The Incentive and Ability of the Federal Trade Commission to
Investigate Real Estate Markets: An Exercise in Political Economy
Darren Bush*
I.
INTRODUCTION
One of the principal difficulties in the enforcement of the antitrust laws lies in
requesting, acquiring, and analyzing the information necessary to determine whether or
not an antitrust violation has occurred. This is an investigation issue, not a litigation
issue. Indeed, a request for information and its delivery and analysis determines much of
the outcome of antitrust enforcement, including whether or not an action is brought, the
scope of such action, the remedies to be sought, and the overall success of the case.
However, the ability of antitrust enforcers to obtain information is potentially
constrained in numerous ways. First, statutory provisions may limit the scope of the
investigation and set forth the proof required in order to issue requests for documents and
other materials. Second, case law may add gloss to the statute, further limiting the ability
of enforcement officials to obtain information. Indeed, the ability of the target companies
to challenge investigative authority imposes some costs upon the agency, and may deter
the agency from issuing expansive investigations that may cause parties to challenge any
demands for information. Additionally, there are potential political repercussions to the
issuance of broad requests for information. Finally, there are potential impediments to
obtaining information due to the nature of the industry under investigation.
*
Assistant Professor, University of Houston Law Center. J.D. (1998), Ph.D.(economics)(1995), University
of Utah. The author is a former trial attorney at the FTC’s sister agency. Any errors or omissions are the
sole responsibility of the author, who blames his institutional bias.
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In the context of an administrative agency, there are additional internal
constraints. Agency interpretative rules, for example, may provide self-imposed limits
upon agency power, although pressure to promulgate such rules may come from external
sources. Internal aversion to perceived political risk might also discourage the issuance
of broad requests for information. Again, these internal aversions and rules might arise
due to concerns about external factors, such as congressional pressure (via statute,
hearings, or power of the purse), public pressure (via negative press), and executive
branch pressure (via less centrist political appointees).
These pressures and constraints are fully in play in the context of Federal Trade
Commission (FTC) investigations. These issues are accentuated in the context of the
need of the FTC to investigate broad activity either spanning industries or national
activity within a particular industry such as real estate.
This Article examines the incentive and ability of the FTC to obtain information,
generally in the context of broad investigations and specifically in application to real
estate investigations. The Article will first address the statutory powers from which the
FTC derives its ability to gather information.1 Then, the Article will address the internal
constraints, both actual and potential, that may impede the ability of the FTC to obtain
information Next, the article will address the lack of judicial constraints upon
implementation of these investigative powers. The Article will then discuss the external
pressures that might constrain agency behavior, with some examples of backlash from
prior antitrust investigation and enforcement actions. Finally, the Article will then apply
these principles to the context of real estate markets. The Article concludes that the FTC
has the authority, and good incentives, to conduct such a broad investigation in real estate
1
This discussion will be limited to investigations of “unfair methods of competition.”
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markets. The Article also provides a model Civil Investigate Demand/subpoena that
could be used by the agency in the obtaining of information within the real estate
industry.
II.
STATUTORY AUTHORITY TO OBTAIN INFORMATION
As with all administrative agencies, the FTC’s ability to obtain information is a
function of public participation, the degree of voluntary submissions, and the agency’s
ability to obtain information via compulsory process should voluntary mechanisms fail.
a. Voluntary Means
Often times it is possible to obtain some information via voluntary means.
Voluntarily contributed information is potentially of value, particularly when supplied by
customers or competitors of the targeted firms. However, the scope of information
obtained via voluntary means is usually quite limited, and thus may not paint a complete
picture of the matter under investigation. The biases of the suppliers of voluntary
information may taint any analysis conducted solely with such information; such biases
would be inherent in the documents the companies selected to share with the FTC.
The FTC Operating Manual discusses four means of obtaining voluntary
information.2 First, the Manual mentions that the agency may issue access letters.3
These letters request voluntary production of information or access to a company’s
documents.4 Second, the FTC may use questionnaires to obtain voluntary information.5
2
FTC Operating Manual, available at http://www.ftc.gov/foia/adminstaffmanuals.htm (last visited Apr. 18,
2006).
3
Id. § 3.3.6.6.1.
4
See id.
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Questionnaires are “detailed, written inquiries sent to groups of proposed respondents,
prospective consumer witnesses, competitors, customers, and others seeking voluntary
responses to the questions.”6 These questionnaires are distinguishable from special
reports that can be requested under authority of section 6(b) of the Federal Trade
Commission Act, the latter requiring a “sworn response subject to legal sanctions.”7
However, questionnaires are subject to the Office of Management and Budget (OMB)
clearance under the Paperwork Reduction Act8 if submitted to ten or more persons.9
Third, formal surveys may be utilized to develop evidence for use in litigation to support
the development of a proposal for a trade regulation rule or for other investigational
purposes.10 These, too, are subject to OMB clearance if issued to ten or more persons.11
Finally, staff may conduct interviews.12
The difficulty inherent is obtaining information via voluntary means is that they
are seldom likely to produce a complete picture. Interviews may lead to the conclusion
that markets are more narrowly defined than they might truly be due to customer concern
about the transaction. Customers receiving favorable deals from merging parties,
alternatively, might paint the market with a broader brush. Only the obtaining of relevant
documents is likely to unearth these biases. Moreover, there are risks to private parties in
5
Id. at § 3.3.6.6.2.
Id.
7
Id.
8
See infra Section II.c.
9
FTC Operating Manual, supra note 2, at § 3.3.6.6.2.
10
Id. at §3.3.6.6.3.
11
Id.
12
Id. at § 3.3.6.6.4.
6
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voluntarily submitting materials to a government agency. For example, third parties
might be able to obtain such documents.13
Similarly, questionnaires and surveys may be subject to potential biases in the
construction of the form. Internal review procedures are in place at the agency to
minimize such concerns.14 Nonetheless, this form of information paints an incomplete
picture.
Voluntary production of documents may yield some valuable information as well.
However, the voluntary nature of the search may lead to a biased picture of the issue in
question, as the terms of the search are in part defined by the amount of information the
company is willing to disclose and the size of the search in which the company is willing
to engage.
In short, voluntary production of information is a useful first step in bringing
issues to light. However, in most cases, compulsory process is the only means by which
a full investigation of an industry is likely to obtain any fruitful results. Compulsory
processes shall be addressed next.
13
See, e.g., Richard Porter, Voluntary Disclosures to Federal Agencies—Their Impact on the Ability Of
Corporations To Protect From Discovery Materials Developed During the Course of Internal
Investigations, 39 CATH. U. L. REV. 1007 (1990).
14
FTC Operating Manual, supra note 2, at § 3.3.5.1.3.
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b. Compulsory Processes
When voluntary disclosure needs to be supplemented, the FTC may use
compulsory processes. To obtain information via involuntary means, the Federal Trade
Commission may issue Civil Investigative Demands (CIDs) or subpoenas that require
documents, written reports, answers to questions, and oral testimony.15 The FTC may
also require that companies submit certain written reports or provide the agency with
access to inspect certain documents.16 This Article discusses these methods of obtaining
information via voluntary and involuntary means next.
i. Civil Investigative Demands (CIDs)
Given the unlikelihood of obtaining complete information from voluntary means,
the FTC’s ability to obtain complete and accurate information primarily rests with the
Civil Investigative Demand (CID) and subpoena.17 While the ability of the FTC to obtain
information in unfair competition cases using these methods is limited by statute, the
statute does not impose large constraints upon the FTC’s ability to gather information via
these means.18
There are essentially three major statutory constraints for the issuance of CIDs.
First, each CID must “state the nature of the conduct constituting the alleged violation
which is under investigation and the provision of law applicable to such violation.”19
This constraint was imposed to limit FTC investigations to specific allegations, rather
15
16 C.F.R. § 2.7(a) (2006).
Id.
17
See 16 C.F.R. § 2.7(b) (2006).
18
See generally 16 C.F.R. § 2.7 (2006).
19
15 U.S.C. § 57b-1(2) (2006).
16
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than allowing the FTC to engage in what potentially could be perceived as “fishing
expeditions” or, more precisely, from obtaining information absent any reasonable belief
that an antitrust violation has occurred.20 Second, CIDs might obtain three broad
categories of information, according to statute—documentary materials,21 tangible
things,22 and written reports or answers to questions.23 The chief constraint with each is
whether the CID describes each with “such definiteness and certainty”24 The
determination of whether the CID describes each with definiteness and certainty is
ultimately subject to court interpretation in cases where the recipient of the CID
challenges it or the FTC seeks enforcement of the CID. Third, the CID will only issue if
pursuant to a Commission resolution and signed by a Commissioner acting pursuant to
that resolution.25
Thus, the FTC’s statutory authority to obtain information from a CID appears
quite broad. In fact, it is broader than the FTC’s authority in other realms. For example,
CIDs are exempt from the Paperwork Reduction Act,26 which imposes upon the FTC
clearance by the Office of Management and Budget for "collections of information" such
as surveys, questionnaires, and some subpoenas.27 OMB review will be discussed infra
in section II.f.
ii. Subpoenas
20
See S. Rep. No. 96-500 (1979).
15 U.S.C. § 57b-1(c)(3) (2006).
22
15 U.S.C. § 57b-1(c)(4).
23
15 U.S.C. § 57b-1(c)(5).
24
15 U.S.C. § 57b-1(c)(3)-(5).
25
15 U.S.C. § 57b-1(i). The power may not be delegated.
26
See The Paperwork Reduction Act, Pub. L. No. 96-511, amending the Federal Reports Act (codified at
44 U.S.C. §§ 35011 et seq. (2006)).
27
Id.
