KOZINSKI, Circuit Judge:
Competition is the mainspring of a capitalist economy. Sometimes, however, cooperation can make markets more efficient; setting industry standards and pooling market data are two examples of arrangements that often benefit consumers. Antitrust laws acknowledge these benefits, but still treat the arrangements with skepticism, for seemingly benign agreements may conceal highly anticompetitive schemes. We apply these principles to a case involving a real estate Multiple Listing Service.
Real estate agents make a living matching buyers and sellers. Up-to-date information about properties on the market is a must. Long gone are the days when agents trawled the neighborhood on horseback in search of telltale "For Sale" signs. We're now in the era of the Multiple Listing Service, or "MLS," which lets agents share information about properties on the market with the help of a computerized database. Agents who subscribe to the MLS can peruse the listings of other subscribers and post their own.
Care and feeding of an MLS involves more than just maintaining a database. Someone must enroll new MLS subscribers, bill and collect payments, ensure that postings comply with guidelines and provide support staff to answer subscribers' questions. These "support services" are part of the necessary overhead of delivering an MLS.
Before 1992, twelve MLSs served San Diego County, each operated by a different real estate trade association serving subscribers in a particular region of the county. Some of these MLSs shared common databases of listings. The direct cost of maintaining each database was allocated among the associations using it. The associations each provided their own support services, which varied from one to the next, and they all set the prices they charged agents independently. There were four different MLS databases in total, so a real estate agent who wanted access to all properties in San Diego County had to subscribe to more than one MLS.
Eleven of the twelve MLS operators were local Associations of Realtors, professional groups with ties to the California Association of Realtors (CAR) and the National Association of Realtors (NAR).
In 1990-91, these eleven associations decided to combine their databases. Not only would this give their agents access to all San Diego County properties through a single MLS, it would reduce operating costs because there would only be one database to maintain. Representatives met and decided to create a new entity called Sandicor with a single MLS database covering all of San Diego County. They considered it vital, though, that individual associations
The representatives considered two different business models on which to operate the new common database. The first was a "decentralized" arrangement in which each association would pay its share of the database costs but determine its own support service and pricing policies. The smaller associations balked at this proposal, fearing that SDAR would undercut their prices and threaten their viability. The representatives responded by adopting the current "centralized" business model instead.
In this model, Sandicor is a corporation, and the associations own its shares and appoint its directors. The associations operate under service agreements with Sandicor that outline in general terms the support services they must perform for subscribers. Associations sign up new MLS subscribers and collect MLS fees from subscribers on Sandicor's behalf, but Sandicor determines the fee agents must pay to subscribe. Associations are prohibited from discounting Sandicor's MLS fee or crediting any portion of it against other purchases. The service agreements between Sandicor and the associations specify a support fee that Sandicor pays each association in return for the support services the association provides to subscribers. Thus, subscribers don't pay the associations for support services directly; they pay only Sandicor's MLS fee, and Sandicor then returns part of that fee as a support fee to the associations. The support fee, like the MLS fee, is assessed on a per-subscriber basis.
The associations originally set the support fee at $25 per subscriber per month.
Defendants explain that this centralized model was "a fundamental matter for survival" because the smaller associations needed assurance that they could "continue to operate service centers as they had in the past and that the revenues they had received from MLS services would continue to be available." If Sandicor had adopted a decentralized format, "the far larger San Diego Association of Realtors ... would undoubtedly have been able to offer different prices to MLS users than would Fallbrook," which would have "threatened the future viability of local service centers." Without the revenue guaranteed by the fixed support fee, "the smaller Associations would not have joined," and Sandicor would not have had a "truly regional MLS."
Plaintiffs' Suit and Proceedings Below
Arleen Freeman and James Alexander are San Diego County real estate agents who subscribe to Sandicor's MLS. They have no quarrel with Sandicor's monopoly of the MLS database itself, recognizing that the single countywide database offers
Plaintiff Freeman also sent a letter to Sandicor in which she proposed to operate a service center that would provide Sandicor's MLS to subscribers. She claimed she could provide support services at a much lower price than the associations. Sandicor declined. Freeman believes Sandicor refuses to authorize new MLS support service providers for anticompetitive reasons, and that restrictive provisions in Sandicor's shareholders' agreement allow the associations to veto new sources of competition. Defendants respond that Sandicor refused the request because it was an obvious litigation ploy rather than a bona fide proposal. Plaintiffs nonetheless claim that the associations violated section 2 of the Sherman Act by conspiring to monopolize the market for support services. 15 U.S.C. § 2.
