Appendix — Realty One, Inc. v. RE/MAX International, Inc.

la

173 F.3d 995

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT.

RE/MAX INTERNATIONAL, INC.; A.E.B.T.S., Inc.,

d/b/a Re/Max Crossroads

Properties; T.M.A.T.N.B., Inc., d/b/a Re/Max Affinity,

Inc.; D.F.L., Inc.,

d/b/a Re/Max Results; Joseph P. Grady, Inc., d/b/a

Re/Max Xpress; McGrew

Realty, Inc., d/b/a Re/Max Key Realty; Property

Professionals, Inc., d/b/a

Re/Max Property Professionals,

Plaintiffs-Appellants/Cross-Appellees,

Re/Max Northeast Ohio Limited Partnership; Zames

Realty, Inc.; Realty

Properties, Inc.; True Independence Partnership;

R.E.P., Inc., Intervenors-

Appellants/Cross-Appellees,

v

REALTY ONE, INC. (96-3362/3469); Smythe Cramer

Company (96-3362/3470),

Defendants-Appellees/Cross-Appellants.

Nos. 96-3362, 96-3469 and 96-3470.

Argued Oct. 30, 1997.

Decided April 6, 1999.

Before: RYAN and BATCHELDER, Circuit Judges;

CAMPBELL, District Judge.”

RYAN, Circuit Judge.

* The Honorable Todd J. Campbell, United States District Judge for the

Middle District of Tennessee, sitting by designation.

ee

2a

This is an antitrust case involving northeast Ohio real-estate

brokers. Plaintiffs accuse the defendants, and one of the

defendants accuses the plaintiffs, of engaging in illegal

business practices designed to drive the other out of business,

in violation of state and federal antitrust laws. Following

extensive pretrial motion activity, and in the course of four

written opinions comprising some 400 pages of discussion, the

district court entered judgments dismissing all of the

plaintiffs’ claims on summary judgment, and all but one of

defendant Realty One Inc.’s counterclaims, either on summary

judgment or for failure to state a claim.

Plaintiffs and intervenors, whom we shall call plaintiffs or

| Re/Max, appeal from the entry of summary judgment against

| them on their state and federal antitrust claims. Defendant

Realty One cross-appeals from the Fed. R. Civ. P. 12(b)(6)

| dismissal of its complaint for failure to state a claim on some

of its counterclaims and from the Fed. R. Civ. P. 56 entry of

| summary judgment on others.

We hold that, although the district court engaged in an

exhaustive review of the merits of the claims in this case, it

erred in disregarding important aspects of the evidence

presented by the plaintiffs’ expert witness, and in rejecting

evidence that the defendants had the ability to exclude

competition from the marketplace. We conclude that there is

sufficient evidence to create a justiciable issue whether the

defendants violated §§ 1 and 2 of the Sherman Anti-Trust

Act, 15 U.S.C. §§ 1 & 2, and, therefore, summary judgment

should not have been entered against the plaintiffs.

| Finally, we hold that Realty One’s counterclaims are not

legally supportable and thus were properly dismissed.

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I. BACKGROUND

A. The Nature of the Controversy

To provide a contextual framework for our discussion of the

merits of this difficult case, we first begin with a few

observations concerning the unique nature of antitrust law, and

then proceed to a description of the doctrinal predicates that

underlie the parties’ claims.

Unlike the assumption that informs most areas of tort and

contract law, in the marketplace certain “harms” are not only

accepted, they are encouraged. Fundamental canons of

antitrust law recognize the legitimacy of permitting the natural

economic forces of free enterprise to drive inefficient

producers of goods and services out of the market, and replace

them with efficient producers. Ordinarily, when an efficient

enterprise displaces an inefficient one, we conclude that

consumers’ economic interests are better served, despite that

the inefficient enterprise is injured or even destroyed.

Conversely, when inefficiency triumphs over efficiency,

consumers lose because they receive lower-quality,

higher-priced products and services.

Manifestly, the judiciary is ill-suited to evaluate directly the

efficiency of business practices. But antitrust doctrine

provides a methodology for courts to distinguish between

instances of efficiency displacing inefficiency, which is not,

per se, an economic harm and for which the law offers no

redress, and inefficiency displacing efficiency, which, if

achieved by the use of unfair means, the law seeks to prevent

or rectify. In general, then, antitrust law seeks to identify

situations in which enterprise organizations rely on sheer

economic power to drive out an innovative but less powerful

rival, rather than attempting to do so by improving the quality

or lowering the cost of their products or services.

At the heart of the disagreement between the parties to this

lawsuit are disputes about (1) who is economically dominant

_; ——cciba tai a aii i i li

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and (2) who employs the best formula for compensating

real-estate sales agents for their services. Because it is

conducive to more easily understanding the nature of the

two-pronged dispute between the parties, we begin by

addressing the second aspect first—who employs the more

efficient formula for compensating sales agents.

As most home buyers are aware, ordinarily, a real-estate

agent who lists a house for sale agrees to represent the

homeowner/seller, doing so for a fixed fee, called a

“commission,” that is a percentage of the selling price. If

another real-estate agent, working for a different broker,

brings a purchaser to the deal, the two agents usually split the

commission 50/50. If, for example, the sales commission on

the listing is 7% of the sales price, the listing agent splits the

7% commission 50/50 with the agent who produced the buyer.

Then, ordinarily, although there can be different arrangements,

each sales agent must split his or her 3-1/2% commission

50/50 with the broker with which he is affiliated. To continue

the example, if a house sells for $200,000 and the sales

commission is 7%, or $14,000, the listing agent receives

$7,000, and the agent representing the buyer receives $7,000.

Then, under the traditional practice, each agent pays one half,

or $3,500, to the broker with which he is affiliated. But

Re/Max agencies, throughout the Re/Max nationwide

franchise system, compensate their sales agents very

differently.

Under its system, Re/Max requires that its franchisees adopt

the “Re/Max 100% Concept” which allows real-estate sales

agents to receive 95% to 100% of their share of sales

commissions, instead of the traditional practice of splitting

commissions 50/50 with the salesperson’s broker/employer.

So, as in the foregoing example, if either the listing agent or

the agent producing the buyer is a Re/Max sales agent, his

: commission, rather than being one half of 3-/2% of the sales

| price, or $3,500, is the full 100% of the partial commission, or

$7,000. In return, Re/Max agents pay the broker/employer a

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flat monthly fee for desk space, telephone services, secretarial

support, and the like. Re/Max contends that the 100%

Concept attracts more experienced, more knowledgeable—and

this is important—more efficient agents. Indeed, Re/Max

recruits and hires only experienced agents, on the theory that

novices could not survive without a guaranteed minimum

income if commissions were not immediately forth-

coming—and ordinarily they are not—when inexperienced

agents are “in training” and learning the business.

We now return to the first part of plaintiffs’ two-pronged

antitrust argument—that defendants are economically

dominant in the real-estate market or markets in question.

Re/Max contends that defendants Realty One, Inc. and

Smythe Cramer Company have dominance in the northeast

Ohio real-estate markets and have used that dominance to

defeat Re/Max’s attempt to introduce its unique and, it claims,

more-efficient sales-agent compensation system. Re/Max

argues that the defendants control the northeast Ohio markets

in two ways: (1) by obtaining the listings for a large majority

of homes for sale and (2) by attracting and employing the

large majority of experienced real-estate agents. There is

nothing, of course, illegal in that. What is illegal, according

to Re/Max, is the means it claims the defendants have

employed to perpetuate that dominance—the defendants’

so-called “adverse splits” policy, which we shall explain in

due course. According to Re/Max, the real and intended effect

of this policy is that the defendants essentially refuse to sell

homes to customers brought to them by Re/Max agents. In

consequence, Re/Max argues, it cannot attract experienced

agents for its sales force, because, given Realty One’s policy

of boycotting purchasers produced by Re/Max, experienced

agents would not make enough money working for Re/Max.

Without experienced agents, Re/Max argues, it is prevented

from entering the northeast Ohio real-estate market.

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Realty One, on the other hand (but not Smythe Cramer),

counterclaims that Re/Max is attempting to become, through

unfair competition, the dominant player in the northeast Ohio

real-estate markets. It argues that Re/Max, with its national

network of franchisees, is purposely operating at a loss in

northeast Ohio by offering greater compensation to

experienced agents than it can afford or the market can

bear—a sort of predatory pricing—in order to capture the

market in experienced agents and thereby establish a

real-estate monopoly in northeast Ohio.

Not surprisingly, each party avers that its brokerage system

is most efficient. Re/Max maintains that the economies of

scale of which it takes advantage in advertising, support

services, and the like, and its ability to attract

more-experienced agents by paying them 95% to 100% of

their sales commissions (the 100% Concept), result in better

services to home buyers and sellers.

Realty One and Smythe Cramer claim the Re/Max system

is less efficient than theirs in two ways. First, Re/Max has at

least three levels of administration: the national franchisor,

the regional subfranchisor, and the local franchise. Realty

One and Smythe Cramer, on the other hand, are locally based

and operated. Second, the “Re/Max 100% Concept” inhibits

the recruitment and training of new agents and drives up costs

in the labor market. That is, Re/Max makes no investments in

agent training, preferring the short-term gain realized by hiring

experienced and already successful agents. According to the

defendants, customers are ill-served by- this practice in the

long run because no new agents are ever trained, and

experienced agents eventually require more and more

compensation as brokerage services become more and more

scarce. Conversely, the defendants maintain, they invest

substantially in training new agents.

Having set out in general terms the economic context for

the disputes in this case, we turn now to a closer look at the

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parties themselves and the factual and legal bases for their

respective claims.

First of all, it must be understood that the plaintiffs accuse

the defendants, and defendant Realty One accuses the

plaintiffs, inter alia, of violating both §§ 1 and 2 of the

Sherman Anti-Trust Act, 15 U.S.C. §§ 1, 2. Section one, in

relevant part, states:

Every contract, combination in the form of trust or

otherwise, or conspiracy, in restraint of trade or commerce

among the several States, or with foreign nations, is hereby

declared to be illegal. Every person who shall make any

contract or engage in any combination or conspiracy hereby

declared to be illegal shall be deemed guilty of a felony,

and, on conviction thereof, shall be punished by fine not

exceeding $10,000,000 if a corporation, or, if any other

person, $350,000, or by imprisonment not exceeding three

years, or by both said punishments, in the discretion of the

court.

Section 2, in relevant part, states:

Every person who shall monopolize, or attempt to

monopolize, or combine or conspire with any other person

or persons, to monopolize any part of the trade or

commerce among the several States, or with foreign

nations, shall be deemed guilty of a felony, and, on

conviction thereof, shall be punished by fine not exceeding

$10,000,000 if a corporation, or, if any other person,

$350,000, or by imprisonment not exceeding three years, or

by both said punishments, in the discretion of the court.

B. The Parties

Plaintiff Re/Max International, Inc. is a franchisor of a

real-estate brokerage system that it sells to franchisees across

the nation, including northeast Ohio. Intervenor Re/Max

Northeast Ohio Limited Partnership is the Re/Max

subfranchisor for the northeast Ohio region, an area consisting

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of Cleveland and the surrounding metroplex. The remaining

plaintiffs and intervenors are all franchises located in northeast

Ohio, operating in some 14 communities.

Realty One and Smythe Cramer are the largest real-estate

brokerages in northeast Ohio in terms of market share. Realty

One appears to have 40 offices in northeast Ohio, and Smythe

Cramer, 34. The reader interested in knowing the particular

communities in which each brokerage operates, at least

according to the record of trial, may wish to consult the

addendum at the end of this opinion.