21
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The FTC also has the power to obtain information via subpoena. The subpoena
power of the FTC is described in Section 9 of the Federal Trade Commission Act.28
Section 9 states that “the Commission shall have power to require by subpoena the
attendance and testimony of witnesses and the production of all such documentary
evidence relating to any matter under investigation.”29 Production of documents and
attendance of witnesses may “be required from any place in the United States.”30
Subpoenas, as discussed below, are the preferred method of obtaining information
in unfair competition matters. There appears to be only one substantive difference
between a CID and a subpoena: Under a CID, parties under investigation need only
provide access to documents for inspection and copying, whereas under subpoena
verified copies of the documents are turned over to the FTC.31
iii. Access Orders
Access orders permit the FTC to engage in on-site inspection of documentary
evidence. Specifically, 16 C.F.R. section 2.11 states that “in investigations other than
those conducted under section 20 of the Federal Trade Commission Act, the Commission
may issue an order requiring any person, partnership or corporation being investigated to
grant access to files for the purpose of examination and the right to copy any
documentary evidence.”32
28
15 U.S.C. § 49 (2006).
Id.
30
Id.
31
Compare 16 C.F.R. § 2.7(a) (2006) with § 2.7(b). As a practical matter, however, most firms complying
with a CID provide copies of the documents.
32
16 C.F.R. § 2.11 (2006).
29
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iv. Annual or Special Reports
The FTC may also obtain information by requiring persons, partnerships or
corporations to generate annual or special reports.33 These reports are made in writing in
answer to specific questions and furnish “to the Commission such information as it may
require as to the organization, business, conduct, practices, management, and relation to
other corporations, partnerships, and individuals of the respective persons, partnerships,
and corporations filing such reports or answers in writing.”34 Reports are subject to
OMB Clearance under the Paperwork Reduction Act.
c. The Paperwork Reduction Act
The paperwork reduction process establishes a clearance procedure for
“collections of information” sought by administrative agencies.35 Federal agencies must,
prior to the issuance of requests for such collections, obtain clearance from the Office of
Management and Budget (OMB).36 While some FTC information gathering methods
avoid the processes that shall be described below, other methods are subject to OMB
review, and could thus become substantially slowed due to the clearance process.
According to the Paperwork Reduction Act, investigations against specific
individuals and CIDs are exempt from the clearance process.37 However, the term
“collection of information” as statutorily defined includes obtaining information via
33
15 U.S.C. § 6 (2006).
Id.
35
See generally 44 U.S.C. § 3507 (2006).
36
See FTC Operating Manual, supra note 2, at § 3.1.6.3.1.
37
44 U.S.C. § 3518(c) (2006).
34
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reports.38 The FTC Operating Manual expresses the view that special reports issued to 10
or more parties may require OMB approval.39
OMB review is not structured for the immediate commencement of investigation,
despite a provision setting forth an expedited review process.40 The Director of the OMB
has sixty days to approve a "collection of information" request submitted for review.41
The sixty days may be extended if the Director cannot review the request within that time
frame.42 After ninety days, the OMB must assign a control number,43 and OMB's
approval may be inferred and the agency may collect the information for one year.44 The
FTC, by majority vote of its members, can void any disapproval by OMB of an
information collection request.45
While this sounds fairly pro forma, it is in practice a bit more arduous under
internal FTC procedures. After internal review of any request for the “collection of
information” subject to OMB clearance review, FTC staff must prepare a Request for
OMB Review in consultation with the Clearance Officer. Staff also must prepare a
supporting statement justifying why approval should be granted. The materials that must
38
The collection of information
means the obtaining, causing to be obtained, soliciting, or requiring the disclosure to third parties
or the public, of facts or opinions by or for an agency, regardless of form or format, calling for
either-(i) answers to identical questions posed to, or identical reporting or recordkeeping requirements
imposed on, ten or more persons, other than agencies, instrumentalities, or employees of the
United States; or
(ii) answers to questions posed to agencies, instrumentalities, or employees of the United States
which are to be used for general statistical purposes. . . . 44 U.S.C. section 3502(3) (2006).
39
See FTC Operating Manual, supra note 2 at § 3.3.6.7.8.2.
40
44 U.S.C. § 3507(j)(1).
41
44. U.S.C. § 3507(c)(2) (2006).
42
FTC Operating Manual, supra note 2 at Illustration 3 (Ref. 3.1.3.6.2).
43
See FTC Operating Manual, supra note 2 at § 3.1.6.3.1
44
44 U.S.C. § 3507(c)(3) (2006).
45
44 U.S.C. § 3507(f)(1) (2006).
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be prepared include: (1) the Request for OMB Review; (2) the supporting statement; (3)
any relevant supporting materials; and (4) any document that will be sent to
respondents.46
The materials are then subject to internal review by the Clearance Officer, the
Bureau Director, and the Executive Director. The Executive Director forwards the
information to the OMB. The OMB publishes notice in the Federal Register and places
the documents in the public record. Public comments are obtained, if any are submitted.
Should the comments raise substantive issues, the Clearance Office may contact the
OMB staff, presumably for defensive purposes. The OMB may hold informal hearings.
The OMB then issues a letter to the Clearance Officer, who in turn notifies the staff as to
the control number issued by the OMB and the expiration date.47 If the OMB
disapproves the “collection of information,” the Bureau Director who approved the
Request will consider OMB’s comments and objections, and make a recommendation to
the Commission whether to exercise its authority, override OMB's disapproval.48
This all makes special reports appear to be more trouble than they are worth in
practice. However, CIDs for written reports appear immune from OMB review. Query,
then, whether there is a self-imposed limitation within the FTC against issuance of
requests for special reports.49 The potential for self-imposed limitations upon FTC
investigative authority are discussed next.
As is the case with most administrative statutes, the authority conferred to the
agency by Congress is quite broad. The FTC is no exception. It has broad authority to
46
FTC Operating Manual, supra note 2, at § 3.1.3.6.3.
FTC Operating Manual, supra note 2, at § 3.1.3.6.3.
48
44 U.S.C. § 3507(f)(1).
49
“In most cases, staff can assume that matters arising in BCP require CIDs, while BC matters require
subpoenas.” FTC Operating Manual, supra note 2, at § 3.3.6.7.5.3.
47
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request information, and a variety of compulsory processes by which to obtain such
information. Thus, it cannot be said that the source of any limitation on the FTC to
investigate real estate markets is related to statutory constraints.
III.
INTERNAL LIMITATIONS UPON AUTHORITY, REGULATORY OR
OTHERWISE
The FTC Operating Manual and interpretive rules promulgated by the FTC50
appear to limit the ability of the FTC to obtain information, particular concerning broad
investigations of entire industries or practices which span industries. These internal
constraints include discouragement of large-scale investigations, scarcity of budgetary
resources, agency capture, and fear of political recoil.
a. Discouragement of large-scale investigations
The first constraint placed upon large-scale investigations is a warning within the
FTC Operating Manual:
No large-scale or industry-wide investigation or study is to be undertaken, if
numerous proposed respondents or substantial expenditure of Commission resources are
involved, or if a significant change in the overall resource levels (work-years or dollars)
of a Commission-approved program will result unless prior approval has been granted by
the Commission. The proposal for such an investigation should be discussed with the
appropriate program advisor in BCP or the Associate Director for Evaluation, BC, if a
competition matter. Regional office staff should consult the Assistant Director for
Regional Operations, BC, for competition matters. If it is agreed that Commission
approval is required, the proposal for the investigation should be submitted to the
Commission by explanatory memorandum routed through the appropriate review and
evaluation procedure.51
While at first blush this warning appears to be an acknowledgement concerning
internal allocations of scarce financial resources to a financially strapped administrative
agency, it could also be interpreted as recognition of the political sensitivity of launching
50
51
See generally 16 C.F.R. §§2.1-2.16 (2006).
FTC Operating Manual, supra note 2, at § 2.1.2.4.1.
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full-fledged industry wide investigations. It is not clear, however, whether the issue
addressed is concern that the Bureau of Competition not engage in fishing expeditions or
whether large-scale investigations undertaken with reasonable cause to believe that
violations of the FTC Act are at play, are also discouraged under this provision of the
Operating Manual.52
b. Scarcity of Commission Resources
As mentioned above, one tangible constraint upon the FTC’s ability to investigate
unfair methods of competition arises from the inherent scarcity of resources within
federal agencies. As a rule of thumb, mergers are typically the first priorities of antitrust
enforcers because they typically have a strict statutory timeline to them.53
Apart from this hierarchy of cases based upon the requirements of the antitrust
statutes, another issue in the ranking of cases arises based upon the probability of a
successful outcome. For example, resources might be allocated based upon the character
and structure of the industry, the risk that the industry is protected by particular
immunities and exemptions, the initial evidence of the conduct at issue, and other factors.
Thus, the more likely the investigation will result in a positive outcome (e.g., settlement
or litigation/adjudication victory), the greater the desire to provide the case with
resources. For reasons discussed infra, the real estate industry does not typically lend
52
See infra Section III.e.
One exception to the “mergers come first” rule is in the context of criminal investigations undertaken by
the field offices of the Antitrust Division. See RICHARD A. POSNER, ANTITRUST LAW 48 (2001)
(Discussing that there has been an increase in the number of criminal antitrust cases due to “a shift in the
Justice Department’s enforcement emphasis . . .”).
