

“The company performs many of the same services as ‘traditional’ real-estate brokerage companies --consultation and negotiation assistance--but it does not show properties. The website is especially welcome in New York City, the only major U.S. market without a Multiple Listing Service (MLS), a cooperative database where brokers list properties for sale and split commissions with buyer agents.

“However, New York State requires all companies that furnish information about location and availability of rental property to obtain an ‘apartment information vendor’ license. The licensing law is a 1975 statute originally enacted to prevent consumer fraud. Laudable intentions aside, the law's requirements — hard-copy contracts and escrow agreements, submissions of available listings from landlords in writing before distribution, mandatory refunds on request, and a ban on advertising of specific properties — are incompatible with the 24/7 convenience, consumer control, and lower costs of online, subscription-based information services. The law's clash with e-commerce has been the bane of existence for Ms. Wang and MLX.com.

“In its efforts to force a square peg into a round hole, the New York Department of State revoked LaLa Wang's real-estate broker's license and is trying to shut down the online service. She has refused to apply for the apartment information vendor license because she maintains that the statute does not apply to her online venture. And now she has taken the issue to the New York supreme court, which recently heard oral arguments on the case.

“E-commerce can make economic transactions more efficient and less costly, and increase consumer choice. Certain industries, such as real estate, are perfect candidates for the benefits of Internet connectivity. Real estate internet portals can easily bring together all of the players in a real-estate transaction-buyers, sellers, renters, landlords, and brokers. These sites are serious challengers to the old way of real estate-broker intermediaries, high commissions, and controlled information flow.

“The case of MLX.com exemplifies how some old laws simply do not fit when applied to new business models. The apartment information vendor law is an antiquated relic that has a newfound purpose — protecting the entrenched, deep-pocketed industry that controls the country's most lucrative real-estate market. Ironically, in trying to enforce a consumer protection statute, New York is hurting consumers by enforcing a law that hinders innovation.

“Old-economy regulations shield established industries from having to adapt to new and better ways of doing business. All too often, regulators skew the regulatory process in favor of established, ‘traditional’ off-line companies.

“Under the rationale of protecting consumers, regulators have enacted rules banning the online purchase of wine, contact lenses, and even caskets. Texas, at the behest of car-dealer trade groups, stopped Ford Motor Company from marketing used cars on the web — despite the potentially huge savings to consumers.

“Courts often overturn these types of protectionist laws on constitutional grounds. Let's hope that Ms. Wang wins her fight with Albany — and sets a precedent against anti-e-commerce legislation. It is time for the New York legislature to stop protecting brick-and-mortar businesses and allow all companies to serve consumers on an equal footing.”

Ms. Wang explained her dream (good for consumers, bad for REBNY) in this posting at the MLX.com website:

“I’m LaLa Wang, President of MLX.com. I created this website to share our experiences as we tried to create a single, connected real estate marketplace in Manhattan.

“In 1994, our vision was an open, inclusive and self-sustaining system where consumers, landlords, and brokers could find each other (even before the internet made it easy!). Although we obtained a real estate broker’s license, we tried to stay out of the transaction and, instead, enable the platform that could make renting, buying and selling more efficient and less costly for all.

“Early on, consumers, landlords, and small brokers eagerly embraced our innovative MLX system, which let them list and search apartments 24/7. But along the way, our commitment to empowering consumers caused a stir with some powerful real estate traditionalists who benefited from the status quo by controlling access to real estate listings. Their friends at the New York Department of State (NYDOS) used - or abused - an antiquated law (the Apartment Information Vendor law) to keep us from giving consumers the access that brokers had and from letting them control their own apartment searches.

“As NYDOS’s actions against MLX escalated over the years, our plans for a one-stop real estate marketplace were derailed. Ironically, MLX was forced to change or eliminate services for consumers that we could legally provide to real estate brokers.

“It became clear that our problems weren’t coming just from real estate special interest groups, but from parts of New York State government itself. For instance, while requiring listing services to obtain the AIV license, state officials, with a wink and a nod, let all licensed AIVs violate all terms of the AIV law. And the more MLX pointed out the fallacies of both the AIV law and state officials’ actions, these officials — Secretary of State Randy Daniels, legal counsel Robert Leslie, Bruce Stuart and Whitney Clark — colluded to selectively enforce the AIV law against MLX.

