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Summary of Reasons in Ruling in Toronto Real Estate Case

Technical Backgrounder

May 10, 2016

Following the Competition Tribunal's decision on April 27, 2016, the reasons for the decision are now available on its website.

The reasons explain the Tribunal's decision to partially grant the Commissioner of Competition's ("Commissioner") application against TREB. In April 2011, the Commissioner applied to the Tribunal alleging that TREB had violated section 79 of the Competition Act. Specifically, TREB had abused its market power by restricting its members from offering innovative products and services to consumers over the internet, including through virtual office websites ("VOWs"). As required under section 79, the Commissioner argued that:

  1. TREB controls the market for Multiple Listing Service (MLS) based residential real estate services owing to its control over the MLS, a key input for the supply of residential real estate services;
  2. TREB had engaged in and continues to engage in a practice of anti‑competitive acts by restricting its members' ability to use and display certain MLS information over the internet; and
  3. TREB's restrictions had and would continue to substantially prevent competition in the supply of residential real estate brokerage services. But for TREB's restrictions, its members could use technology and the internet to deliver more and higher quality services at lower costs to GTA home buyers and sellers.

The Tribunal agreed in all important respects with the Commissioner's position. It partially granted the Commissioner's application, meaning that the Commissioner had satisfied the legal requirements for the Tribunal to issue an order, but an additional hearing is necessary to determine the terms of that order.

On this page

  1. Substantial or complete control (section 79(1)(a) of the Competition Act)
  2. Practice of anti‑competitive Acts (section 79(1)(b) of the Competition Act)
  3. Substantial prevention of competition (section 79(1)(c) of the Competition Act)

(i) Substantial or complete control (section 79(1)(a) of the Competition Act)

Regarding TREB's control of the market, the Tribunal agreed with the Commissioner that the relevant product market was the supply of MLS‑based residential real estate brokerage services in the Greater Toronto Area (“GTA”). The Tribunal also agreed with the Commissioner on the assessment of TREB's control of the market (i.e., TREB's market power). The Tribunal held that the ability to exclude, such as the prevention of rivals from introducing new products, falls squarely within the definition of market power because it enables the dominant entity to profitably raise prices above the competitive level or reduce non‑price elements of competition below the competitive level. The Tribunal rejected TREB’s argument that it is merely an input supplier that does not participate in the market for residential real estate brokerage services and consequently has no “horse in the race.” The Tribunal highlighted the ability of trade associations, such as TREB, to profitably influence price, quality, variety, service, advertising or innovation for the benefit of its members.

The Tribunal held that TREB controls access to the MLS system and can set and enforce rules, insulating “its members from competition by excluding the innovative products of actual or potential competitors who threaten to disrupt the status quo.” The Tribunal also accepted the Commissioner's argument that brokers and agents cannot compete effectively in the market without access to the MLS system. In reaching this conclusion, the Tribunal dismissed TREB’s claim that the many brokers compete in the relevant market which suggests that barriers to entry are low. Instead, the Tribunal emphasized that even in a market with many competitors, a dominant entity can engage in conduct that results in a less competitive market than otherwise.

(ii) Practice of anti‑competitive Acts (section 79(1)(b) of the Competition Act)

The Commissioner argued that in 2011 TREB had restricted the use and display of MLS information online specifically to exclude VOW‑based competitors from the GTA. The Tribunal agreed. It categorically rejected TREB's argument that its restrictions were primarily motivated by concerns regarding consumer privacy, particularly regarding sold information of properties. Instead, the Tribunal held that TREB's concerns about privacy “were an afterthought and continue to be a pretext for TREB’s adoption and maintenance of the VOW restrictions.” The Tribunal held that TREB had resisted the emergence of VOW brokerages — not because of privacy concerns — but because of concerns that VOWs could lead to increased price and non‑price competition and reduce the role of TREB’s members in the real estate transaction.