53
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itself to positive factors favoring the allocation of resources, current Department of
Justice actions notwithstanding.54
The FTC Operating Manual recognizes the scarcity problem, and its practical
effects upon the agency. After noting that the FTC’s authority to deal with unfair
methods of competition is broad, the FTC Operating Manual states that “the resources of
the Commission are limited and must be carefully managed to produce optimum results .
. . .”55 While the enforcement chapter of the FTC Operating Manual does not entirely
describe what is meant by “optimum results,” it does reference a discussion within the
manual of budgetary matters.56
Of course, the nature, scope, and results of investigations conducted by the FTC
play a role in budgetary matters. In the best of all possible worlds, the investigation aids
in the ability of the FTC to show Congress that the people’s money was well spent in
investigating and successfully enforcing the Federal Trade Commission Act. The higher
the likelihood of a successful outcome in a particular matter, the more likely it is to
contribute to the budgetary outcome.
In contrast, broader investigations with uncertain outcomes pose higher levels of
risk when compared to their potential payoffs. If the outcome of the investigation is
highly suspect and the FTC chooses to expend resources on it anyway, then the
investigation is likely to produce a drag on the FTC’s report to Congress. Worse, the
more public and wide-sweeping the FTC investigation, the more likely it is to be used as
fodder in opposition to any budgetary increases for the agency. In the worst of all
54
See U.S. v. National Association of Realtors, Civil Action No. 05C-5140 (N.D. Ill. 2005), complaint and
amended complaint available at http://www.usdoj.gov/atr/cases/nar.htm.
55
FTC Operating Manual, supra note 2, at § 3.1.2.2.
56
Id.
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possible worlds, it might be used to support the notion that the FTC’s budget should be
reduced.57
c. Classification of Investigation May Bind Investigator
In addition to the cautionary statements concerning broad investigations contained
in the FTC Operating Manual, the authorization of subpoenas and CIDs appears to be a
balkanized process. Resolutions authorizing issuance of CIDs and subpoenas include
omnibus resolutions, blanket resolutions, and special resolutions.58 Omnibus resolutions
target industry wide conduct. Blanket resolutions apply to investigations of particular
conduct, and thus may apply across industries. Special resolutions focus on particular
actors.59 It would appear that the track with which one approaches the compulsory
process in obtaining a resolution would determine the ability of the investigator to obtain
information. A more limited special resolution might limit the scope of information,
regardless of whether it has open-ended language such as that the subpoenas target
named individuals “and others” or refers to all of the FTC’s investigative authority.
In contrast, omnibus resolutions would likely play a crucial role in determining
whether conduct at issue in real estate markets is problematic. However, as discussed in
Section V, there are political risks that could come into play with repeated omnibus
resolutions targeted at specific industries.
d. Agency Capture
An additional possible argument that could be raised is the agency is subject to
“capture.” “Capture” typically means that a particular industry or group is able to
57
See infra section V.a.iii.
See generally FTC Operating Manual, supra note 2, at §§ 3 .3.6.7.4
59
FTC Operating Manual, supra note 2, at §§ 3 .3.6.7.4.1-.4.
58
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influence the decisions of the agency in two ways. First, the industry or group is able to
lobby the Executive Branch for the appointment of sympathetic commissioners.
Secondly, that the potential of repeat lobbying by the trade group will constrain the
ability of commissioners to act in any other fashion after appointment, either due to
budgetary threats or other means.60
The agency capture model, however, works best in single industry or single issue
agencies where there are repeat players of high frequency.61 As an example, the singleissue National Labor Relations Board is frequently cited as reversing course due to
changes in appointments to the Board.62 Similarly, the Surface Transportation Board has
been criticized as being captured by railroad interests.63
The FTC, however, appears to fit neither model. While there are industries
subject to repeat appearances before the FTC, the repeat performances are not of a
sufficiently high volume to justify the high expenses of screening commissioner
60
For definitions of capture, see IAN AYERS & JOHN BRAITHWAITE, RESPONSIVE REGULATION:
TRANSCENDING THE DEREGULATION DEBATE 63 (1992) and John Shepard Wiley, Jr., A Capture Theory of
Antitrust Federalism, 99 HARV. L. REV. 713, 723 (1986).
61
See Mark Niles, On the Hijacking of Agencies (and Airplanes): The Federal Administration, “Agency
Capture,” and Airline Security, 10 AM. U. J. GENDER SOC. POL'Y & L. 381, 399 (2002). Professor Niles
states:
One aspect of agencies that creates an increased likelihood of capture, even as compared
to other government entities that are subject to extensive and organized public pressure, is
the fact that agencies will often focus on only one industry and will consequently develop
regulatory relationships with only a small set of truly interested parties. So, while
legislatures and committee staffs might be equally prone to the pressures imposed by
lobbyists and other special interest groups, the diversity of their regulatory agenda will
help limit the influence of any one industry over their decision-making process. But the
"one-issue" agencies have no such insulation born of diversity, and can therefore be
expected to be far more likely candidates for effective, long-term capture.
Id. at 399.
62
Paul M. Secunda, Politics Not as Usual: Inherently Destructive Conduct, Institutional Collegiality, and
the National Labor Relations Board, 32 FL. ST. L. REV. 51 (2004); see Robert Douglas Brownstone, The
National Labor Relations Board At 50: Politicization Creates Crises, 52 BROOKLYN L. REV. 229 (1986)
(“The unsettled state of current labor relations demonstrates that politicization of the adjudicatory board of
an administrative agency can have extreme consequences.”).
63
See generally Salvatore Massa, Surface Freight Transportation: Accounting for Subsidies in a Free
Market, 4 N.Y.U. J. LEGIS. & PUB. POL'Y 285 (2001) (discussing Surface Transportation Board’s mergerfriendly policies in railroads).
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appointments based upon application of broad authority to an industry. Secondly, it is
perhaps difficult to determine the mind of an appointee on all matters given the broad
authority conferred to the FTC.64
e. Fear of Political Recoil
Another potential limitation upon the FTC’s ability to engage in broad
investigations is its apprehension that political backlash may ensue. More specifically,
the targets of an investigation might have the political wherewithal to retaliate against the
FTC for initiating an investigation. The retaliation may include: impacts to the FTC’s
budget, limitation of the FTC’s statutory authority, imposition of congressional hearings,
the potential of a statutory exemption for a particular industry or related to particular
conduct, or the potential that state legislatures immunize the conduct by authorizing and
supervising the conduct or by other means.65
All of these things have transpired in response to successful DOJ or FTC
investigations and, in some instances, a lack thereof.66 The more repeated these
retaliatory signals, the more likely it is to influence agency decision-making. The
64
The Federal Trade Commission has broad authority. Jennifer E. Gladieux, Towards a Single Standard for
Antitrust: The Federal Trade Commission’s Evolving Rule of Reason, 5 GEO. MASON L. REV. 471, 494
(1997) (citing FTC v. Sperry & Hutchinson Co., 405 U.S. 233, 239-44 (1972), which comments that many
terms of the FTC Act were not specifically defined, giving the Commission broad authority). See Robert
Pitofsky, Antitrust: Past, Present, and Future of Antitrust Enforcement at the Federal Trade Commission,
72 U. CHI. L. REV. 209, 213 (2005) (“[T]he FTC was granted in its enabling statute broader powers of
investigation than almost any other department or agency in the federal government”) (referencing
Stephanie W. Kanwit, 1 Federal Trade Commission § 13:1 at 13-1 (West 2003) ("The FTC possesses what
are probably the broadest investigatory powers of any federal regulatory agency.")
65
See, e.g., ABA, State Action Practice Manual (2000) (describing state action doctrine requirements of a
clearly articulated state policy to displace competition with regulation and, in the case of private entities,
active supervision of the conduct). See also Darren Bush, Mission Creep: Antitrust Exemptions and
Immunities as Applied to (De)regulated Industries, forthcoming, 2006 UTAH L. REV. ___ (2006).
66
Id. The legislative history of the Federal Trace Commission Act itself suggests that it in part was a
response to dissatisfaction with Justice Department antitrust investigations, or lack thereof. See generally
HARRY AUBREY TOULMIN, JR., A TREATISE ON THE ANTI-TRUST LAWS OF THE U.S. ¶ 39.6 (1949)
(describing legislation, investigations into various industries, and the public’s view that legislation in the
past had been ineffective).
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FTC INVESTIGATORY AUTHORITY
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presence of these signals does not necessarily mean that the subject of the investigation
can necessarily bring about any of the above outcomes. However, as will be discussed
later, the real estate interests have the potential to bring about many of these outcomes.
The fear of political reprisal may cause investigators to temper their information
requests in their drafting, their overseers to strike specifications that might be peripheral
to the investigation, and may cause the Commission itself to limit an investigation to
merely particular parties as opposed to industry practices.67 The latter consideration may
be a matter of cost benefit analysis: If the Commission makes its strongest case against
certain companies within an industry, the remainder of the industry might fall in line.
The difficulty with appraising the merit of internally imposed constraints is in
determining whether the perceptions of the FTC are accurate. Certainly it is true that the
FTC has scarce resources and is likely to employ them in there best use—where chances
of success are highest. However, it is less likely that the FTC need fear to any great
degree political recoil or backlash in matters of unfair competition. As discussed infra,
Congress tends to focus on the FTC’s unfair trade acts authority rather than its unfair
competition authority.
