Antitrust Overreach Comes for Zillow

It is increasingly common for a tech platform to be in the crosshairs of government, competitor, and class-action antitrust challenges. Case in point: Zillow. Just last week, the real estate search portal settled a case with the Federal Trade Commission (FTC) and five states on the eve of a trial over whether the company participated in an anticompetitive agreement with Redfin, which operates both a real estate brokerage and a rental listing service. A few months earlier, Compass—a major American real estate brokerage—voluntarily dismissed its antitrust lawsuit arguing that Zillow engaged in an anticompetitive “ban” by refusing to display listings that were marketed publicly but withheld from a multiple listing service (MLS), including those marketed by Compass. What remains ongoing is a class-action lawsuit filed earlier this year by real estate agents alleging, among other things, that Zillow conditioned customer referrals to agents on their steering clients to Zillow’s home lending service.

The FTC’s case is certainly the most significant, and it targeted two separate agreements between Zillow and Redfin. The first was a partnership agreement under which Zillow paid Redfin $100 million to effectively turn its multifamily advertising business over to Zillow. On its face, this resembled nothing more than a straightforward asset acquisition, which antitrust enforcers regularly evaluate by considering likely anticompetitive harms alongside cognizable procompetitive benefits, such as increased economies of scale for Zillow. The second was a Content License Agreement under which Redfin would make Zillow its exclusive provider of multifamily listings on its network of rental listing sites, including Rent.com and Redfin.com, after exiting the market, and refrain from offering its own listings for up to nine years. Here again, exclusive dealing provisions are both common and typically assessed under antitrust law by weighing their potential harms against procompetitive benefits—for example, giving Redfin users access to more listings.

Needless to say, the FTC took a very different view of what Zillow and Redfin were up to. Rather than assess the two agreements according to whether their harms outweighed their benefits, the FTC saw a scheme among direct competitors to eliminate competition that should be treated as an agreement that was illegal per se. Interestingly, this was not the first time in recent years that a common business practice resembling exclusive dealing was characterized as a front for nakedly anticompetitive behavior. For example, Google’s payments to Apple to make its search engine the default in Safari were also the subject of an (unsuccessful) class-action lawsuit arguing that the payments were a collusive means of preventing Apple from developing its own rival search product.

The attempt to turn exclusive agreements that are part of a broader course of conduct like an asset acquisition into presumptively unlawful behavior is as baseless as it is concerning. A presumptively unlawful horizontal restraint involves an agreement not to compete, which is not at all the same as purchasing a rival’s assets and then becoming its exclusive supplier. As such, the provision that seems to have raised the stakes for Zillow and Redfin’s agreement was the extension of exclusivity to preclude Redfin itself from competing in the Internet listing service (ILS) multifamily advertising market, as opposed to Redfin just agreeing not to deal with any of Zillow’s rivals. But here, the broader “course of conduct” at issue may very well have cut against the FTC’s case: Under longstanding antitrust law, potentially per se restraints that are ancillary to broader procompetitive agreements (e.g., an efficiency-enhancing exclusive dealing agreement or asset acquisition) are also evaluated in terms of whether their harms outweigh their benefits and thus are not presumptively unlawful.

Apart from the Redfin agreements, other Zillow practices have also come under scrutiny. First, there was the lawsuit by Compass claiming that Zillow’s policy of excluding all listings not submitted to the MLS within one business day of their public marketing allowed Zillow to monopolize the online home search market in violation of Section 2 of the Sherman Act. Such a policy was, of course, disliked by Compass, whose platform allows sellers to privately list their properties indefinitely before publicly listing them on third-party platforms, including Zillow’s. The class-action lawsuit filed by real estate agents, by contrast, targets different behavior allegedly engaged in by Zillow. Most notably, Zillow is said to have conditioned agents’ access to referrals upon meeting targets for getting clients preapproved for Zillow Home Loans (ZHL) in a manner that constituted an unreasonable agreement in restraint of trade under Section 1 of the Sherman Act.

With respect to the former claims, Compass ultimately dismissed its complaint in March, and with good reason. First, the day before dismissal, Zillow had stated that it would change its rules to include listings like Compass’s on its platform. Second, Judge Jeannette A. Vargas in the Southern District of New York rightly denied Compass’s motion for a preliminary injunction, holding that Compass failed to show that Zillow possessed monopoly power in the online home search market. Specifically, Judge Vargas noted not only that Zillow’s platform is free for home buyers and sellers but also that high estimates of Zillow’s market share based on visitors to Zillow’s website failed to account for the multi-homing that is common in this space, as users regularly visit more than one real estate website. Indeed, even if Zillow did have monopoly power, proving that its behavior violated the Sherman Act was going to be difficult: Although refusal-to-deal allegations are common in cases against Big Tech platforms, the Supreme Court has made clear that refusals to deal with competitors are only unlawful in limited circumstances unlikely to have been present here.

The ongoing agent class-action litigation is somewhat more complex, in part because Section 1 of the Sherman Act claims do not require proof of monopoly power, and in part because of a recent empirical study by Steve Salop, a prominent antitrust economist and emeritus professor at Georgetown, which was itself cited in a separate consumer protection lawsuit involving Zillow’s steering practices. In his study, Salop analyzed whether ZHL had higher prices than offerings from other lenders by looking at public data obtained through the Home Mortgage Disclosure Act. Salop found that “ZHL borrowers pay significantly higher mortgage costs than they would pay to other lenders” and specifically as much as 10 basis points more for a conventional 30-year mortgage loan which rises to 15 basis points when net present value is considered. While Salop’s findings are consistent with the claim that Zillow’s steering may have harmed buyers by raising closing costs, Zillow can point to several procompetitive justifications for this behavior. For example, Zillow reports that nearly twice as many transactions occur when prospective buyers are connected with ZHL and that homes close about four days faster in such transactions relative to those transactions only involving Zillow Preferred agent partners but not ZHL. Zillow offers other perks through ZHL to buyers and agents, such as home appraisals at no upfront cost to buyers (and no cost to buyers using ZHL and a Zillow Premier Agent partner) and access to loan officers seven days a week.

Amidst all the publicity surrounding the high-profile antitrust cases and commentary involving Google, Apple, Meta, and Amazon—and, of course, competition policy in the AI era—it’s easy to overlook how the digital antitrust wars will impact many businesses well beyond Big Tech. Indeed, the various actions against Zillow from government, competitors, and class-action plaintiffs prove without a doubt that it is not just Big Tech platforms that need to worry amidst the ongoing antitrust resurgence. Unfortunately, consumers should expect a decline in product quality and choice as overzealous antitrust enforcement against innocuous and procompetitive behavior chills innovation by hindering the ability of innovators to recoup the costs of their platform investments.