1. The Plaintiffs’ Claims

During discovery, plaintiffs obtained the deposition of an

expert witness, Dr. Donald L. Martin, whose testimony

presents an important issue in this appeal, as we shall discuss

in due course. In a portion of his testimony that is essentially

unchallenged, Dr. Martin presented statistical data as follows:

In a majority of the 161 cities and towns in northeast Ohio,

the defendants’ combined market share exceeds 50%. That is,

in 85 out of 161 communities, the defendants earn more than

half of all the brokerage fees generated from residential home

sales. In all but seven of these cities and towns, the

defendants’ combined market share is more than 20%. Realty

One alone has at least a 40% market share in 37 political

subdivisions; Smythe Cramer, more than 40% in 23. Also,

according to the piaintiffs’ expert, this large market share,

with a corresponding lack of significant market share by the

next largest competitor, results in Realty One’s control of the

market in 26 communities, and Smythe Cramer’s, in 19. In

nine of the cities and towns in which Re/Max has offices, the

defendants enjoy the following combined market share:

Rocky River (78.5%), Aurora (75.6%), Westlake (68.2%),

Hudson (67.2%), Concord Township (64%), Strongsville

(60.6%), Broadview Heights (55.7%), Mentor (54.1%), and

Painesville (49%). The plaintiffs’ expert apparently did not

analyze the defendants’ market share in Akron, Bay Village,

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Canton, Dover, and North Canton, the other five northeast

Ohio towns in which Re/Max has offices.

We have said that Re/Max claims, inter alia, that it is the

means the defendants have chosen to dominate the relevant

market for hiring real-estate sales agents—their “adverse

splits” policy—which violates state and federal antitrust laws.

That is, beginning in 1987, the defendants implemented the

adverse-splits policy against all Re/Max agents. Although, as

we have explained, the standard practice in the industry is that

commissions are split equally when one brokerage brings the

seller and another brokerage brings the buyer to a transaction,

in 1987 Realty One and Smythe Cramer began notifying

Re/Max brokerages that the split would be 70/30 or 75/25, in

favor of the defendants, whenever a Re/Max agent was on the

other side of the table from a Realty One or Smythe Cramer

agent. It is undisputed that the policy was designed to deter

defections of sales agents from the defendants’ employment to

the plaintiffs’.

The plaintiffs allege that neither of the defendants imposed

the adverse-splits policy independently, but rather made an

agreement to do so, thereby violating § 1 of the Sherman Act,

which prohibits any combination or conspiracy that

unreasonably restrains trade. We will address the specific

provisions of the Sherman Act more fully, in due course. The

plaintiffs also allege that in the communities in which one or

the other defendant by itself controls the market for

experienced real-estate agents, each defendant, through the

implementation of this adverse-splits policy, has used its

power to effectively discourage experienced real-estate sales

agents from working for Re/Max. The goal, which indeed has

been achieved, according to plaintiffs, is to drive Re/Max

franchises out of business, or to prevent Re/Max franchises

from establishing themselves in the first place, thereby

creating an illegal monopoly in violation of § 2 of the

Sherman Act.

10a

In simplified terms, then, the plaintiffs’ claim is that the

defendants control the market for knowledgeable and

experienced sales agents who have developed an expertise in

certain communities in northeast Ohio, and, through the unfair

adverse-splits policy, have prevented Re/Max from recruiting

those agents, thereby depriving Re/Max franchises of the

information and expertise they need to effectively serve buyers

and sellers of homes. Instead of competing with Re/Max in

the experienced-agent market by raising the compensation of

their own experienced agents, as Re/Max has, the defendants

have tried to drive Re/Max out of northeast Ohio by imposing

the adverse splits, which do not allow Re/Max agents, and

thus Re/Max franchises, to do business profitably. The

plaintiffs maintain that the adverse-splits conspiracy

constitutes a boycott or refusal to deal, is per se illegal under

§ 1 of the Sherman Act, and does not require proof that trade

is unreasonably restrained. They also argue that, in those

areas where one defendant has a monopoly, the adverse-splits

policy has been implemented in crder to increase or maintain

the defendant’s market power in that particular area in

violation of § 2 of the Act.

The district court entered summary judgment for the

defendants on the plaintiffs’ § 1 conspiracy claims, finding

that no conspiracy had been proved. It dismissed the

plaintiffs’ § 2 claims, finding that the plaintiffs failed to define

the relevant markets in which the defendants allegedly

exercised monopoly power and, in any event, failed to prove

monopoly power was exercised.

The plaintiffs point to numerous facts in the evidence that

they contend demonstrate that Realty One and Smythe Cramer

conspired to set the adverse-splits commission rates. First,

Leo Lee, a former Realty One employee, testified that the

CEO of Realty One, Vince Aveni, admitted that he and

Smythe Cramer’s principal shareholder, L.B. McKelvey,

agreed to impose the adverse-splits policy. Second, the

plaintiffs’ expert, Dr. Martin, opined that independent

lla

imposition of adverse commission splits would be

economically irrational for either defendant, even after one

defendant had already adopted the policy. Third, the plaintiffs

claim that the defendants offered merely pretextual

explanations for their conduct, explanations that clearly cannot

be believed. That is, the adverse-splits policy cannot be an

attempt by the defendants to protect their training investments

in their agents, because inexperienced real-estate agents

essentially “pay” for their own training because they realize

relatively few sales early in their careers. Also, despite the

defendants’ statements to the contrary, each defendant must at

least have considered what the other would do in response to

its claimed independent adoption of the adverse-splits policy.

Fourth, the leaders of Realty One and Smythe Cramer were

once business associates, and in 1987 had the opportunity to

meet and work out an adverse-splits agreement. And fifth, the

adverse splits were imposed against the various Re/Max

franchises by the defendants almost simultaneously. In fact,

the record indicates that Realty One imposed a 30% split and

Smythe Cramer a 25% split on the following Re/Max

franchises on the following dates:

Date Issuing Defendant Re/Max Broker

1.22.90 Smythe Cramer Re/Max Reality

1.31.90 Realty One Re/Max Reality

5.30.91 Smythe Cramer Re/Max Specialists

7.10.91 Realty One Re/Max Realty Properties

11.13.91 Smythe Cramer Re/Max Realty Properties

5.27.92 Smythe Cramer Re/Max Xpress

7.17.92 Realty One Re/Max Xpress

2.15.93 Realty One Re/Max Results

2.17.93 Smythe Cramer Re/Max Results

3.2.93 Smythe Cramer Re/Max Affinity

4.8.93 Realty One Re/Max Affinity

11.12.93 Smythe Cramer Re/Max Crossroads

1.4.94 Realty One Re/Max Crossroads

4.20.94 Smythe Cramer Re/Max Partners

5.12.94 Realty One Re/Max Partners

8.16.94 Smythe Cramer Re/Max Experts

12.19.94 Smythe Cramer Re/Max Premier Service

It appears that the remaining plaintiffs received notice of

the adverse-splits policy before 1990, although the record is

unclear as to the exact dates.

Similarly, according to the plaintiffs, Realty One and

Smythe Cramer have market power in the cities and towns

where one defendant has at least a 40% market share, and no

other competitor is close to having 49%. Thus, Realty One

purportedly has monopoly power in 26 cities and towns;

Smythe Cramer, in 19. The plaintiffs claim that each city and

town in northeast Ohio is its own market, because, unlike such

products as automobiles or video equipment that can be sold

anywhere, the expertise possessed by real-estate agents is

specific to small geographic areas. Each agent trades in his

“knowledge of the physical characteristics of the stock of

locally listed housing, of the socio-economic characteristics of

the population of local homeowners and of the nature of local

community amenities (e.g., schools, churches, police security,

etc.) together with other relevant details.” The defendants

advertise and seek market share by reference to particular

- Cities and towns, and the listing services in northeast Ohio list

homes for sale by political subdivision. According to

plaintiffs, in light of the intensely local nature of the

residentia! real-estate business and the fact that brokerages use

political boundaries for other purposes, individual cities and

towns must each comprise a separate marketplace in the

market for real-estate services. The plaintiffs claim that

Realty One and Smythe Cramer each have a monopoly on

experienced agents in certain cities and towns, and on the

supply of persons with homes for sale, and that the defendants

have used these monopolies to keep their agents from

accepting better-paid positions with Re/Max affiliates by

imposing adverse commission splits. That is, they refuse to

sell listed homes—except on terms that are not profitable for

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the Re/Max agent—to buyers brought by Re/Max agents,

including, of course, any former agent of the defendants who

has defected to Re/Max.

2. The Defendants’ Response

Realty One and Smythe Cramer deny conspiring or

exercising monopoly power to impose adverse commission

splits. Each defendant maintains that it independently decided

to use adverse commission splits to fight a competitor who

was trying to lure away its most successful agents and deprive

it of a return on its investment in the training of its agents.

The defendants claim that as a matter of economic

self-defense they decided to cut the amount of commission

paid to Re/Max agents, with the result that agents who

defected to Re/Max and received all of a 25% or 30%

commission would earn approximately the same in the end as

agents who stayed at Realty One or Smythe Cramer and

received half of the 50% commission that, under the

traditional compensation formula, is split with the broker.

C. Defendant Realty One’s Counterclaims

Realty One has asserted in various counterclaims that the

plaintiffs violated §§ 1 and 2 of the Sherman Act and state

antitrust law (1) by agreeing to set the level of compensation

that Re/Max brokers would pay to other brokers in cooperative

transactions, (2) by agreeing not to recruit each other’s agents,

(3) by recruiting Realty One’s agents with the deceptive

promise of higher compensation, (4) by disparaging Realty

One to its customers and to the general public, (5) by

interfering with the contractual relationships between Realty

One and its customers, and (6) by engaging in sham litigation

for the sole purpose of hindering Realty One’s operations.

Realty One also alleged violations of Ohio law relating to (7)

interference with business relationships and (8) unfair

competition.

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D. The District Court’s Pretrial Rulings

1. The Court’s May 10, 1995 Opinion

On May 10, 1995, the district court entered an order

dismissing three of Realty One’s eight counterclaims. It

reasoned as follows: First, Realty One did not have standing

to pursue its claim that Re/Max franchisees illegally agreed

not to recruit each other’s agents ((2) above). In its claim,

Realty One alleged no antitrust harm; in fact, it benefitted by

the reduction in competition for remaining agents. Even if

there were a harm to the market associated with this practice,

it is primarily sales agents who would be harmed, and they

would be the proper parties to bring suit, not Realty One.

Second, Realty One alleged no antitrust injury in its claim

that Re/Max engaged in deceptive recruitment techniques ((3)

above). The mere allegation that Re/Max bid more for Realty

One’s agents could not constitute an antitrust violation.

Third, Realty One did not state a valid claim in arguing

under § 2 of the Sherman Act that the Re/Max franchises

conspired to set commission splits with non-Re/Max

brokerages ((1) above), because Realty One alleged no

specific intent on the part of Re/Max to monopolize. Realty

One’s allegations, even if true, evidenced no more than

Re/Max’s intent to expand into northern Ohio at Realty One’s

expense. Additionally, Realty One failed to make sufficient

allegations that Re/Max’s alleged vertical commission-setting

agreements between the franchisor and the franchisees

violated § /, and thus the district court did not consider Realty

One’s conclusory amended complaint in that regard.