67
See FTC Operating Manual, supra note 2 at § 3 .1.2.1.
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IV.
19
COURT LIMITATION UPON AUTHORITY
Despite the aforementioned internal limitations on the FTC, the reviews by the
courts are not as constrictive. Court review of FTC’s investigative authority should not be
cause for alarm should the agency seek to investigate real estate markets. Court review
of the FTC’s investigate authority appears in one of two instances. First, parties served
with an investigative subpoena or CID may move before the Commission to quash or
modify the subpoena.68 In the wake of exhaustion of administrative remedies, the parties
may appeal.69 Second, the FTC may seek to enforce the CID or subpoena in court.70
However, parties subject to a subpoena or CID have had little success in escaping
from FTC compulsory processes. In the first instance, the parties must petition to quash
the CID or subpoena within twenty days after service of the subpoena or CID. The
petition must state the factual and legal objections, including “all appropriate arguments,
affidavits and other supporting documentation.”71 The compliance deadline is
automatically stayed pending the FTC’s determination.
The potential grounds for challenging a subpoena or CID are quite limited in
practice. Fourth Amendment prohibitions against unreasonable searches and seizures are
likely to fail.72 Challenges to the ability of the FTC to reach the parties due to statutory
or judicially created exemption may be troubling, too, depending upon the position of the
68
16 C.F.R. § 2.7(d) (2006).
16. C.F.R. § 2.7(f) (2006).
70
15. U.S.C. § 49 (2006). The FTC lacks the ability to enforce its own subpoenas.
71
See 16 C.F.R. §§2.7, 2.11-2.12.
72
See, e.g., FTC v. Carter, 636 F.2d 781 (D.C. Cir. 1980) (Fourth Amendment standards for CIDs and
subpoenas less stringent than for searches) and FTC. v. Mt. Olympus Financial, L.L.C., 211 F.3d 1278
(Table) (holding that the FTC’s CIDs were not fishing expeditions, were clearly relevant to the
investigation at issue, and thus did not violate Fourth Amendment); Cf. FTC v. Am. Tobacco Co., 264 U.S.
298 (1924).
69
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FTC INVESTIGATORY AUTHORITY
20
parties in relation to the investigation.73 Challenges to the relevance of the subpoena or
CID are likewise bound to fail, given the broad authority conferred upon the FTC.74
Challenges to the subpoena or CID could attack the reasonableness or burdensomeness of
the document in question, but the standard still bears favor to the FTC.75 Enforcement of
the subpoena or CID in court is also not typically problematic for the FTC, and is backed
by fines and potentially imprisonment.76 Failures to file annual or special reports are
backed with mandatory daily fines of $100.77
Given this background, it cannot be said that any limitation arises from the courts.
The courts have construed the FTC’s ability to gather information broadly, particularly in
the context of investigative subpoenas and CIDs.78 In other words, judicial gloss appears
to mirror the spirit of the statute.79
V.
EXTERNAL LIMITATION UPON AUTHORITY
As discussed above, the courts have not been a significant factor in deterring FTC
investigation. Indeed, the bulk of court cases appear to affirm the agency’s authority to
73
See Okl. Press Pub. Co. v. Walling, 327 U.S. 186, 214 (1946) ("[C]ongress has authorized the [agency],
rather than the district courts in the first instance, to determine the question of coverage in the preliminary
investigation of possibly existing violations; in doing so to exercise [its] subpoena power for securing
evidence upon that question, by seeking the production of petitioners' relevant books, records and papers;
and, in case of refusal to obey [its] subpoena, issued according to the statute's authorization, to have the aid
of the district court in enforcing it."]); see also FTC v. Feldman, 532 F.2d 1092, 1096 (CA7 1976) (quoting
FTC v. Gibson, 460 F.2d 605, 608 (CA5 1972) in discussing Okl. Press, holding that “appellants may not
litigate the jurisdictional issue as a defense in a subpoena enforcement proceeding”); Cf. FTC v. Miller,
549 U.S. 452 (7th Cir. 1977) (listing common carrier exemption as a bar to subpoena enforcement).
74
See Okl. Press, 327 U.S. at 214.
75
See id.
76
See id. See also 15 U.S.C. § 50 (“Any person who shall neglect or refuse to attend and testify, or to
answer any lawful inquiry or to produce any documentary evidence, if in his power to do so, in obedience
to an order of a district court of the United States directing compliance with the subpoena or lawful
requirement of the Commission, shall be guilty of an offense and upon conviction thereof by a court of
competent jurisdiction shall be punished by a fine of not less than $1,000 nor more than $5,000, or by
imprisonment for not more than one year, or by both such fine and imprisonment.”)
77
15 U.S.C. § 50.
78
See, e.g., Okl Press, 327 U.S. 186.
79
Compare id., with 15. U.S.C. § 49.
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21
obtain information pursuant to the Federal Trade Commission Act. Thus, any constraints
placed upon the FTC’s ability to obtain information must lie elsewhere.
An appropriate constraint upon an administrative agency power is Congress.
Congress historically has delegated to federal administrative agencies the powers to
promulgate rules and to engage in adjudication to further the goals set forth by Congress
in the agency’s enabling statute. The FTC is no exception. Congress delegated broad
powers to the FTC to regulate and constrain unfair competition.80 However, where
agencies go astray from the intent of Congress, Congress is well within its rights (and
power) to constrain the agency. This is a valuable check on agency power, particularly in
independent agencies that lack any other overseer.
The difficulty, however, arises when parties who perceive themselves aggrieved
by agency action seek to have Congress use its power to constrain the aggrieving agency.
Thus, Congress may prove to be a powerful constraint on agency investigation. Firms
subject to antitrust scrutiny may seek to have Congress limit the FTC’s authority vis a vis
the industry or company in question. The problem is that Congress may not know the
full facts that gave rise to the investigation, and may only hear one side of the story.
Such incomplete information is seldom the basis of sound decision-making.81
Moreover, parties may take their grievances on the road, appealing to state
legislatures for statutory security from FTC challenges to their practices. As discussed
below, in the context of real estate, there is some precedence for this type of action.
80
See 15 U.S.C. § 49 (2006).
Congress has been more willing to limit the scope of the FTC’s statutory authority in the realm of unfair
and deceptive trade practices. The FTC’s statutory authority in the realm of unfair methods of competition
appears relatively unrestrained by Congressional retaliatory action. See, e.g., 15 U.S.C. § 57a(1)(B) (1982)
(restricting the FTC from developing or promulgating any “rule or regulation with regard to . . . standards
and certification activities pursuant to the section.”); see also 15 U.S.C. § 57a(h)(2006)(removing FTC
authority to promulgate rules regarding children's advertising).
81
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22
Parties could also seek state regulation of their action, essentially dodging federal
antitrust authority by embracing the lesser scrutiny of state regulation.
a. Congress
i. Modification of the Federal Trade Commission Act.
One method by which parties could avoid FTC investigatory powers is to lobby
Congress to limit the FTC’s authority under its organic statute or confer the parties with
statutory immunity. First, the industry in question might ask that it be excised from FTC
authority. Certain industries already enjoy this immunity from FTC enforcement. For
example, Section 5 of the Federal Trade Commission Act empowers the FTC to prevent
persons, partnerships, or corporations . . . from using unfair methods of competition,”
except:
banks, savings and loan institutions described in section 57a(f)(3) of this title, Federal
credit unions described in section 57a(f)(4) of this title, common carriers subject to the
Acts to regulate commerce, air carriers and foreign air carriers subject to the Federal
Aviation Act of 1958, and persons, partnerships, or corporations insofar as they are
subject to the Packers and Stockyards Act, 1921, as amended [7 U.S.C.A. § 181 et seq.],
except as provided in section 406(b) of said Act [7 U.S.C.A. § 227(a)] . . . .82
The FTC is also no stranger to curtailment of its organic authority. The Federal Trade
Commission Improvements Act of 1980,83 for example, limited the FTC’s subpoena
power and also curtailed the FTC’s consumer protection rulemaking authority, the latter
82
15 U.S.C. § 45 (2006). Agricultural marketing orders are also not subject to FTC investigation. See 15
U.S.C. § 57b-5(b) (2006).
“The Commission shall not have any authority to conduct any study, investigation, or
prosecution of any agricultural cooperative for any conduct which, because of the
provisions of the Act entitled 'An Act to authorize association of producers of agricultural
products', approved February 18, 1922 (7 U.S.C. 291 et seq., commonly known as the
Capper-Volstead Act), is not a violation of any of the antitrust Acts or this Act.” 15
U.S.C. § 57b-5(a).
83
Pub. L. No. 96-252 (1980).
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23
largely due to outcry concerning children’s advertising rulemaking.84 In the case of
consumer protection rulemaking modifications, the FTC is also set up as a perceived
adversary rather than an agency with expertise gathering information under informal
rulemaking procedures as set forth in the Administrative Procedure Act85 and the Federal
Trade Commission Act.86 Rather, the revisions import adjudicatory norms into the
rulemaking function, norms such as a presiding officer isolated from staff and
Commission and limitations upon ex parte communications.87 The 1980 amendments,
therefore, set the FTC up nicely for further political influence in the rulemaking arena.
