Paperless transaction management system (PTM) provider PDFfiller responds to copyright infringement claims by the California Association of Realtors® (CAR) by countering with antitrust allegations — a familiar and widely recognized charge against the trade union’s domineering behavior.
For background on the case, see Parts One and Two of this article series: CAR sues document management program $136 million for unauthorized form use — and threatens CAR members as next and zipLogix puppetry and CAR’s disguised ownership.
CAR v. PDFfiller: a battle for an open market
The California Association of Realtors® (CAR) is once again presented with antitrust allegations in the wake of its lawsuit against paperless transaction management system (PTM) provider PDFfiller for copyright and trademark infringement upon its proprietary real estate forms.
Like few CAR adversaries before it, PDFfiller refused to succumb quietly to CAR’s complaint à la dotloop.
Instead, the company fought back. PDFfiller recently denied all allegations of copyright and trademark infringement and returned with a counterclaim against CAR and a third-party complaint against CAR subsidiary Real Estate Business Services, Inc. (REBS). In its response, PDFfiller accuses the behemoth trade union and its affiliates of unlawful antitrust violations by strangling the open accessibility of real estate forms throughout California.
PDFfiller’s antitrust allegations include:
- monopolization (attempted and actual);
- unlawful tying of CAR real estate forms to zipForm® software;
- conspiracy in restraint of trade; and
- violation of the Cartwright Act and the Sherman Antitrust Act.
Although this is not the first antitrust allegation lobbed against CAR, PDFfiller’s brave counterstrike touches upon some previously unaddressed (legally, at least) patterns by the trade union and its vast network of subsidiaries.
CAR is notoriously defensive of its forms, some of which propagate needlessly binding and detrimental provisions that don’t serve the needs of its users, such as arbitration and attorney fees provisions. Thus, while the forms software issue is the crisis du jour, it is hardly the biggest problem when it comes to CAR’s library of forms. Even if CAR forms were available through a sleek, modern platform, they’d still be CAR forms — set to benefit CAR first, members second.
But we digress.
Regardless, CAR stops at nothing to defend its forms — neither its members’ expense, nor alleged violations of federal antitrust law.
Editor’s note — Readers might detect an editorial voice throughout this article. Full disclosure: RPI (Realty Publications, Inc.) is an independent publisher of real estate forms in California competing with CAR. Continue reading for more information near the end of this article.
The need for trust-busting, explained
Antitrust laws originated in the late 1800s after the uncontrolled power of major businesses, such as U.S. Steel and Standard Oil, eliminated competition to the severe societal detriment of consumers. These businesses stifled competition then inflated prices when consumers had no other viable alternatives. This created a dynamic in which the business did not need to worry about quality production, since consumers had no other choices from whom or where to acquire goods and services. Singular powerhouse businesses like these became known as trusts.
Accordingly, as a matter of public policy, several antitrust laws were established to prevent such trusts from forming and monopolizing markets at consumers’ extraordinary expense. The first law, the Sherman Antitrust Act (Sherman Act), was passed in 1890. The Sherman Act focuses its scope upon market monopolization and price fixing which affects interstate commerce (although the antitrust violations themselves can occur within a single state). [15 United States Code §§1 et seq.]
Following the Sherman Act, the Clayton Act and the Federal Trade Commission Act were passed in 1914. The Clayton Act moderates anticompetitive business mergers, and the Federal Trade Commission Act established the Federal Trade Commission (FTC), a federal agency which investigates anticompetitive and monopolistic behavior to maintain beneficial market competition. [15 USC §§12-27; 29 USC §§52-53; 15 USC §§41-58]
Essentially, the three acts work in tandem to prevent unlawful, anticompetitive business practices which work against the interest of society at large — including our readers. By ensuring businesses in competition with one another independently set their prices and offer a variety of services and products, these antitrust laws preserve consumer choice in the open market, critical to efficient functioning of our capitalistic economic system.