However, the court did find that Realty One stated a valid § /

claim that the franchises had conspired horizontally to set the

commissions they pay to non-Re/Max brokerages in

cooperative transactions.

Fourth, the court dismissed Realty One’s antitrust

disparagement claim ((4) above), because “[mlere allegations

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of business disparagement are not the type of injuries to

competition that the antitrust laws were designed to prevent.”

- Fifth, the court found that Realty One had stated a valid

claim that the plaintiffs conspired to conduct sham litigation

against Realty One in violation of § 1 of the Sherman Act ((6)

above). Sixth, Realty One’s state-law counterclaims contained

allegations sufficient to survive a 12(b)(6) motion ((7) & (8)

above).

Finally, regarding Re/Max’s complaint, the district court

discussed Re/Max International’s, the franchisor’s, standing

to bring its antitrust claims. The court found that Re/Max

International was indeed injured by the defendants’ alleged

anticompetitive conduct and was the proper party to assert the

claim that the defendants were exercising monopoly power in

the market for experienced real-estate agents. However,

Re/Max International was not the proper party to prosecute the

claim regarding the defendants’ monopoly in the home-buying

and selling market. Re/Max could not prosecute the

brokerage-services claim because, as we shall discuss below,

of the five factors enumerated by this court to be evaluated in

determining antitrust standing, two weighed heavily against

Re/Max International, one was neutral, and two weighed for

the plaintiffs. On the other hand, the factors heavily favored

standing on the competition-for-agents claim.

2. The Court’s September 11, 1995 Opinion

On September 11, 1995, the district court denied another

motion by Realty One asking for summary judgment. This

time, the defendant claimed that issues decided in Re/Max

International, Inc. v. Donald Greif, No. 90-0166 (N.D.Ohio

Mar. 14, 1990), precluded Re/Max from arguing for a different

result in the present case. For reasons not important to this

appeal, the district court denied Realty One’s motion. Realty

One has abandoned any issue-preclusion assignment of error

by failing to discuss it on appeal.

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3. The Court’s September 18, 1995 Opinion

Next, on September 18, the district court considered another

round of the defendants’ motions for summary judgment. This

time, Realty One and Smythe-Cramer contended that the

four-year statute of limitations had run against many of the

plaintiffs’ claims, because the first act of the alleged

conspiracy occurred in 1987. However, the district court

found a genuine factual dispute whether the defendants had

engaged in overt acts of conspiracy within the four years

preceding January 1994, when the original complaint was

filed. Specifically, the court noted record evidence tending to

show that the defendants had instituted adverse commission

splits against most of the plaintiffs after January 1990, and

that the defendants thereafter engaged in other acts such as

disparagement of the plaintiffs and disruption of the plaintiffs’

efforts to show and sell homes listed by the defendants.

Additionally, the plaintiffs’ monopolization claims under § 2

had not expired, because the defendants acquired competitors

in markets in which they allegedly had monopoly power,

thereby injuring the plaintiffs within the limitations period.

Finally, the district court held that even if the four-year

the defendants fraudulently concealed their illegal activities

equitably tolled the running of the statute. The plaintiffs had

introduced evidence that one or both of the defendants had (1)

denied their collusion, (2) instructed employees not to discuss

the adverse splits, (3) obscured their targeting of Re/Max by

putting other companies on their adverse-splits list, (4) failed

to keep records of meetings during which the decisions

regarding adverse splits were made, and (5) altered documents

submitted to the Federal Trade Commission pursuant to the

agency’s investigation of the adverse-splits policy. The court

found that this concealment prevented the plaintiffs from

| had conspired to adopt the adverse-splits policy.

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4. The Court’s March 19, 1996 Opinion

On March 19, 1996, the district court granted summary

judgment dismissing all of the plaintiffs’ remaining claims,

and four of Realty One’s five remaining counterclaims.

The plaintiffs’ § 2 monopolization claims were dismissed

because the plaintiffs failed to meet their burden of defining

the relevant geographic markets in which the defendants were

alleged to wield monopoly power; nor had Re/Max met its

burden of showing that the defendants had the power to set

prices or exclude competition in the geographic markets

plaintiffs claimed. First, the court rejected the plaintiffs’ claim

that each of 161 cities and towns in northeast Ohio was its

own geographic market for real-estate agents and for

brokerage services. The plaintiffs had introduced no evidence

that home buyers or sellers obtain real-estate brokerage

services exclusively or even largely from brokers within their

own political subdivisions. Similarly, no evidence indicated

that brokers did not cross political boundaries to show homes,

or that brokerages did not cross such boundaries to recruit

agents.

Moreover, the district court held, even if the 161 areas were

geographic markets, the plaintiffs’ expert, Dr. Martin, relied

on “questionable” data in reaching his conclusions that the

defendants exercised monopoly power. In calculating market

share, the expert looked only at the dollar value of homes sold,

rather than the number of homes. He reviewed data from 1993

through 1995 only, although the plaintiffs’ suit sought

damages back to 1987. And, in his analysis, the expert may

have overlooked up to 40% of all homes sold. Thus, the

plaintiffs’ expert’s report did not sufficiently support the § 2

monopolization claims.

Second, even if the expert’s conclusions were accepted, the

plaintiffs had not met their “stiff burden” to establish

monopolization, conspiracy to monopolize, or attempted

monopolization. Particularly telling was the relatively low

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market share that the plaintiffs contended Realty One and

Smythe Cramer had in the relevan: localities—in no case was

it above 51%. Although there is no minimum market share

required to make out a § 2 claim, the court thought that failing

to meet a 50-60% threshold defeats a claim unless evidence is

proffered showing, for instance, that a defendant’s market

share increased after initiating the anticompetitive activity or

that there were true entry barriers to the relevant industry.

Similarly, the attempted monopolization claims failed because

there was no evidence that there was a dangerous probability

that defendants would succeed in achieving monopoli-

zation—their market share had not grown since 1987, and new

firms could enter the market easily to undercut monopolistic

prices or policies. Likewise, the conspiracy-to-monopolize

claims failed because the plaintiffs had offered no evidence of

the defendants’ specific intent to establish a monopoly.

The defendants were granted summary judgment on the

plaintiffs’ § 1 conspiracy claims, because there was in-

sufficient evidence that the defendants mutually agreed to

adopt adverse splits, rather than imposing them independently.

The court recognized that a claim of conspiracy to fix prices

need not include proof that the activity unreasonably restrains

trade and that such an agreement if proven would be a per se

violation of § 1 of the Sherman Act. However, in ruling

against the plaintiffs, the court found that all of their proofs

were equally consistent with independent action.

Most important to the court’s analysis in this regard was its

rejection of the findings of the plaintiffs’ economic expert,

Dr. Martin. Although the witness stated in his written report

that unilateral imposition of adverse splits would be

economically irrational, the district court held that Dr. Martin

“implicitly” admitted in his deposition that independent

adverse splits could have been in Smythe Cramer’s (and thus

Realty One’s) best interest; that is, had Smythe Cramer not

imposed the adverse splits, it would have lost agents to

Re/Max or been forced to pay higher salaries. Although the

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court cited this economic benefit to the defendants of

imposing the adverse-splits policy, notably, the court did not

consider whether the plaintiffs’ expert had admitted, implicitly

or otherwise, that this benefit exceeded the costs of the policy

in terms of lost business. Also, according to the court, the

facts that the defendants imposed roughly the same splits at

roughly the same times, that they exchanged information

regarding their splits against Re/Max, and that they had

opportunities to meet, could all be explained innocently.

Moreover, the court ruled that the testimony of Leo Lee—to

the effect that Realty One’s CEO admitted conspiring with

Smythe Cramer to impose the adverse splits—was

inadmissible. The court found the conversation between Lee

and Realty One’s CEO to be inadmissible hearsay, and not

within the requirements of the coconspirator exclusion of Fed.

R. Evid. 801(d)(2)(E), because there was insufficient evidence

of a conspiracy and because the statement could not be

construed as being “in furtherance of” the conspiracy even if

one existed. The court apparently did not consider whether

the statement was admissible against Realty One simply as an

admission of a party opponent. Fed. R. Evid. 801(d)(2)(D).

The court also dismissed the plaintiffs’ state-law claims for

reasons that are not relevant here, as the plaintiffs-have not

appealed this aspect of the district court’s judgment.

As for Realty One’s remaining counterclaims, all were

dismissed as unsupported by the evidence, save only the claim

that the plaintiffs had engaged in sham litigation in violation

of § I. Although the court found evidence that Re/Max

franchises had agreed to set broker-to-broker commission

splits for non-Re/Max brokers, the court held that Realty One

-had not alleged a resulting injury to its business or property

and thus had not stated a valid claim on that count. Realty

One’s tortious interference and unfair-competition

claims—that the plaintiffs interfered with contractual

relationships between Realty One and its agents and between

20a

Realty One and its customers listing homes for sale—were

also dismissed. Re/Max could not illegally induce an at-will

employee from leaving his position with Realty One, and

Realty One had adduced no evidence of any customer contract

with which any plaintiff had interfered. Lastly, Realty One’s

claim that the plaintiffs engaged in unfair competition by

stealing lists of Realty One’s agents failed, because there was

no evidence that Ohio regards a list of brokers as a “trade

secret.”

Because the central claims in the case had been dismissed,

and because proceeding to trial on the sham-litigation claim

would result in undue delay of the appeals from the several

judgments as matters of law, the district court entered final

judgment under Fed. R. Civ. P. 54(b). This timely appeal

followed. ;

Il. STANDARD OF REVIEW

We review for abuse of discretion the district court’s

judgments of dismissal for failure to state a claim under Fed.

R. Civ. P. 12(b)(6), and de novo, its dismissal of claims on

summary judgment under Fed. R. Civ. P. 56.

Ill. DISCUSSION

A. Plaintiffs’ § 1 Conspiracy Claims

As we have said, § 1 of the Sherman Anti-Trust Act, 15

U.S.C. § 1, prohibits any “contract, combination . . ., or

conspiracy” between two or more persons that unreasonably

restrains trade in interstate commerce. See Standard Oil Co.

v. United States, 221 U.S. 1 (1911). Absent sufficient

evidence that Realty One and Smythe Cramer agreed to adopt

the adverse-splits policy, § 1 of the Sherman Act is not

implicated. See Nurse Midwifery Assocs. v. Hibbett, 918 F.2d

605, 611 (6th Cir. 1990). We turn, therefore, to a discussion

of the evidence adduced regarding the defendants’ alleged

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1. Evidence of Conspiracy Between the Defendants

As in other areas of law, a conspiracy may be demonstrated

by direct or circumstantial evidence. However, circumstantial

evidence alone cannot support a finding of conspiracy when

the evidence is equally consistent with independent conduct.

In such a case, the evidence of conspiracy would not

preponderate. See Riverview Investments, Inc. v. Ottawa

Community Improvement Corp., 899 F.2d 474, 483 (6th Cir.

1990). In other words, circumstantial evidence must tend to

exclude the possibility of independent conduct in order that an

antitrust claim survive summary judgment. Important factors

to evaluate in this analysis include: (1) whether the

defendants’ actions, if taken independently, would be contrary

to their economic self-interest; (2) whether the defendants

have been uniform in their actions; (3) whether the defendants

have exchanged or have had the opportunity to exchange

information relative to the alleged conspiracy; and (4)

whether the defendants have a common motive to conspire.

See Wallace v. Bank of Bartlett, 55 F.3d 1166, 1168 (6th Cir.

1995). Ordinarily, an affirmative answer to the first of these

factors will consistently tend to exclude the likelihood of

independent conduct.