The 1994 amendments similarly provided some limitations to the FTC’s authority
under its organic statute. Section 5(n) of the Federal Trade Commission Act bars the
FTC from declaring unlawful any act or practice the FTC determines to be unfair, unless
the “the act or practice causes or is likely to cause substantial injury to consumers which
is not reasonably avoidable by consumers themselves and not outweighed by
countervailing benefits to consumers or to competition."88 While this statutory
requirement may be beneficial in practice, the point is that curtailment of authority is a
tangible risk to the FTC.
While Congress has curtailed the FTC mostly due to the agency’s prospective
action, it is by no means a stretch for Congress to enact law based on the FTC’s mere
investigation and data collection. The mere potential of antitrust action that arises from
investigation has given rise to statutory immunity. Thus, complete curtailment of FTC
84
See S. REP. No. 96-500, 96th Cong., 2d Sess. 17, reprinted in [1980] U.S. Code Cong. & Ad. News
2268, 2284-85.
85
5 U.S.C. §§ 553 et seq. (2006).
86
16 C.F.R. §§ 0.14, 1.13(c), 1.13(g); see 15 U.S.C. §§ 57a(c)(1)(B)-(C); see also 54 Fed. Reg. 19,855
(May 19, 1989) (transferring power to preside over rulemaking to ALJs).
87
15 U.S.C. § 57a(C)(1) (2006).
88
15 U.S.C. § 45(n) (2006).
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FTC INVESTIGATORY AUTHORITY
24
activities would be forthcoming should the target of such investigation have sufficient
political clout to bring about that outcome.
ii. Statutory Immunity
In addition to limiting the FTC authority under the organic statute, a group may
seek statutory immunity. An industry might obtain from Congress some immunity from
antitrust oversight, or some modification of antitrust standards as applied to the conduct
at issue. This method of easing antitrust oversight has been the dominant choice over the
last twenty years.
The FTC is no stranger to seeing its enforcement decisions suddenly become the
subject of a congressional immunity. Two examples suffice. First, Congress passed the
Soft Drink Interbrand Competition Act in reaction to rigid antitrust rules against nonprice
vertical restraints of the 1960s and 1970s and an FTC proceeding (which was spurred by
the Supreme Court’s controversial decision in United States v. Arnold, Schwinn & Co.89)
in which the Commission challenged the industry’s distribution system.90 The
legislation, lobbied for by soft drink bottlers, was designed to protect local bottlers from
the vertical integration of syrup manufacturers.91
A second example arises recently from the Standards Development Organization
Advancement Act.92 The SDOAA protects the activities of standards setting bodies by
requiring rule of reason analysis be applied to standard setting organizations (SDOs) and
limiting the ability of plaintiffs to obtain attorneys fees. Registered SDOs are protected
89
388 U.S. 365 (1967).
15 U.S.C. § 3501 (2006).
91
See, e.g., Merrick B. Garland, Antitrust and State Action: Economic Efficiency and the Political Process,
96 YALE L. J. 486, 516 at n.179 (1987) (describing SDA as “capture” legislation).
92
Pub. L. 108-237 (2004).
90
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25
from treble damages. The legislation is a response to FTC investigations and challenges
against Dell,93 Rambus,94 and Unocal95 in the context of SDOs. However, the lobbying
here appeared to be less effective; unlike the protection given to joint venture members,
SDOAA protects only the SDO itself. SDO members face full antitrust liability for
anticompetitive conduct.
These two immunities highlight the ease with which politically sophisticated
groups potentially could obtain a statutory immunity. In a perfect world, Congress would
balance the benefits and the costs of passing statutory immunities, and provide
mechanisms for review of any statutory immunity that could pass the cost/benefit
muster.96 However, absent such considerations, it might be relatively easy for the parties
in question to complain to Congress.
iii. Power of the Purse and Press
Attacks against an agency’s budget for political or business motives are not new.
However, such attacks received a greater significance in the antitrust realm postMicrosoft.97
93
Dell Computer Corp., 121 F.T.C. 616 (1996).
In the Matter of Rambus, Docket No. 302 (DATE), available at
http://www.ftc.gov/os/adjpro/d9302/index.htm.
95
In the Matter of Union Oil Co. Of California, 2004 WL 1632816, F.T.C. (2004).
96
For a discussion on antitrust immunity, agency cost/benefit analysis, and a proposal for creation of a new
enforcement mechanism, see Jerome Shuman, The Application of the Antitrust Laws to Regulated
Industries, 44 TENN. L. REV. 1 (1976). The Commission cannot declare an act unlawful unless the act or
practice causes or is likely to cause substantial injury to consumers, which is not reasonably avoidable by
consumers themselves and not outweighed by countervailing benefits to consumers or to competition. See
15 U.S.C. § 45(n) (2006). If Congress provides that basically the FTC must do a cost benefit analysis for
defining an act as unlawful, it seems reasonable that Congress should also perform a cost/benefit analysis
when considering granting statutory immunity. For such a proposal, see Darren Bush, Gregory K. Leonard
and Stephen Ross, A Framework for Policymakers to Analyze Proposed and Existing Antitrust Immunities
and Exemptions: Report Prepared by Consultants to the Antitrust Modernization Commission, available at
http://www.amc.gov/commission_hearings/pdf/IE_Framework_Overview_Report.pdf.
97
The Microsoft case is actually a series of cases. The first Microsoft case, resulting in a final judgment
under the Tunney Act, United States v. Microsoft Corp., No. CIV.A.94-1564, 1995 WL 505998 (D.D.C.
94
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26
Prior to the commencement of the DOJ’s monopolization suit against it, Microsoft
largely ignored the beltway. The perception of the company was that Washington was a
place that it could largely ignore and/or hold in disdain.98
After the commencement of the Microsoft case, Microsoft’s relationship with
Washington incurred a fundamental change. First, Microsoft began making large
donations to both political parties.99 In particular, Microsoft funded the campaigns of
individuals seeking to replace incumbent attorneys general in states that had brought suit
against Microsoft.100 In addition, Microsoft provided political contributions to both the
Republican and Democratic candidates for president in the 2000 presidential
campaign.101 Moreover, Microsoft funded key Senate races to gain wider support of
Congress and, vicariously, of the agencies that sought to enforce the antitrust laws against
it.
In addition to garnering greater Washington support, Microsoft launched what
might be its most successful ad campaign.102 Microsoft began to develop its presence
Aug. 21, 1995), followed reversal of the District Court's rejection of the proposed decree. United States v.
Microsoft Corp., 56 F.3d 1448, 1451 (D.C. Cir. 1995) (per curiam). The second Microsoft case resulting in
a final judgment under the Tunney Act, United States v. Microsoft Corp., 231 F. Supp. 2d 144, 150 (D.D.C.
2002) followed reversal of some of the District Court's finding of violations of the Sherman Act and
imposing a remedy of divestiture in United States v. Microsoft Corp., 253 F.3d 34, 46 (D.C. Cir.), cert.
denied, 534 U.S. 952 (2001).
98
See Katherine Pfleger, Political Contributions Linked to Microsoft Level Off, SEATTLE TIM. (Dec. 23,
2002), available at 2002 WLNR 10596561 (“In the early 1990s, Microsoft was reluctant to engage in
politics.”)
99
See Jeffrey H. Birnbaum, How Microsoft Conquered Washington, Apr. 29, 2002, at 145 (“Microsoft and
its employees gave a whopping $4.6 million to federal candidates and parties, Republican and Democrat
alike, in the 2000 election--more money than any other company but AT&T and more than double that of
its biggest rival, AOL Time Warner.”)
100
Of course, Microsoft’s rivals also contributed heavily to the campaigns of incumbent state attorneys
general supporting the Microsoft suit. See Microsoft Spends Up Big on Election, THE DAILY TELEGRAPH
(SYDNEY, AUSTRALIA), Feb. 28, 2000, at 23 (During the first 3 quarters of 1999, Computer and Internet
companies as a whole donated $6.21 million to political campaigns, of which Microsoft spent $1.31
million).
101
See Birnbaum, supra note 99.
102
Microsoft created the “Freedom to Innovate” network designed to engender support from consumers.
The site "with five boxes of supportive letters to Bill Gates that we found in a storage room," and now
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behind the scenes as well. Microsoft used business groups to fund key Senate races.103
There was also a strategy to fund academic think tanks that could turn the tide of opinion
in the courts and the halls of academe regarding the legal and economic merits of the
case.104 Many of these institutions did not publicize their funding sources, making their
reports and writings questionable from an academic perpsective. Nonetheless, such
groups may have helped form public opinion about the case: Who could argue against a
group such as “the Freedom to Innovate Network?” If one is not for the group, surely
one is against the freedom to innovate.
The implications for these activities for FTC investigations are threefold. First,
popular opinion was turned against the DOJ, despite the public’s lack of knowledge about
key details of the case.105 Second, the budget process and the congressional oversight of
the DOJ became politicized to a greater degree than usual, with efforts both to cut the
budget of the DOJ and to remove some of the DOJ’s oversight over mergers. Third,
Microsoft’s campaign donations appeared to pay off, insofar as an antitrust AAG was
appointed who publicly disapproved of the Microsoft case and monopolization cases in
general. In essence, Microsoft had “manufactured consent” for its monopolization
practices.106
boasts more than 250,000 supporters. See Birnbaum, supra note 99. The site is available at
http://theexperiment.org/articles.php?news_id=1749/ [hereinafter Freedom to Innovate].
