Thursday marked day three of Compass’s preliminary injunction hearing in its antitrust lawsuit against Zillow. The day featured testimony from Compass executives and expert witnesses. The hearing, which is being held in New York City under the auspices of U.S. District Court Judge Jeanette Vargas, will be used to decide Compass’s motion seeking to block the enforcement of Zillow’s listing access standards policy.
The policy, which went into effect on June 30, bans listings from its site that have been publicly marketed for more than one business day prior to the listing being available for display on Zillow. Compass filed its lawsuit against Zillow in mid-June, just prior to the enforcement deadline, claiming that the policy stifles competition and causes irreparable harm to Compass.
Inconsistent messaging
Elizabeth Ashton Alexander, Compass’s senior vice president of strategy and business operations, continued her testimony Thursday morning, beginning with her cross examination. During her testimony, Alexander acknowledged that she had previously signed in a declaration that she knew that all Compass private exclusives violate Zillow’s policy and could potentially be banned from the portal.
Despite this knowledge, she acknowledged that Compass continued to promote its three-phased marketing strategy, writing in an internal email presented as evidence that Compass was “full steam ahead on three-phased marketing.”
She also acknowledged during cross examination that the reduced adoption of the three-phased marketing strategy does not necessarily mean that Compass lost listings. During her testimony she interpreted an email showing a seller who heard about Zillow’s policy on NPR and refused to allow private exclusives or coming soon listings, but still worked with a Compass agent.
Next on the witness stand was Neda Navab-Boshehri, Compass’s president of brokerage operations. During her testimony, Navab-Boshehri stated that the policy caused an immediate drop-off in homeowners choosing to use the three-phased marketing strategy and that agents were worried about their listings being excluded from Zillow, making them reluctant to pitch the marketing plan to their clients. This resulted in Compass having to divert significant resources to create training materials to help agents understand the policy, according to Navab-Boshehri.
On training slides presented as evidence during her cross examination, Compass tells its agents that the “three-phased marketing strategy is 100% compliant with Zillow’s new policy.” The slide also states that Compass has confirmed this with Zillow. Zillow attorney Bonnie Lau asked if Compass ever changed this training material to reflect the understanding of how the policy would impact Compass’s private exclusives, as expressed in Alexander’s declaration, but Navab-Boshehri said she was unsure if materials were updated.
Competitive or anticompetitive?
Following Navab-Boshehri on the stand was Debra Aron, an economist and an expert witness for Compass. Aron was taken by Compass to define a relevant antitrust market, determine whether Zillow has market power in that relevant market, assess whether Zillow’s policy is anticompetitive and to provide an opinion on if the evidence presented show that consumers would be irreparably harmed if Compass’s preliminary injunction was not granted. According to her testimony, the relevant antitrust market is online home search platforms in the U.S. and that Zillow has market power in the relevant market.
Additionally, she said she concluded that Zillow was engaging “in an anticompetitive strategy to protect its market power by depriving its rivals of the ability to differentiate the inventory on the platform that they run from the inventory on Zillow’s platform.” She added that Zillow’s policy harms competition in the relevant market she identified.
According to Aron, Zillow’s policy is anticompetitive because it suppresses competing platforms, which Compass maintains Compass.com is (Zillow executives have stated during testimony that they view their competitors as Redfin, Realtor.com, and Homes.com) from differentiating as agents are afraid to try new strategies for fear of having their listing banned from Zillow.
Harmful or helpful?
When it comes to irreparable harm, Aron testified that Zillow’s policy prevents buyers from potentially seeing properties they could have afforded or accessed only during early-stage marketing and that sellers could miss opportunities to pre-market or price-test their home. During cross examination, Aron acknowledged that she did not identify any evidence of marketwise price impacts as the market has no prices and that she did not identify any marketwise output reductions, or a change in the number of private listing networks, as a result of the policy.
The next witness called was Soham Bohnsle, Compass’s head of investor relations. During his testimony, Bohnsle confirmed that Compass had no concrete evidence tying the three-phased marketing strategy to changes in revenue and that despite Compass’s claims that the policy was causing irreparable harm, no analyst had issued a “sell” rating on Compass stock.
Under questioning by Zillow’s counsel, Bohnsle also confirmed that Compass has continued to post annual revenue gains since the policy was announced.
Zillow’s counsel also asked him to address why Compass did not specifically disclose the threat it felt Zillow’s policy posed. However, during cross examination, he reaffirmed his belief that Compass’s general risk-factor language in an SEC filing covers the Zillow standards under “industry changes.”
The final witness of the day was Lawrence Wu, an economist and president of NERA, a global economics consulting firm. He served as Zillow’s expert witness. Unlike Aron, Wu said he found no direct evidence or sufficient indirect evidence that Zillow has market power, noting that multiple platforms compete for buyers in every market. He also contracted Aron’s claim that the market is national, stating that competition occurs locally because buyers search for homes within specific geographic areas.
Wu also testified that Zillow’s policy is pro-competitive and rejected claims that the policy was designed to exclude competitors. Additionally, he stated that he saw no evidence of reduced output, higher prices, reduced quality or impaired consumer choice in online home search platforms as a result of Zillow enacting this policy.
The hearing concluded on Friday with closing arguments from both sides. Judge Vargas, is expected to issue a ruling on Compass’s preliminary injunction motion within the coming weeks.
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