[Federal Register Volume 77, Number 85 (Wednesday, May 2, 2012)]
[Notices]
[Pages 26009-26012]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-10550]


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FEDERAL TRADE COMMISSION

[File No. 111 0172]


CoStar Group, Inc., Lonestar Acquisition Sub, Inc., and LoopNet, 
Inc.; Analysis of Agreement Containing Consent Order To Aid Public 
Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed Consent Agreement.

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SUMMARY: The consent agreement in this matter settles alleged 
violations of federal law prohibiting unfair or deceptive acts or 
practices or unfair methods of competition. The attached Analysis to 
Aid Public Comment describes both the allegations in the draft 
complaint and the terms of the consent order--embodied in the consent 
agreement--that would settle these allegations.

DATES: Comments must be received on or before May 29, 2012.

ADDRESSES: Interested parties may file a comment online or on paper, by 
following the instructions in the Request for Comment part of the 
SUPPLEMENTARY INFORMATION section below. Write ACoStar LoopNet, File 
No. 111 0172'' on your comment, and file your comment online at https://ftcpublic.commentworks.com/ftc/costarloopnetconsent, by following the 
instructions on the web-based form. If you prefer to file your comment 
on paper, mail or deliver your comment to the following address: 
Federal Trade Commission, Office of the Secretary, Room H-113 (Annex 
D), 600 Pennsylvania Avenue NW., Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT: Justin A. Stewart-Teitelbaum (202-326-
3597), FTC, Bureau of Competition, 600 Pennsylvania Avenue NW., 
Washington, DC 20580.

SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal 
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46(f), and Sec.  2.34 the 
Commission Rules of Practice, 16 CFR 2.34, notice is hereby given that 
the above-captioned consent agreement containing a consent order to 
cease and desist, having been filed with and accepted, subject to final 
approval, by the Commission, has been placed on the public record for a 
period of thirty (30) days. The following Analysis to Aid Public 
Comment describes the terms of the consent agreement, and the 
allegations in the complaint. An electronic copy of the full text of 
the consent agreement package can be obtained from the FTC Home Page 
(for April 26, 2012), on the World Wide Web, at http://www.ftc.gov/os/actions.shtm. A paper copy can be obtained from the FTC Public 
Reference Room, Room 130-H, 600 Pennsylvania Avenue NW., Washington, DC 
20580, either in person or by calling (202) 326-2222.
    You can file a comment online or on paper. For the Commission to 
consider your comment, we must receive it on or before April 16, 2012. 
Write ACoStar LoopNet, File No. 111 0172'' on your comment. Your 
comment B including your name and your state B will be placed on the 
public record of this proceeding, including, to the extent practicable, 
on the public Commission Web site, at http://www.ftc.gov/os/publiccomments.shtm. As a matter of discretion, the Commission tries to 
remove individuals' home contact information from comments before 
placing them on the Commission Web site.
    Because your comment will be made public, you are solely 
responsible for making sure that your comment does not include any 
sensitive personal information, like anyone's Social Security number, 
date of birth, driver's license number or other state identification 
number or foreign country equivalent, passport number, financial 
account number, or credit or debit card number. You are also solely 
responsible for making sure that your comment does not include any 
sensitive health information, like medical records or other 
individually identifiable health information. In addition, do not 
include any ``[t]rade secret or any commercial or financial information 
which is obtained from any person and which is privileged or 
confidential,'' as provided in Section 6(f) of the FTC Act, 15 U.S.C. 
46(f), and FTC Rule 4.10(a)(2), 16 CFR 4.10(a)(2). In particular, do 
not include competitively sensitive information such as costs, sales 
statistics, inventories, formulas, patterns, devices, manufacturing 
processes, or customer names.
    If you want the Commission to give your comment confidential 
treatment, you must file it in paper form, with a request for 
confidential treatment, and you have to follow the procedure explained 
in FTC Rule 4.9(c), 16 CFR