“We realized that if we were ever to accomplish our mission of facilitating an open real estate market, we had to bring scrutiny and accountability to the actions of these government officials.

“So here we are. Ten years later – fighting the battle for transparent real estate systems and for holding errant state officials accountable.

“If you know New York real estate, you know this is truly a David v. Goliath battle. We hope you’ll join us and 60,000 others in speaking up to New York state officials: sign the petition to let officials know that you want a fair, open real estate marketplace.”

In 2004, Klickads sued and REBNY called the suit frivolous.Stuart W. Elliott, in the November 2004 issue of The Real Deal:

"Should REBNY be allowed to dictate which technology company its members use to access its listings system?

"Lala Wang, who has battled the Real Estate Board of New York for the better part of a decade over listings, thinks not.

"Last month, Wang, who heads Klickads Inc., a multiple-listings service company that does business under the name BrokersNYC, filed suit charging REBNY with breaking federal and state antitrust laws....

"The suit argues that it’s unfair of REBNY to make access to listings contingent upon its members using its database services— ROLEX and RealPlus. Saying it is being unfairly excluded, BrokersNYC is seeking access to the listings system as well as monetary damages for lost business.

"'Why impose the necessity of centralization when everyone already has their existing system?' asks Wang, who thinks REBNY is trying to make a power play with its newly unveiled plan. 'By controlling access to the system, they can control requiring membership to their trade organization.'

"Steven Spinola, president of REBNY, says that is not the case. He says he is not trying to limit the choice of REBNY members, but trying to best serve their needs....

"'I take exception to wasting people’s time with a frivolous lawsuit,' Spinola said."

NOT frivolous, Mr. Spinola.

On August 6, 2007, the Honorable Leonard B. Sand of the United States District Court for the Southern District of New York denied the defense motion for summary judgment dismissing Klickads’ antitrust claims, allowing Klickads to proceed to trial against REBNY, several brokerage firms that are REBNY members and two Klickads competitors. (Klickads’ monopolization claims against the defendants were dismissed on grounds that “a claim of conspiracy to monopolize based on a shared monopoly between [Klickads’ competitors] would…fail as a matter of law” and Klickads “is neither a consumer nor a competitor” in the Manhattan Residential Brokerage Services Market.)

Judge Sand determined that there were no material disputes as to any of the following facts:

“Prior to 2002, residential real estate brokers in Manhattan did not necessarily share their exclusive sales or rental listings with other brokers. In order to capture the entire commission on a transaction, many listing brokers tried to find a buyer themselves rather than offer the listing to other brokers who would then share in the commission if they found a buyer. Brokers who did share listings, did so on a voluntary ad-hoc basis. Unlike many localities throughout the country, the majority of brokers in Manhattan do not subscribe to a centralized multiple listing service (MLS) through which they would be required to share exclusive listings with other subscribers through a centralized database. Sharing listings through some sort of mandatory co-brokerage agreement, like an MLS, helps property sellers by placing their listing in front of a wider audience of buyers and helps buyers by increasing the pool of properties available through a single broker. In short, an MLS has many procompetitive virtues. See, e.g., Pomanowski v. Monmouth County Bd. of Realtors, 89 N.J. 306, 318 (1982).

“Because Manhattan has no centralized MLS database that all subscribing brokers can access, each brokerage firm must maintain its own database of listings. Some firms do this in house with their own listings management systems, which allow them to electronically store, access, and search listings. These firms must therefore purchase computer systems from a listings IT vendor and employ listings staffs to compile listings, enter them into the database, and remove old listings. Other firms (especially smaller firms) outsource their listings management to companies, like plaintiff and defendant OLR, that employ a listings staff to maintain a listings database and then sell subscriptions to brokerage firms to access that database. By outsourcing to vendors like plaintiff, brokerage firms can avoid the high upfront cost of acquiring an in-house listings management system.

“In 2002, REBNY, a trade association whose members make up the bulk of residential real estate brokers in Manhattan, implemented mandatory co-brokerage rules requiring its members to share their exclusive residential listings with other REBNY members within 72 hours. Initially, REBNY members were permitted to share their listings by fax, by email, or, if they were RealPlus customers, electronically through RealPlus’s R.O.L.E.X. data transmission system. When listings were shared by fax or email, each firm had to manually input the shared listings into their own listings database.

