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The three-judge panel on the Ninth Circuit Court of Appeals peppered an attorney for the now-defunct discount brokerage REX with questions that lie at the heart of its argument that Zillow worked with the National Association of Realtors to disadvantage non-multiple listing service listings on the portal’s website.
REX, also known as Real Estate Exchange, is locked in a years-long legal campaign against Zillow and NAR over a change in policy that, it argues, helped drive the discount brokerage out of business.
The company brought its case to the Ninth Circuit on Thursday, where attorneys for Zillow, REX, NAR and the Department of Justice focused on a shift in Zillow’s business model and whether NAR’s no-comingling rule was truly optional or amounted to an illegal restraint of trade.
The case zeroes in on Zillow’s decision in 2019 to become an MLS participant to obtain Internet Data Exchange (IDX) listings, which meant complying with rules created by NAR and adopted by MLSs that Zillow joined.
Among those rules was the so-called no-comingling rule, which sought to separate NAR-affiliated listings from other listings.
After joining hundreds of MLSs to obtain IDX feeds, Zillow complied with the rule starting in January 2021 by creating a two-tab system on its website. Listings that complied with the no-comingling rule were what users saw by default. If they wanted to see non-MLS listings, users would have to click a tab labeled “Other Listings.”
The change led views of non-MLS listings on Zillow to plummet; REX wound down its residential brokerage business about 18 months later.
On Thursday, at least one judge seemed to imply that REX’s case centered on Zillow’s business decision to redesign its website.
“What seemed like what was most problematic for your clients was the website layout and design,” Judge Daniel Aaron Bress said. “That is the question I have: When the district court characterized the problem that your clients have with this, it seems like the problem was more specifically with the website, which was really an effort to implement the rule and is not necessarily the rule itself.”
REX’s attorney attempted to get the panel to focus on the no-comingling rule itself and Zillow’s decision to begin complying with it.
“Our position consistently was that the agreement in restraint of trade was the agreement to segregate,” Ursula Ungaro argued. “Yes, the website is the implementation of the rule. But under this court’s decision in [a separate case], the starting point is the restraint; what happens beyond that is implementation and should be of no consequence.”
“Zillow, had it not combined with the NAR, could have taken any position that it wanted to as to REX,” Ungaro later added. “The problem is that Zillow combined with NAR in an anti-competitive scheme.”
Bress and Judge Ana de Alba repeatedly highlighted Zillow’s website design during their questioning of Ungaro, who tried bringing the focus back to the rule itself as the source of an illegal scheme.
“How could Zillow have changed its business model to get the IDX data and avoid antitrust liability?” de Alba asked.
“I don’t know. I haven’t really given that a lot of thought. But the fact of the matter is that in order to get the IDX data they had to join the anticompetitive scheme,” Ungaro responded.
Optional or not?
The judges also homed in on the fact that the no-comingling rule was technically optional and that 71 percent of MLSs had adopted it. The question is central to REX’s argument on appeal.
Ungaro argued that, in effect, the rule wasn’t optional. Instead, she said, it represented a concerted action by NAR and MLS participants like Zillow to restrain trade.
“Our position on the optional label that NAR attached to the rule is that it’s a red herring. The real issue is concerted action,” Ungaro said. “For nearly a century, the United States Supreme Court has looked past optional labels.”
“It’s optional at one level. At the next level, it’s not optional; it’s mandatory. If the MLS adopts it, they have to impose it on the participants. If the participants violate the rule, then they’re subject to sanctions,” she said. “Importantly, for Zillow’s purposes, one of the sanctions would have been potentially the loss of the IDX feeds.”
Ungaro noted that NAR dictated that the no-comingling rule couldn’t be altered if adopted.
Zillow and NAR respond
For its part, Zillow worked to keep the focus on its compliance with the rule as simply an update to its website.
Steve Engel, an attorney for Zillow, suggested REX was attempting to shift its argument after several previous court losses, and he shed light on an apparent compromise he said Zillow crafted for REX before REX sued Zillow.
Both Zillow and NAR worked to argue that there was no agreement between Zillow and NAR.
“The reason why the district court thought the optionality of the no-comingling rule was relevant was because REX argued a direct conspiracy and an agreement between NAR and Zillow,” Engel said. “It’s certainly relevant in deciding whether NAR and Zillow — which have no agreements between the two of them — it’s certainly relevant to think that all NAR apparently has done is propose an optional rule 20 years ago that some others have followed.”
Engel suggested there was a kind of hierarchy of NAR rules, and that the no-comingling rule is the lowest tier.
“NAR has mandatory rules. NAR has recommended rules. And then NAR has optional rules,” he argued. “This is the lowest category of moral suasion or any kind of suasion that NAR does.”
Before updating its business model in 2021, Zillow reported hosting an estimated 98 percent of all listings. But it noted it had big gaps in some markets, where as many as 30 percent to 35 percent of listings were missing before it moved to the IDX feed model.
Engel said Zillow created the framework of what he called a “workaround” of the rule that would have allowed REX listings to appear on the main site in exchange for $1 per listing.
“Before Zillow was able to present this to REX, REX sued,” Engel said, “and so here we are.”
DOJ weighs in
The arguments also included an appearance by the Department of Justice, which previously submitted an amicus brief in the case in June in support of neither party. The DOJ didn’t take an overt position in the case’s ultimate outcome, but it is asking the court to rule in REX’s favor and to send the case back to district court.
Alice A. Wang, counsel to the assistant attorney general at the DOJ’s Antitrust Division, zeroed in on the question of optionality and said the district court failed to consider two of three key points.
“An optional rule could be mandatory in practice,” Wang said, laying out the first point. “Second, the adoption of an optional rule can itself be concerted action.”
“And third, an optional rule can serve as an invitation for others to join in a common plan,” Wang added.
She said the district court looked at the first point, but not the second or third, and she asked the judges to rule in REX’s favor.
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