Real estate companies must ever be mindful of the federal and state anti-trust prohibitions and how the prohibitions relate to their industry. Dating back to the Industrial Revolution in the United States, the government became concerned about certain companies becoming too powerful and eliminating their competitors. The Sherman Anti-trust Act of 1890, still effective and the enforcement tool of our time, prohibits “contracts, combinations or conspiracies by two or more persons in restraint of trade.” It is enforced by the United States Department of Justice and the Federal Trade Commission, as well as the State Attorney General. Costs of defense run high and any damages are tripled, plus an assessment for the governments’ attorneys’ fees.
What is an Anti Trust Violation
An anti-trust violation is defined as any agreement or conspiracy in restraint of trade and there is no need for the government to prove “anti-competitive effect.” Price-fixing and boycotting are automatic violations. In real estate industry terms, price-fixing is an agreement between two or more competing brokerages to establish standard commissions; not just between the two brokerages for their commission sharing, but for their deals with other brokers as well. Boycotting is an agreement between two or more competing brokerages to drive a competitor out of the industry. Allegations of boycotting were rampant with the appearance of discount brokers and virtual office websites. Moreover, two or more competing real estate brokers or agents denigrating the business practices of another brokerage to discourage other agents from affiliation also could be prosecuted as an anti-trust violation. Other potential anti-trust violations include agreements between competing brokerages to allocate customers by territory, price range or otherwise.
The law does not prohibit a brokerage from establishing its own standard commissions and other terms for its agents; it just prohibits the agreement amongst competing companies. On the other hand, a broker can be held liable for the anti-competitive actions of its agents even if the broker was unaware of the agent’s actions.
While anti-trust actions have focused on the real estate industry, it applies equally to other industries, as well. While trade associations and industry conferences can be beneficial, participants are cautioned not to participate in any conduct that can be construed as anti-competitive.