Important Considerations When Adding Products and Services

Clareity was privileged this year to have an amazingly smart yet approachable anti-trust attorney, Claude Szyfer, speak at the 2012 MLS Executive Workshop. There are potentially anti-trust considerations for real estate industry organizations in day-to-day operations and policy making, especially as they expand the scope of products and services offered, and as they evaluate mergers and other forms of cooperation with competitive associations or multiple listing services.  So, it is important to have an enhanced understanding of anti-trust issues and have at least a basic understanding of what tests might apply. That said, and regardless of anything said in this blog post, no self-evaluation can replace a qualified attorney – and during the Clareity Workshop many participants lined up to ask Claude questions privately during the breaks.

Probably the most important subject covered during the Clareity Workshop session was “tying” – a practice that MLSs and Associations need to understand when expanding their product and service offering. A tying arrangement is “an arrangement by a party to sell one product [the tying product] but only on the condition that the buyer also purchases a different [tied product], or at least agrees that he will not purchase that product from any other supplier.” [Northern Pac. Ry. Co. v. U.S., 356 U.S. 1, 5-6 (1958)]. The product the customer wants is the tying product because this is the product that the seller uses to “tie” the customer.  The product the customer does not want is the tied product.  In other words, someone is forcing you to buy a product (or service) you don’t want, in order to buy a product, you do want or limits your ability to purchase a product from sources other than the seller or its designee.  The tying arrangement usually involves the same seller of the tying product and the tied product but can also result from two different sellers working together in some fashion.

There are four basic elements for a “tie”:

1.       There must be two separate products;

2.       There must be a tie between them;

3.       The seller must have enough power in the market for the tying product so that it can impact trade in the market for the tied product; and

4.       A certain amount of sales for the tied product must actually be impacted by the tie.

Understanding the tests and how to apply them is very tricky – Claude spent a good amount of time during the session teaching MLS executives how to try to evaluate these four elements. He showed how using pricing to make it economically infeasible to take just one product creates a tie, how items can be bundled or discounted so they are the “only viable economic option” to create a tie, and what it means to have “market power” to create a tie – a “special ability” to force a purchaser to purchase something they would not do in a truly competitive market. Claude made it clear that not a lot of economic damage to commerce was needed. In our industry’s famous Thompson case, the Court found $30-70,000 in dues was substantial enough.

As an example of potential tying, Claude used a hypothetical real estate association offer of a new technology/information service, bundled into dues (though it could have been offered at an artificially low price). In this case, the tying product is the association membership and the tied product is the new service. Claude provided one example where there was no competing product –in which case there was no tying.  However, he also described a second case, where there was a competing service that sub-organizations or members wanted to keep using.  In that latter scenario, there has been an impact in the market for the tied product:  because of the tie, you are forced to buy a product that you don’t want, and you may need to stop using one service in favor of another because you don’t need two redundant systems. If the impact to the providers in the tied product market is in any way significant, then there was tying! As mentioned before, one must be careful in applying this example to your own situation – no self-evaluation can replace the help of a qualified attorney.

As mentioned, Claude covered a lot more ground in his presentation – especially around MLS policy and rulemaking as well as how anti-trust concerns may or may not be concerns during mergers and other MLS cooperation. We wanted to share at least this small part of his presentation on our blog.

Clareity has been privileged to work for eight years on various projects with Claude, who is a partner in the national law firm, Stroock &Stroock & Lavan, LLP. Whenever our clients are entering an area that might require a deep bench of specialized legal expertise, Claude and his firm are one of the options we consider bringing to the table to supplement our business consulting.  We want to thank Claude for bringing his expertise to the Clareity MLS Executive Workshop last week and providing tremendous value to participants.


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