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VO [00:00:06] You're listening to REINCheck with Andrea Rice, Contracts and Industry Specialist at REIN, where you get the latest member news and information delivered straight from the source, REIN MLS.

Andrea Rice [00:00:21] Hello and welcome the REINCheck. I'm your host, Andrea Rice, and today I am pleased to share with you a recording from a recent presentation on antitrust given by attorney Brandon Allred with Kaufman and Canoles. Many of you, I am sure, are already familiar with Brandon as he serves as legal counsel on our Property Managers Advisory Committee, and as such has appeared on REINCheck several times. Brandon will explain today what antitrust is and how REIN members can avoid costly antitrust violations. Enjoy.

Brandon Allred [00:00:51] And just to give you some general overview of the antitrust law, this all comes out of the Sherman Act, which was passed in 1890 in response to a great deal of anti-competitive behavior and monopolistic behavior that developed in the United States around that time, and it's still good law today and impacts, you know, how businesses operate and function on a daily basis. So, the whole premise behind the Sherman Act is to prohibit anti-competitive behavior in the marketplace and restraints on trade generally. So, there are two classes of behavior that are prohibited. The first is agreements between individuals or corporations. So really, any situation where you've got collective action between multiple parties that unreasonably restrain trade. So, think about two parties colluding to eliminate a competitor, for example, by way of maybe price fixing or dividing up territories. The other class of behavior that the Sherman Act prohibits is the unilateral abuse of monopoly power. So, think about the AT&T breakup in the 1980s. You know, AT&T at that time was a massive behemoth and basically controlled all phone service in the United States and beyond. And the FTC and the Department of Justice came in and said, this is a monopoly and it's anti-competitive. And AT&T was broken into a number of different companies, and the telecom industry today is an outgrowth of the AT&T breakup of the 80s. Less applicable here, but that's just an idea of how comprehensive the Sherman Act can be. From a practical perspective, let me give you some background on enforcement, and then we can talk about specific kinds of behaviors that the Sherman Act addresses. But enforcement is either through the Federal Trade Commission or the Department of Justice, which can bring civil or, excuse me, criminal prosecution, as well as civil penalties. In addition to that, you can have private actions. So private parties who have been harmed by anti-competitive behavior or you can allege that they've been harmed by anti-competitive behavior can actually bring private civil suits. So, say, for example, a competitor claims they were frozen out of the market because a bunch of businesses got together and decided to boycott them. They can make a civil claim under the Sherman Act. This can affect both individuals and corporations. The fines are large. To give you an idea, maximum corporate bonds are a hundred million dollars or double the amount of losses or gains from the antitrust violation. For individuals, you're looking at a million dollars or double the amount of losses or gains from the anti-competitive behavior. So, we're really talking about very significant monetary penalties in the criminal context. Jail terms up to 10 years for individuals as well, so this has some major, major teeth to it. The other thing that I'll mention is that the cost doesn't stop there. If you ever get into having to defend an antitrust suit, the costs of defense, you know, not only in terms of the legal fees but also in terms of the time and resources that it takes to go through that process are pretty astronomical. You know, we've defended a few of these for various clients over the years. The last one we did, which was pretty recent, resulted in three million dollars about worth of legal fees before we actually made it to trial. And it ultimately settled before going to trial. So, you know, I say that not to scare anybody, but just to give you some context and kind of make the point that, you know, this is really serious and it's a priority for the government at this particular moment. You know, you'll see there's been lots of discussion recently about the big tech companies and whether some of the behaviors that they're engaging in are anti-competitive and whether the Department of Justice should step in. And that sort of filters down through our business generally. So, it's not just these behemoth companies that the Department of Justice looks at and are affected by that mentality. When the government decides antitrust enforcement is a priority, then that means antitrust enforcement is a priority across the board. So, it's really something to be careful about and be sensitive to it at this particular time. The other thing I want to mention is that you can have corporate liability so a corporation can face fines of criminal and civil nature based on the actions of individuals within the corporation. And that doesn't necessarily have to be an action by an officer or director or, you know, the board of directors getting together and setting policy and saying the corporation is going to, as a matter of policy, engage in these kinds of anti-competitive practices. You could have a rogue employee that goes out and does something without the knowledge of the officers or the board of directors. And you can have liability attached that way as well. Now the good thing is that, you know, there are some amnesty programs out there. So, you know, if you find out that an employee has gone rogue and done something that they're not supposed to and you report the problem and you deal with the situation and resolve that, then there are amnesty programs available so that officers and directors and the corporation as a whole can avoid criminal or civil penalties. So, with that as a backdrop, let's talk about what kinds of things can get you into trouble from an antitrust perspective. First, there are really two elements that you have to prove that the government or private party has to prove if they're going to succeed on an antitrust claim. The first is that there was an agreement among multiple parties to engage in some sort of behavior. When I say agreement, I'm not necessarily talking about a formal written contract, okay. If you have a formal written contract, then you know that's an issue, but you don't need that. You don't even need to have a formal meeting of people around the conference table. So, you don't necessarily have to have a James Bond villain-type gathering to create an agreement. The courts say that a simple wink and a nod with an understanding to engage in some kind of behavior towards a common goal is enough. So, it could be a casual discussion at a football game or a kid's soccer game. That's enough to constitute an agreement for purposes of determining whether or not there's been a antitrust violation. The second prong of that test is that you have to have agreed to engage in some behavior that unreasonably restrains trade that is anti-competitive in nature. So, a couple of concrete examples for you in front