9th Circuit might revive Crexi's antitrust claims against CoStar Group

A 9th U.S. Circuit Court of Appeals panel appeared this week to be considering revival of counterclaims by Commercial Real Estate Exchange, known as CREXi, that a dominant rival violated antitrust law by forcing brokers not to do business with the company.

9th Circuit Judge Lucy H. Koh told Latham & Watkins LLP partner Melissa Arbus Sherry, who represents CoStar Group Inc., that Senior U.S. District Judge Consuelo B. Marshall's dismissal of CREXi's antitrust counterclaims "sounds like summary judgment" because of the factual disputes resolved in the ruling.

Sherry disagreed, arguing that CREXi was "talking about the wrong market."

Koh didn't seem persuaded, citing all the "factual fighting" before Marshall granted the motion to dismiss.

CoStar -- the leading provider of commercial real estate listing, information and auction platforms -- sued first in September 2020, alleging that CREXi infringed its copyright and violated the Digital Millennium Copyright Act by cropping its logo from property listings.

But the 9th Circuit argument on Wednesday focused on CREXi's antitrust counterclaims, which drew support from the U.S. Federal Trade Commision, that CoStar is operating an illegal monopoly. CoStar Group Inc. et al. v. Commercial Real Estate Exchange Inc., 23-55662 (9th Circ., filed July 27, 2023).

Nicholas S. Goldberg, a partner with Keker, Van Nest & Peters LLP in San Francisco, argued that CoStar tied brokers into "de facto exclusive contracts backed up with litigation threats that have been carried out."

Koh and the other two judges on the panel - 9th Circuit Judge Anthony D. Johnstone and U.S. District Judge Michael H. Simon of the District of Oregon who sat by designation - peppered both lawyers with tough questions about whether CoStar's conduct violated the Sherman Act.

Johnstone wondered if CREXi's claims, which included CoStar's alleged technological barriers on brokers uploading commercial property photos with competitors, fell into that category. "That looks like a refusal to deal with a competitor," he said.

Goldberg disagreed, arguing that CoStar falsely claimed ownership of photos on the CREXi platform "and interfered with our ability to do business by preventing us from working with brokers."

Federal judges are often skeptical of sweeping antitrust claims -- including assertions that refusing to deal with a competitor violates Section 2 of the antitrust law. CREXi may have caught a break, however, in drawing a three-judge panel comprised of appointees of Democratic presidents, who are sometimes more sympathetic to Sherman Act complaints.

Goldberg cited examples of commercial real estate brokers who complained CoStar locks brokers into exclusive arrangements with the company by preventing the free transfer of their listings and photos.

Koh picked up on that, telling Sherry about three brokers who believed they would be "in some kind of breach" of their agreement with CoStar if they worked with CREXi.

Sherry, based in Washington, D.C., said "brokers are not concerned about this," citing others who didn't believe they had an exclusive agreement with CoStar.

The FTC, led by Chair Lina Khan, weighed in with an amicus curiae brief in January that is neutral on the merits of the case but argued that Marshall committed "fundamental legal errors" that "could shield harmful monopolistic conduct from antitrust review."

FTC attorney Bradley Grossman wrote that Marshall's ruling "deemed CoStar's conduct lawful by relying on the principle that a business may unilaterally refuse to deal with its rivals. But that principle has no bearing when, as here, a monopolist allegedly forces its customers not to transact with those rivals.

"Such conduct raises serious anticompetitive concerns if it helps a monopolist secure or maintain its dominant position," he added.

The claims remaining in CoStar's original lawsuit are still pending before Marshall and a trial is scheduled to start in March. CoStar Group Inc. et al v. Commercial Real Estate Exchange Inc., 20-CV-08819 (C.D. Cal., filed Sept. 25, 2020).