Plaintiffs filed a class action in federal court seeking an injunction and damages in excess of $10 million, naming as defendants Sandicor, the associations, the California Association of Realtors and assorted officers and directors of these organizations.
Following discovery, both sides moved for summary judgment. Defendants argued that their conduct had no substantial effect on interstate commerce and that they were immune from section 1 because they were a single entity under Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 104 S.Ct. 2731, 81 L.Ed.2d 628 (1984). The district court rejected the first defense but sustained the second, holding that the associations were "not separate entities pursuing separate interests that conspired to create Sandicor." It also found that Sandicor didn't "buy" anything from the associations, holding that "the [associations] do not sell service center functions to Sandicor, but rather provide Sandicor's MLS to users."
Both sides appeal. The district court had jurisdiction under 28 U.S.C. §§ 1331 and 1337. We have jurisdiction under 28 U.S.C. § 1291, and, except as noted below, we review de novo, Morrison v. Hall, 261 F.3d 896, 900 (9th Cir.2001).
The Sherman Act applies to restraints of trade or commerce "among the several States." 15 U.S.C. §§ 1-2. Monopolizing the local lemonade stand doesn't get you into federal court. To make a federal case, a plaintiff must show that the activities in question, although conducted within a state, have a "substantial effect on interstate commerce." McLain v. Real Estate Bd. of New Orleans, Inc., 444 U.S. 232, 242, 100 S.Ct. 502, 62 L.Ed.2d 441 (1980). Uncontradicted evidence shows that Sandicor's MLS mediated more than $23 billion of home sales over a four-year period, affecting approximately $10 billion in interstate home-mortgage financing. The effects of home sales on the interstate mortgage market are a sufficient connection with interstate commerce, see id. at 246, 100 S.Ct. 502, and $10 billion is "substantial" by any standard.
Defendants urge that we consider only the interstate effects caused by the illegal conduct itself. According to their economics expert, the cost of an MLS subscription is trivial compared to the typical real estate sales commission. Thus, even if the cost of the MLS was inflated, it would have only a de minimis effect on the commissions real estate agents charge, and thus no effect on the number of houses sold. Defendants misunderstand the legal standard. The Supreme Court has explained:
Id. at 242-43, 100 S.Ct. 502; see also Summit Health, Ltd. v. Pinhas, 500 U.S. 322, 331, 111 S.Ct. 1842, 114 L.Ed.2d 366 (1991) (reaffirming this standard). McLain tells us to look at the infected activities, not the infection. Thus, we examine the MLS, not
Defendants perceive a split in Ninth Circuit authority between cases applying the infected activities test and those considering a defendant's "`general business' activities." See Mitchell v. Frank R. Howard Mem'l Hosp., 853 F.2d 762, 764 n. 1 (9th Cir.1988) (citing W. Waste Serv. Sys. v. Universal Waste Control, 616 F.2d 1094, 1097 (9th Cir.1980)). Neither flavor helps defendants; what they want is the "illegal conduct" test that McLain rejected. And that, we are not at liberty to provide.
1. No antitrust violation is more abominated than the agreement to fix prices.
None of the relevant facts is disputed. Prior to 1992, the associations made independent decisions about how to price their support services, even though many of them shared common databases. When they decided to form a countywide database, they debated whether to continue that system of independent pricing or to set a fixed, uniform fee that they would receive for providing support services. They opted for the latter arrangement and selected a fee that was more than double the cost of the most efficient association. They admit that they fixed the fee in order to ensure that financially weaker associations would make more money than under a competitive regime, and thus concede by implication that they intentionally fixed the fee at a supracompetitive level.