103
Microsoft contributed heavily to Senator Gorton from Washington State to such an extent that Gorton
would joke that he was the “Senator from Microsoft.” See Stuart Rothenberg, Top Senate Races 2000,
CNN (Nov. 2, 2000), http://edition.cnn.com/ELECTION/2000/resources/rothenberg/topsenraces.html.
104
See Freedom to Innovate, supra note 102. (“[Microsoft] began contributing heavily to right-wing, freemarket think tanks, such as the Cato Institute and the Heritage Foundation.”). See id.
105
D. Ian Hopper, Government Got Spam Lesson in Microsoft Case, AUGUSTA CHRON. Feb. 10, 2002, at
D05 (noting that during the public comment period provided for under the Tunney Act the government
received 2,800 form letters and one solicitation for pornography).
106
See generally EDWARD S. HERMAN & NOAM CHOMSKY, MANUFACTURING CONSENT (1988).
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28
One of Microsoft’s first political moves was to attempt to cut the DOJ’s Budget.
Senator Slade Gorton (R-Washington State) had sought to cut $9 million from the DOJ’s
budget at a time when its enforcement activities were growing and a steady merger wave
was underway.107 While the move was unsuccessful, it managed to send a strong
message that there were budgetary ramifications to any litigation decision.
The notion that the target of antitrust litigation could engage in serious retribution
that potentially harmed consumers is troubling. In essence, should political chicanery
allow itself to be used as a weapon in an attempt to interfere with prosecutorial discretion
and investigation, serious separation of powers consequences are afoot. If the practice is
repeated successfully, it may create a recoil mechanism within DOJ and FTC to avoid
politically unpopular cases, perhaps even when such cases against such corporations are
clear-cut violations of the antitrust laws.108 It may also curtail any incentive the agencies
have to engage in broad investigations of any industry with substantial political capital.
It seems unlikely that Congress would, create much interference in an FTC unfair
competition investigation in any way but a temporary one. Statutory immunities are
increasingly difficult to obtain, perhaps due to increased Congressional reluctance to
carve out exceptions to laws of general applicability. Moreover, Congress has not
107
Dan Morgan and Juliet Eilperin, Microsoft Targets Funding for Antitrust Office, WASH. POST, OCT. 15,
1999, at A01.
108
Interestingly, it is less likely that political influence will motivate an antitrust investigation by the FTC
where no potential for antitrust violation exists. This is because typical pleas for antitrust investigations
against competitors are an insufficient basis for opening an investigation. See U.S. Airways Group, Inc., v.
British Airways PLC, 989 F. Supp. 482, 489 (S.D.N.Y. 1997) (“the antitrust laws . . . were enacted for the
protection of competition not competitors); but see, Richard B. McKenzie, Rivals Abused Politics to
Throttle Microsoft, THE DETROIT NEWS, Apr. 4, 2000, at A11 (“Microsoft's market rivals -- in the main,
IBM, Netscape, Novell, Caldera, AOL, Sun and Oracle -- mounted a major political campaign to have the
Justice Department bring the antitrust case against Microsoft”). On the other hand, the decision whether to
file suit against a company is typically made by political officers in the FTC, suggesting that influence is
more likely to occur once staff recommends bringing suit. See Gladieux, supra note 62, at 495 (discussing
the nomination of Commissioners by the President with advice and consent from the Senate and the
selection of the Chairman of the FTC from the 5 Commissioners by the President).
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demonstrated the same desire to constrict the FTC’s ability to utilize its unfair
competition authority as it has in constricting the FTC’s unfair and deceptive trade
practices authority. Congress might be inclined to use its power of the purse, but that
likely is to be a temporary inconvenience, if it does indeed occur.
b. Appointment of less than centrist Commissioners
Related to the FTC fear of capture is the notion that the Commission could
become highly politicized. Politicization of appointments is an unsurprising development
in the realm of administrative law, since most “law” is not made in the courtroom, but
rather before administrative agencies.
The politicization of administrative agencies is perhaps a necessary component of
their incarnation. The creation of administrative agencies, at first blush, is supposed to
free Congress from making daily determinations as to the scope of law for particular
industries and with respect to different conduct. The delegation of these responsibilities
to administrative agencies, then, necessarily confers upon the agencies some
susceptibility to political influence.
The benefit of such agencies, however, is that the decision maker draws upon its
expertise in making rules, prescribing policies, and adjudicating issues related to the
industry or conduct in question. As the Supreme Court noted in Chevron:
Judges are not experts in the field, and are not part of either political branch of the
Government. Courts must, in some cases, reconcile competing political interests, but not on the
basis of the judges’ personal policy preferences. In contrast, an agency to which Congress has
delegated policy-making responsibilities may, within the limits of that delegation, properly rely
upon the incumbent administration’s view of wise policy to inform its judgments. . . .109
109
Chevron U.S.A. Inc. v. Natural Res. Def. Council, Inc, 467 U.S. 837, 865-866 (1984) (quoting TVA v.
Hill, 437 U.S. 153, 195 (1978)).
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Thus, inherent in any administrative agency is some degree of politicization.
However, the degree to which the agency is politicized is largely a function of the
politicization of appointees.
Contrast, for example, the FTC with the National Labor Relations Board. The
latter is much more renowned for making decisions based upon political makeup of its
members than is the FTC. The reason is that the appointment process in the case of the
Board is much more a function of the political leanings of the Board member than the
actual expertise of the member. At least one former Board member argues that the
“Board is exposed—not only to the politics governing the initial appointment and
confirmation process, which inevitably generate policy discussions—but also to political
pressures from Congress and the President each time a member comes up for
reappointment.”110 The Board process is also swayed by its members’ post-Board
employment choices. Members “generally choose to stay in Washington” after their
terms expire, and “they are almost inevitably affected by the political environment and
the necessity to survive in it.”111
Appointments to the Board are also “batched” and voted upon in the Senate
together.112 That is, the Republican members of the Board are appointed in conjunction
with the Democratic members of the Board. This appointment process yields certain
gaming strategies, which polarize appointments. It is no longer the case that there are
compromises for centrist candidates on each side of the aisle. Rather, the response to a
pro labor appointment is a pro management appointment. Although the bulk of the
110
WILLIAM B. GOULD IV, LABORED RELATIONS: LAW, POLITICS, AND THE NLRB—A
MEMOIR 125 (2000).
111
Id. at 293.
112
See Brownstone, supra note 62, at 226.
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Board’s decisions are unanimous,113 the result of the appointments process is
politicization of the Board’s decisions on the margin.
The FTC appointments are by no means as political. FTC appointments have
largely been centrist in origin, with occasional slight veering to the left or right. While
some have argued that the quality of the appointments is in doubt,114 there is still the risk
that the process will become more highly politicized due to the informational demands
that the agency places upon industries with broad political power.
c. State Legislatures
States can sanction the conduct of a target that is subject to FTC investigation,
and these state sanctions potentially limit the FTC’s ability to obtain widespread
information that would help lead to successful agency action. For example, the potential
target of an investigation could obtain legislative grant to engage in particular conduct,
and perhaps the conduct could be overseen by, in the case of real estate, the state real
estate commission.115 In effect, the state could confer upon the targets of investigation a
state action exemption from the antitrust laws.116
113
Id.
Cf. William E. Kovacic, The Quality of Appointments and the Capability of the Federal Trade
Commission, 49 ADMIN. L. REV. 915 (1997).
115
The statutory authority to regulate does not necessarily fully immunize the regulator from antitrust
liability where the statute does not authorize the conduct in question. See U.S. v. Kentucky Real Estate
Commission, Civil Action No. 3:05CV188-H (W.D. K.Y. 2005). The complaint argues that while the
Kentucky Real Estate Commission has authority to regulate licensing and education for brokers, the
Commission’s authority is statutorily precluded from setting terms of prices and rebates. Complaint
available at http://www.usdoj.gov/atr/cases/f208300/208393.htm. Rebates may serve as a key component
to any competition in the real estate industry. See Philip Henderson, Rebates: Good for Consumers, Good
for Brokers, available at http://www.usdoj.gov/atr/public/workshops/rewcom/213170.htm. (Comments of
RealEstate.com before the joint FTC/DOJ workshop on competition in the real estate industry.)
116
For a discussion of the state action doctrine in the context of regulated industries, see Darren Bush,
Mission Creep: Antitrust Exemptions and Immunities as Applied to (De)regulated Industries, forthcoming,
2006 UTAH L. REV. ___ (2006).
114
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A second possible avenue is that the targets need not engage in the conduct
because the state itself acts as the enforcer of any agreement. As a prime example, states
have recently begun to engage in regulation of the minimum level of service in which a
Realtor is expected to provide.117 These statutory or regulatory levels come into play due
to the Department of Justice’s investigation of the National Association of Realtors
conditioning use of the Multiple Listing Service upon membership in the NAR.118
The potential harm, therefore, of an FTC investigation is a business and state legislative
recoil. This may increase the need for FTC competition advocacy, but likely frustrates
the purpose underlying any investigation of practices alleged to be unfair methods of
competition.
d. The Housing Market
The economy is another potential limitation upon the FTC’s ability to investigate
practices in real estate markets. Any downturn in the real estate market will likely create
pressure upon the FTC concerning any widespread investigation into the real estate
market.