of you. The first category of these are per se offenses. So, these are actions or behaviors that are so bad the courts look at them and say this automatically constitutes anti-competitive behavior and it's a violation of the antitrust laws. And if the plaintiff or the Department of Justice can show that one of these things happened, then it's kind of game over. Do not pass go. Do not collect two hundred dollars. Go directly to jail and we'll figure out what the penalties are going to be. But there's no discussion as to whether or not the violation of the antitrust laws happened in the first place. It happened. So, the first of these is is price fixing. If you agree with a competitor that you're each going to charge a certain fixed price for a service or product, and that's no ifs, ands, or buts, then you engaged in price fixing and you violated the Sherman Antitrust Act. You'll notice in the REIN forms, we never suggest prices for any kind of service. We want to avoid any kind of discussions about setting brokerage fees for sales agreements or suggesting a set application fee or rental applications. We just don't do it because, you know, price fixing is one of those where if it happens, it's really easy to show usually. And it's a big issue. Another per se offense is division of territories or customers. So, if you have a situation where you know, one firm says, I'm going to take Virginia Beach and another firm says I'm going to take Norfolk, and we each agree that those are separate service areas. We're never going to cross the dividing line between Norfolk and Virginia Beach, and we get a call about something in Norfolk and Virginia Beach. We're going to refer it back to the Norfolk firm and vice versa. We've divided territories and customers between ourselves, between ourselves, and that's anti-competitive and a violation of the Sherman Act. The other situation we worry about is group boycotts. So, this is a scenario where we, for whatever reason, decide that we're not going to do business with X, Y, or Z firm. So, you know, you say we all agree that no matter what, we're not referring any business to a particular firm. Or no matter what, we're not going to accept listings from a particular firm or, you know, we're not going to provide services to a particular firm in this area, and we are basically going to collude together to freeze them out of the market. And anything like that falls under the heading of a group boycott. And again, is a per se a violation of the Antitrust Act. The other thing I want to flag for you are association activities, and I do want to be clear, REIN is an association, so you're naturally all part of an association by definition. Merely having or participating in an association is not a per se offense in and of itself. But when you have an association and really any kind of trade association, there is collective action towards a common goal almost by definition. So, you know, the first part of this test where we're talking about having an agreement and taking collective action to accomplish some and is already satisfied. And again, that in and of itself is not an antitrust violation, but it does create a heightened level of risk because you've already satisfied the first prong of this test. So, we want to be particularly careful in this setting about not promulgating policies that could somehow result in the restraint of trade. Again, the price fixing example is appropriate here. You know, that's the reason why you never see any prices in REIN forms. There's always a blank where a number would go or a sales commission, for example, or an inspection fee. The other class of antitrust violation violations of this rule of reason offenses. And basically, this is everything else that would restrict trade or be anti-competitive in nature. That isn't a per se offense. So, these are behaviors that businesses engage and, you know, they cause harm to competition. So, you can make an allegation that trade has been restrained, and you can argue that the anti-competitive effects of whatever action is being taken outweigh the legitimate business reasons and pro-competitive benefits of the action is being taken. This is necessarily a facts and circumstances-based analysis when you get into a rule of reason type allegation. The way this works is that a plaintiff would have to allege a restraint on trade occurred and then prove that it actually harmed competition. And if a plaintiff can meet that burden of proof, then the burden shifts to the defendant, to the accused party, to prove that the behavior that they engaged in serves a legitimate business purpose that outweighs the harm of whatever the supposedly anti-competitive behavior was. This is not something that we see as often. There are fewer concrete examples of this just because it's very dependent on a specific type of behavior and presumably a specific type of harm that was caused as a result. But it's almost always going to turn into a very expensive battle of the experts in open court. In general, for this group, we are most concerned with collective behavior. Again, an agreement among multiple parties to collude in an anti-competitive manner. And we're most concerned with the practical examples that we discussed. You know, there are really limited circumstances where you can get into antitrust trouble by acting unilaterally. So, you know, just by making independent business decisions, and those are limited to situations where you've got a monopoly player, which you know, is not really the situation that we're focused on here. So, for our purposes, business decisions that you make and pursue independently really shouldn't cause an issue. So, for example, if we go back to our scenario where we're talking about territories being divided between Virginia Beach and Norfolk. If a firm were to make an independent decision, entering into some sort of agreement with another firm, that it only wanted to handle real estate transactions in Virginia Beach and, you know, for whatever reason, just didn't want to expand into the Norfolk market or the Chesapeake market and anything that came its way from Norfolk or Chesapeake, it was going to refer out to other firms. That's perfectly OK. That's not anti-competitive. It's not a violation of the Antitrust Act. That's just an independent business decision made about where it makes sense for you to market your services. The issue comes when you start talking to another firm and you make a collective decision that one firm is going to sit in Virginia Beach and one firm is going to sit in Norfolk, and you're never going to cross that dividing line. That's where you have an issue from an antitrust perspective. REIN takes antitrust compliance very, very seriously. I know that Joan would tell you the same thing and probably has been in prior years. The policy is strict adherence to the antitrust laws without exception.

Andrea Rice [00:20:43] Special thank you to Brandon for that thorough presentation on antitrust and thank all of you for listening today. For additional information and to access REIN's antitrust policy, you can go to REINMLS.com/legal-resources. And, as always, check with your broker for more information and additional resources on antitrust. Thank you and have a great rest of your day.

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