“Defendant RealPlus, a listings management IT vendor owned by Eric Gordon and Terra Holdings (the parent company of brokerage defendants Brown Harris Stevens and Halstead), developed a data transmission system called R.O.L.E.X., which allows listings data to be shared seamlessly between different in-house listings management systems, thus eliminating the need for listings staff to manually input listings transmitted by R.O.L.E.X. from one RealPlus system to another. RealPlus also created interfaces with the in-house listings management systems at four large brokerage firms—defendants Prudential Douglas Elliman, Corcoran, Stribling, and Bellmarc—allowing them to use R.O.L.E.X. to share listings with each other and with RealPlus systems.

“In April 2003, REBNY changed the co-brokerage rules to no longer allow listings to be shared by fax. Around that time, at the request of several REBNY members who used defendant OLR’s service as their listings database, REBNY created a universal email address for OLR allowing listings to be shared by email directly with OLR. Although plaintiff requested that REBNY create a similar email address for BrokersNYC and later forwarded requests from several REBNY members who used BrokersNYC’s services, REBNY did not create a universal email address for BrokersNYC. In an internal memo dated April 29, 2003, REBNY outlined a ‘twenty-five firm policy’ for listings IT vendors seeking a universal email address. In sum, REBNY would only provide a universal email address if the vendor could show that it had at least twenty-five clients who were currently members in good standing of REBNY’s cobrokerage program. (Mem. from Deborah Beck, Friedman Decl. Ex. 82.) The memo also noted that only OLR and RealPlus had over twenty-five clients who were REBNY members. (Id.)

“In June 2004, REBNY announced that as of January 2005 all listings would have to be exchanged over the R.O.L.E.X. data transmission system. Around the same time, REBNY was engaged in discussions with Eric Gordon and Terra Holdings, the owners of RealPlus, about purchasing either the R.O.L.E.X. standard or an equity stake in RealPlus. In these negotiations, RealPlus consistently took the position that other than the four firms that already had a R.O.L.E.X. interface (defendants Prudential Douglas Elliman, Corcoran, Stribling, and Bellmarc) who would be grandfathered in, no additional interfaces would be created and all brokerage firms wishing to use R.O.L.E.X. would have to use RealPlus as their listings management system. (See, e.g., Friedman DecI. Exs. 99, 101, 105.)

“Eventually, however, at REBNY’s request, RealPlus agreed to create a R.O.L.E.X. interface for OLR giving OLR customers access to real time seamless listings updates, just like RealPlus customers. In an email to RealPlus owner Eric Gordon, Dianne Ramirez, President of Halstead and Co-Chair of the board of directors of the residential division of REBNY, explained that REBNY wanted RealPlus to create an interface for OLR to appease a ‘major player’ brokerage firm CitiHabitats, an OLR customer, and to avoid a potential antitrust lawsuit by OLR. (Friedman Decl. Ex. 103.) Plaintiff and another listings IT vendor, VLS (which has since gone out of business), made several requests for a data interface with R.O.L.E.X. on the same terms as OLR and offered to pay any costs that would be incurred in creating such an interface. RealPlus, however, did not create an interface and REBNY declined to do anything to encourage RealPlus to create an interface with plaintiff or VLS.

“Once REBNY had mandated the use of R.O.L.E.X. to exchange listings, the only way for brokerage firms who did not use RealPlus or OLR to participate in the co-brokerage arrangement, which was renamed the REBNY Listing Service (RLS), was to use a link on the REBNY website to input and access listings data. Although the website link was open to all REBNY members, including plaintiff’s clients, it was an inferior alternative to an interface with R.O.L.E.X. While R.O.L.E.X. provided real time and seamless updates to users’ listings databases, the data available on the website was only updated periodically and still required listings staff to input manually the listings from the website into an in-house listings database. Thus brokers who did not use RealPlus or OLR had to give up access to crucial real time updates to listings data.