There is precedence here, and it again comes from Microsoft. In response to the
September 11, 2001 attack on the World Trade Center and the Pentagon, Judge KollarKotelly ordered the DOJ and Microsoft to settle,119 giving the parties until October 12th to
settle the case on their own. Failing that, the court required that the parties to submit the
name of a mediator. Judge Kotelly’s primary concern was the effect of the case upon the
117
See, e.g., O.C.G.A. § 43-40-1 (2006) (defining broker and broker agreement) and Wyo. Stat. § 33-28306 (2006) (listing required broker disclosures).
118
U.S. v. Nat’l Ass’n of Realtors, Civil Action No. 05C-5140 (N.D. Ill. 2005), complaint and amended,
available at http://www.usdoj.gov/atr/cases/nar.htm.
119
See Order Filed Sept. 28, 2001.
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economy: “In light of the recent tragic events affecting our nation, this Court regards the
benefit which will be derived from quick settlement of this case as increasingly
significant.”
However, in the realm of antitrust remedy, the remedy’s short-term effect on the
economy is of no consequence. As the Supreme Court mentioned in DuPont, “Economic
hardship can influence choice only as among two or more effective remedies. If the
remedy chosen is not effective, it will not be saved because an effective remedy would
entail harsh consequences. This proposition is not novel; it is deeply rooted in antitrust
law and has never been successfully challenged.”120 Still, there is strong potential that
any burst in a real estate “bubble” will put enormous political pressure upon the FTC.
The pressure may come in one of the above-described forms, but the driver will be the
threat that such enforcement would have on already precarious conditions in real estate.
VI.
LIMITATIONS ARISING FROM THE NATURE OF THE INDUSTRY
ITSELF
a. Political power of realtors
The National Association of Realtors (NAR) Realtor Political Action Committee
is a fairly well positioned political force. According to its website, RPAC raised “over
$4.3 million through September 2004 to help elect and reelect candidates to Congress
who have an understanding of REALTORS® policy interests and who are supportive of
the REALTOR® profession.”121 The website also proclaims contributions to several
senators, as well as influence in party primaries. On the latter subject, the site boasts that
120
U.S. v. E. I. du Pont de Nemours & Co. 366 U.S. 316, 327 (1961).
National Association of REALTORS®, 2004 Policy and Program Achievements Goal: Increasing the
Political and Grassroots Power of REALTORS®,
http://www.realtor.org/GAPublic.nsf/Pages/accomp04grass?OpenDocument (last visited Apr. 10, 2006).
121
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RPAC “[m]anaged and directed the implementation of 31 Opportunity Race programs
nationwide including 7 congressional primary races, 6 in which NAR’s candidate
succeeded, and 24 General Election races in November.”122
The power of the Realtors politically extends outside the Beltway. The state
associations of realtors typically rank highly in terms of expenditures on campaigns. For
example, according to Texans for Public Justice, the political spending of the Texas
Association of Realtors was only outstripped by the state Republican and Democratic
parties and one other group.123 The Massachusetts Realtor website suggests that “RPAC
remained the nation's largest PAC in direct contributions to candidates with
disbursements of over $4.2 million dollars to federal candidates and national political
committees in the 2002 election cycle.”124
Thus, Realtors have a relatively high probability of seeking congressional relief
from an antitrust investigation, either in the form of statutory immunity or curtailment of
FTC authority. This is not only at the state level, but also on a national scale. Thus,
should the FTC bring its investigatory powers to bear on the real estate industry, it would
be interesting to see what response the realtors obtain in Congress and in state
legislatures. Similarly, it will be interesting to see what effect the DOJ’s recent suit
against NAR might have on the Antitrust Division’s political capital.
b. The Nature of the Market
122
Id.
Texas PACS: 2000 Election Cycle, http://www.tpj.org/docs/2001/10/reports/pacs00/index.html (last
visited Apr. 10, 2006).
124
Mass. RPAC, available at http://marealtor.com/content/images/faq.pdf#search='RPAC%20spending’
(last visited Apr 10, 2006).
123
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In addition to these considerations, however seemingly far-fetched, there are the
actual empirical difficulties associated with this peculiar market. While others are better
suited to address these limitations,125 there are a couple of idiosyncrasies related to real
estate that may limit the ability of the FTC to obtain information, heighten the chances
that the investigation will be less than successful, and heighten the potential of political
recoil.
First, the sources of data in this market are typically the local boards of realtors.
This is because the area of competition for such services is local in nature. As the DOJ’s
complaint against the NAR states:
Most sellers prefer to work with a broker who is familiar with local market conditions
and who maintains an office or affiliated sales associates within a reasonable distance of
the seller's property. Likewise, most buyers seek to purchase property in a particular city,
community, or neighborhood, and typically prefer to work with a broker who has
knowledge of the area in which they have an interest. The geographic coverage of the
MLS serving each town, city, or metropolitan area normally establishes the outermost
boundaries of each relevant geographic market, although meaningful competition among
brokers may occur in narrower local areas.”126
Thus, large-scale special reports might be necessary across multiple boards, or
alternatively a broad dispersion of subpoenas. The former strategy would likely run the
risk of encountering OMB clearance review, absent FTC utilizing its CID authority
broadly. However, both strategies would meet with internal resistance to large scale
investigations that draw upon FTC resources.
Moreover, real estate markets are characterized by large volumes of transactions,
depending upon the nature of the city or metropolitan area. For example, home sales in
the Houston metropolitan area range from 3,000–7,000 per month, with approximately
125
See generally __ REAL ESTATE L.J. __ (2006) See also Lawrence J. White, How Would Increased
Competition Affect Residential Real Estate?, in American Antitrust Institute Invitational Symposium on
Competition in the Residential Real Estate Brokerage Industry (2005), available at
http://www.antitrustinstitute.org/recent2/464e.pdf.
126
U.S. v. Nat’l Ass’n Realtors, Civil Action No. 05C-5140 (Oct. 4, 2005), available at
http://www.usdoj.gov/atr/cases/f211700/211751.htm.
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30,000 total listings each month and approximately $600,000–$1.6 MM in sales
monthly.127 The point here is that there is a lot of data in each potential relevant market.
Broad scale investigation of practices in the real estate industry might provide an
overwhelming amount of data, should such data be obtainable.
Finally, customers, the prime source for determination of injury to competition,
are unlikely to be helpful in this market. Homebuyers are likely to be average
consumers, relatively unsophisticated and very unlikely to have an understanding about
much of the real estate transaction, apart from the actual commission paid and the sale
price of the house. To obtain any information from such a broad source of customers
would likely require the information to be obtained via survey or questionnaires. This
again would force the FTC to encounter OMB review. Moreover, the resources spent
developing, delivering, and analyzing the results of a survey or questionnaire might be
better sent engaged in a targeted investigation within one metropolitan area.
This short laundry list by no means exhausts the difficulties associated with
obtaining real estate data.128 However, the issues that surface appear to be the same:
OMB review combined with internal reluctance to engage in broad investigations when
coupled with the high potential for political recoil could be perceived as potentially
producing perilous results for a goal-oriented agency desiring to produce tangible results
in light of scarce resources.
127
Real Estate Center at Texas A&M University, http://recenter.tamu.edu/data/hs/hs280b.htm (last visited
Apr. 10, 2006).
128
For a review of the empirical literature related to real estate markets, see Benjamin, John D., G. Donald
Jud, and G. Stacey Sirmans. 2000. "What Do We Know About Real Estate Brokerage?" Journal of Real
Estate Research, 20:1/2, pp. 5-30. See also Robert W. Hahn, Robert E. Litan and Jesse Gurman, Bringing
More Competition To Real Estate Brokerage, available at
http://www.usdoj.gov/atr/public/workshops/rewcom/213166.htm#19; John C. Weicher, The Price of
Residential Real Estate Brokerage Services: A Review of the Evidence, Such as It Is, in American Antitrust
Institute Invitational Symposium on Competition in the Residential Real Estate Brokerage Industry
(2005) available at http://www.antitrustinstitute.org/recent2/464a.pdf.
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However, the FTC could issue subpoenas or CIDs to local boards, combined with
strategic targeting of larger real estate brokers within particular markets of interest is
possible. To further that end, Appendix A to this article provides a model CID/subpoena
and commentary that might be used to obtain information from local boards. While some
of the questions may not be answerable by the boards, supplemental CIDs or subpoenas
to large brokers might serve to fill in gaps in the data.
The model CID/subpoena could serve as the basis for obtaining relevant data from
Boards of Realtors, large brokerage firms, and others. While the CID/subpoena is
focused on the Boards, some of the data asked for will not be available to the Boards.
Therefore, a series of CIDs/subpoenas is envisioned, with the first being received by the
Boards, and follow-on CIDs/subpoenas submitted to brokerages and others who might
have the remainder of the information sought.
Several questions arise as to certain details of the CID, such as to which Boards
the CIDs ought to be sent and the time period covered by the CIDs. With respect to the
latter question, the more information the better. Typically, data would be required for at
least one business cycle to determine the effects of a recessionary and recovery market on
prices. However, if such a large component of data would be unduly burdensome to the
parties, then the FTC could pick certain representative years along the business cycle.
The Model CID/Subpoena is agnostic as to which sample Boards the
CIDs/subpoenas would be sent. While the larger Boards are likely to have the most data,
it is not necessarily the case that the larger Boards would be more likely to encounter
competitive restrictions.
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VII.
38
CONCLUSION
The difficulties associated with attempts to collect data for purposes of
monitoring an industry for potential antitrust violations cannot be underestimated.
Statutory provisions may place practical limitations upon information gathering.
