two Zillow false advertising cases, divergent outcomes

REX – Real Estate Exchange Inc. v. Zillow Inc., No. C21-312
TSZ, 2021 WL 3930694 (W.D. Wash. Sept. 2, 2021)

Rex sued Zillow and the National Association of Realtors for
antitrust and false advertising violations. Surprisingly, the antitrust claims
survive, as do false advertising claims agains Zillow.

NAR “is the nation’s largest trade association for real
estate professionals.” Membership includes multiple listings services (MLSs).
NAR’s optional Segregation Rule requires members’ listings obtained through
MLSs internet data exchange feeds to be “displayed separately from
listings obtained from other sources.” NAR also adopted a mandatory rule that
requires a seller’s agent to include in any MLS listing a predetermined offer
of commission to a buyer’s agent, thereby prohibiting any party from later
modifying that commission. “NAR’s members allegedly encourage their customers
to offer high commissions for buyers’ agents, resulting in historically high,
static commissions throughout the United States, with total commissions
averaging about 5.5 percent of a home’s sale price.”

REX is a licensed broker that employs licensed real estate
agents across the nation, but it is not a member of NAR or any MLS and thus has
not agreed to comply with any of NAR’s rules. Home sellers who choose REX’s
services can negotiate a buyer agent commission, and thus pay a total average
commission of 3.3 percent of a home’s sale price. REX lists its customers’
homes on various real estate aggregator websites, including two of Zillow’s
websites, Zillow.com and Trulia.com, the first and fourth most visited real
estate aggregator sites in the US. REX’s listings were historically displayed
on Zillow’s primary search page alongside the listings of MLS participants.

But then “the growth and substantial inventory of
Zillow-owned homes placed Zillow in a new position: Instead of focusing on
being an open access point for consumers to display and access residential real
estate listings, Zillow’s interests turned to its own substantial home
inventory.” In late 2020, Zillow announced that it would join forces with NAR
and several MLSs, publicly committing that “all Zillow-owned homes will be
listed on the MLSs with commissions paid to agents representing buyers.” NAR’s mandatory
Buyer Agent Commission Rule is allegedly the “paramount reason that real estate
commissions are two to three times higher in the United States than in
comparable international markets.” Zillow also announced that it would begin to
use MLS data feeds to populate its websites.

Zillow’s redesigned website, complying with NAR guidelines,
created a separate page or tab, called “Other listings,” that is concealed
behind the primary results page or tab, called “Agent listings.” As a result, consumers see only a portion of available homes
at a time. Even though REX’s customers’ homes are all listed by licensed real
estate agents, its lisitngs are now in “Other listings” rather than “Agent
listings.” REX alleged that this was deceptive and harmful, and resulted in
views plummeting on Zillow’s websites, causing “a corresponding drop in sales
and…lost brokerage service revenues to” REX.

redesigned tab; “other listings” in gray, top right

views after the change

The court found that the antitrust claims were sufficiently
well pled.

Lanham Act claim: Was this commercial advertising or
promotion? The key question was the Gordon & Breach element asking
whether the challenged commercial speech was “for the purpose of influencing
consumers to buy defendant’s goods or services,” a requirement not affected by Lexmark.

The complaint alleged that Zillow joined the NAR and MLSs to
promote its inventory of Zillow-owned homes. It then changed its websites to
comply with the new MLS rules and insulate MLS brokers from competition. The
allegations that Zillow adopted the misleading labeling system “for the purpose
of influencing its customers to use the Zillow Offers business, as well as the
services of other MLS agents, by concealing or discouraging the services of
non-MLS agents like Plaintiff,” were sufficient.

However, REX failed to state a Lanham Act claim against NAR.
“There are no other allegations explaining what NAR did to design or encourage
this particular labeling system on Zillow’s websites, let alone when, where,
and how NAR did it.”

So too with the Washington Consumer Protection Act claims.
Zillow argued that its conduct was “reasonable in relation to the development
and preservation of [its] business.” That was a factual issue inappropriate for
a motion to dismiss, even if such a business purpose defense was available. But
NAR got off the hook for the same reasons as with the Lanham Act claim. 

Picket Fence Preview, Inc. v. Zillow, Inc., No.
2:21-cv-00012, 2021 WL 3680717 (D. Vt. Aug. 19, 2021)

Picket Fence, which publishes listings for homes that are
for-sale-by-owner (FSBO), alleged that Zillow’s policy of providing free online
listings for FSBO homes violated the Vermont Consumer Protection Act and the
Lanham Act and constituted state law unfair competition. The court dismissed
the claims.

“A major incentive for homeowners to advertise with
[Plaintiff] is reaching potential buyers directly through [Plaintiff’s]
publications and avoiding a 6-8% real estate commission” that is typically paid
to real estate agents and brokers. When an FSBO seller lists real property on
Zillow, potential buyers see “Contact Agent” prominently displayed. Agents can
allegedly pay to get their name on the listing or to be the only contact for a
listing. The “Get More Information” tab lists the contact information for
“Premier Agents” first “and the owner is listed at the bottom of the list.”
Zillow allegedly makes it difficult or impossible to contact the owner.

This is allegedly a bait and switch; FSBO sellers “may lose
potential sales” from these listings “because Premier Agents may redirect
potential purchasers to other properties if the [FSBO seller] is not willing to
share a commission with the Premier Agent” or if another property would provide
the Premier Agent with “a better commission.” While Zillow “claims that it is
offering a service for free, [ ] in reality [it] is charging the Premier Agents
so they can advertise on the website of those free ads and receive hijacked
inquiries from deceived buyers.”

Picket Fence, which charges for FSBO listings, allegedly
lost a lot of business to Zillow, and was one of the few remaining FSBO
publications to survive Zillow.

First, Picket Fence lacked standing to sue on behalf of FSBO
sellers.  And it couldn’t sue under the
VCPA because it wasn’t a consumer. Nor could it bring a predatory pricing claim
because it didn’t allege that the free listings weren’t free or below cost, or
that there was a dangerous probability that Zillow would raise prices once competitors
were driven from the market.

Lanham Act claim: Lexmark standing existed, but deception
wasn’t plausibly pled. Picket Fence argued that Zillow misleadingly failed to
“disclose that interested shoppers would be directed to Premier Agents.”
However, since 2017, Defendant’s website has included a disclaimer stating that
“[b]y pressing Contact, [potential buyers] agree that Zillow Group and its
affiliates, and real estate professionals may call/text [potential buyers]
about [their] inquiry.” And Picket Fence failed to identify any representation
that any sales would be “commission free” or any promise that a real estate
agent would not be involved in a subsequent sale. “An FSBO seller remains free
to refuse to deal with a real estate agent and free to refuse to pay a real
estate agent’s commission even if it uses Defendant’s website. Defendant’s
listing focuses only on a preliminary step in a real estate transaction with no
promise as to what happens thereafter. Stated differently, a customer who is
promised a free listing is not promised a commission free sale either directly
or by implication.”

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