The district court nonetheless rejected plaintiffs' theory of the case because it was not convinced that the associations sold anything to Sandicor. The court explained that "[a] review of the Service Center Agreements ... reveals the Associations do not sell service center functions to Sandicor, but rather provide Sandicor's MLS to users." The terms of the service agreements, however, are unambiguous: "The Association will provide the following [support] services to SANDICOR MLS participants," Service Agreement ¶ 1; "[i]n consideration of the above services, SANDICOR will pay to the Association the fees itemized on Schedule A," id. ¶ 2. Sandicor is paying for something. What it's buying is the contractual right to have the associations provide support services to its MLS subscribers. That the subscribers receive the support services as third-party beneficiaries doesn't change the fact that Sandicor is the buyer and the associations are the sellers. Cf. FTC v. Superior Court Trial Lawyers Ass'n, 493 U.S. 411, 422-23, 110 S.Ct. 768, 107 L.Ed.2d 851 (1990) (treating the government as the "customer" when it pays for representation of indigent criminal defendants). If Elle Woods pays someone to walk her dog, she's the buyer and the dog-walker is the seller, even though Bruiser gets the exercise. And if the Cambridge
Sandicor charges subscribers for their use of the MLS; its MLS fee includes the support services provided by the associations. The support fee Sandicor in turn pays the associations for support services was fixed at a level more than twice what it cost the most efficient association to provide them. These inflated support fees harm subscribers if Sandicor passes them on in the form of higher MLS fees. The district court found that "there is no evidence ... [that Sandicor] passes on an inflated price to consumers." This finding is contrary to the record.
There is unmistakable evidence that Sandicor not only considered its costs in setting MLS fees but, in fact, priced near cost and thus may have passed on the inflated support fees almost dollar for dollar. For example, an April 1997 association bulletin explains that "[Sandicor's] pricing takes the total amount required to run Sandicor and divides by the total number of agents on the system. The amount to run Sandicor includes ... the amount Sandicor sends back to each Association, by contractual arrangement, to provide you with local service." North San Diego County Ass'n of Realtors, Sandicor Board of Directors Approves Per Capita Fee Structure, Service Center Supplement, Apr. 1997, at 1, E.R. at 441 (emphasis omitted). Other materials in the record are to the same effect. See, e.g., Letter from William C. Stegall, President/CEO of Sandicor (June 20, 1997), E.R. at 454 (stating that Sandicor would study ways in which "costs can be reduced" so that it could sell MLS at the "lowest possible cost in the future for all of our consumers"); San Diego Ass'n of Realtors, M.L.S.—Why $27 Per Month? (Jan. 3, 1992), E.R. at 256 ("[Sandicor's MLS] price was determined by the lowest possible cost to users...."). This evidence is sufficient to show that Sandicor's prices reflected its costs to some extent and thus that an inflated support fee injured plaintiffs. In contrast, the record does not support the counterintuitive claim that Sandicor is some sort of accounting pyrrhonist that sets its prices in utter disregard of its costs of doing business.
That a purchaser suffers higher prices from passed-on costs doesn't necessarily mean he can sue. Illinois Brick denies standing to indirect purchasers in many circumstances. Ill. Brick Co. v. Illinois, 431 U.S. 720, 97 S.Ct. 2061, 52 L.Ed.2d 707 (1977). This rule has exceptions, however—two of which apply here. First, Illinois Brick doesn't apply to equitable relief, see Lucas Auto. Eng'g, Inc. v. Bridgestone/Firestone, Inc., 140 F.3d 1228, 1235 (9th Cir.1998), which is one of the remedies plaintiffs seek. Second, indirect purchasers can sue for damages if there is no realistic possibility that the direct purchaser will sue its supplier over the antitrust
Were we to grant immunity from section 1 merely because defendants nominally sell services through another entity rather than to consumers directly, we would risk opening a major loophole for resale price maintenance and retailer collusion. Consider the following: Ford can't sell cars to its dealers wholesale for $20,000 and require them to mark up the price exactly $4000 before reselling them to the public—that would be resale price maintenance, a per se violation of section 1. See Bus. Elecs. Corp. v. Sharp Elecs. Corp., 485 U.S. 717, 724, 108 S.Ct. 1515, 99 L.Ed.2d 808 (1988) (citing Dr. Miles Med. Co. v. John D. Park & Sons Co., 220 U.S. 373, 31 S.Ct. 376, 55 L.Ed. 502 (1911)). Nor can the dealers collude among themselves to peg the retail markup at $4000. See Plymouth Dealers' Ass'n v. United States, 279 F.2d 128, 134 (9th Cir.1960). Can Ford and its dealers circumvent these prohibitions by agreeing that the dealers, while continuing to bear the same economic risks, will nominally sell the cars on Ford's behalf for $24,000 and receive a $4000 "reimbursement" from Ford for each car sold? We think not. Yet this is in material respects analogous to what Sandicor and the associations did here. Sandicor charges MLS subscribers $44 per month; an association collects this fee from each subscriber and hands it over to Sandicor, which then returns $22.50 to the association as the support fee.