[[Page 26010]]

4.9(c).\1\ Your comment will be kept confidential only if the FTC 
General Counsel, in his or her sole discretion, grants your request in 
accordance with the law and the public interest.
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    \1\ In particular, the written request for confidential 
treatment that accompanies the comment must include the factual and 
legal basis for the request, and must identify the specific portions 
of the comment to be withheld from the public record. See FTC Rule 
4.9(c), 16 CFR 4.9(c).
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    Postal mail addressed to the Commission is subject to delay due to 
heightened security screening. As a result, we encourage you to submit 
your comments online. To make sure that the Commission considers your 
online comment, you must file it at https://ftcpublic.commentworks.com/ftc/costarloopnetconsent by following the instructions on the web-based 
form. If this Notice appears at http://www.regulations.gov/#!home, you 
also may file a comment through that Web site.
    If you file your comment on paper, write ACoStar LoopNet, File No. 
111 0172'' on your comment and on the envelope, and mail or deliver it 
to the following address: Federal Trade Commission, Office of the 
Secretary, Room H-113 (Annex D), 600 Pennsylvania Avenue NW., 
Washington, DC 20580. If possible, submit your paper comment to the 
Commission by courier or overnight service.
    Visit the Commission Web site at http://www.ftc.gov to read this 
Notice and the news release describing it. The FTC Act and other laws 
that the Commission administers permit the collection of public 
comments to consider and use in this proceeding as appropriate. The 
Commission will consider all timely and responsive public comments that 
it receives on or before May 29, 2012. You can find more information, 
including routine uses permitted by the Privacy Act, in the 
Commission's privacy policy, at http://www.ftc.gov/ftc/privacy.htm.

Analysis of Agreement Containing Consent Order To Aid Public Comment

    The Federal Trade Commission has accepted for public comment, 
subject to final approval, an Agreement Containing Consent Order 
(``Consent Agreement'') from CoStar Group, Inc. (``CoStar''), Lonestar 
Acquisition Sub, Inc., and LoopNet, Inc. (``LoopNet'') (collectively, 
``Respondents''). Pursuant to an Agreement and Plan of Merger dated 
April 27, 2011, Lonestar Acquisition Sub, Inc., a wholly-owned 
subsidiary of CoStar, intends to acquire all of the common stock of 
LoopNet in exchange for cash and stock considerations with a total 
equity value of approximately $860 million (the ``acquisition''). The 
Commission's Complaint alleges that CoStar and LoopNet have entered 
into an acquisition agreement that constitutes a violation of Section 5 
of the Federal Trade Commission Act, as amended, 15 U.S.C. 45, and 
which, if consummated, would violate Section 7 of the Clayton Act, as 
amended, 15 U.S.C. 18 and Section 5 of the Federal Trade Commission 
Act, by eliminating actual, direct, and substantial competition between 
CoStar and LoopNet, and between CoStar and Xceligent, Inc. 
(``Xceligent''), and increasing the likelihood that CoStar will 
exercise market power unilaterally in the provision of commercial real 
estate (``CRE'') listings databases and information services.
    The proposed Consent Agreement would resolve these competitive 
concerns by requiring the divestiture of LoopNet's interest in 
Xceligent, CoStar's most direct competitor on a product basis. Owing to 
the circumstances surrounding the acquisition and the characteristics 
of the industry at issue, the proposed Consent Agreement further 
imposes certain conduct requirements to assure the continued viability 
of Xceligent as a competitor to the merged firm and to reduce barriers 
to competitive entry and expansion. These additional provisions will 
facilitate Xceligent's geographic expansion and prevent foreclosure of 
Respondents' established customer base. Together, the divestiture and 
conduct obligations will make Xceligent a stronger independent 
competitor to the merged firm. The proposed Consent Agreement will thus 
remedy the loss or diminution of competition that would result from the 
acquisition.
    The proposed Consent Agreement has been placed on the public record 
for thirty (30) days to solicit comments from interested persons. 
Comments received during this period will become part of the public 
record. After thirty (30) days, the Commission will again review the 
proposed Consent Agreement and the comments received, and will decide 
whether it should withdraw from the proposed Consent Agreement, modify 
it, or make final the proposed Decision and Order (``Order'').
    The sole purpose of this analysis is to facilitate public comment 
on the Consent Agreement. The analysis does not constitute an official 
interpretation of the Consent Agreement or the proposed Order, nor does 
the analysis modify their terms in any way.

