The Commissioner of Competition v The Toronto Real Estate Board: The FCA Rules that Home Prices in Toronto Must be Made Public

Serving more than 49,000 real estate brokers in the Greater Toronto Area, the Toronto Real Estate Board (“TREB”) is Canada’s largest real estate board. The majority of real estate transactions in Toronto make use of TREB’s Multiple-Listing Service (“MLS”), an online tool for brokers to help customers buy and sell homes.

In particular, the MLS tool provides information such as historical sales figures, pending sales and broker commission rates available exclusively to its member brokers. In other words, any homebuyer seeking this information has to obtain it through real estate agents who are TREB members. Real estate agents are allowed to share sales information with individual clients, but they cannot publish the data in bulk online, even on password-protected data feeds.

The Competition Bureau is an independent Canadian law enforcement agency that ensures that businesses operate in a competitive manner. Recently, the Bureau has taken an interest in TREB’s MLS practices, particularly with regards to whether or not they constitute anti-competitive behaviour. Below, I discuss how the TREB case has progressed through the Courts, the legal issues at play and the very real practical ramifications for homebuyers and sellers in Toronto.

Is TREB Anti-Competitive?

In May 2011, the Competition Bureau took action against TREB through the Competition Tribunal in Commissioner of Competition v Toronto Real Estate Board, 2016 Comp. Trib. 7 [TREB, Competition Tribunal].

Specifically, the Competition Bureau argued that, by restricting MLS access and limiting the manner in which its members may display information, TREB had stifled the market’s ability to introduce innovative services and denied consumers the benefits of greater competition. In particular, the Competition Bureau alleged that TREB’s actions constituted an “abuse of dominance” under the Competition Act, RSC, 1985, c C-34 [Competition Act].

This offence has three elements:

(a) one or more persons substantially or completely control, throughout Canada or any area thereof, a class or species of business,

(b) that person or those persons have engaged in or are engaging in a practice of anti-competitive acts, and

(c) the practice has had, is having or is likely to have the effect of preventing or lessening competition substantially in a market (Competition Act, section 79.1).

The Tribunal found that, on a balance of probabilities, all three of these section 79 (1) elements were met.

As per the first element described above, the accused persons must exercise “complete control” or “substantial control” over a class of business. The Tribunal concluded that TREB substantially controlled the supply of MLS-based residential real estate brokerage services in Toronto, within the meaning of paragraph 79(1)(a) of the Act. Drawing upon Supreme Court of Canada jurisprudence in R v Nova Scotia Pharmaceutical Society, [1992] 2 SCR 606, the Tribunal characterized “substantial control” as “the capacity to behave independently of the market, in a passive way” and requiring a degree of market power that is more than just “moderate.” With its dominant position in Toronto, TREB was held to meet this threshold. In rebuttal, TREB argued that it could not profitably influence price because it is a not-for-profit entity and that “it is an input supplier to that market, and has no stake in who wins or who loses in that market” (TREB, Competition Tribunal, para 177). The Tribunal disagreed, arguing that the party need not compete in the market—the wording of 79(1)(a) was broad enough that control over supplier input or the ability to make rules that control business conduct of competitors was sufficient. TREB was found to exert exactly this type of control.

On the second element, the accused must be found to engage (or have engaged) in anti-competitive practices. The Tribunal concluded that TREB did indeed engage in anti-competitive acts within the meaning of 79(1)(b) of the Act. Specifically, the Tribunal focused on TREB’s practice of prohibiting real estate agents from publishing sales data online. In discerning the overall character of this conduct, the Tribunal relied on whether the respondent “subjectively or objectively intended a predatory, exclusionary or disciplinary negative effect on a competitor” (TREB, Competition Tribunal, para 275). The Tribunal found that TREB was primarily motivated by a desire to insulate its members from disruptive competition, which was sufficient to demonstrate an exclusionary effect on a competitor. For its part, TREB argued that its primary motivation for its prohibition against publishing sales data were concerns about consumer privacy. However, this line of argument was not borne out by evidence discovered via email exchange and subsequent cross-examination of management to the contrary.

In its analysis, the Tribunal surmised:

“Competing on the merits is one thing. Pre-empting meaningful competition from emerging over a sustained period of time may be quite another thing, particularly where the respondent faces little present competition” (TREB, Competition Tribunal, para 307).

Lastly, the third element requires that the practice had the effect of preventing or lessening competition substantially. TREB’s conduct was indeed found to have the effect of preventing or lessening competition substantially in the market pursuant to 79(1)(c) of the Act. Particularly, the Competition Bureau argued “TREB’s practice of anti-competitive acts constitutes a significant barrier to entry and expansion for brokers who would like to offer brokerage services over the Internet” (TREB, Competition Tribunal, para 484). For its part, TREB argued that competition in the real estate brokerage market has actually intensified rather than lessened. The Tribunal acknowledged that individual real estate brokers do not have market power—they are instead in a competitive market with one another. However, the Competition Bureau relied on a different market definition, that of a collective “trade association” of real estate agents.