The discount ban, while not necessary to our finding of a section 1 violation, certainly supports our conclusion. Agreements not to offer discounts are per se violations of section 1. Catalano, Inc. v.
No one doubts that Sandicor and the associations may set policies necessary to maintain the MLS database. See United States v. Realty Multi-List, Inc., 629 F.2d 1351, 1368 (5th Cir.1980) (allowing an MLS operator to enforce "reasonably ancillary restraints"). Obviously, for example, they can dictate standards for data entry. Sandicor also retains considerable freedom to specify services that the associations must provide. Cf. Cont'l T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 59, 97 S.Ct. 2549, 53 L.Ed.2d 568 (1977). But this flexibility does not extend to what the associations did here.
The associations engaged in price fixing, and plaintiffs have standing to sue them. The associations purposely fixed the support fee they charged Sandicor at a supracompetitive level.
The single-entity rule is relevant in a variety of contexts. It applies to a company and its officers, employees and wholly owned subsidiaries. Id. at 769, 771, 104 S.Ct. 2731. It also applies to subsidiaries controlled by a common parent, Thomsen v. W. Elec. Co., 680 F.2d 1263, 1265-66 (9th Cir.1982), firms owned by the same person, Las Vegas Sun, Inc. v. Summa Corp., 610 F.2d 614, 616, 618 (9th Cir.1979), and a firm owned by a subset of the owners of another, Copperweld, 467 U.S. at 773 n. 21, 104 S.Ct. 2731 (citing Sunkist Growers, Inc. v. Winckler & Smith Citrus Prods. Co., 370 U.S. 19, 29, 82 S.Ct. 1130, 8 L.Ed.2d 305 (1962)). It applies to principal-agent relationships, Calculators Haw., Inc. v. Brandt, Inc., 724 F.2d 1332, 1336 (9th Cir.1983), and to "partnerships or other joint arrangements
Some decisions have found a single entity even in the absence of economic unity. In City of Mt. Pleasant v. Associated Electric Cooperative, Inc., 838 F.2d 268 (8th Cir.1988), the Eighth Circuit held that a joint venture of independently owned regional electric cooperatives was a single entity. Id. at 271. It opined that "legally distinct entities cannot conspire among themselves if they `pursue the common interests of the whole rather than interests separate from those of the [group] itself.'" Id. at 274 (quoting Copperweld, 467 U.S. at 770, 104 S.Ct. 2731). Crucially, though, there was no evidence that "defendants are, or have been, actual or potential competitors." Id. at 276. Similarly, Williams v. I.B. Fischer Nevada, 794 F.Supp. 1026 (D.Nev.1992), aff'd, 999 F.2d 445 (9th Cir. 1993) (per curiam), found that a fast food franchisor and its franchisees were a single entity; among other things, the franchisees were located too far apart to be effective competitors, even though they could vary their prices. See id. at 1031.
On the other hand, in Los Angeles Memorial Coliseum Commission v. National Football League, 726 F.2d 1381 (9th Cir. 1984), we held that the teams of the NFL are not a single entity.
Although the single-entity inquiry is fact-specific, Williams, 999 F.2d at 447, a few general guidelines emerge. First, in the absence of economic unity, the fact that joint venturers pursue the common interests of the whole is generally not enough, by itself, to render them a single entity. "[A] commonality of interest exists in every cartel." L.A. Mem'l Coliseum, 726 F.2d at 1389. Retailers have a common interest in distributing a supplier's product, but they certainly are not exempt from section 1. See Plymouth Dealers, 279 F.2d at 134. And, the Court routinely scrutinizes joint ventures that involve aspects of common interest. See, e.g., NCAA v. Bd. of Regents, 468 U.S. 85, 104 S.Ct. 2948, 82 L.Ed.2d 70 (1984); Broad. Music, Inc. v. CBS, 441 U.S. 1, 99 S.Ct. 1551, 60 L.Ed.2d 1 (1979); United States v. Topco Assocs., 405 U.S. 596, 92 S.Ct. 1126, 31 L.Ed.2d 515 (1972); United States v. Sealy, Inc., 388 U.S. 350, 87 S.Ct. 1847, 18 L.Ed.2d 1238 (1967); see also 1 Julian O. von Kalinowski et al., Antitrust Laws and Trade Regulation § 11.02, at 11-17 (2d ed.2000) (noting that cases finding joint venturers to be incapable of conspiracy are the "exception").