“According to plaintiff’s expert, in 2002 sales for plaintiff, RealPlus and OLR each represented about a third of the market for listings IT services in Manhattan, which plaintiff contends is the relevant market for antitrust analysis. By 2006, plaintiff claims that RealPlus’s market share in Manhattan had grown to over 70% while plaintiff’s had fallen to 13%. (Ludwick Decl. Paragraph 18.) RealPlus and OLR’s shares of the national market for listings IT services, which defendants contend is the relevant market for antitrust analysis, is slight. Plaintiff alleges that the brokerage defendants collectively make up over 80% of the residential real estate brokerage market in Manhattan and control the board of the residential division of REBNY.”

The applicable antitrust law is well established:

(1) Section 1 of the Sherman Act provides: “Every contract, combination in the form of trust or otherwise, or conspiracy in restraint of trade or commerce among the several states, or with foreign nations, is declared to be illegal.” 15 U.S.C. § 1 (2000).

(2) “To establish a § 1 violation, a plaintiff must produce evidence sufficient to show: (1) a combination or some form of concerted action between at least two legally distinct economic entities; and (2) such combination or conduct constituted an unreasonable restraint of trade either per se or under the rule of reason.” Tops Markets, Inc. v. Quality Markets, Inc., 142 F.3d 90, 95-96 (2d Cir. 1998).

(3) Judge Sand: “To meet the concerted action requirement of a section 1 claim, plaintiff must show that at least two distinct legal entities formed a “conscious commitment to a common scheme designed to achieve an unlawful objective.” Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S. 752, 768 (1984).

(4) Judge Sand: “Concerted action may be proven by direct evidence of an explicit agreement or by circumstantial evidence of an informal or tacit agreement. See Apex Oil Co. v. DiMauro, 822 F.2d 246, 252-53 (2d Cir. 1987); see also Reazin v. Blue Cross Blue Shield of Kansas, Inc., 899 F.2d 951, 963 (10th Cir. 1990). However, the range of permissible inferences that can be drawn from ambiguous evidence is limited in an antitrust case. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 588 (1986). To survive a motion for summary judgment, a plaintiff must point to evidence ‘that tends to exclude the possibility that the alleged conspirators acted independently.’”

Judge Sand proceeded to determine that plaintiff did precisely that:

”Plaintiff points to two types of concerted action that it argues give rise to section 1 liability. First, plaintiff argues that the rules and actions of REBNY as an association of brokers constitute concerted action by its member firms—namely the brokerage defendants. More specifically, plaintiff argues that the member brokerage firms agreed through REBNY that they would use only one type of transmission system (R.O.L.E.X.) provided by only two suppliers on the approved vendors list pursuant to the twenty-five firm rule (RealPlus and OLR) to exchange listings and that this agreement restricted competition between the firms by preventing them from seeking cheaper or more effective transmission systems.

“Defendants are correct to note that not every action by a trade association is concerted action by the association’s members. AD/SAT v. Associated Press, 181 F.3d 216, 234 (2d Cir. 1999). The Second Circuit has noted that ‘[t]o the extent that [trade associations] are buying and selling [products or services] in their own right, they can be fairly regarded as single entities whose selling decisions are not “price fixing conspiracies” and whose buying decisions are not “boycott conspiracies” of rejected suppliers.’ Id. (quoting 7 Phillip E. Areeda et al., Antitrust Law § 1477) (alterations in original). But neither is every action of a trade association immune from antitrust scrutiny. The Second Circuit also noted that there is no conceptual difficulty in treating trade associations as continuing conspiracies when they regulate areas where their members are in competition. Id. (citing 7 Areeda § 1477). Accordingly, ‘an antitrust plaintiff must present evidence tending to show that association members, in their individual capacities, consciously committed themselves to a common scheme designed to achieve an unlawful objective.” Id.

“In this case, plaintiff has raised a genuine issue of fact as to whether the brokerage defendants acted in concert to restrain trade through REBNY. Plaintiff points to decisions by REBNY’s board of directors, where a majority of the seats are controlled by the brokerage defendants, that affect competition between REBNY members—namely adopting the twenty-five firm policy and designating approved and preferred vendors. These were not the types of purchasing or hiring decisions in the everyday operation of a trade association that Professor Areeda and the Second Circuit in AD/SAT cautioned against construing as concerted action. See 181 F.3d at 234. Whether these decisions were unreasonable restraints of trade is a separate inquiry from whether the defendants acted in concert. Plaintiff also points to circumstantial evidence that tends to support a motive for establishing policies to exclude plaintiff. Several of the brokerage defendants were owned by the same parent company as RealPlus giving them a direct financial stake in eliminating plaintiff as a competitor. Plaintiff also argues that all of the brokerage defendants, as large brokerage firms in Manhattan, had an incentive to keep plaintiff’s subscription services for small brokers off the market to maintain their competitive advantage with pricey in-house listings management systems. In short, whether the brokerage defendants ‘consciously committed themselves,’ through REBNY, to exclude plaintiff from participation in the RLS as a preferred or approved vendor, is a question of fact for the jury.