I. Respondents and Other Relevant Entities

A. CoStar

    CoStar is the largest provider of CRE information services in the 
United States, offering a researched listings database with nationwide 
coverage. CoStar proactively tracks and aggregates CRE listings and 
information to create and maintain an in-depth and comprehensive CRE 
database. CoStar is a publicly traded, for-profit corporation.

B. LoopNet

    LoopNet operates the most heavily trafficked CRE listings database 
in the United States. LoopNet provides a platform for CRE market 
participants to post listings and other detailed information about 
available properties, and aggregates that user-generated content into a 
database searchable by the public. Through this platform, LoopNet also 
offers some CRE information services with nationwide coverage. LoopNet 
is a publicly traded, for-profit corporation.
    Starting in 2007, LoopNet acquired a substantial ownership stake in 
Xceligent, a provider of CRE information and listings services, with 
coverage focused on the Midwest and South. Today, LoopNet provides 
Xceligent with funding and information to aid Xceligent in expanding 
its geographic scope.

C. Xceligent

    Xceligent, a privately held corporation, is a third leading 
provider of CRE information services in the United States, offering a 
researched listings database. Xceligent's model closely resembles 
CoStar's, with a research staff that proactively tracks and aggregates 
CRE listings and information to create and maintain an in-depth and 
comprehensive CRE database.

II. The Proposed Complaint

    CoStar's acquisition of LoopNet presents antitrust concerns in the 
markets for CRE listings databases and CRE information services. 
Listings databases provide a means for parties to CRE transactions to 
publicize and to search for available properties for sale and for 
lease. CRE information services compile the data industry participants 
need to evaluate CRE assets and opportunities, informing decisions 
ranging from the determination of asking price to whether to execute a 
given sale or lease agreement. Real estate brokers, lenders, investors, 
developers, appraisers, government agencies, and others connected to 
the CRE industry require listings databases

[[Page 26011]]

and information services with geographic coverage that corresponds to 
their unique scope of operations. The coverage needs of a given 
customer may be as broad as the entire United States, or as narrow as a 
city neighborhood.
    CoStar and LoopNet are the only two providers of CRE listings 
databases with nationwide coverage. CoStar is the only current provider 
of full-inventory, research verified CRE listings databases and 
information services with national coverage. CoStar's closest 
competitor on a product basis, Xceligent, today provides full-
inventory, research-verified listings databases and information 
services in 33 metropolitan areas. Other providers offer CRE listings 
databases and information services with coverage of a particular local 
or regional area or of a particular subset of the total CRE landscape, 
but none have achieved the critical mass of users and data that CoStar 
and LoopNet possess today.
    The acquisition may substantially lessen competition in these 
relevant markets by eliminating actual, direct, and substantial 
competition between CoStar and LoopNet, and between CoStar and 
Xceligent because of LoopNet's substantial ownership stake in 
Xceligent. The acquisition therefore may also increase the likelihood 
that CoStar will exercise market power unilaterally.
    Timely, competitively meaningful entry is unlikely to mitigate 
these anticompetitive effects. Significant network effects characterize 
the market for CRE listings databases and create a substantial barrier 
to new entry. For both listings databases and information services, 
entry and expansion are difficult, costly, and time-consuming.