The Tribunal adopted the Bureau’s view of the market:

“When a group of rivals, whether through their trade association or otherwise, insulates itself from increased competition, they are in essence exercising a cognizable form of market power. In brief, to prevent a material increase in quality, variety or innovation, or a material reduction in price, is to prevent a material reduction in one’s market power, whether such market power exists at the individual or group level” (TREB, Competition Tribunal, para 500. Emphasis my own.)

On the three elements, the Tribunal found for the Commissioner of Competition. The case was subsequently appealed to the Federal Court of Appeal in Toronto Real Estate Board v. Commissioner of Competition, 2017 FCA 236 [TREB, FCA].

A Novel Intellectual Property Argument Arises at the Federal Court of Appeal

At the FCA, the Court largely upheld the Tribunal’s review on the three elements required for an Abuse of Dominance offence under 79 (1) of the Competition Act, as discussed above.

Of particular interest however, was the FCA’s analysis of TREB’s novel argument that pursuant to the Copyright Act, RSC 1985, c C-42 [Copyright Act], its database was an intellectual property (“IP”) that could not constitute an anti-competitive act. Indeed, the relationship between IP law and competition law provides an inherent friction. While the Competition Bureau is mandated with ensuring that businesses and markets operate in a competitive manner, the very nature of IP law is to grant monopolies in order to reward inventors.

In an attempt to clarify this contradiction, the Competition Bureau had previously released Intellectual Property Enforcement Guidelines (or “IPEGs”). The IPEGs recognized the sanctity of IP laws and clarified that competition laws do not apply to the “mere exercise” of patent rights.

This is further entrenched at s. 79(5) of the Act, stating:

“…an act engaged in pursuant only to the exercise of any right or enjoyment of any interest derived under the Copyright ActIndustrial Design ActIntegrated Circuit Topography ActPatent ActTrade-marks Act or any other Act of Parliament pertaining to intellectual or industrial property is not an anti-competitive act.” (Emphasis my own.)

Seizing on this exception, TREB sought to convince the FCA that its database represented a mere exercise of patent rights.

In analyzing this line of argument, the FCA turned to the legislation itself. The Copyright Act extends the protection of copyright to “every original literary, dramatic, musical and artistic work” (Copyright Act, section 2). Turning to the meaning of the word “original,” the Court noted that:

“For a work to be “original” within the meaning of the Copyright Act, it must be more than a mere copy of another work. At the same time, it need not be creative, in the sense of being novel or unique. What is required to attract copyright protection in the expression of an idea is an exercise of skill and judgment. By skill, I mean the use of one’s knowledge, developed aptitude or practised ability in producing the work” (TREB, FCA, para 184).

On this basis, the Court was unconvinced that TREB had a copyright interest in MLS. The Court found that TREB’s evidence did not speak to skill and judgment in compiling the database, but rather illustrated that it was a more mechanical exercise. Evidentiary considerations included the fact that a third party corrects errors in the database; members provide the information which is uploaded “almost instantaneously” to the database and that TREB’s database is in line with industry norms across Canada (rather than an original work for example).

As such, the FCA upheld the Tribunal’s findings and ordered that all MLS data be made public. TREB has since expressed its public intention in appealing the case to the Supreme Court of Canada.

Real World Effects and Final Thoughts

In the short- and medium-term, the TREB ruling will have a very real effect on the Toronto real estate market. Toronto is one of Canada’s most expensive and least affordable housing markets. The average selling price of a home in Toronto has gone up from $485,520 to $780,104 since the Bureau commenced its litigation against TREB in May 2011. The average sale price of a detached home sold through the TREB MLS is now more than a million dollars. With MLS data now publically available, expect a rise in self-represented brokerage deals as thrifty homebuyers look to save on commission costs. Furthermore, expect an influx of brokerage related app entrants, such as Zillow and RedPin.com, who have been eyeing a Canadian market entrance.

The TREB case is only one of a number of high-profile, consumer-facing cases that the Competition Bureau has undertaken this year. Other cases of note this year include a deceptive pricing claim against the Hudson’s Bay Company for its mattresses pricing and a price-fixing investigation into bread products from grocery-chain Loblaws. Such cases have brought the Bureau’s enforcement mandate front and centre into the public eye. In my mind, this heightened intervention into so-called “business to consumer” businesses represents a conscious agenda from the Bureau to use its limited resources to achieve outsized influence and exposure for its consumer protection mandate. Moving forward, I would expect even more cases in the deceptive marketing space, consumer-facing companies and the online business realm as the Bureau continues to flex its muscle.

 

 

 

 

Scott Lin

Scott Lin

Scott is currently a JD/MBA student at Osgoode Hall Law School and the Schulich School of Business. Prior to law school, he worked a lecturer at the University of Western Ontario, where he taught business. He will be completing his articles at a firm in Toronto, with interests in the areas of corporate/commercial and competition law.

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