We are satisfied that the district court erred in finding that

the plaintiffs had not adduced evidence of the defendants’

alleged conspiracy, sufficient to resist summary judgment.

Certainly, much of the plaintiffs’ evidence is as consistent

with independent conduct as with a conspiracy. The facts that

the defendants had opportunities to conspire, that they

imposed adverse splits at almost the same times and in almost

the same manner, and that their principals had preexisting

business relationships are all probably equally consistent with

unilateral action. Arguably, without more, these facts would

be insufficient to support an inference of a conspiracy.

However, there is more. These facts are strongly bolstered by

the additional circumstantial evidence that the adverse-splits

policy would not have been in either defendant’s independent

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economic interest, and by the statement of witness Lee that

Realty One’s CEO admitted entering into an agreement with

Smythe Cramer. This additional evidence, taken together with

the other circumstantial evidence of conspiratorial conduct,

would entitle a reasonable jury to conclude that Realty One

and Smythe Cramer conspired to adopt adverse commission

splits against Re/Max.

First and foremost, Dr. Martin’s deposition and report

establish a genuine issue of material fact whether unilateral

imposition of adverse splits would have been economically

rational for the defendants. The district court found that Dr.

Martin had admitted in his deposition that the adverse-splits

policy may have been in Smythe Cramer’s best interest.

However, we think this finding mischaracterizes Dr. Martin’s

testimony, and disregards the clear import of his report. What

Dr. Martin acknowledged in his deposition is that Re/Max

would have been more successful in recruiting Smythe

Cramer’s agents if the latter had not imposed adverse splits.

However, that statement does not address the costs to Smythe

Cramer of the adverse-splits policy. Dr. Martin testified that

if Smythe Cramer had no assurance that Realty One would

also adhere to adverse splits against Re/Max, the danger of

unilateral imposition would have outweighed the potential loss

of agents.

For example, a unilateral-splits policy against Re/Max

adopted only by Smythe Cramer would keep Smythe Cramer’s

agents from leaving for Re/Max, but it would result in

customers and sales agents leaving for Realty One. Dr. Martin

clearly stated in different ways on a number of occasions that

“without coordinated conduct, parallel imposition of adverse

splits is implausible.” He explained that, in a market with two

dominant competitors, the risk of loss of sales agents to a third

entrant offering more favorable employment terms is

outweighed by the risk of loss of market share if a dominant

competitor imposes adverse splits on the new market entrant.

For example, one of two dominant competitors (Smythe

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Cramer) acting rationally will not independently impose

adverse splits on a new competitor (Re/Max), because doing

so will cause the new competitor to concentrate on supplying

buyers to purchase properties listed by the other dominant

competitor (Realty One). Thus, the dominant competitor who

does not impose the adverse splits will sell more homes faster,

while the other dominant competitor will lose agents and

referral business in a downward cycle.

Furthermore, the best of both worlds for either dominant

competitor is for the other to impose the adverse splits against

the new entrant. In that situation, the non-imposing

competitor obtains a “very high” increase in profits while the

imposing competitor sinks to “very low.” When both

dominant competitors impose adverse splits, both increase

their profits, but neither obtains a “very high” increase. Thus,

even when one dominant competitor has already adopted

adverse splits on its own (a “highly unlikely” event in the first

place), the other dominant competitor has a strong incentive

not to do likewise. Importantly, the defendants have not

challenged Dr. Martin’s qualifications or his data to support

this analysis, but rather only his conclusions. Because his

conclusions follow logically from his analysis, they cannot be

rejected solely as a matter of law.

Dr. Martin’s reasoned rejection of the defendants’ proffered

explanation for their common adverse-splits policy lends

additional credence to the inference that Realty One’s and

Smythe Cramer’s conduct was not independent. The

defendants claim they were forced to impose adverse splits in

order to recoup the costs they incurred in training new agents;

Re/Max, on the other hand, incurs no such costs, but instead

recruits experienced agents from other firms. To “level the

playing field,” the defendants were forced to penalize Re/Max

for “appropriating” the value of their investments in their

experienced agents.

24a

Dr. Martin noted, however, that real-estate agents are

usually at-will employees, and that the knowledge and skill

they attain is easily transferrable to other firms. Thus, a

real-estate agent could leave his brokerage at any time and

take all the value of his training with him. Therefore, he said,

“investments and training undertaken by the real estate firm

will be designed to allow for the ever present risk of agent

turnover that may occur before a return can be realized.” If

the risk of agent turnover is incorporated into the agent’s

commission rate (i.e., an inexperienced agent, in effect, “pays”

for his training by receiving lower commissions), then a

brokerage cannot lose its “incubation expenses” when an

experienced agent leaves. Thus, according to Dr. Martin, the

defendants’ proffered explanation for their actions is

pretextual.

Although there appears to be no unequivocal evidence that

the defendants in fact pay their inexperienced and therefore

less skilled agents less than their experienced agents (thereby

placing the costs of training on the novice agent), neither has

either defendant argued that it does not adhere to this practice.

Moreover, common sense suggests that inexperienced agents

earn less than experienced agents, because they are less skilled

at “closing” sales. If, indeed, the defendants’ agents “pay” for

their own training while they are learning the trade by earning

less, then the defendants suffer no loss of investment when

their agents are successfully recruited by Re/Max. Instead, all

Realty One and Smythe Cramer lose is that portion of their

profit margin attributable to the departing-agent’s sales. The

fact that the defendants apparently do not enter into long-term

contracts with their agents, or obtain covenants not to

compete, indicates that they consider the risk of

agent-investment loss to be minimal. The likelihood that

adverse splits were against the defendants’ interests absent a

conspiracy to adopt them and that they offered an implausible

explanation for the splits’ adoption—both of which are

sufficiently supported by the report and deposition of Dr.

25a

Martin—traise a genuine issue of material fact whether the

defendants conspired.

Second, Lee’s testimony is additional evidence of the

defendants’ conspiracy, and is admissible against Realty One.

Lee stated in an affidavit and at his deposition that in a

conversation with Aveni, the CEO of Realty One, Lee asked

Aveni whether the common adverse-splits policy had antitrust

implications. According to Lee, Aveni responded “that there

was no need to worry because someone would have to prove”

he spoke to L.B. McKelvey, the principal shareholder of

Smythe Cramer. At that point Aveni “leaned forward, smiled

and said ‘of course we didn’t.’”” Lee’s affidavit further states,

“Although cast as a denial of any wrong doing [sic], the real

thrust of Avenis [sic] response was as a non-verbal affirmation

that an agreement had in fact been made.” Quite aside from

Lee’s opinion as to the legal significance of Aveni’s

statement, we are satisfied that the district court mistakenly

concluded that Lee’s testimony concerning Aveni’s words and

gestures were inadmissible hearsay.

Considered separately, Aveni’s oral utterances and his act

of leaning forward and smiling have no incriminatory

meaning. But, considered together, as the constituent parts of

a single, unitary assertive statement, each part integral to the

others, as Aveni obviously intended, the statement

unmistakably conveys the idea that Aveni actually had

“talked” to McKelvey, but that no one would be able to prove

it. As we have said, the district court ruled that Aveni’s

communication was inadmissible hearsay as to both

defendants, and was not made admissible as “not hearsay”

under Fed. R. Evid. 801(d\(2)(E), because there was not

sufficient evidence of a conspiracy, and even if there was, the

statement did not further the conspiracy. We hold that the

district court erred in excluding Lee’s testimony as to Realty

One. Even if Aveni’s declaration was not admissible as a

statement of a coconspirator under Fed. R. Evid. 801(d)\(2)E),

we are satisfied that it is “not hearsay” under Fed. R. Evid.

26a

801(d)(2)(D) and is admissible against Realty One as a

“statement by the party’s [ (Realty One) ] agent [ (Aveni) }...

concerning a matter within tne scope of the agency or

employment, made during the existence of the relationship.”

Id.

Of course, Aveni’s communication to Lee would not be

admissible against Smythe Cramer as an admission under Rule

801(d)(2)(D), because Aveni was not an agent of Smythe

Cramer. The question remains, however, whether the

statement was admissible against Smythe Cramer as the

statement of a coconspirator under Rule 801(d)(2)(E). A

statement is “not hearsay” if it is offered against a

party—Smythe Cramer—and was made “by a coconspirator

of a party’—Realty One—”"during the course and in

furtherance of the conspiracy.” Fed. R. Evid. 801(d)(2)(E).

“A ‘statement is “in furtherance of” a conspiracy if it is

intended to promote the objectives of the conspiracy.’””

United States v. Monus, 128 F.3d 276, 392 (6th Cir. 1997).

However, “[t]he statement need not actually advance the

conspiracy to be admissible.” United States v. Clark, 18 F.3d

1337, 1342 (6th Cir. 1994).

Although the district court thought otherwise, we are

satisfied, as we have said, that there was sufficient evidence of

a conspiracy in the record, with or without Lee’s testimony, to

defeat summary judgment. Consequently, it follows that there

is sufficient evidence of a conspiracy to meet that foundation

requirement for the admissibility of Aveni’s statement under

Rule 801(d)(2)(E). In addition to the independent evidence of

conspiracy we have already discussed, Aveni’s statement itself

could properly have been considered by the district court in

making its Rule 104(a) determination concerning the

admissibility of the statement as substantive evidence under

Rule 801(d)(2)(E). Bourjaily v. United States, 483 U.S. 171,

180-81 (1987). In all events, we have no doubt that to the

extent proof of the existence of a conspiracy is a foundation

fact that conditions the admissibility of Aveni’s statement

27a

under Rule 801(d)(2)(E), the plaintiffs met their burden. That

having been said, however, we cannot say that the district

court clearly erred in excluding Aveni’s statement on the

ground that it was not in furtherance of the conspiracy.

The gist of Aveni’s communication—that Realty One had

in fact conspired with Smythe Cramer—could plausibly be

interpreted as (1) asking for Lee’s silence, (2) assuring him

that he was not in danger, or (3) merely boasting. The first

two interpretations might well have supported a conclusion

that Aveni’s statement furthered the conspiracy, but the third

interpretation—merely boasting—surely would not. Since the

first two interpretations are not clearly preferable to the third,

and since we review the district court’s Rule 104(a) ruling on

this preliminary question of fact for clear error only, we are

satisfied that the court’s finding that Aveni’s statement did not

further the conspiracy was not clear error, and therefore the

ruling vis-a-vis Smythe Cramer, must be upheld.

2. Ilegality of the Conspiracy

Even when the existence of a conspiracy between antitrust

defendants has been sufficiently established, normally a

plaintiff in a § 1 claim still bears the burden of proving that the

defendants’ agreement unreasonably restrains trade. However,

such proof is not necessary when

the challenged action falls into the category of “agreements

or practices which because of their pernicious effect on

competition and lack of any redeeming virtue are

conclusively presumed to be unreasonable and therefore

illegal without elaborate inquiry as to the precise harm they

have caused or the business excuse for their use.”

Northwest Wholesale Stationers, Inc. v. Pacific Stationery and

Printing Co., 472 U.S. 284, 289 (1985) (citation omitted).

Generally speaking, group boycotts and refusals to deal are

“so likely to restrict competition without any offsetting

efficiency gains that they should be condemned as per se

28a

violations.” /d. at 290. However, as the Court stated in FTC

v. Indiana Federation of Dentists, “the category of restraints

classed as group boycotts is not to be expanded

indiscriminately.” 476 U.S. 447, 458 (1986).