“The second type of concerted action that plaintiff alleges is an agreement between RealPlus and REBNY to promote RealPlus’s services and to create high barriers of entry for RealPlus’s competitors. Plaintiff alleges that REBNY and RealPlus agreed that, beyond the four brokerage firms which were grandfathered in and eventually OLR, no new interfaces to the R.O.L.E.X. transmission system would be created. Thus all new participants in the RLS who wanted real time access to listings would have to use RealPlus or OLR.

"Plaintiff offers no direct evidence of an explicit agreement between REBNY and RealPlus on the creation of new interfaces, but points to several pieces of circumstantial evidence. Before REBNY announced its rule that all listings must be exchanged over R.O.L.E.X. and while REBNY was in negotiations with Eric Gordon and Terra to purchase an equity stake in RealPlus or just the R.O.L.E.X. transmission system, Gordon insisted that a condition of any deal would be: 'An agreement with REBNY that, other than the firms already grandfathered in, all firms wishing to utilize R.O.L.E.X. must use RealPlus as the front end for maintaining listings. No additional interfaces would be created. By having firms grand-fathered in, the four firms that have already created a RealPlus interface: Corcoran, Elliman, Stribling, and Bellmarc would be protected. All other firms would be required to use RealPlus. (Friedman Decl. Ex. 101.) This condition created problems for REBNY because CitiHabitats, a ‘major player’ wanted to continue to use OLR. Eventually RealPlus agreed to create an interface for OLR and REBNY mandated the use of R.O.L.E.X. as the exclusive means to exchange listings in real time on the RLS. Plaintiff has pointed to no evidence of any explicit agreement, but a jury could reasonably infer that an implicit term of this agreement was that REBNY and RealPlus would not create any more R.O.L.E.X. interfaces. Again the common ownership of RealPlus and several brokerage defendants who control a substantial number of REBNY’s board seats provides circumstantial evidence of a motive to reduce the competition faced by RealPlus that would tend to exclude the possibility that REBNY and RealPlus acted independently. This is sufficient to raise a question of fact as to whether RealPius and REBNY agreed to block any further potential competitors from access to R.O.L.E.X.”

Judge Sand then proceeded to discuss “[t]he second element of a section 1 claim…the agreement constitutes an unreasonable restraint of trade.” He explained that “[s]ome types of agreements are so obviously anticompetitive that they are per se unreasonable restraints of trade,” but that “[f]or most agreements…the plaintiff must show that the agreement is an unreasonable restraint of trade under the rule of reason.”

Klickads contends that defendants’ conduct is an unreasonable restraint of trade under both the per se rule and under the rule of reason.

Judge Sand decided that he did not yet need to decide whether Klickads’ claims should be treated under the per se rule or the rule of reason. He noted that Klickads must “identify and prove the relevant antitrust market” and “[w]ithout knowing the relevant market, [he] cannot assess defendants’ market power or whether access to a R.O.L.E.X. interface is an essential element for plaintiff to compete in the relevant market.”

Then Judge Sand discussed the rule of reason and the relevant market.

“Under the rule of reason, ‘plaintiff bears the initial burden of showing that the challenged action has had an actual adverse effect on competition as a whole in the relevant market.’ Capital Imaging, 996 F.2d at 543 (emphasis in original). The burden then shifts to the defendants ‘to offer evidence of the pro-competitive “redeeming virtues” of their combination.’ Id. If the defendant comes forward with such proof, the burden shifts back to the plaintiff ‘to demonstrate that any legitimate collaborative objectives proffered by defendant could have been achieved by less restrictive alternatives, that is those that would be less prejudicial to competition as a whole.’ Id. It is then up to the factfinder to weigh the harms and benefits of the challenged behavior. Id. A plaintiff can satisfy its initial burden either by pointing to direct evidence of actual detrimental effects on competition, like reduced output or actual control over prices, or by showing that defendants possess sufficient market power in the relevant market that their ‘arrangement has the potential for genuine adverse effects on competition.’ Id. at 546 (quoting F.T.C. v. Indiana Fed’n of Dentists, 476 U.S. 447, 460-61 (1986)).