Second, in the absence of economic unity, the fact that firms are not actual
Finally, where firms are not an economic unit and are at least potential competitors, they are usually not a single entity for antitrust purposes. This rough guideline fairly captures the holdings of the cases above.
These principles resolve the issue here.
The associations are also at least potential competitors. Nothing innate in the economics of a countywide MLS requires an agent to subscribe through one association rather than another. Because Sandicor pays support fees on a per-subscriber basis, competition among associations to sign up new MLS subscribers is also competition in the market to sell support services to Sandicor. The more subscribers an association signs up, the more support services it sells to Sandicor. If one association offered better support services— longer hours, a nicer building, more patient help staff—it could attract more subscribers.
The associations are also now actual competitors. Before 1994, rules of the National Association of Realtors required an agent to join the association in the geographical
Defendants sabotage their theory by their own admissions. They concede they fixed support fees in part because SDAR "would undoubtedly have been able to offer different prices to MLS users than would Fallbrook" under the board of choice regime, whose arrival was imminent when they formed Sandicor. They explain: "The board-of-choice prospect buttressed the attractiveness of a centralized MLS structure, working hand-in-glove with the underlying notion of fairness of offering the same services at the same prices to all participants." In other words: "The prospect of having to compete with one another buttressed the attractiveness of a cartel, where we could fix prices and services in ways we thought were fair." Rarely do antitrust defendants serve up their own heads on so shiny a silver platter.
The associations are not a single entity, and so their joint venture is not immune from scrutiny under section 1.
3. Defendants argue that, if we don't find them categorically immune from section 1, we should evaluate their conduct under the more forgiving "rule of reason" rather than the per se rule. Under the rule of reason, we look to the particular facts of the case to determine whether a challenged restraint is likely to enhance or harm competition. See Nat'l Soc'y of Prof'l Eng'rs v. United States, 435 U.S. 679, 690, 98 S.Ct. 1355, 55 L.Ed.2d 637 (1978). Although price fixing is almost always a per se violation of section 1, there are "very narrow" exceptions. United States v. A. Lanoy Alston, D.M.D., P.C., 974 F.2d 1206, 1209 (9th Cir.1992). In Broadcast Music, Inc. v. CBS, 441 U.S. 1, 99 S.Ct. 1551, 60 L.Ed.2d 1 (1979), and NCAA v. Board of Regents, 468 U.S. 85, 104 S.Ct. 2948, 82 L.Ed.2d 70 (1984), the Court applied the rule of reason to conduct that arguably constituted price fixing. BMI held that a blanket license for recordings wasn't per se illegal even though it "fixed" a "price" in some literal sense. 441 U.S. at 8-9, 99 S.Ct. 1551. The Court stated that per se rules are inappropriate in novel contexts, id. at 9-10, 99 S.Ct. 1551, and observed that "a necessary consequence of an aggregate license is that its price must be established." Id. at 21, 99 S.Ct. 1551. NCAA applied the rule of reason to broadcast restrictions on college
Defendants offer three reasons why BMI and NCAA apply. They first claim that the inherent cooperative aspects of the MLS as a joint venture warrant more deferential review. They next argue that fixing support fees is necessary to realize the "underlying notion of fairness of offering the same services at the same prices to all participants." Finally, they contend that Fallbrook and Valley Center's refusal to join the MLS on a decentralized basis made it necessary to fix support fees if the countywide MLS was to exist at all.