If an antitrust defendant’s conduct cannot reasonably be

justified as pro-competitive—viewing the facts in the light

most favorable to the plaintiff according to the

summary-judgment standard—then a per se analysis is

appropriate. As the Supreme Court has stated, “A plaintiff

seeking application of the per se rule must present a threshold

case that the challenged activity falls into a category likely to

have predominantly anticompetitive effects.” Northwest

Wholesale Stationers, 472 U.S. at 298.

In Northwest Wholesale Stationers, defendant Northwest’s

expulsion of Pacific Stationery from a wholesale cooperative

was not likely to result in predominantly anticompetitive

effects because Northwest did not possess market power or

exclusive access to an element essential to effective

competition. Jd. at 296. The Court did note, though, that a

concerted refusal to deal “might justify per se invalidation if

it placed a competing firm at a severe competitive

disadvantage.” Jd. at 295 n.6.

“> On the other hand, in FTC v. Superior Court Trial Lawyers

Association, 493 U.S. 411, 422-23 (1990), the Court found per

se illegal an agreement, entered into by many private lawyers

who regularly represented indigent criminal defendants, to

refuse assignments from the court until the District of

Columbia raised their rate of compensation. Notably, the

Court did not consider whether the attorneys who had agreed

to the boycott in fact exercised market power. Their

horizontal refusal-to-deal agreement alone “unquestionably”

constituted a “naked restraint on price and output.” /d. at 423

(internal quotation marks omitted).

While the Northwest Wholesale Stationers and Superior

Court Trial Lawyers cases provide a framework for the

29a

analysis of the present case, FTC v. Indiana Federation of

Dentists, 476 U.S. 447 (1986), is particularly instructive.

Indiana Federation makes clear that, although the “rule of

reason”—which requires proof of unreasonable restraint of

trade—and per se analysis are often discussed as if they are

dichotomous, the practical difference between these two

analytical tools is sometimes negligible. In Indiana

Federation, a group of dentists conspired to deny insurance

companies’ requests for x-rays that the insurers needed in

order to determine the necessity for dental procedures

performed on their insureds. Jd. at 451. The Court viewed the

dentists’ refusal as a group boycott, even though the group did

allow the insurance companies to review the x-rays at the

dentists’ offices. In essence, the imposition of the additional

cost of traveling to the dentists’ offices made the dentists’

conduct a refusal to deal. However, the Court did not find the

refusal to deal was a per se violation because Indiana

Federation differed from the paradigmatic per se case “in

which firms with market power boycott suppliers or customers

in order to discourage them from doing business with a

competitor.” Jd. at 458. Apparently, Indiana Federation was

not such a case because the boycott did not have the purpose

of discouraging the dentists’ customers from doing business

with competitors. Thus, the Court required proof that the

boycott unreasonably restrained trade.

Even though the Court applied the rule of reason, it

summarily concluded that the insurance companies had met

their burden of proving an unreasonable restraint of trade:

A refusal to compete with respect to the package of services

offered to customers, no less than a refusal to compete with

respect to the price term of an agreement, impairs the

ability of the market to advance social welfare by ensuring

the provision of desired goods and services to consumers at

a price approximating the marginal cost of providing them.

Absent some ¢eutiervailing procompetitive virtue—such

as, for exampie, iL creation of efficiencies in the operation

30a

of a market or the provision of goods and services—such an

agreement limiting consumer choice by impeding the

“ordinary give and take of the market place” cannot be

sustained under the Rule of Reason.

Id. at 459 (citations omitted).

Notably, the Court rejected the dentists’ argument that the

rule-of-reason analysis must fail because the relevant market

had not been defined and the Federation’s market power not

proven. Jd. at 460. According to the Court, even if the

Federation’s boycott was not sufficiently “naked” to require

it to come forward with some procompetitive justification,

sufficient proof of the boycott’s actual detrimental effects

obviated the need for detailed market analysis. Jd. at 460-61.

In that case, the FTC had found that in the communities of

Anderson and Lafayette, Indiana, the Federation had obtained

the cooperation of “heavy majorities” of dentists and had

effectively thwarted insurers’ requests for x-rays in those

areas. These findings of detrimental effects, “viewed in light

of the reality that markets for dental services tend to be

relatively localized,” were “legally sufficient to support a

finding that the challenged restraint was unreasonable even in

the absence of elaborate market analysis.” Jd. at 461

(emphasis added). Moreover, the proof that insurers’ requests

had been effectively denied was sufficient to support the

unreasonable-restraint finding, even absent any proof that the

dentists’ refusal to deal resulted in higher prices for

consumers. Jd. Thus:

A concerted and effective effort to withhold (or make more

costly) information desired by consumers for the purpose of

determining whether a particular purchase is cost justified

is likely enough to disrupt the proper functioning of the

price-setting mechanism of the market that it may be

condemned even absent proof that it resulted in higher

prices or, as here, the purchase of higher priced services,

than would occur in its absence.

3la

Id. at 461-62.

Here, in applying per se analysis, the district court

characterized Realty One’s and Smythe Cramer’s

adverse-splits policy as price-fixing. However, we conclude

that the practice is more akin to a refusal to deal. The

defendants did not conspire to set the commission fee charged

to home-buying and selling consumers for the agents’

services. Neither did they agree to pay their agents the same

dollar amount or even to adopt the same agent-brokerage

commission split. Instead, the defendants agreed to adopt the

same broker-broker commission split on every transaction in

which a Re/Max agent represented the buyer.

In essence, this is a refusal to deal. Like the dentists in

Indiana Federation, Realty One and Smythe Cramer did not

completely shut out the boycotted entity, but they did impose

additional costs on the boycott victims. In the case of the

dentists, this was accomplished by making the insurance

companies come to the dentists’ offices to review dental

records; in the case of Realty One and Smythe Cramer, it was

accomplished by reducing the compensation of any agent who

defected to a Re/Max franchise, thereby making Re/Max pay

even more to its agents if it wanted to keep them.

Individually, the defendants admitted that their intent in

adopting the adverse-splits policy was to prevent their agents

from joining Re/Max. Thus, Re/Max has been forced to pay

an even higher premium to obtain the information and

experience held by the defendants’ agents. Re/Max alleges

that the higher premium is economically unsustainable, and

has forced some franchises to close and prevented others from

opening.

32a

consumers, and if Re/Max’s losses are due to the defendants’

use of market power to prevent a more-efficient competitor

from establishing itself, then an antitrust violation is made out.

The record contains sufficient evidence for a reasonable

jury to conclude that the Re/Max 100% Concept enhances

efficiency and provides a benefit to the public, and that the

likely effect of the defendants’ conduct was primarily

anticompetitive. That is, Re/Max has provided sufficient

evidence that its 100% Concept compensates successful agents

at a greater rate than the traditional 50/50 agent-brokerage

split the defendants use. If this evidence is credited, then

Re/Max will attract the most successful agents in the area

served by one of its franchises if the market is truly free.

This concentration of top agents in one place would have

several potential advantages for home buyers and sellers.

First, because these agents are by definition the most efficient,

they very likely require less administrative support per dollar

of revenue. In a competitive market, Re/Max would be forced

to pass along some of this savings to clients. Second, since

the 100% Concept has been implemented nationwide,

consumers can count on highly skilled, experienced Re/Max

agents no matter where they seek to buy or sell a home. Such

consumers may avoid having to gather information in order to

locate competent agents and may rely on Re/Max’s reputation

for hiring only the best agents, thereby saving valuable time.

Third, consumers save time in the buying and selling process

when an experienced agent more quickly understands their

needs and does not match them up with unsuitable prospects.

In sum, a jury could find from the evidence that the Re/Max

system directly and indirectly lowers the cost and improves

the quality of brokerage services offered to the public.

The response the defendants offer to these suggested

advantages that can be realized when doing business with a

Re/Max broker is not persuasive. To reiterate, the defendants

offer two justifications (defenses) for their imposition of the

33a

adverse-splits policy: First, that they are merely protecting

their investments in their experienced agents; second, that

they are fending off an attempt by Re/Max to use its national

economic resources to overpay experienced northeast Ohio

agents until Re/Max has established its own monopoly in the

market for such agents and driven the defendants out of

business. As for the first of these, if the defendants have any

investment in their novice agents, they can protect that

investment by, for instance, signing agents to long-term

contracts or obtaining covenants not to compete. Of course,

either of these options would increase costs by providing job

security to potentially unproductive agents or by paying

additional compensation in exchange for a noncompetition

covenant. If Re/Max can economically offer greater

compensation than the defendants provide, then by definition

either the Re/Max system is an efficiency-increasing

innovation or the defendants are reaping monopolistic profits,

or both. On the other hand, if Re/Max cannot economically

offer greater compensation, but is doing so only temporarily

and absorbing the loss through its national resources in order

to obtain a monopoly in northeast Ohio, then not only must

Re/Max lose on its own claims, but Realty One’s

counterclaims must be sustained. This is the fulcrum on

which this case turns.

We reject, as a matter of logic and law, the suggestion that

Re/Max is transferring resources into northeast Ohio in order

to offer experienced agents there economically irrational

compensation through Re/Max’s 100% Concept. Simply put,

this is impossible. There is no dispute that Re/Max requires

all its franchises to adhere to the 100% Concept. Thus, if the

concept were economically unsustainable in northeast Ohio,

it would not be sustainable anywhere, and certainly would not

be capable of supporting a national network of franchises and

a money-losing effort in northeast Ohio.

Therefore, viewing the disputed facts in the light most

favorable to Re/Max, as we must, and rejecting the

a et eis

34a

defendants’ justifications as a matter of law because no

reasonable jury could believe them, we conclude that the

plaintiffs have adduced sufficient evidence to resist summary

judgment on its claim that the defendants conspired to

unreasonably restrain trade in violation of § 1 of the Sherman

Act.

_ B. Plaintiffs’ § 2 Monopolization Claims

Some plaintiffs’ § 2 claims were also erroneously dismissed

on summary judgment.

Although the district court correctly concluded that Re/Max

failed to define the relevant geographic markets, the court

erroneously rejected evidence tending to show that the

defendants had the ability to exclude competition. For

instance, Re/Max presented evidence showing that the

adverse-splits policy has prevented new Re/Max franchises

from forming and may have driven several franchises out of

business. Additionally, there is evidence that adopting

adverse splits without market power is economically

irrational, and that doing so has failed elsewhere. Because

these factors raise genuine issues of material fact, summary

judgment against Re/Max on the § 2 monopolization claims

The offense of monopolization under § 2 has two elements:

“(1) the possession of monopoly power in the relevant market

and (2) the willful acquisition or maintenance of that power as

distinguished from growth or development as a consequence

of a superior product, business acumen, or historic accident.”

United States v. Grinnell Corp., 384 U.S. 563, 570-71.

There are two ways to establish the first element, that is,

that the defendant holds monopoly power. The first is by

presenting direct evidence “showing the exercise of actual

control over prices or the actual exclusion of competitors.”

Byars v. Bluff City News Co., 609 F.2d 843, 850 (6th Cir.

1979). The second is by presenting circumstantial evidence of

35a

monopoly power by showing a high market share within a

defined market. See Coastal Fuels of Puerto Rico, Inc. v.

Caribbean Petroleum Corp., 79 F.3d 182, 196-97 (1st Cir.

