Primer on Effective Master Licensing Agreements for Real Estate Databases

A. Databases Are Valuable Resources. Until the mid-1990's, multiple listing service databases were fiercely protected from disclosure to anyone other than bona fide REALTOR® members of the association(s) of REALTORS® that owned and operated the multiple listing services. In fact, until 1993, the National Association of REALTORS® (NAR) Multiple Listing Policy strictly prohibited access to the databases of a REALTOR® association owned or operated multiple listing service by anyone other than REALTOR® members of the association. According to NAR policy at the time, MLS databases were narrowly defined as vehicles through which real estate brokers bound to observe the REALTORS® Code of Ethics could cooperate with each other by exchanging unilateral offers of subagency appointments to sell the property listed with their firms. This definition of an MLS was the foundation upon which NAR built its "REALTORS®-eyes only" MLS database access policy.

For a variety of reasons, this "REALTORS®-eyes only" MLS policy was effectively abandoned in the early 1990's. First, the Eleventh Circuit Court of Appeals decided Thompson, et al. v. DeKalb Board of REALTORS®, et al., 934 F.2d 1566 (11th Cir. 1991), which held that REALTOR® Association MLSs that had "market power" violated the federal antitrust laws if they limited access to their MLS databases only to REALTOR® members of the Association. Second, and perhaps more important, the commercialization of the Internet in the early to mid-1990's spurred a consumer demand for real estate information "on-line." As the demand grew for access to electronically available real estate information, access to MLS databases was quickly identified as the most efficient way to meet that demand. Hence, suddenly MLSs were transformed from "REALTORS®-eyes only" databases into databases that had economic value in a much wider marketplace.

B. The Range Of Potential Licensees Is Expanding. As multiple listing databases regionalized, these databases rivaled and often exceeded in scope and "richness" the public record real estate databases maintained by local governments, and by private companies that extract, cleanse, and enhance public record data for resale to institutional customers. The classes of potential customers of MLS real estate data can be segregated into two different types: customers for "current" listing data, and customers for "sold" or "historical" data.

The potential customers for the "current" listing data are, for the most part, the various operators of real estate information Websites. Companies with national Websites include Moore Data (Cyberhomes), NDS Software (Homeseekers), RealSelect (REALTOR.com), Homes and Land, and, most recently, Microsoft (Homeadvisor). Local and regional Website operators are in business in many communities, usually as joint ventures with, or subsidiaries of, local newspapers, such as the Chicago Tribune in Northeastern Illinois. All of those Website operators are potential licensees of an MLS’s current listing information database.

The potential customers of the MLS’s "sold" information are companies in the mortgage lending business, or related businesses. These include mortgage lenders, mortgage and property insurance carriers, credit bureaus, real estate research companies or environmental consultants. All of these companies have interests in data related to real estate property values, and past and current owners of real estate.

C. A Master License Agreement Gives The Database Owner Greater Control Of License Negotiations. In any contract negotiation, the party that controls the draft of the document that is being negotiated has greater leverage in the negotiation process. The party that prepares the "first draft" of the contract has an opportunity to include at the outset terms most favorable to that party. The other party is then in a "reactive" mode seeking, if possible, to make modifications to the terms that are perceived to be "deal breakers" in the proposing party’s draft. In the end, the party that controls the drafting process usually secures the more favorable final contract.

Since REALTOR® Association multiple listing services are "newcomers" to the real estate information marketplace, these Associations or their regional multiple listing corporations do not typically have their own standard "master licensing agreement." As a consequence, they negotiate from an agreement supplied by the Website operator, media corporation, or other entity that is seeking access to the MLS database. The result is the MLSs do not always secure all of the contract terms that would maximize their economic advantage, and minimize their legal liability exposure.

D. Copyright Law Does Not Adequately Protect Database Integrity. License agreements are necessary to protect the value and integrity of an MLS’s database because the protections afforded by the federal Copyright Law are limited. The Copyright Law empowers the owner of a copyright to stop unauthorized copying of a copyrighted "work." The Copyright Law does not otherwise limit or restrict a person’s access to, use of, or duty to protect, another’s copyrighted database compilation. Therefore, these added protections must be incorporated into a contract or "license" that defines the scope of, and equally important, the limitations on, the licensee’s permitted use of the database compilation and the data contained within the compilation.

To be sure, MLS databases are entitled to copyright protection. The United States Supreme Court held in Feist Publications v. Rural Telephone Services Company, 499 U.S. 340 (1991) that compilations of pure "facts" are not copyrightable unless the compilation reflects a minimal degree of creativity in the selection, arrangement and display of the factual data contained in the database. Post Feist decisions have held that the degree of creativity necessary to "pass muster" under the Copyright Law is minimal. See, Key Publications v. Chinatown Today Publications Enterprises, Inc., 945 F.2d 509 (2d. Cir. 1991) (creativity shown in compiler’s selection of vendors to include in directory for Chinese-American consumers); Bell South v. Donnelly, 933 F.2d 952 (11th Cir. 1991) (Yellow pages are copyrightable). At least one federal district court reported decision has held MLS databases to be copyrightable. See, Montgomery County Association of REALTORS®, Inc. v. Realty Photo Master Corp., 878 F.Supp. 804 (D. Md. 1995).

Buy copyright protection, even if available, only allows the copyright owner to stop infringement of the copyright. The copyright does not limit or control the use of a copyrighted work by one in lawful possession of it so long as infringing copies are not made. Therefore, contract law is necessary to supplement the protections afforded by the Copyright Law. Indeed, license agreement provisions that restrict a licensee’s use of a compiler’s database will be enforced even if the underlying database is not protected by Copyright Law. See, Pro-CD, Inc. v. Zeidenburg, 86 F.3d 1447 (7th Cir. 1996) (Shrink-wrap license restricting use of CD-Rom containing a nationwide telephone directory is enforceable even if the directory itself is not copyrightable under Feist.)