“Plaintiff offers no direct evidence of actual detrimental effects on competition other than a bald assertion that REBNY ‘exercised actual control over prices when it set a very high price for using the e-mail/website access to send and receive RLS listings once or twice a day, thus compelling brokers to purchase Listings IT Services from [RealPlus] or OLR with real time access to RLS data for only slightly higher prices.’ (P1. Mem. in Opp. at 27.) This type of showing is insufficient at the summary judgment stage. We turn therefore to analysis of the relevant market.

“Defendants argue that the market for listings IT services is at least national in scope and therefore defendants do not have market power in the relevant market. Plaintiff argues that the Manhattan listings IT services market is a distinct market where RealPlus and OLR have substantial market share. Both sides have submitted expert reports supporting their market definitions and plaintiff argues that at the very least, a triable issue of fact as to the definition of the relevant market exists.

“The relevant market ‘is composed of products that have reasonable interchangeability for the purposes for which they are produced—price, use, and qualities considered.’ United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377, 404 (1956). The products or services need not be identical to be part of the same market. See id. at 394. A court may define a market as ‘any grouping of sales whose sellers, if unified by a hypothetical cartel or merger, could profitably raise prices significantly above the competitive level. If the sales of other producers substantially constrain the price-increasing ability of the hypothetical cartel, these others are part of the market.’ AD/SAT, 181 F.3d at 228 (quoting 2A Areeda Section 533) (emphasis in opinion). In analyzing the relevant market, courts consider a number of factors beyond the reasonable interchangeability of product and its claimed substitutes. Geneva Pharm. Tech. Corp. v. Barr Labs., Inc.6 F.3d 485, 496 (2d Cir. 2004). These factors include ‘such practical indicia as industry or public recognition of the submarket as a separate economic entity, the product’s peculiar characteristics and uses, unique production facilities, distinct customers, distinct prices, sensitivity to price change, and specialized vendors,’ Brown Shoe Co. v. United States, 370 U.S. 294, 325 (1962), as well as the existence of significant barriers to entry to the relevant market. See Geneva Pharm., 386 F.3d at 499-500 (finding market for generic drug distinct from market for ‘therapeutically equivalent’ brand name drug because, inter alia, high barriers to entry in generic market prevented potential competitors from offering substitutes).

“In this case, genuine issues of fact exist as to the definition of the relevant market. Plaintiff argues that, even if the products are similar, substantial barriers to entry keep national listings IT services vendors from selling to brokerage firms in Manhattan. Plaintiff argues that access to real time listings data from the RLS is essential for brokers to effectively compete in the Manhattan marketplace. Therefore a listings IT services vendor must be able to develop an interface with R.O.L.E.X. and the ability to send and receive RLS listings in real time to be able to compete with RealPlus and OLR to sell listings management systems to brokers in Manhattan. But the only way for a new entrant to obtain an interface with R.O.L.E.X. is for RealPlus to agree to create it. RealPlus has already shown that it is not inclined to create new interfaces by rejecting plaintiff’s request and resisting OLR’s and it has no rational reason to create interfaces with any new potential competitors. These barriers to entry place RealPlus and OLR in a position where, if they formed a hypothetical cartel, they could profitably raise prices above the competitive level. As long as REBNY continues to mandate exchange of listings through R.O.L.E.X., Manhattan brokers have no substitutes available.

“Additional questions of fact exist with respect to the interchangeability of the products offered by Manhattan listings IT services vendors and national vendors. Plaintiff’s expert listed eight factors which he claims make Manhattan listings IT products different from the products offered in the national market. Defendants’ expert argues that the products share the same core functionality and that all of the differentiating features could be addressed through a small degree of customization making the products offered by national vendors adequate substitutes for the Manhattan market. The experts disagree on the degree of customization that would be required to make the products interchangeable. This is a question of fact for the jury.