1996); Rebel Oil Co. v. Atlantic Richfield Co., 51 F.3d 1421,

1434 (9th Cir. 1995). In recent years, parties and courts have

increasingly moved toward utilizing the circumstantial method

as a “shortcut.” However, this does not undercut the

continued viability of the first avenue of establishing

monopoly power. For the reasons below, we find that

although the plaintiffs failed to define the relevant market with

precision and therefore failed to establish the defendants’

monopoly power through circumstantial evidence, there does

exist a genuine issue of material fact as to whether the

plaintiffs’ evidence shows direct evidence of a monopoly, that

is, actual control over prices or actual exclusion of

competitors. A geographic market is defined as an “‘area of

effective competition.”” Moore v. Matthews & Co., 550 F.2d

1207, 1218 (9th Cir. 1977) (citation omitted). Although such

an area is not subject to definition by metes and bounds, see

White -& White, Inc. v. American Hosp. Supply Corp., 723

F.2d 495, 503 (6th Cir. 1983), it is the locale in which

consumers of a product or service can turn for alternative

sources of supply, see Moore, 550 F.2d at 1218. Obviously,

at the outer edges of a bona fide geographic market, buyers

may be able to cross into other territory for their supply of a

product or service; however, this fact alone does not require

a rejection of the claimed market. See United States v.

Philadelphia Nat’l Bank, 374 U.S. 321, 359-60 (1963).

On the other hand, when the evidence indicates that a large

Proportion of consumers within the proposed area in fact turn

to alternative sources of supply outside the proposed area, the

market boundaries posited by the plaintiff must be rejected.

See Bathke v. Casey's Gen. Stores, Inc., 64 F.3d 340, 346 (8th

Cir. 1995). Dr. Martin in his report devoted 16 pages to

defining the relevant geographic markets. He concluded that

each of the 161 municipalities and townships in northeast

36a

Ohio as listed on the relevant multilisting service (MLS) was

its own market for brokerage services and for real-estate

agents. As support, Dr. Martin noted the following: there are

few economies of scale in consolidating many agents into one

office covering more geographical area; at least one study has

shown that 70% of home sales occur within five miles of the

listing-agent’s office; franchise operators frequently limit

their franchisees’ territory to a one-mile radius around the

franchise office; and franchisors expanding into new territory

do so by acquiring existing brokerages because they regard as

critical the local knowledge possessed by local agents.

Furthermore, the plaintiffs’ expert noted that market-share

data are tracked community by community, and the MLS data

are also broken down that way because the information is only

useful community by community.

Relying on statements of the principals of Realty One and

Smythe Cramer, Dr. Martin testified, in essence, that

real-estate agents possess knowledge specific to the

communities in which they operate and do not compete for

buyers or sellers outside their communities. For the same

reasons, brokerages compete for experienced agents only

within their respective communities, because an agent’s

experience in another community is much less valuable.

But none of this comes close to establishing that each

political subdivision in northeast Ohio constitutes a separate

area of effective competition. Although Dr. Martin’s report

establishes that agents’ knowledge is restricted to a relatively

small area, there is almost no evidence that the small

geographic area in which an agent has expertise coincides with

the corporate or geographic limits of the city or town in which

that agent operates. It is not only conceivable, it is almost

inescapable, that agents and consumers located close to

boundary lines will cross over to adjacent cities and towns to

provide and to seek brokerage services. Indeed, the evidence

indicates that some Re/Max agents do business in more than

one city or town.

37a

It is highly likely that Realty One and Smythe Cramer

agents also service more than one political area. It is also

highly likely, and what is more important is that there is no

evidence to the contrary, that persons looking to buy houses

will not restrict their searches to homes within a particular city

or town, especially when the relevant characteristics of

adjacent municipalities are largely indistinguishable, as is

often the case in suburban communities. The fact that Smythe

Cramer and Realty One have offices in only 34 and 41,

respectively, of northeast Ohio’s 161 cities and towns strongly

suggests that the relevant geographic markets in this region

consist of more than one political subdivision.

We recognize, of course, that no real-estate market is

airtight. There will always be persons from outside a

geographic market seeking to buy a home inside the market,

and there will always be persons looking at potential homes in

two adjacent markets. Nevertheless, we believe that a relevant

geographic market for real-estate brokerage services and

agents can and must be proved to a greater degree of

specificity than the plaintiffs have done here. Re/Max has

shown to our satisfaction that such geographic markets are

relatively small, but their argument that the boundaries of

these markets correspond with city or town lines is almost

completely arbitrary. There is no evidence, for instance,

regarding the percentage of homes sold by particular agents in

particular cities. If Re/Max’s market definition were accurate,

one would expect that agents serving a particular city would

receive close to 100% of their commissions from sales within

that city, and similarly, that individuals seeking to sell their

homes would seek out agents within their local boundaries.

However, there is no evidence in the record that this is the

case. Thus, we think, plaintiffs have failed to adduce

sufficient evidence that each city and town in northeast Ohio

is a separate area of competition for valuable real-estate

38a

Alternatively, Re/Max argues that it need not define the

relevant geographic markets for § 2 purposes if it can show the

defendants have actually succeeded in setting prices or

excluding competition. The plaintiffs point to evidence that

sales commissions are higher and less negotiable in northeast

Ohio than elsewhere in the U.S.; that Realty One has admitted

being able to charge high rates in the western Cleveland

suburbs because of its market dominance there; and that both

defendants have been successful in imposing adverse

commission splits which would be economically impossible

to do without monopoly power.

We agree that an antitrust plaintiff is not required to rely on

indirect evidence of a defendant’s monopoly power, such as

high market share within a defined market, when there is

direct evidence that the defendant has actually set prices or

excluded competition. This court recognized such a rule in

Byars v. Bluff City News Co., 609 F.2d 843, 850 (6th Cir.

1979) (citing American Tobacco Co. v. United States, 328

U.S. 781 (1946)). In Byars, the plaintiff received periodicals

from a regional distributor and distributed them to small

retailers in exchange for 10% of sales. Eventually, the

regional distributor decided to refuse to deal with the

plaintiff—who this court deemed an _ independent

contractor—and began distributing the periodicals to the small

retailers directly. Id. at 848.

Although the district court found no § 2 violation, this court

remanded for “fresh fact-finding” and directed the district

court to consider not only the defendant’s market share, but

also whether the customers for which the parties -were

competing received “inferior service at greater cost” once the

defendant prevented the plaintiff from servicing the small

retailers and left the latter no alternative source of supply. Jd.

at 852, 853 n.26. If the evidence that the retailers received less

service at greater cost was credited by the district court, it

“lends strong support to plaintiff's contention that [the

defendant] possesses monopoly power.” Jd. at 853 n.26. As

39a

we stated: “[Tjhe simplest way of showing monopoly power

is to marshal evidence showing the exercise of actual control

over prices or the actual exclusion of competitors.” Jd. at 850.

This view has been adopted, at least implicitly, in four sister

circuits: the First, Eighth, Ninth, and Tenth. See, e.z., Coastal

Fuels of Puerto Rico, Inc. v. Caribbean Petroleum Corp., 79

F.3d 182, 196-97 (1st Cir. 1996); Rebel Oil Co. v. Atlantic

Richfield Co., 51 F.3d 1421, 1434 (9th Cir. 1995); Flegel v.

Christian Hosp., 4 F.3d 682, 688 (8th Cir. 1993); Reazin v.

Blue Cross & Blue Shield of Kansas, Inc., 899 F.2d 951,

966-67 (10th Cir. 1990). As the Eighth Circuit has stated:

Since the purpose of the inquiries into market definition and

market power is to determine whether an arrangement has

the potential for genuine adverse effects on competition,

“proof of actual detrimental effects, such as a reduction of

output,” can obviate the need for an inquiry into market

power, which is but a “surrogate for detrimental effects.”

Flegel, 4 F.3d at 688 (quoting Indiana Fed’n, 476 US. at

461). Other circuits also look to evidence of actual

detrimental effects in the absence of market definition and

market share, but require unambiguous evidence that a

defendant can control prices or exclude competition. See, e.g.,

Blue Cross & Blue Shield United of Wis. v. Marshfield Clinic,

65 F.3d 1406, 1412 (7th Cir. 1995); United States Football

League v. Nat'l Football League, 842 F.2d 1335, 1362 (2d

Cir. 1988). On the other hand, the Fifth Circuit has rejected a

plaintiff's claim in light of the defendant’s low market share

even though there was evidence of control over prices. See

Dimmitt Agri Indus., Inc. v. CPC Int'l, Inc., 679 F.2d 516, 526

(Sth Cir. 1982).

The Supreme Court has noted on at least two occasions that

direct evidence of monopoly power will support an antitrust

claim. See Eastman Kodak Co. v. Image Technical Servs.,

Inc., 504 U.S. 451, 477 (1992); Indiana Fed’n, 476 US. at

460-61. In Eastman Kodak, Kodak was accused of “tying” the

40a

sale of one product to the purchase of a separate product from

Kodak, in violation of § 1. After the Court found sufficient

evidence that Kodak had in fact tied the two products, it

turned to the next question: whether Kodak had the power to

raise prices and restrict output in the market for the secondary

product. See 504 U.S. at 464. Because evidence existed that

Kodak had increased prices and excluded competition in the

market for the secondary product, it bore the “substantial

burden” of proving that it did not, in fact, possess monopoly

power. Id. at 469.

Similarly, the Indiana Federation Court rejected defendant

Federation’s contention that the lack of proof regarding the

relevant market required summary judgment in its favor. 476

U.S. at 460. Instead, the Court looked to evidence that the

Federation had actually defeated insurance companies’

requests to view insureds’ x-rays in holding that detailed

market analysis was not required. /d. at 461. As the Indiana

Federation Court noted:

[T]he finding of actual, sustained adverse effects on

competition in those areas where [Federation] dentists

predominated, viewed in light of the reality that markets for

dental services tend to be relatively localized, is legally

sufficient to support a finding that the challenged restraint

was unreasonable even in the absence of elaborate market

analysis.

Id. The defendants contend that these cases are inapposite

because they do not discuss § 2. However, we see no reason

to believe that monopoly power in the § 1 context is any

different from the § 2 monopoly power the plaintiffs

Similarly, there is sufficient evidence in this case to permit

a jury to conclude that markets for real-estate brokerage

services are relatively localized, even if they are larger than

those the plaintiffs posit, and that there have been actual,

sustained adverse effects on competition in those areas where

4la

one defendant or both predominate. Therefore, the plaintiffs

have sustained their burden at this stage of proceedings despite

the lack of reasonable and detailed market analysis.

Of course, the defendants also challenge the plaintiffs’

factual claim that the defendants have actually exercised

monopoly control. First, the defendants reject both the basis

and the relevance of the conclusion that northeast Ohio sales

commission rates are higher than in other comparable

metropolitan areas. As for the basis, defendants argue that: (a)

the study in question reviewed data for 1991 only, when the

relevant time period here is 1987 to 1995; (b) there is no

evidence that the rates charged by the defendants are not

economically justified; (c) there is no evidence that

commission rates are high in individual markets, as opposed

to the whole northeast Ohio region; (d) there is no evidence

that either of the defendants charges a lower rate in those areas

where Re/Max admits neither defendant has a monopoly; and

(e) Re/Max agents usually charge the same rates as the

defendants’ agents. As for the relevance of the challenged

conclusion, the defendants argue that even if a defendant’s

rates are higher than the norm, this does not demonstrate that

a defendant has the power to set them, as opposed to being

able to charge more for better service.