State laws also help prevent unlawful business practices. The Cartwright Act cited by PDFfiller in its counterclaim prohibits restraint of trade and anticompetitive practices on the smaller scale of intrastate commerce in California. [Calif. Business and Professions Code §§16720 – 16728]
Thus, if PDFfiller’s allegations against CAR are proven by the evidence, the counterclaim will have a tremendous effect on the accessibility of real estate forms and software in California — and significant state and federal repercussions for CAR’s unruly behavior.
A tortured history of CAR’s antitrust legislation
PDFfiller’s counterclaim and third-party complaint highlight CAR’s “anticompetitive, unfair, and exclusionary conduct” toward PDFfiller and other PTM providers — and, subsequently, form publishers — in California. PDFfiller further claims CAR and REBS (and by association, zipLogix) “have participated in an unlawful scheme to monopolize the relevant market” by the above alleged actions.
An excerpt from PDFfiller’s counterclaim states:
CAR (including its wholly owned subsidiary, Counter-Defendant REBS) has, or is dangerously close to attaining monopoly power, in the market for EFRE in California. CAR has, or is dangerously close to having, the ability to unilaterally increase prices in, and exclude competition from, the market for EFRE in California.
Editor’s note — EFRE is defined in the counterclaim as “electronic fillable real estate forms.”
PDFfiller’s astute observation harkens back to several antitrust allegations made against CAR, the National Association of Realtors® (NAR), multiple listing services (MLS) and others linked to trade union dominance.
Perhaps the most relevant case was a contest between a part-time sales agent and a local Association of Realtors® (AOR). The AOR sought to forbid the part-time sales agent from accessing the local MLS since their primary business wasn’t representing principals in the sale of real estate. However, the sales agent fought back against the AOR, claiming their exclusion from the local MLS constituted anticompetitive behavior in violation of the Cartwright Act. The California Supreme Court ruled the AOR’s exclusion of the sales agent was, in fact, anticompetitive and against the reasonable antitrust interpretations of the Cartwright Act and, accordingly, the Sherman Act. [Marin County Board of Realtors® v. Palsson (1976) 16 C3rd 920]
The California Supreme Court’s ruling brought to issue the monopolistic tendencies of AORs, and by extension, their state and national counterparts. Although AORs often claim they are not in violation of antitrust laws per se and are merely protecting their business advantage, the Court’s ruling declared that reasonable inference of anticompetitive behavior constitutes a violation regardless.
A more recent case drew additional antitrust issues to the forefront of AOR dealings.
A group of local AORs operating individual MLSs organized a separate corporation in which they all were shareholders. Through this separate corporation, a county-wide MLS was established which collected information from each of the individual MLSs in a single database — not an inherent violation of antitrust rules as it provided significant benefits for consumers.
However, the individual AORs agreed upon a fixed price for consumers subscribing to individual MLS providers using the county-wide MLS. The unlawful price fixing scheme was brought to federal court by real estate agents opposed to the inflated prices of less efficient MLSs in partnership with highly productive MLSs in the conglomerate county-wide MLS. [Freeman v. San Diego Association of Realtors (9th Cir. 2003) 322 F3d 1133]
Thus, the precedent is set for PDFfiller’s allegations. Reasonable interpretation of the Cartwright Act and Sherman Act may well vindicate PDFfiller from CAR’s obtrusive and exclusionary dominance in the real estate forms and PTM market — widening consumers’ ability to choose higher quality forms and PTM services rather than settling for CAR’s.
Unlawful tying: CAR’s combinative schemes
In addition to the monopolization allegations, PDFfiller’s counterclaim also alleges the unlawful tying of previously separate products through zipForm® software.
A tying arrangement occurs when an agreement is entered into between a vendor and a purchaser in which the vendor sells a product or service to the purchaser conditioned on their purchase of a different (tied) product or service.
As stated in PDFfiller’s third-party complaint against REBS:
The unilateral refusal of CAR (including its wholly owned subsidiary, Defendant REBS) to make access to CAR EFRE available without zipForm® is unlawful exclusionary or predatory conduct and, in combination with Defendants’ agreements, constitutes monopolization or attempted monopolization of the market for PTM Software for EFRE software in California.
