The Federal Trade Commission (FTC) has initiated a lawsuit against prominent real estate technology companies Zillow and Redfin, accusing them of forming agreements that allegedly restrict competition in the online rental advertising sector. Announced on Tuesday, the lawsuit is a significant move by the FTC to address concerns over competitive practices in an already concentrated market.

According to the FTC's complaint, in February, a "Partnership Agreement" was struck in which Zillow paid Redfin $100 million. This deal required Redfin to withdraw from the multifamily rental advertising business, cancel existing customer contracts, and shift those customers to Zillow. Additionally, under a "Content License Agreement," Redfin agreed to exclusively display Zillow’s listings for properties with 25 or more units and refrain from entering this market segment for up to nine years.

The FTC argues that these agreements are classic examples of horizontal agreements, which are deals made between direct competitors to eliminate competition. Such arrangements are deemed illegal under the Sherman Act, which prohibits contracts that "unreasonably" restrain trade.

Moreover, the lawsuit also suggests that these agreements qualify as an illegal acquisition under the Clayton Act. This Act prevents acquisitions that may lessen competition significantly or lead to monopolization. The FTC's complaint highlights that the agreement facilitated Zillow's acquisition of key customer relationships and confidential business information from Redfin, as well as the hiring of around 450 Redfin employees who held vital customer connections.

Daniel Guarnera, Director of the FTC’s Bureau of Competition, emphasized the gravity of the allegations: "Paying off a competitor to stop competing against you is a violation of federal antitrust laws... Zillow paid millions of dollars to eliminate Redfin as an independent competitor in an already concentrated advertising market—one that’s critical for renters, property managers, and the health of the overall U.S. housing market."

The FTC is concerned that these agreements will significantly diminish competition, leading to higher prices, lower quality, and reduced choices for property managers needing to advertise rentals. The Commission is seeking a permanent injunction, potential divestiture, and other equitable remedies to restore competitive conditions.

This lawsuit underscores the FTC's ongoing commitment to scrutinizing and acting against business practices that threaten to undermine the competitive dynamics essential to a healthy market environment, particularly in sectors as crucial as housing.