Second, the defendants deny that their ability to impose

They argue that many Re/Max franchises have opened after

the imposition of adverse splits, thus showing that the splits

policy cannot exclude competition. Neither, they claim, does

the policy have any effect on consumers, in light of the fact

that the splits are aimed against agents and in the absence of

evidence that rates paid by clients have risen since the policy

was adopted. Interestingly, Realty One indicates that it has

was unsuccessful in preventing agents from defecting to

Re/Max.

42a

We agree, for the reasons stated by the defendants, that

Re/Max’s argument regarding the 1991 survey may be

rejected out of hand. But, the plaintiffs’ other argument—that

the defendants’ ability to impose adverse splits demonstrates

their monopoly power—is considerably more plausible.

Obviously, if a monopolist successfully uses its power to

nrevent competition from ever entering the marketplace, the

losir.g competitor’s antitrust claim should not be dismissed

simply because the monopolist’s prices remained constant,

because the plaintiff cannot show it was ever established in the

market, or because the plaintiff was able to survive for a

period before being forced to terminate operations. In any of

these situations, consumers would be harmed if the new

competitor offered better service at the same price as the

monopolist, but was defeated because of the monopolist’s

refusal to deal. As we have discussed, Re/Max has made out

a justiciable case, at least for purposes of resisting summary

judgment, that its system provides better service to real-estate

consumers. Thus, if the evidence, viewed in the light most

favorable to Re/Max, clearly demonstrates the defendants’

ability to exclude Re/Max from the marketplace, summary

judgment should not have been entered for the defendants.

There is evidence that several potential Re/Max franchisees

declined to purchase franchises once they learned of the

adverse-splits policy, and that at least eight franchises and the

regional subfranchisor have gone out of business.

Additionally, the report of the plaintiffs’ expert clearly

demonstrates that all of the plaintiffs lost considerable sums as

the result of the defendants’ practices. This is because

experienced agents have been reluctant or unwillirg to join

Re/Max in light of the threat of adverse commission splits.

It appears that adverse-splits policies have failed when

attempted in other markeis. This fact, when combined with

absent market dominance, strongly suggests that the

defendants’ ability to sustain adverse splits for more than ten

43a

years arises from monopoly power, whether exercised

individually or collectively. Although the issue is close, we

find that Re/Max has presented evidence sufficient to permit

a jury to conclude that the defendants possess the ability to

exclude competition in the residential real-estate markets

comprising northeast Ohio.

Of course, the evidence supportin g Re/Max’s claim that the

defendants have monopoly power cuts against its theories of

attempted monopolization and conspiracy to monopolize.

That is so because there is evidence indicating that,

adverse-splits policies work only when the imposer already

exercises monopoly power. The report of the plaintiffs’ expert

effectively concludes that any attempt or conspiracy to

achieve a monopoly through imposing adverse splits would be

doomed to failure. The fact that the policy has been effective

demonstrates, according to the plaintiffs’ own theory, that

defendants already exercise monopoly power, and perforce,

defeats the plaintiffs’ additional claim that the defendants

attempted or conspired to obtain a monopoly. Therefore, no

reasonable jury could find that either defendant has attempted

or conspired to monopolize.

C. Statute-of-Limitations Defense

The statute of limitations for federal antitrust actions is four

years from the accrual of the action. 15 U.S.C. § 15b. A

cause of action accrues when a defendant commits an act that

injures the plaintiff's business. Zenith Radio Corp. v.

Hazeltine Research, Inc., 401 U.S. 321, 338 (1971). Courts

look to a defendant’s overt acts, rather than the effects of those

acts. Peck v. General Motors Corp., 894 F.2d 844, 849 (6th

Cir. 1990). The district court held that no plaintiff's § |

The defendants argue that their splits policy was

promulgated in 1987, therefore putting the plaintiffs on notice

44a

as of that date. But that is beside the point, at least as to the

conspiracy issue. The plaintiffs could not have proceeded

with their conspiracy claims without some evidence of a

conspiracy between the defendants. Mere suspicion of a

conspiracy is not enough, and certainly mere knowledge of the

adverse-splits policy, without evidence that the defendants

acted in concert, is insufficient. Further, there appears to be

no dispute that the first hard evidence of a conspiracy was the

Lee affidavit obtained by the plaintiffs in 1992. Thus, at least

as to the § 1 conspiracy claims, the defendants’ statute-

of-limitations defense must fail.

However, the defendants are correct that most of the

plaintiffs’ § 2 monopolization claims are barred. Although the

district court ruled otherwise on this issue, its ruling rested on

the ground that Smythe Cramer had acquired another

real-estate brokerage in one of the allegedly monopolized

markets in 1992 or 1993. However, as we have indicated, the

monopolization claims here relate to the defendants’ use of

adverse commission splits. Smythe Cramer’s accumulation of

additional market share through acquisitions may be evidence

of its monopoly power, but the injury to the plaintiffs’

businesses is the adoption of the adverse-splits policy in 1987.

It appears that plaintiffs Re/Max International, Re/Max Key

Realty, Re/Max Property Professionals, Re/Max Northeast

Ohio, Re/Max Realty Properties, True Independence

Partnership, and R.E.P. all had notice of the defendants’

adverse-splits policy prior to 1990. Therefore, those

plaintiffs’ § 2 claims are time-barred. Plaintiffs Re/Max

Crossroads, Re/Max Affinity, Re/Max Results, Re/Max

Xpress, and Zames Realty, however, do not appear to have

received notices until after 1990, and their claims are not

barred.

D. Standing Defense

The defendants also maintain that the franchisor and

subfranchisor plaintiffs lack standing to bring antitrust claims

45a

because Re/Max International and Re/Max Northeast Ohio can

Show no antitrust injury and are not the appropriate parties to

bring these causes of action. We disagree.

The question of the franchisor-plaintiffs’ standing may be

resolved by reference to Associated General Contractors of

California, Inc. v. California State Council of Carpenters

(AGC ), 459 U.S. 519 (1983), and to Southaven Land Co. v.

Malone & Hyde, Inc., 715 F.2d 1079 (6th Cir. 1983).

Although a discussion of these cases will necessarily extend

this already extensive opinion, we think they provide a useful

background for our conclusion concerning the sometimes

abstruse standing doctrine. In AGC, a union sued an

association of employers, claiming that the association

coerced its members and other employers to enter into

business relationships with nonunion firms. The union alleged

that this coercion diverted business opportunities from

unionized firms, and thereby adversely affected the union

itself. 459 U.S. at 520. The Court rejected the union’s claim

to standing on several grounds. First, although the union

alleged a causal connection between the antitrust violation and

the harm the union suffered, and also that the defendants

intended to cause that harm, the Court held that the injury was

not the type that the Sherman Act was meant to prevent

because labor-relations issues fall under “a separate body of

labor law specifically designed to protect and encourage the

organizational and representational activities of labor unions.”

Id. at 540.

Second, the Court said, the injury to the union was

speculative and indirect: the union had alleged only

unspecified injuries to its “business activities,” and the injuries

were derivative of the injuries to the unionized contractors

who lost jobs to nonunion firms. Jd. at 541. If either the

unionized association-member firms or the other coerced

employers had suffered an injury attributable to the antitrust

46a

violation, they would have a valid antitrust cause of action.

However,

[t]he existence of an identifiable class of persons whose

self-interest would normally motivate them to vindicate the

public interest in antitrust enforcement diminishes the

justification for allowing a more remote party such as the

Union to perform the office of a private attorney general.

Denying the Union a remedy on the basis of its allegations

in this case is not likely to leave a significant antitrust

violation undetected or unremedied.

Id. at 542. The speculative nature of the injury was confirmed

by the lack of any allegation that the share of the contracting

market controlled by unions had decreased, that the number of

union members had declined, or that the union’s dues or

initiation fees had decreased. Moreover, there was no

allegation that any employer was prevented from hiring a

unionized contractor, as opposed to being forced to hire

certain nonunionized firms. Jd.

Third, the difficulty in computing damages if the union

were granted standing stood as a final barrier to the union’s

claim. If the union had standing, the trial court would

potentially face the daunting task of determining to what

extent business was diverted from unionized contractors;

identifying the union’s damages; and apportioning damages

among directly injured contractors, unions, and union

employees. Id. at 545.

In Southaven, we summarized AGC’s test for antitrust

standing as consisting of five factors:

(1) the causal connection between the antitrust violation

and harm to the plaintiff and whether that harm was

intended to be caused; (2) the nature of the plaintiff's

alleged injury including the status of the plaintiff as

consumer or competitor in the relevant market; (3) the

directness or indirectness of the injury, and the related

47a

inquiry of whether the damages are speculative; (4) the

potential for duplicative recovery or complex

apportionment of damages; and (5) the existence of more

direct victims of the alleged antitrust violation.

715 F.2d at 1085. In that case, the owner-lessor of retail

commercial space, plaintiff Southaven, rented space for a

grocery store to a wholesale-retail food, drug, and sundries

merchant, defendant Malone. Malone, in turn, rented the

space to a subtenant grocery store. Jd. at 1080. When the

subtenant declared bankruptcy, Southaven and Malone

reached an agreement regarding the vacant space which |

released Malone from its obligations at the site in exchange |

for Southaven’s resumed control of the site and the equipment

therein. However, when Malone discovered that Southaven

was going to lease the space to a competing grocery store,

Malone rescinded the agreement, allegedly in order to

preserve its monopoly in area grocery stores. Jd. at 1081.

We held that Southaven did not have antitrust standing

under the five-factor test. Although Southaven had alleged a

causal connection between its injury and an antitrust violation

and that Malone intended the harm, Southaven was not a

competing grocery store and thus was not a customer or

participant in the relevant market. Jd. at 1086. Therefore, its

injury was an indirect by-product of the anticompetitive

conduct, and not “inextricably intertwined” with an injury to

the relevant market. Jd. at 1086-87. Additionally, grocery

consumers and other grocery stores would have been better

plaintiffs. Moreover, Southaven had alleged no direct injury:

it had not lost any income from the property, either through

Malone’s default or an increase in rent promised by the new

tenant. Read liberally, Southaven’s claim for damages rested

on the premise that it could charge more to tenants in a

development that included a grocery store. We held that this

was too speculative. Jd. at 1088.

48a

Here, however, the franchisor-plaintiffs have standing to

pursue their claims. First, they have provided sufficient

evidence that they suffered an antitrust injury caused by the

defenas®*s’ anticompetitive conduct. Through the

implementation of adverse splits, the defendants prevented

Re/Max agents from earning their normal commission on most

transactions, which in turn prevented Re/Max’s 100% Concept

from functioning, which prevented Re/Max from attracting top

agents, which prevented Re/Max franchises from succeeding,

which prevented Re/Max from earning revenue from those

franchises and agents and from opening new franchises.

While this chain of causation may be long, it is direct and

unbroken.

Second, Re/Max’s injury is of the type sought to be

redressed by antitrust law. As we have indicated, sufficient

evidence exists to conclude that adverse commission splits are

anticompetitive. The defendants admit they intended to

thwart, through the implementation of adverse splits,

Re/Max’s attempt to recruit defendants’ agents. Although the

policy was aimed more directly at Re/Max franchises, the

effect was to deter agents from defecting to Re/Max, thereby

impeding an innovative competitor’s access to the market.

Unlike in AGC, here, denying the franchisors standing would

result in antitrust violations going “undetected or

unremedied,” if in fact Re/Max franchises were barred from

northeast Ohio markets.