We reject the first argument because any elements of novelty and cooperation in the MLS are irrelevant to whether support fees are fixed or set competitively. Plaintiffs challenge the associations' support fees, not Sandicor's MLS fee, and fixed support fees are not a "necessary consequence" of the countywide MLS. BMI, 441 U.S. at 21, 99 S.Ct. 1551. There is no obvious technical reason that the fees must be fixed; support fees before 1992 were set independently even when two associations shared the same database. And defendants do not claim that the efficiencies of the MLS would be impaired if support fees were set competitively. Cf. id. at 20, 99 S.Ct. 1551 (noting that blanket licenses allow consumers to avoid the substantial transaction costs of negotiating licenses on a song-by-song basis); Nat'l Bancard Corp. v. VISA U.S.A., Inc., 779 F.2d 592, 601-02 (11th Cir.1986). The only apparent effect of the fixed support fee is to raise the price that consumers pay.
NCAA is likewise inapplicable. To fall within that case's protection, the price fixing need not itself be essential, see NCAA, 468 U.S. at 101, 104 S.Ct. 2948, but it must still be reasonably ancillary to the legitimate cooperative aspects of the venture. See Regents of the Univ. of Cal. v. ABC, 747 F.2d 511, 517 (9th Cir.1984) (holding per se treatment likely applicable where "[b]y any account, the purpose and effect of the horizontal restraints imposed ... have little, if any, bearing on the operative rules"); cf. Gen. Leaseways, Inc. v. Nat'l Truck Leasing Ass'n, 744 F.2d 588, 595 (7th Cir.1984) (characterizing NCAA as a case where there was a "plausible connection between the specific restriction and the essential character of the product" and holding that per se treatment was appropriate where "the organic connection between the restraint and the cooperative needs of the enterprise that would allow us to call the restraint a merely ancillary one is missing"). The fixed support fee is not reasonably ancillary to the combined MLS database. Defendants offer no explanation for how it improves the efficiency of the MLS or has any effect at all beyond raising prices. Moreover, the support fee is significant relative to the price of the service as a whole; it represents more than half of what consumers pay.
We likewise reject the argument relying on the "underlying notion of fairness of offering the same services at the same prices to all participants." The "fairness" of uniform pricing is not a relevant consideration in an antitrust case; consumers are presumed to prefer lower prices to the satisfaction of knowing they paid the same inflated price as everyone else. Nor can the price fixing be justified as necessary to ensure uniform support services. Even assuming arguendo that defendants have a legitimate interest in standardizing support services, fixing the price of those services is not a reasonably tailored means of achieving the goal. Sandicor's service agreements already specify the services that the associations must provide. Fixing the price of those
We turn, finally, to the claim that price fixing was justified to convince the smaller associations to join the countywide MLS. This theory at least attempts to explain why the restraint itself was necessary to the joint venture. Nonetheless, it fails to state a valid defense.
We reject some justifications as a matter of antitrust policy, even though they might show that a particular restraint benefits consumers. Among these are theories that "depend on power over price for their efficacy." 7 Phillip E. Areeda & Herbert E. Hovenkamp, Antitrust Law ¶ 1504c, at 361 (2d ed.2003). In Professional Engineers, for example, the Court held that competitive bidding could not be banned on the theory that it would tempt engineers to do shoddy work. 435 U.S. at 692-94, 98 S.Ct. 1355. The Court categorically rejected the argument that the "restraint on price competition ultimately inures to the public benefit by preventing the production of inferior work and by insuring ethical behavior." Id. at 693-94, 98 S.Ct. 1355. It noted that "[t]he logic of this argument rests on the assumption that the agreement will tend to maintain the price level; if it had no such effect, it would not serve its intended purpose." Id. at 693, 98 S.Ct. 1355. This logic doomed the defense because the Sherman Act presumes that competition, not cartel pricing, best ensures quality products for consumers, regardless of any empirical evidence to the contrary.