III. The Proposed Consent Agreement

    The proposed Consent Agreement and the Order include the obligation 
to divest certain LoopNet data to Xceligent and conduct requirements 
that may modify Respondents' current and future contractual agreements 
with its customers. These provisions are intended to ensure that the 
remedy is responsive to the history and characteristics of the relevant 
markets. The Order incorporates these carefully-tailored provisions to 
assure the successful implementation of the remedy and to effectuate 
the Order's remedial purpose. Some of these provisions are highlighted 
below.

A. Divestitures

    The proposed Consent Agreement is intended to remedy the 
acquisition's alleged anticompetitive effects by, among other things, 
requiring the divestiture of LoopNet's interest in Xceligent to DMG 
Information, Inc. (``DMGI''). DMGI is a U.S.-based subsidiary of 
British media and data conglomerate Daily Mail & General Trust, PLC, a 
publicly traded, for-profit firm with 2011 revenues of nearly [pound]2 
billion. DMGI specializes in business-to-business information services 
and has significant experience in the CRE information space. DMGI's 
strong, existing presence in the CRE information space includes 
substantial and long-standing investments in CRE information firms 
including Trepp, LLC; Real Capital Analytics, Inc.; Environmental Data 
Resources, Inc.; and BUILDERadius, Inc.
    Respondents have reached an agreement to sell to DMGI LoopNet's 
interest in Xceligent and in the URL ``commercialsearch.com.'' In 
addition to these assets, Respondents have agreed to divest to DMGI 
certain LoopNet data that will facilitate Xceligent's expansion into 
new metropolitan areas. The need for this data divestiture arises from 
the unique historical relationship between LoopNet and Xceligent and 
from the high initial costs associated with entry and expansion in the 
relevant markets. These divestitures assure the continued viability of 
Xceligent as CoStar's competitor and enable Xceligent to grow rapidly 
into a more complete, national listings database and information 
services alternative to the merged firm. DMGI is well-equipped to 
replace LoopNet and become the controlling shareholder of Xceligent. 
DMGI has the resources and capability to provide Xceligent with the 
financial and strategic assistance required for effective and efficient 
continued expansion. The divestitures will therefore preserve the 
existing competition between CoStar and Xceligent and will allow 
Xceligent to replace any competition lost between CoStar and LoopNet as 
a result of the acquisition.

B. Conduct Provisions

    The Order imposes certain conduct requirements that will lower 
entry barriers to the markets for CRE listings databases and 
information services. Paragraph III.A. of the Order prevents 
Respondents from restricting, directly or indirectly, customers' 
ability to support Xceligent. The history and data-driven nature of the 
relevant markets, coupled with the high costs of data collection and 
the network effects inherent in the industry, have led to significant 
barriers to entry and expansion. Paragraph III.A. ensures that industry 
participants, including the largest national CRE brokerage firms, can 
bolster entry efforts--whether through financial investment, CRE 
information-sharing, or public endorsement--without fear of reprisal. 
This provision thus reduces entry barriers by allowing industry 
participants to assist in the development and growth of Xceligent.
    In order to prevent long-term CoStar subscription commitments from 
foreclosing competitive entry or expansion, Paragraph III.B. of the 
Order requires Respondents to allow current and future customers, 
without penalty, to terminate their existing contracts with twelve (12) 
months' notice. This provision ensures that Xceligent has available 
customers in any and all metropolitan areas where they offer competing 
products. The resulting revenue opportunities and feasibility of 
gaining broad customer acceptance will make entry or expansion into 
local coverage areas more efficient and effective.
    Similarly, Paragraphs III.F. and III.G. of the Order include 
provisions that aim to protect Xceligent for a limited period while it 
expands the breadth and geographic scope of its services. These 
restrictions are necessary because of the importance of such expansion 
in ensuring an effective remedy. Paragraph III.F. prevents Respondents 
from conditioning the sale, lease, or license of, or the subscription 
to, any of Respondents' products on the sale, lease, or license of, or 
the subscription to, any other of Respondents' products. Paragraph 
III.F. also prohibits Respondents from requiring customers to subscribe 
to multiple geographic coverage areas in order to gain access to a 
single coverage area of interest. These protections extend for a period 
of five (5) years post-acquisition. Paragraph III.F. also requires 
Respondents to continue to offer all currently available products on a 
stand-alone basis for three (3) years post-acquisition. A related 
provision, Paragraph III.G., prohibits Respondents from limiting the 
use of the REApplications product, a software tool for managing market 
research. For three (3) years after the Order date, if Respondents 
continue to offer REApplications, Paragraph III.G. provides that 
customers shall be permitted to use REApplications in support of, or in 
connection with, their purchase, lease, or license of CRE database 
services from Respondents' competitors. Together, Paragraphs III.F. and 
III.G. ensure that customers are free to turn to Xceligent or other 
firms for the services those firms provide, without forfeiting their 
access to other CoStar products on which they rely. These provisions 
therefore advance the Order's remedial purpose in recognition of, and 
in response to, the relatedness of the products at issue, the 
indispensable