Thus, according to PDFfiller’s complaint, requiring agents to purchase zipForm® software in order to use CAR forms (two otherwise separate and autonomous products) constitutes an unlawful tying of products, for which the purchase and use of one is dependent on the purchase of the other.
Further, the tying occurs between two less-than-exemplary products, requiring members and subscribing non-members to access lackluster forms through outmoded software — hardly an efficient arrangement for progressive California agents and brokers.
Of course, CAR has gotten away with such reprehensible combinations (or bundling) in the past.
Prior to 2002, CAR real estate forms were sold separately from membership in the trade union and thus on equal ground with competing real estate form providers. Then, CAR incorporated its forms behind its membership paywall — deceptively labeled a “free” member benefit — severely limiting the utility of forms from other publishers for their members.
Thus, CAR’s tying activity has been displayed twice: tying real estate forms into membership, and later tying the forms themselves with the zipForm® software.
Even non-members using CAR forms have to purchase zipForm® software in addition to the $799 – $999 fee for access to CAR’s forms library. Simply, CAR’s forms simply cannot be used outside and independently of its proprietary zipForm® platform. As CAR has bullied much of California (but not the California Bureau of Real Estate (CalBRE)) into believing only CAR forms are legal to use (an absolute falsehood), the majority of California’s real estate professional population suffers the expensive effects of such product bundling — and relinquishes their ability to choose.
Fortunately for agents who aren’t required to use CAR forms by membership or the dictates of their employing member brokers, RPI (Realty Publications, Inc.) provides over 400 free, legal and quality forms — no membership, fees or software required.
Editor’s note —Though produced by the same publisher, RPI forms were previously branded as first tuesday forms.
Use of forms ought to be unrestricted and available through whichever platform the user deems most appropriate, not held for ransom behind aging cloud-based software disliked by many and prone to crash. Still more importantly than software, users ought to use the form they deem is the most beneficial to their practice, engineered consumer friendly and best to protect their fee — and CAR forms simply are not the best choice.
Economic effects and restraint of trade
CAR’s monopolistic and anticompetitive actions similarly limit the number of voices active in the market of real estate service providers and educators. PDFfiller (with others like dotloop) suffers at CAR’s hand for providing alternative PTM services to zipForm®.
Full disclosure: first tuesday, too, has suffered from CAR’s overreaching hand in the forms marketplace.
CAR’s previous bundling of real estate forms into its membership in 2002 negatively affected competing forms providers and limited the number of voices and form publishers available to compete in the marketplace. Further, to replace forms revenues lost at the AOR level, CAR increased its dues $18 – $35 — a mandatory price increase shouldered by its members.
However, after CAR’s bundling ensured CAR members had to use CAR forms, CAR agents believed the forms were “free” with their already-paid membership dues. This effectively killed the diversity that was then present in the forms market, effectively stopping CAR members from buying forms produced by any other publisher, first tuesday included. Although the positive side effect for non-member MLS agents is access to RPI’s completely free forms library, California licensees lost a great deal of choice, and therefore competitive advantage, as a direct result of CAR’s bundling.
Joining the defense of the open market
PDFfiller’s counterclaim and third-party complaint thus put PTM and forms providers on the edge of their seats. The outcome of PDFfiller’s dispute with CAR and its affiliates will reverberate throughout several subindustries to real estate in California, including real estate forms and PTMs.
Approximately 166,000 members strong, CAR is a sizeable consortium which exerts significant influence over the California real estate industry. Further, roughly 60% of active licensees are members of CAR. Thus, what CAR does (and doesn’t do) is acutely felt by everyone in real estate today.
It benefits us all to await a judgment in favor of the open market, knocking those singular, domineering players down a peg or two to increase licensee and consumer choice and balance pricing for real estate-related services.
Otherwise, as PDFfiller suggests in its defense, CAR will continue on its warpath and become a true juggernaut, flattening Sisyphus at last — to the disparate expense of all its members and non-members alike.