Like the defendant in Professional Engineers, the associations here seek to justify not only fixing prices, but intentionally fixing prices at a supra-competitive level. This defense is very different from the ones raised in BMI and NCAA. Defendants in BMI justified blanket licenses on the ground that negotiating song licenses on an individual basis is impractical. 441 U.S. at 20, 99 S.Ct. 1551. And the NCAA justified its broadcast restrictions at least in part on the need to maintain competitive balance among teams. NCAA, 468 U.S. at 117-20, 104 S.Ct. 2948; see also Gen. Leaseways, 744 F.2d at 595. Neither argument depends on the fact that the fixed price is supracompetitive. Sandicor and the associations, by contrast, fixed prices precisely in order to keep them above competitive levels. Their ultimate purpose may have been to entice the smaller associations to join the countywide MLS, but the fee had this effect only because it was supracompetitive, not because it was fixed. Defendants seek to justify not only the forbidden practice (price fixing) but its forbidden effect (supracompetitive prices), and this they may not do. See Nat'l Soc'y of Prof'l Eng'rs, 435 U.S. at 693, 98 S.Ct. 1355. Firms cannot fix prices as a mere quid pro quo for providing consumers with better products. Antitrust law presumes that competitive markets offer sufficient incentives and resources for innovation, and that cartel pricing leads not to a dedication of newfound wealth to the public good but to complacency and stagnation.
Moreover, defendants assume that, without Fallbrook and Valley Center, there couldn't be a true countywide MLS. But Sandicor could have formed without them and then competed for their 400 subscribers. An MLS's listings come from its subscribers, so its coverage is simply a function of who subscribes. Other than NAR's now-defunct geographical restrictions, nothing prevented subscribers in Fallbrook or Valley Center from choosing Sandicor's MLS over their local service.
We find all the asserted defenses legally deficient or factually unsupported. The record compels the conclusion that defendants violated section 1 of the Sherman Act by fixing support fees. The district court should have denied summary judgment to defendants and granted it to plaintiffs instead.
Conspiracy To Monopolize
Plaintiffs also allege a conspiracy to monopolize the market for support services. To prevail, they must show "specific intent to monopolize and anticompetitive acts designed to effect that intent." Hunt-Wesson Foods, Inc. v. Ragu Foods, Inc., 627 F.2d 919, 926 (9th Cir.1980). "[N]o particular level of market power or `dangerous probability of success' has to be alleged or proved ... where the specific intent to monopolize is otherwise apparent from the character of the actions taken." Id.
Plaintiffs' section 2 case centers around restrictive provisions in Sandicor's shareholders' agreement and its rejection of Freeman's offer to run a competing service center. The shareholders' agreement reads as follows:
Freeman proposed that Sandicor sell MLS database access to her directly at a rate that excluded the support fee, and that she resell it to agents with her own support services. Essentially, she sought to run a service center on a "decentralized" basis. Sandicor refused, explaining that her proposal was incompatible with Sandicor's centralized structure. Plaintiffs attribute this rejection to the shareholders' agreement. They draw a parallel to Associated Press v. United States, 326 U.S. 1, 65 S.Ct. 1416, 89 L.Ed. 2013 (1945), where the Supreme Court invalidated provisions in AP's bylaws requiring a majority vote among existing newspapers to grant membership to a competitor. Id. at 12, 65 S.Ct. 1416.
The district court rejected the section 2 claim in part because Freeman had no bona fide intent to operate a competing service center. Even accepting this to be the case, we conclude that plaintiffs have standing to sue. That Freeman had no bona fide competitive intent might undermine her standing as a competitor, but she is also an indirect purchaser of support services. If the associations exclude competitors, she suffers inflated prices, and she has standing to sue as an aggrieved consumer. See In re Ins. Antitrust Litig., 938 F.2d 919, 926 (9th Cir.1991); Thompson v. Metro. Multi-List, Inc., 934 F.2d 1566, 1571 (11th Cir.1991).
Nonetheless, the shareholders' agreement does not explain Sandicor's rejection of Freeman's offer. It applies only to "admission of new Shareholders, or entering
This doesn't end the section 2 inquiry, however. Even though there was no causal relationship between the shareholders' agreement and the rejection, they each might still be independent "anticompetitive acts" sufficient to support a section 2 conspiracy claim. See Hunt-Wesson Foods, 627 F.2d at 926 ("[T]he [anticompetitive] act may be no more than the agreement itself.").
We find no genuine issue as to the adoption of the shareholders' agreement. Although there are some parallels between this case and Associated Press, the distinctions are significant. First, the agreement in Associated Press distinguished between new members who would compete with existing members and new members who would not. 326 U.S. at 10-11, 65 S.Ct. 1416. Sandicor's shareholders' agreement makes no comparable distinction. The absence of facial discrimination against competitors makes the inference of anticompetitive intent much weaker. Second, as noted above, the agreement applies only to new service agreements with other Boards of Realtors or shareholders. It doesn't apply to agreements with people like Freeman. This limitation on the agreement's scope further attenuates the inference of monopolistic intent.
