The Department of Justice (DOJ) took a hard stance against a previous court ruling in a case involving Real Estate Exchange (REX), Zillow and the National Association of REALTORS® (NAR). In a hearing before the Ninth Circuit Court of Appeals on February 13, the DOJ argued that NAR’s no-comingling rule required Zillow to segregate non-MLS listings, stifling competition.
With the DOJ’s involvement, this case has the potential to set a precedent in evaluating the application of antitrust laws within the industry.
REX first filed a claim against Zillow and NAR in March 2021 after Zillow redesigned its website to comply with NAR’s optional no-comingling rule, which separated non-MLS listings, disadvantaging brokers operating outside the MLS. In August 2023, a judge ruled that the antitrust claim had no merit and removed NAR from the case. In September of that year, a jury in Seattle ruled that Zillow’s actions did not harm REX, which resulted in REX’s appeal to the Ninth Circuit.
After REX appealed to the Ninth Circuit, the DOJ inserted itself into the lawsuit, arguing that the lower court did not fully examine the antitrust implications of NAR’s optional rules. They are now urging the court to reconsider using the proper framework.
The DOJ asserted that even optional rules can lead to anti-competitive behavior if they lead to coordinated actions—like Zillow’s website redesign—that limit competition from non-MLS listings. By going around the MLS and NAR, REX, a discount brokerage firm, claims to sell homes for 2% – 2.5% commission compared to the traditional 5% – 6% fees. NAR, for its part, has emphasized that the rule in question was explicitly optional, and that it did not coordinate with Zillow on implementation.
DOJ’s antitrust concerns
During the February 13 hearing, the DOJ focused on the application of the first section of the Sherman Act—a federal antitrust law that prohibits agreements or conspiracies that restrict trade and marketplace competition.
Representing the DOJ, Alice Wang—counsel to the assistant attorney general at the DOJ’s antitrust division—outlined, in the context of trade associations, three ways in which an optional rule can support concerted action. She noted that the DOJ does not “read NAR and Zillow as disputing the viability of any of these theories.”
- An optional rule can be mandatory in practice.
- The adoption of an optional rule can itself be concerted action.
- An optional rule can serve as an invitation for others to join in a common plan.
Wang argued that the district court considered the first theory and found that the no-comingling rule was optional for the MLSs to adopt, but it did not look at the second or third theories, and “its opinion can be read to foreclose these other viable theories of what concerted action can encompass.”
Since REX alleged that Zillow concealed listings from sources other than “NAR-affiliated MLSs,” added Wang, this scheme can invoke the third theory, “which involves an invitation, that’s followed by action—showing acceptance.”
The DOJ brought up evidence of how NAR created and adopted the no-comingling rule and published the rule in its handbook for the MLSs to adopt. There was also evidence in the record that the relevant provisions of the handbook prohibited MLSs that adopted the rule from making any modifications, such that all members adopt the same rule if they chose to do so, Wang added. Then there were actions showing acceptance.
“The district court found that the majority of MLSs accepted that invitation and chose to adopt the no-comingling rule, and then they required their members, like Zillow, to implement and follow the no-comingling rule,” she said.
REX, IDX data and alleged anticompetitive schemes
Representing REX, Ursula Ungaro made four main points before the Ninth Circuit:
- The agreement that REX argued was the agreement between NAR and Zillow to segregate listings—not to conceal, segregate and demote.
- The segregation rule is direct evidence of an actionable agreement between NAR and Zillow.
- The segregation rule is direct evidence of concerted action—despite the optional label.
- The evidence showed that Zillow’s agreement to adhere to the segregation rule was not made independently of NAR.
Zillow claimed to have made an enormous effort in accommodating the no-comingling rule in its website redesign and making all the listings easily accessible to its users, but the proof is in the pudding, claimed Ungaro, who said that the non-MLS listings still ended up nearly invisible.
The problem lies in Zillow’s involvement with NAR in this anticompetitive scheme, she asserted.
“Zillow will tell you the reason that they joined NAR was because they had made a decision to seek listings data through internet data exchange (IDX) feeds,” said Ungaro. “They had no choice but to join NAR because otherwise, IDX feeds would not have been available.”
If they were going to pursue IDX data, they had to become involved with NAR, she said.
Further, the optional label that NAR attached to the no-comingling rule is a “red herring,” says Ungaro.
“The real issue is concerted action. And for over a century, the United States Supreme Court has looked past optional labels, at the practical reality of what is going on in the trade association.”
Zillow and NAR’s defense
During NAR’s defense, Chris Michel, a lawyer representing NAR, claimed that the no-comingling rule is fully optional and that Zillow acted independently in its decision to comply with the rule. He also brought up the fact that some non-NAR MLSs even adopted the rule.
Representing Zillow, Steven Engel said that Zillow entered into IDX agreements because it was concerned about the quality, completeness, timeliness and security of its existing listings since it wanted to expand them.
REX’s listings only captured 0.05% of the national market—and other competitors, like Redfin, never carried REX’s listings—and Zillow wanted to make those listings available to consumers, added Engel. He also claimed that Zillow was going to offer an option for REX to pay $1 per listing to end up on the first tab, making it more visible, but REX sued in a “weak antitrust case” before Zillow was able to present them the option.
When asked about concerns about the no-comingling rule and whether it is anti-competitive, Engel said that Zillow had no “conscious commitment in a common conspiracy.”
“Well, it’s clear that the no-comingling rule is not the favorite rule that Zillow has to comply with and, in fact, Zillow’s need to comply with the no-comingling rule, as a licensing condition for certain IDX feeds, was something that cost Zillow a lot of money,” he said. “And it required Zillow to think about how it was going to, in the most consumer-friendly way, redesign its website. I think it demonstrates that Zillow had no conscious commitment to a common conspiracy.”
When asked about the DOJ’s arguments, Engel seemed confused about the DOJ’s presence in the case, but continued his position on how there was no agreement to boycott REX and “certainly no agreement” between NAR and Zillow.
He ended his allotted time by making note of all the categories of rules that NAR has and how they all have different requirements.
“NAR has multiple categories of rules. NAR has mandatory rules. NAR has recommended rules. And then, NAR has optional rules. Optional rules are just ‘putting this out for our members. Do what you want. We’re not even recommending that they adopt it,’” he said. “So this is the lowest category of moral suasion or any kind of suasion that NAR does. But again, the rule wasn’t optional for Zillow. When Zillow wanted the IDX feeds for particular MLSs, it had to apply the ‘optional no-comingling’ rule in those jurisdictions. So, it doesn’t seem to me that this is a case that tests any broad principle about what is an optional rule and actually mandatory.”
There is no specific deadline for the Ninth Circuit to issue a ruling—potentially upholding the lower court’s decision, or remanding all or part of the case for further litigation—but opinions are usually handed down within three months, according to the court’s website.