Regulatory review, in the guise of limiting the burdens that administrative agencies might
place upon businesses, may in fact create such strong barriers to certain methods of
information gathering that they are in fact seldom used. And Congress is perhaps the
elephant in the room, having the power to limit an agency’s authority, to confer
immunities from agency action, and to engage in other mechanisms to discipline agencies
that do not utilize the power that Congress delegated in a fashion pleasing to Congress.
State legislatures, too, may influence the potential of an antitrust investigation by
enshrouding the conduct in state action or merely by passing legislation codifying the
conduct at issue.
These difficulties are compounded when the industry at issue is highly segmented,
creating higher transaction costs for the agency in terms of allocation of resources and
expenditure of political capital in order to collect data from the multitude of sources out
there. These markets also tend to require the use of investigation techniques that might
cause the FTC to encounter OMB review.
There is no easy solution to this difficulty. However, one possible solution is the
one currently offered in the recent energy act. A provision in that act requires the FTC to
investigate “to determine if the price of gasoline is being artificially manipulated by
reducing refinery capacity or by any other form of market manipulation or price gouging
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39
practices.”129 However the Act did not provide the FTC with any additional capabilities
to engage in such an investigation, leaving the agency subject to the traditional means of
using subpoena and CID authority, or tackling OMB review and using other means at the
agency’s disposal. Regardless, unless such a statutory requirement is backed with
financial resources, the requirement that the FTC investigate will likely cause serious
allocation of resource decisions within the agency.
This is not to say, however, that Congress would necessarily be inclined to grant
such authority, backed with financial resources, in the case of the real estate industry.
There is no public outcry concerning real estate markets that would outstrip the political
power in the real estate industry. However, that may change should an economic
downturn appear and bubbles begin to burst.
All of this is not to say, however, that the FTC should cringe in fear of potential
retribution for investigating real estate or any other sector where there is some evidence
of market abuses. In most cases, it appears that such fear is misplaced, at least with
respect to the FTC’s unfair competition authority. Rather, the potential for retribution
merely suggests that the FTC should be strategic in its search for information. To that
end, it is possible to acquire information from certain sources within the industry without
undue burden on any particular party and while minimizing potential political backlash
by focusing inquiries in a strategic fashion.
129
Energy Policy Act of 2005, Pub. L. No. 109-58 § 1809, 119 Stat. 594 (2005).
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APPENDIX A: MODEL CID/SUBPOENA FOR REAL ESTATE MARKETS
General comments: The overall purpose of the CID is to ascertain the recent history of pricing of
brokerage services in the residential real estate industry.
This Model C.I.D. is intended to be used in acquiring data from Boards of Realtors, large brokerage
services, and other entities. While the questions primarily target Boards in the first instance, it is
envisioned that follow on C.I.D.s would be issued to large brokerages to supplement any data not available
from the Boards.
The time frame of all data and document requests should reflect the realities of real estate markets. In an
ideal world, the data request would capture at least one business cycle upswing and downswing. For
example, a time frame of 1996-2006 would serve this purpose. However, in light of the reality that such a
large data request might meet with serious political resistance, a sample of years from both an upswing and
downswing is acceptable.
A final overarching issue is to which markets such a CID should be targeted. We envision that larger real
estate markets are likely to produce a greater amount of data (e.g., New York, San Francisco, Los Angeles,
Washington D.C. metro area, etc.). However, a broad range of Boards should be targeted to account for the
difference associated with regional location, size of the Board, etc. Thus, we offer no specific advice as to
which Boards to target, but would be happy to discuss the issue with you further.
INTERROGATORIES
General comment on data collection via interrogatories: Data gathered for examination of overall
commission rates and other market phenomena are only useful if they are market-specific. Thus, in a
perfect world, data would be detailed, broken out by type of cost or expenditure, such as marketing or
advertising, salaries, overhead, and so forth. One objective would be to try to separate the actual
“brokerage costs” (those incurred to bring a buyer and seller together to consummate a specific sales
transaction) from “marketing” or “prospecting” costs (those incurred to lure buyers or sellers to the
brokerage). Also, ideally, costs would be broken out by specific property, or at least categories of
properties (although firms may not keep records in this manner).
Brokerage cost data could be used in conjunction with other data about the market to explain any variation
in costs. For example, consider looking for any correlations with: size of firm, measured in terms of
number of agents, number of transactions, or market share, characteristics of properties (perhaps answering
the ubiquitous question of the relationship between brokerage costs and house price), changes in the
underlying housing market (housing price level or distribution), the use of information technology and the
growth of the Internet over time, changes in the labor pool.
1.
Identify the geographic boundaries of the Board’s area.
Comment: The purpose of this interrogatory is to determine the relevant geographic area in the first
instance. Of course, the geographic area relevant for competition may be broader than the boundaries of
Board. The degree to which there is competition across Boards can be determined by, among other things,
determining whether any interoperability agreements exist between Boards and the degree to which
housing prices correlate across Board regions.
2.
Separately for each home sale within the Boards geographic boundaries, list, in
electronic format:
1.
the list price of each home sold;
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2.
3.
4.
5.
6.
41
the amount or percentage of any rebate or discount of the listing or seller’s
agent’s commission given, if any;
the commission stated in the listing agreement for the seller’s or listing
agent;
the commission offered to the buyer’s or cooperating agent;
the amount or percentage of any rebate or discount given by the seller’s or
cooperating agent on its commission; and
the location of the sale by
i.
zip code, and
ii.
listing region (e.g., area of town).
Comment: The purpose of Specifications 2-4 is, in part, to demonstrate the level of price variation among
commission rates. The above requested data could be used in conjunction with other data about the
relevant markets to potentially explain the variation; for example, when comparing markets, could
determine if there are any correlations with: (1) the number of active licensed brokers in the market or the
number and sizes of brokerage firms and their market shares (see Specification 4); (2) Some indicator of
the potential demand for brokerage services, such as the number of residential sales transactions per unit of
time (see Specification 4); and (3) Characteristics of properties that are bought/sold—square footage,
amenities, numbers of bedrooms, etc., as well as neighborhood characteristics (See Specification 3).
3.
For each home sale for which information was provided in Interrogatory No. 2,
list:
1.
the number of bedrooms;
2.
the number of bathrooms;
3.
the internal square footage of the property;
4.
the square footage of the lot
5.
whether the property was a corner property or a cul-de-sac lot; and
6.
the total dollar amount spent by the listing agent in marketing the home.
Comment: Specific housing data enables explanation of variation in the data.
4.
Separately for each brokerage service operating within the relevant area and
separately for each month of each year, list, in electronic format the total:
1.
number of agents operating under that brokerage service;
2.
number of agents operating part-time at that brokerage service;
3.
dollar volume of sales for which brokerage was cooperating agent;
4.
amount of commissions received for which broker was cooperating agent;
5.
number of transactions for which broker was cooperating agent;
6.
volume of sales for which brokerage was listing agent;
7.
amount of commissions received for which broker was listing agent; and
8.
number of transactions for which broker was listing agent.
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5.
42
List, for each brokerage service for which information was provided in
Specification 4:
1.
In what months and years the brokerage has operated;
2.
Whether the brokerage service is affiliated with a national or regional
franchise; and
3.
Whether the brokerage service is affiliated with a national franchisor.
Comment for Specifications 4-5: The industrial structure and practices within that structure are important
as well. Thus, market specific data is useful and necessary to inform as to these issues. With respect to
industrial structure, the numbers and sizes of the local brokerage firms, and whether or not they are
affiliated with national or regional franchisors, the market share of each firm, by both ownership (local
office) and franchisor are important. Moreover, this data should be informed by knowledge of the role
played by each element of the industrial structure—franchisors, local brokerages, individual agents—in
determining prices.
Such information might then be combined with actual brokerage price and/or cost data to determine any
potential correlations or patterns—for example, how prices or costs might vary between firms or different
business models.
DOCUMENT REQUESTS
6.
Provide all documents discussing the use of the Internet in the sale or marketing
of homes.
Comment: For the same reasons that data specifications related to industrial structure are important,
documents discussing important components of the industrial structure are relevant to any inquiry into
commission rates. While this Document request is perhaps politically sensitive due to recent Justice
Department action again the NAR, the documents here serve a different purpose. Specifically, does
internet usage and other innovate business models have an effect on commission rates?130
7.
Provide all documents discussing qualitative differences in the geographic
locations of homes. Qualitative differences include, but are not limited to,
desirability of particular areas of town, crime levels, and resale value of homes.
Comment: This document request mirrors the information sought in Specifications 2 and 3. Namely,
variations in the prices of homes and commission rates may be a function not only of the general
desirability of the house, but also of the neighborhood.
8.
Provide documents sufficient to show the terms of use of the MLS database.
Comment: See Comment to Specification 6.
9.
Provide all documents discussing commissions.
130
Robert W. Hahn, Robert E. Litan and Jesse Gurman, Bringing More Competition To Real Estate
Brokerage, available at http://www.usdoj.gov/atr/public/workshops/rewcom/213166.htm#19 (discussing
entry barriers in the real estate industry).
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Comment: The purpose is to supplement any commission data received via data specifications.
10.
Provide all documents discussing competition between brokerage services.
Comment: The purpose is to clarify whether or not brokerage services within a relevant geographic market
is heterogeneous. If they are, then this document request might help to explain any data issues encountered
due to such heterogeneity.
11.
Provide all documents relating to any interoperating agreements between Boards
of Realtors.
Comment: See Comment to Specification 1.
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