Third, the franchisors’ damages are not speculative. Their

expert has sufficiently broken down lost revenue by year and

by category, comparing the 100% Concept’s lack of success

in northeast Ohio with the pattern of marked growth seen in

comparable areas where established brokerages have

competed for experienced agents by raising their

compensation, rather than implementing adverse commission

splits. Certainly, the precision of these calculations is subject

to question; however, unlike in AGC and Southaven, here

there is concrete and measurable evidence of direct damages.

49a

Fourth and fifth, there is evidence that the more direct

victims of the defendants’ alleged conspiracy are the Re/Max

franchises, and their existence complicates the calculation and

apportionment of damages. Thus, we hold that the franchisors

may not include in their claim for damages management fees,

commissions, franchise fees, or renewal fees that were lost

because of the effect of the adverse-splits policy on existing

Re/Max franchises. If, upon remand, the Re/Max

franchise-plaintiffs are successful in showing the defendants’

liability, the franchises should be fully compensated for any

lost earnings they can prove. Once these franchises are made

whole, the franchisor-plaintiffs will then be due their portion.

IV. REALTY ONE’S COUNTERCLAIMS

Realty One maintains that the district court erroneously

dismissed five of its counterclaims. To reiterate, Realty One

has charged Re/Max with (1) conspiring to monopolize the

northeast Ohio real-estate market by “combin{ing] their

financial and other resources to work unlawfully in concert

against local real estate brokers,” (2) conspiring to un-

reasonably restrain trade by agreeing not to recruit other

Re/Max agents, (3) conspiring to offer 50/50 commission

splits in cooperative transactions with other brokerages, (4)

interfering in Realty One’s business relationships with its

customers and agents in violation of Ohio state law, and (5)

engaging in unfair competition by bringing sham litigation,

also in violation of Ohio law.

A. Realty One’s §§ 1 and 2 Antitrust Counterclaims

Certainly, the district court’s rulings dismissing Realty

One’s three antitrust issues, (1), (2), and (3) above, must be

affirmed. First, the district court dismissed the conspiracy to

monopolize claim because Realty One had failed to define the

relevant geographic markets. In the district court, Realty One

relied on the same market definition used by Re/Max. Its

argument on appeal is that, if the markets defined by Re/Max

are valid for Re/Max’s § 2 claims, they must be valid for

Stra a ee

50a

Realty One’s -ounterclaims. However, we have found that

Re/Max had failed to meet its burden in this regard, which

correspondingly precludes Realty One’s § 2 counterclaim.

Unlike Re/Max, Realty One has not alleged or shown any

actual effect on prices or competition resulting from Re/Max’s

alleged anticompetitive conduct that would save Realty One’s

failure to define the geographic markets.

Second, the district court dismissed Realty One’s claim that

Re/Max franchises had illegally agreed not to recruit each

other’s agents, reasoning that Realty One had not sustained an

antitrust injury from this conduct. We agree. Even assuming,

as we must, that Re/Max did so conspire, the conspiracy

would have no anticompetitive effect on Realty One’s ability

to retain and recruit successful agents. In particular, Realty

One alleges that Re/Max franchises conspired to set the

commissions for its agents at 95 to 100%, and that they agreed

to target only non-Re/Max agents for recruitment. Absent an

allegation that Re/Max has market dominance, the only

possible way that these conspiracies could have an

unreasonable effect on commerce is if the national Re/Max

network shifted resources into northeast Ohio to absorb a

short-term loss so that Re/Max could gain a long-term

monopoly. However, as we have said, this theory is logically

flawed: Re/Max’s 100% Concept is required of all franchises

throughout the country; if it were economically unfeasible,

there would be no national network from which to draw.

What remains of Realty One’s counterclaim does not state

an antitrust violation regarding the supply or the demand for

agents. As for demand, Realty One’s argument is inherently

contradictory. On the one hand, Realty One maintains that

Re/Max entices Realty One’s agents with the promise,

whether accurate or not, of higher compensation. This would

increase demand for agents. On the other hand, Realty One

contends that Re/Max agrees to limit intra-Re/Max

competition, thereby depressing demand for experienced

agents. If Re/Max has increased demand, there is no antitrust

Sla

injury because increased competition does not offend the

antitrust laws. If Re/Max has decreased demand, then Realty

One is benefitted and has sustained no injury at all.

Realty One also seems to argue that Re/Max’s conspiracy

decreases agent supply. However, while Re/Max franchises

may have intentionally reduced the pool of agents that they

will recruit, nothing prevents Realty One from recruiting any

agent in the market. In other words, nothing Re/Max does,

save offering seemingly greater compensation for successful

agents, hinders Realty One from retaining its own agents or

obtaining new agents from other brokerages.

Third, Realty One’s final antitrust counterclaim—that

Re/Max franchises conspired with each other and with the

franchisors to set cooperative commission rates at 50/50—is

also legally insufficient. As we have said, setting cooperative

sales-commission rates is not price fixing: it has no relation

to the amount charged to clients for an agent’s services. Thus,

FTC v. Superior Court Trial Lawyers Association, 493 U.S.

411 (1990), is inapplicable. Rather, cooperative rates

constitute incentives for non-listing agents to show the listed

property. We found that Re/Max has made out a

jury-submissible claim that Realty One’s and Smythe

Cramer’s 70/30 and 75/25 splits constitute a boycott of

Re/Max’s agents, and that the policy was illegal because it

was backed by the defendants’ market dominance. Here,

however, there is no allegation that Re/Max possesses

monopoly power, or that its traditional 50% cooperative

commission rate has an unreasonable effect on commerce.

The fact that Re/Max franchises agree to adhere to the “going

rate” cannot, under these circumstances, constitute an antitrust

violation.

52a

B. Realty One’s Business-Tort State-Law

Counterclaims

First, Realty One claims that Re/Max personnel repeatedly

told Realty One’s clients that the adverse-splits policy would

hurt their chances of selling their homes, and told Realty

One’s sales people that the policy thereby harmed them as

well. Realty One maintains that these “false and maliciously

wrongful attacks” constitute unfair competition and malicious

interference with business relations under Ohio law. The

district court dismissed the claim because Realty One

provided no evidence of any agent or customer with whom

Re/Max had interfered. Although it acknowledges this failure,

Realty One contends that the difficulty in demonstrating which

customers and which sales agents were lost as a result of the

allegedly unlawful conduct “is precisely why Realty One

sought and should receive injunctive protection rather than

damages.” However, absent the identification of any

irreparable harm, this counterclaim must fail.

Second, Realty One claims that Re/Max engaged in

malicious litigation, and points to the same evidence that the

district court found supported Realty One’s antitrust

sham-litigation claim. Realty One cites Water Management,

Inc. v. Stayanchi, 15 Ohio St. 3d 83, 472 N.E.2d 715 (1984).

That case, however, has nothing to do with malicious

litigation, except for the fact that the court mentions in passing

that malicious litigation is one form of unfair competition. See

id. at 717. Robb v. Chagrin Lagoons Yacht Club, Inc., 75

Ohio St. 3d 264, 662 N.E.2d 9 (1996), on the other hand, sets

out the elements of malicious civil prosecution. One

requirement is that the plaintiffs person or property have been

seized during the course of the prior proceedings. See id. at

13. This element has not been alleged by Realty One. Thus,

Realty One’s state-law claims were also properly dismissed.

53a

7, CONCLUSION

We conclude that the district court erroneously ruled that no

genuine issue of material fact exists on the issue of the

plaintiffs’ claims that the defendants conspired to adopt

adverse commission splits. Similarly, the court failed to

adequately consider evidence raised by the plaintiffs that the

defendants have actually excluded competition in northeast

Ohio, in violation of § 2 of the Sherman Act. Nevertheless,

because their standing is limited to claims that cannot properly

be brought by an existing individual franchisee, franchisors

Re/Max International and Re/Max Northeast Ohio may not

recover § 1 damages that duplicate any franchisee’s damages.

Thus, entry of summary judgment for the defendants on the

franchisee-plaintiffs’ § 1 claims is REVERSED. Judgment is

AFFIRMED IN PART, AND REVERSED IN PART, on

the franchisor-plaintiffs’ § 1 claims.

Summary judgment on the § 2 claims of Re/Max

Crossroads, Re/Max Affinity, Re/Max Results, Re/Max

Xpress, and Zames Realty was erroneously entered in light of

evidence that the defendants actually excluded competition

from the market. However, judgment against the remaining

plaintiffs’ § 2 claims was appropriate on the ground that the

four-year statute of limitations had expired as to them.

Therefore, judgment against Re/Max Crossroads, Re/Max

Affinity, Re/Max Results, Re/Max Xpress, and Zames Realty

is REVERSED, and that against the remaining plaintiffs is

AFFIRMED.

The various judgments dismissing Realty One’s state and

federal counterclaims are AFFIRMED.

This case is REMANDED for proceedings consistent with

this opinion.

54a

ADDENDUM

Plaintiffs A.E.B.T.S., Inc. (“Re/Max Crossroads

Properties”), T.M.A.T.N.B., Inc. (“Re/Max Affinity, Inc.”),

D.F.I., Inc. (“Re/Max Results”), Joseph P. Grady, Inc.

(“Re/Max Xpress”), McGrew Realty, Inc. (“Re/Max Key

Realty”), Property Professionals, Inc. (“Re/Max Property

Professionals”), Zames Realty, Inc. (“Zames Realty”), Realty

Properties, Inc. (“Re/Max Realty Properties”), True

Independence Partnership (“True Partnership”), and R.E.P.,

Inc. (“R.E.P.”) are all Re/Max franchises located in northeast

Ohio. Although it is unclear whether the record is complete in

this regard, it appears that Re/Max franchises operate in the

following northeast Ohio cities: Re/Max Crossroads has

offices in Strongsville and Westlake; Re/Max Affinity, in

Westlake; Re/Max Results, in Concord Township, Mentor,

and Painesville; Re/Max Xpress, in North Canton; Re/Max

Key Realty, in Akron; Re/Max Property Professionals, in

Hudson; Zames Realty, in Mentor and Painesville; Re/Max

Realty Properties, in Westlake; Re/Max Reality, in Broadview

Heights; Re/Max Abbey, in Aurora; Re/Max Partners, in

Canton; Re/Max Experts, in Dover; Re/Max Premier Service,

in Rocky River; True Partnership, in Bay Village; and R.E.P.,

in Broadview Heights.

Realty One appears to have offices in Akron, Amherst,

Aurora, Avon Lake, Bay Village, Brecksville, Brunswick,

Chagrin Falls, Chesterland, Cleveland (3), Cuyahoga Falls,

Elyria, Euclid, Garrettsville, Hudson, Lakewood, Lorain,

Lynchurst, Madison Township, Maple Heights, Mayfield

Village, Medina, Mentor, North Olmsted, North Ridgeville,

North Royalton, Parma Heights, Pepper Pike, Rocky River,

Sagamore Hills, Shaker Heights, Solon, Strongsville,

Vermillion, Wadsworth, Westlake, Willowick, and

Woodmere.

The record indicates that Smythe Cramer has offices in

Akron, Aurora, Avon Lake, Bay Village, Brecksville,

55a

Brunswick, Canton, Chagrin Falls, Chardon, Chesterland,

Cleveland Heights, Elyria, Euclid, Gates Mills, Green

Township, Hudson, Lakewood, Lander Circle, Lyndhurst,

Madison, Medina, Mentor, Middleburg Heights, North

Olmsted, Pepper Pike, Rocky River, Seven Hills, Shaker

Heights, Solon, Stow, Strongsville, Wadsworth, and

Willoughby.