Two Key Cases Involving Gatekeepers Using Copyright To Try To Kill Disruptive Startups Come To Very Different Conclusions

Copyright

from the this-may-take-a-while dept

A little over a year ago, we wrote about a bizarre situation involving a variety of Multiple Listing Services (MLSs) — which are more or less the gatekeepers of the real estate industry — teaming up to attack an online service called NeighborCity (built by American Home Realty Network (AHRN)), which dared to rate real estate agents on their performance. The MLSs are more or less run by the real estate agents, and they didn’t like the idea of being rated. So they got together at a national convention, and magically, AHRN suddenly started getting inundated with nearly identical legal nastygrams, alleging copyright infringement in the data that NeighborCity posted from those MLS systems.

We found the copyright claims somewhat bizarre, because most of the information clearly is factual data, not subject to copyright. Similarly, the photographs, where there might be some level of weak copyright, should belong to the real estate agents. A few years ago, recognizing this, however, the various MLSs rejiggered their setup to require that agents click an online agreement stating that the MLS co-owns the copyright. This still seems highly questionable, though, as we’ll discuss below, the courts seem to be buying that these are valid copyrights. AHRN, however, hit back with a variety of counterclaims, arguing a variety of things, including copyright misuse, but also saying that there was clear evidence of an antitrust violation, because of the coordinated effort by the different attendees of the National Association of Realtors (NAR) conference and the various MLSs. There’s even something of a smoking gun email, in which the President of one of the MLSs, RMLS, sent an email to his lawyer, suggesting coordinated action against AHRN and its CEO Jonathan Cardella:

Across the country, multiple MLS’s have howled about the injustice of it all, wagged their fingers at Mr. Cardella, called in the full force and fury of their respective legal advisors, dropped C&D’s on the head of the bad fellow with the same effect as confetti and then we all shut down for the holidays.

If I were Mr. Cardella, I’d be thinking that we (the offended parties) are unconnected, unserious and more noise than threat. Ask Brian about the French guards in Monty Python and The Holy Grail as they rain insults down on Arthur.

If we don’t have the standing to enforce the copyright as anticipated in the Access and License Agreements of those of our Participants who assigned us an interest for the very purpose defined by Neighborcity.com, what is the point of them?

How do we connect the dots between all of the MLS’s that have been abused so that we can act collectively, either in cost sharing and/or strategically by taking an action against Mr. Cardella that has the desired outcomes of:

1. Getting all of our listings off of his site
2. Discovering where he has been getting the listings
3. Throwing a world of hurt on both
4. Sending a message that our copyrights are enforceable and we are serious about punishing anyone who doesn’t take us seriously

There are two very similar cases here. One is taking place in Maryland involving the Metropolitan Regional Information Systems Inc. (MRIS) and another in Minnesota involving the Regional Multiple Listing Service of Minnesota (RMLS, also known as NorthStarMLS). It was the head of RMLS who wrote that rather damning email above. In the Maryland case, things are not going well. The court recently granted MRIS’s motion to dismiss, finding that the copyright claims are likely legit, and not buying the antitrust claims — though, with at least some of them it is allowing AHRN to refile to correct deficiencies in the claims. However, it seems quite skeptical, arguing in part that the Noerr-Pennington doctrine allows the parties to team up in matters of litigation. While there is an exception to the doctrine if organizations are teaming up for “sham litigation,” the court disagreed that the litigation was a sham.

To summarize, MRIS and NAR’s litigation and related activities are immunized from antitrust liability. With respect to the other factual allegations in the First Amended Counterclaims, AHRN has failed to outline the contours of an agreement and has failed to explain how Counterclaim-Defendants’ alleged conduct affected competition generally. Accordingly, the Court will dismiss the § 1 claims in the First Amended Counterclaims. In light of the deficiencies identified herein, the Court has serious reservations about AHRN’s ability to set forth a cognizable Sherman Act claim against either Counterclaim-Defendant. However, AHRN set forth in its proposed Second Amended Counterclaims some allegations which may be relevant to its § 1 claims, including its claim for fraud on the Copyright Office. See Doc. No. 133-1. Accordingly, in the interest of justice, the Court will grant AHRN leave to file amended counterclaims and attempt to cure the deficiencies outlined above.