In reaching this determination, the Tribunal assessed the history leading up to the adoption of TREB’s VOW Policy. It noted the strong and consistent concerns expressed by TREB members and other brokers regarding competition from VOWs and the absence of concerns regarding consumer privacy. The Tribunal also expressed concerns about the reliability of TREB's key witness who testified about TREB's position regarding privacy. The Tribunal pointed out that this witness' testimony did not align with contemporaneous documents, which had shown his memory to be unreliable. Instead, when pressed as to why TREB’s members were concerned about the emergence of brokerages relying on VOWs, the witness had suggested that “some [members] may be a little fearful of new technology.” Another TREB witness admitted that some TREB members were concerned that “the introduction of more and more technology will put pressure on commission rates.” The Tribunal noted that TREB drafted its VOW Policy on the basis of a similar policy from the United States but made important modifications to disadvantage GTA VOWs. Finally, the Tribunal also assessed more recent developments following the adoption of TREB’s VOW Policy. The Tribunal noted that TREB did not take disciplinary action against certain large traditional brokerages that provided sold information on their websites for an extended period despite TREB’s concerns related to compliance with applicable privacy laws and regulations.

The Tribunal could not reconcile TREB’s privacy concerns with the fact that 42,500 members have access to this information and provide the allegedly private information to consumers by fax or by email. On this point, the Tribunal agreed with the Commissioner that if TREB was truly concerned about privacy, it would at a minimum ensure that information such as sold information is not distributed beyond its members, which clearly is not the case.

(iii) Substantial prevention of competition (section 79(1)(c) of the Competition Act)

The Commissioner's witnesses testified about the impact TREB's restrictions had on their businesses and the new and innovative products and services they expected to offer GTA home buyers and sellers if TREB's restrictions were removed. The Tribunal noted five anti‑competitive effects of TREB’s VOW restrictions in their testimony:

  • Increased barriers to entry and expansion: There has been a significant adverse impact on entry into, and expansion within, the relevant market by web‑based and other brokerages;
  • Increased costs imposed on VOWs: TREB’s VOW restrictions undermine the ability of brokerages operating full information VOWs to compete because they raise their costs;
  • Reduced range of brokerage services: But for TREB’s VOW restrictions, there would be a range of innovative and value‑added tools, features, and other services on VOWs;
  • Reduced quality of brokerage service offerings: The quality of certain important service offerings in the market would be likely be significantly greater but for TREB’s VOW restrictions, including the provision of market analysis to consumers based on more comprehensive information; and
  • Reduced Innovation: There would have been, and likely would be, considerably more innovation in the relevant market and that brokerages operating full‑information VOWs likely would have an important impact in which dynamic competition unfolds, but for TREB’s VOW Restrictions.

The Tribunal held that — in the aggregate — these five effects demonstrated that TREB's restrictions had substantially prevented competition in the GTA residential real estate market. The Tribunal noted that ‎dynamic competition, including innovation, is the most important type of competition and consumers are deprived of the benefits of enhanced services when members are shielded from disruptive competition. The Tribunal concluded that “by preventing competition from determining how innovation should be introduced to the supply of residential real estate brokerage services in the GTA, TREB has substantially distorted the competitive market process and prevented innovative brokers […] from considerably increasing the range of brokerage services, increasing the quality of existing services, and considerably increasing the degree of innovation in the Relevant Market.”

Copyright and Intellectual Property

The Tribunal determined that TREB had not led sufficient evidence to prove a valid copyright in the MLS database. Instead, based on the evidence before it, TREB’s specific compilation of data from real estate listings amounts to a mechanical exercise that does not attract copyright protection. Further, the Tribunal concluded that even if TREB has a valid copyright on the MLS database, the VOW restrictions are more than the mere exercise of its intellectual property rights, and that the Tribunal has the jurisdiction to make an order in this regard.

Remedy

Having concluded that TREB abused its market power, the Tribunal highlighted the need to impose a remedy that removes TREB’s anti‑competitive restrictions on the ability of innovative, internet‑based brokerages to offer new products and services to consumers in the GTA. The specific terms of the Tribunal order will be determined following further written submissions and a hearing on remedy on June 2 2016.

This publication is not a legal document. It is a summary provided for the convenience of the reader that is based on the Competition Bureau’s understanding of the reasons provided by the Competition Tribunal.
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