“Defendants argument that plaintiff cannot show antitrust injury because defendants lack market power depends on the definition of the relevant market. If the jury were to find that the relevant market was the Manhattan listings IT services market, plaintiff has offered evidence that defendants’ market share in that market is over 70% and potential competitors face high barriers to entry. Therefore a jury reasonably could find that defendants have market power in the relevant market and from that infer that there was harm to competition.

“Under the rule of reason analysis, once plaintiff has met its threshold burden, the burden shifts to the defendants to offer a procompetitive justification for their conduct. Here, defendants argue that promoting the exchange of exclusive listings has substantial procompetitive effects in the residential real estate brokerage market and choosing a single transmission standard makes the exchange more efficient. Plaintiff does not contest this. But a substantial question of fact exists as to whether defendants’ purported justification for denying plaintiff and other potential competitors an interface with the R.O.L.E.X. system (that additional interfaces present technological difficulties, reduce efficiency, and increase the chance of errors) outweighed its anticompetitive effects.

“Because substantial questions of fact exist with respect to concerted action, market definition, and procompetitive justifications, summary judgment on plaintiff’s section 1 claims is inappropriate.”

Therefore, Judge Sand ordered the parties to prepare a pretrial order.

Ms. Wang, in a press release announcing that the case would proceed: "I view this as a victory for BrokersNYC, for the smaller brokerage firms that are its customers, and for a competitive real estate market. Competition benefits consumers everywhere, and now the court is allowing us to present evidence showing that competition has been suppressed in a very significant market."

Are the New York newspapers covering the case?

No. Only The New York Law Journal, a legal newspaper reported it, and under the REBNY-friendly caption "Monopolization Claim Rejected in Sherman Act Suit Against Manhattan Realtor Association."

Will“Goliath” quietly win this one?

Or will the court, in the words of Mr. Cox, “allow all companies to serve consumers on an equal footing”?

Stay tuned.

Michael J. Gaynor

Biography - Michael J. Gaynor

Michael J. Gaynor has been practicing law in New York since 1973. A former partner at Fulton, Duncombe & Rowe and Gaynor & Bass, he is a solo practitioner admitted to practice in New York state and federal courts and an Association of the Bar of the City of New York member.

Gaynor graduated magna cum laude, with Honors in Social Science, from Hofstra University's New College, and received his J.D. degree from St. John's Law School, where he won the American Jurisprudence Award in Evidence and served as an editor of the Law Review and the St. Thomas More Institute for Legal Research. He wrote on the Pentagon Papers case for the Review and obscenity law for The Catholic Lawyer and edited the Law Review's commentary on significant developments in New York law.

The day after graduating, Gaynor joined the Fulton firm, where he focused on litigation and corporate law. In 1997 Gaynor and Emily Bass formed Gaynor & Bass and then conducted a general legal practice, emphasizing litigation, and represented corporations, individuals and a New York City labor union. Notably, Gaynor & Bass prevailed in the Second Circuit in a seminal copyright infringement case, Tasini v. New York Times, against newspaper and magazine publishers and Lexis-Nexis. The U.S. Supreme Court affirmed, 7 to 2, holding that the copyrights of freelance writers had been infringed when their work was put online without permission or compensation.

Gaynor currently contributes regularly to www.MichNews.com, www.RenewAmerica.com, www.WebCommentary.com, www.PostChronicle.com and www.therealitycheck.org and has contributed to many other websites. He has written extensively on political and religious issues, notably the Terry Schiavo case, the Duke "no rape" case, ACORN and canon law, and appeared as a guest on television and radio. He was acknowledged in Until Proven Innocent, by Stuart Taylor and KC Johnson, and Culture of Corruption, by Michelle Malkin. He appeared on "Your World With Cavuto" to promote an eBay boycott that he initiated and "The World Over With Raymond Arroyo" (EWTN) to discuss the legal implications of the Schiavo case. On October 22, 2008, Gaynor was the first to report that The New York Times had killed an Obama/ACORN expose on which a Times reporter had been working with ACORN whistleblower Anita MonCrief.

Gaynor's email address is gaynormike@aol.com.

Copyright © 2007 by Michael J. Gaynor
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