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nature of those products, and the currently limited selection of 
providers to customers of those products.
    Paragraphs III.C. and III.D. of the Order provide certain 
protections to Respondents' current and future customers so that they 
are free to avail themselves of their rights and opportunities post-
acquisition. Paragraph III.C. prohibits Respondents from intentionally 
disrupting or limiting service to customers except in specific, 
enumerated circumstances. This provision ensures that Respondents' 
customers are protected in their ability to conduct their day-to-day 
business by designating inappropriate suspension of service as a 
retaliatory act punishable under Paragraph III.H. of the Order. In 
order to address the possible chilling effects of the industry's 
historically litigious reputation, Paragraph III.D. grants Respondents' 
current and future customers the right to resolve any disputes with 
Respondents through arbitration.

C. Compliance and Notification Requirements

    Paragraph V. of the Order requires Respondents to provide notice to 
the Federal Trade Commission thirty (30) days prior to any planned 
acquisition of any firm that gathers, markets, or sells CRE listings or 
CRE information in the United States for a period of five (5) years. 
For an additional five years thereafter, the Order requires Respondents 
to provide prior notice of planned acquisitions of any such firms with 
revenues of $15 million or greater.
    Paragraph VI. of the Order appoints Guy Dorey as Monitor to assure 
Respondents' ongoing compliance with their obligations and 
responsibilities under the Order. Among other responsibilities, 
Paragraph VI. empowers the Monitor, at Respondents' expense, to review 
and audit compliance with Order provisions relating to the divestitures 
of assets and information and to customers' rights to support 
Xceligent.
    To assure that Respondents fully comply with the obligations of 
Paragraph II. of the Order, Paragraph VII. of the Order allows the 
Commission to appoint a Divestiture Trustee to assign, grant, license, 
divest, transfer, deliver, or otherwise convey the relevant assets and 
information.
    Paragraph VIII. of the Order requires Respondents to submit 
periodic reports of compliance. The Order requires reporting every 
sixty (60) days for two (2) years following the Order date, and 
annually thereafter until the Order terminates in ten (10) years.
    Paragraph IX. of the Order requires Respondents to give the 
Commission prior notice of certain events that might affect compliance 
obligations arising from the Order.

D. Additional Provisions

    Paragraph X. of the Order provides that the Order shall terminate 
after ten (10) years.
    The purpose of this analysis is to aid public comment on the 
proposed order. It is not intended to constitute an official 
interpretation of the complaint or proposed order, or to modify in any 
way the proposed order's terms.

    By direction of the Commission, Commissioner Ohlhausen not 
participating.
Donald S. Clark,
Secretary.
[FR Doc. 2012-10550 Filed 5-1-12; 8:45 am]
BILLING CODE 6750-01-P