Unlike the bylaws in Associated Press, see id. at 6, 65 S.Ct. 1416, the restrictive provisions here are not so anticompetitive on their face that they can be condemned without further evidence that they were adopted with specific intent to monopolize. Cf. Northwest Wholesale Stationers, Inc. v. Pac. Stationery & Printing Co., 472 U.S. 284, 298, 105 S.Ct. 2613, 86 L.Ed.2d 202 (1985) ("[N]ot all ... refusals to deal are predominantly anticompetitive."). The associations may have adopted them for entirely benign reasons—for example, to ensure that new shareholders would provide support services effectively or that they would not compromise the integrity of the database. Absent additional evidence that the restrictive provisions were adopted for improper reasons, they don't support a conspiracy to monopolize claim.
Finally, we consider whether the rejection of Freeman's proposal violated section 2. Defendants may not "refus[e] to deal in order to create or maintain a monopoly absent a legitimate business justification." Image Technical Servs., Inc. v. Eastman Kodak Co., 125 F.3d 1195, 1209 (9th Cir.1997); see also Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585, 601, 105 S.Ct. 2847, 86 L.Ed.2d 467 (1985). We agree with the district court
Plaintiffs have failed to raise a genuine issue that either the execution of the shareholders' agreement or the rejection of Freeman's proposal was driven by a specific intent to monopolize. The district court correctly granted summary judgment in favor of defendants on the conspiracy to monopolize claim.
Claims Against the California Association of Realtors
The California Association of Realtors isn't a party to any of the offending agreements, but plaintiffs allege that CAR lawyers encouraged the associations' antitrust violations. Plaintiffs have failed to turn up any evidence to support this theory. There is some evidence suggesting that CAR encouraged a corporate form for Sandicor, but this doesn't show that CAR encouraged the associations to fix support fees. A CAR attorney did opine that fixed support fees were legal. But nothing indicates that she recommended the arrangement, and dispassionate legal advice is not an antitrust violation. See Tillamook Cheese & Dairy Ass'n v. Tillamook County Creamery Ass'n, 358 F.2d 115, 118 (9th Cir.1966). Finally, plaintiffs argue that CAR is violating antitrust laws by financing the defense of this lawsuit. CAR's financial support certainly explains plaintiffs' desire to sue it, but it's hardly illegal.
Shortly after discovery closed, Sandicor's president Bill Stegall, who had been diagnosed with cancer, resigned and revealed to plaintiffs' counsel that documents had been withheld. Plaintiffs moved to compel discovery of the documents and asked for sanctions. A magistrate judge found that the failure to produce the documents was willful, and awarded plaintiffs their costs of filing the motion under Fed.R.Civ.P. 37(a)(4). The district court approved the award, and we review it only for abuse of discretion. Rio Props., Inc. v. Rio Int'l Interlink, 284 F.3d 1007, 1022 (9th Cir.2002).
Relying on Badalamenti v. Dunham's, Inc., 896 F.2d 1359 (Fed.Cir.1990), defendants contend that the court abused its discretion because they had objected to the discovery requests as ambiguous, and
Antitrust law doesn't frown on all joint ventures among competitors—far from it. If a joint venture benefits consumers and doesn't violate any applicable per se rules, it will often be perfectly legal. The decision to combine MLS databases fits comfortably within this category. See Realty Multi-List, 629 F.2d at 1367-68 (extolling the many virtues of MLSs). The further decision to fix support fees does not.
We AFFIRM the district court's holding that defendants' activities substantially affected interstate commerce. We also AFFIRM summary judgment in favor of defendants on the section 2 claim and summary judgment in favor of CAR on all claims. Finally, we AFFIRM the court's award of discovery sanctions.
We REVERSE, however, on the merits of the principal section 1 claim. Plaintiffs' evidence is sufficient to prove a violation of section 1 by Sandicor and the associations. Defendants have presented no evidence that refutes the legal essentials of plaintiffs' case. The district court should have denied summary judgment to defendants and awarded it to plaintiffs instead.
We remand to the district court for further proceedings consistent with this opinion.