That’s unfortunate. However, up in Minnesota things are looking slightly better for AHRN. While that court also found some of the copyrights to be valid, and dinged AHRN with a finding of contempt for supposedly violating an injunction barring the posting of RMLS’ copyrighted photos, it also finds the antitrust arguments a lot more compelling. Unlike the Maryland court, the Minnesota court agrees that the whole effort may be a sham, and questions whether or not all of RMLS’s claimed copyrights are really legit.

In this case, the Court finds that AHRN has sufficiently alleged that RMLS’s petitioning activities were a sham. For example, AHRN alleges that, in the instant action, RMLS has asserted a copyright over the manner in which the facts and data are compiled on NorthstarMLS, even though the RMLS database is built on software RMLS did not design and does not own. AHRN also alleges that RMLS did not take the photographs over which it claims copyrights, and that it did not obtain the written assignments of these copyrights from the photographers that are required under the Copyright Act. These allegations, if true, could show that RMLS’s threats and pursuit of litigation against AHRN were in fact a sham.

And while the Maryland Court found the Sherman antitrust claims almost impossible to justify, the court in Minnesota recognizes what’s really going on here:

The Court finds that AHRN’s counterclaim provides a “suggestion of a preceding agreement” and thus satisfies the Twombly standard for alleging a conspiracy among RMLS, other MLSs, and the NAR. See Twombly, 550 U.S. at 556-67. First, AHRN alleges that it received thirty similar cease and desist letters after NAR held its annual meeting in California. AHRN alleges that, at this meeting, there were discussions regarding the perceived threat that AHRN posed to the industry and what the industry could do to shut down AHRN. These allegations create a plausible relationship between the NAR meeting and the cease and desist letters. Second, AHRN alleges that Mosey sent an e-mail suggesting that AHRN should not think that MLSs were “unconnected, unserious, and more noise than threat.” This e-mail could further suggest an agreement between RMLS and other MLSs. Third, AHRN alleges that NAR voted at a later meeting to fund this action and other legal actions and adopted exclusionary rules. This allegation further supports the possibility of an agreement to pursue concerted action. Fourth, when AHRN approached third-party syndicators – through whom RMLS and other MLSs license the use of their data to other websites – it was allegedly told that the syndicators were not permitted to extend a license to AHRN because AHRN did not direct potential home buyers to a listing broker’s website. This allegation also raises the possibility of an agreement to pursue concerted action by suggesting that RMLS and other MLSs may have instructed third-party syndicators not to deal with companies who did not comply with their preferred business model. At this stage, the Court therefore finds that AHRN has sufficiently alleged a preceding agreement to engage in concerted action.

The court also finds it compelling that so many real estate brokers refused attempts by AHRN to license their listings, suggesting that there was a group effort, or a group boycott, designed for anticompetitive purposes.

These two cases are fairly important. As we’ve discussed at length, the ability of traditional gatekeepers to use highly questionable copyright claims, solely for the purpose of stifling innovation and disruptive startups, is a really worrisome trend. However, for the most part, they’ve been able to get away with it. In this case, the actions and the intention of the MLSs are abundantly clear. They’re obviously not using copyright here as an “incentive” to create. They’re using it to try to restrict the free flow of information concerning home buying, and to limit and block innovative services they dislike, such as NeighborCity, for daring to present ratings on real estate agents.

While the ruling in Maryland is unfortunate, it’s good to see that the judge in Minnesota is at least open to this line of reasoning. The eventual ruling in these cases, and any later appeals, could become very important in future battles concerning legacy players abusing copyright to try to shut down disruptive upstart competitors.

Filed Under: antitrust, copyright, mls, real estate listings
Companies: ahrn, american home realty network, mris, nar, neighborcity, northstarmls, rmls