II. Provisions To Include In An Effective Master Licensing Agreement For Real Estate Information Databases.

A. Grant Of License. This provision of the license agreement is perhaps the most important provision in the entire agreement. This is the provision that defines the scope and limits of the licensee’s right to access and use the data in the MLS database. Important matters to consider are (1) whether the licensee’s access rights are exclusive or non-exclusive, and (2) the geographic scope of the license. For example, may the licensee use the data only in a particular geographical area, or throughout the licensee’s national or global operations. Any limits on the licensee’s right to access the data from within the licensee’s organization should also be defined. Does the license apply to all offices, affiliates or subsidiaries of the licensee? The license grant should also specify limits on the licensee’s right to allow third parties access to the database. Usually such access is prohibited. Finally, the grant of license should state that the licensee receives only such rights as are expressly stated in the license grant, and any rights not expressly enumerated are reserved by the MLS.

B. No Modification Of The MLS Data. The licensee should be prohibited from modifying or recompiling the MLS data, or creating any derivative work based upon the MLS data unless that modification, recompilation or derivative work is expressly authorized in the license agreement.

C. Protection of Confidential Information. Depending upon how the data is to be transferred from the MLS database to the licensee, it may be necessary for the licensee and the MLS to exchange proprietary information about their database operations and other information management functions or software. The parties typically agree that each may designate information to be disclosed to the other party as "confidential," and once designated, the receiving party must protect the confidential information from unauthorized disclosure. This duty is frequently voided, however, if a party’s designated "confidential information" otherwise falls into the public domain, or is learned by the other party through independent and legally permissible channels.

D. Acknowledgment Of The MLS’s Copyright Rights. As previously stated, MLS databases are usually protectible under the federal Copyright Law. The MLS will typically have exhibited sufficient creativity in the selection, arrangement and display of the data about the listed property to qualify for copyright protection and registration. But regardless of the theoretical strength of the MLS’s copyright claim, the MLS should insist that its database licensee (1) acknowledge its claim of copyright in the database, and (2) agree not to itself contest the MLS’s copyright claims in any forum. This will insure that in any action to enforce the terms of the license, the licensee will not argue that the MLS’s copyright claims are involved. It will also insure that the licensee itself will not seek to void or cancel any copyright registration the MLS may have received from the United States Copyright Office. This section should also list all of the intellectual property rights claimed by the MLS, including copyright, trade secret, unfair competition, and, possibly, trademark rights in any MLS logos or trademarks. Finally, the MLS should insist that any republication of the MLS data include a copyright notice identifying the MLS as the owner of the copyright to the MLS database compilation.

E. Warranties And Representations. Contract "warranties" are explicit or implicit promises that parties make to each other that certain things are true, or that certain expectations that parties may have in entering into the agreement will be met. Each party obviously wants to receive as many warranties as possible from the other party, and, likewise, give as few warranties, if any, to the other party. From an MLS’s standpoint, it should insist upon receiving a warranty from the licensee that it has the power and authority to enter into the license agreement and bind itself to the promises contained therein. The MLS should be prepared to give the same warranty. The MLS should avoid giving any other warranties to the licensee.

F. Disclaimer Of Warranties. The MLS should also specifically state the warranties that it is not giving so as to dispel any later confusion on this point. Among the warranties that should be disclaimed are any warranties that could arise under the Uniform Commercial Code, which applies to computer software licenses, such as merchantability or fitness for a particular purpose. Other warranties to disclaim are (1) that MLS participants will authorize any of their listings to be displayed on a particular Website, (2) that the listing data entered into the MLS database by a broker or agent is pursuant to a valid listing agreement with the property owner, (3) that the property data is accurate, (4) that the MLS data will be usable on any particular hardware of software configuration of the licensee, or (5) that the MLS has any duty to maintain its current database hardware or software configuration for the benefit of the licensee. Finally, the license agreement should expressly disclaim any liability on the part of the MLS for any consequential damages that might result to the licensee for any breach of the license agreement by the MLS. Consequential damages include losses of future profits or profit opportunities as a result of a contract breach.

G. Prohibition Of Data Disclosure To Third Parties. The licensee should acknowledge that the MLS data is proprietary to the MLS and a valuable economic asset whose value is derived from the fact that the data is not generally available in a compiled form to the public at large. The licensee should then be obligated to respect and protect the MLS’s proprietary rights in its MLS data. These obligations would include a duty to protect the data from unauthorized disclosure and to limit access to the data only to those employees of the licensee whose functions require them to use the data. The MLS should also include provisions in this section that allow the MLS to seek preliminary injunctive relief if this section is breached by the licensee.

H. Indemnification And "Hold Harmless" Provisions. Indemnification and ‘hold harmless" provisions resemble warranties and representations. They give the indemnitee a right to hold the indemnitor responsible if a defined event giving rise to actual or potential liability to a third party should occur. An MLS should seek indemnification from the licensee if a third party sues the MLS based upon the manner in which the licensee used the MLS data, including an allegation that any work created by the licensee that incorporates the MLS data infringes upon the copyright or other intellectual property right of a third party. The MLS should be extremely reluctant to give any indemnities to the licensee. This is particularly true when the MLS does not control the accuracy or reliability of "broker loaded" data.

I. Non-Competition Clause. An MLS should ask any licensee to agree that it will not create a competing MLS while the license is in effect or for a period time thereafter, such as five (5) years. An MLS should not license its MLS data to an entity that develops a business plan to enter into competition with the MLS while it is using the MLS’s data. This non-competition clause should include a right on the part of the MLS to sue for preliminary and permanent injunctive relief if this clause is breached.

J. Allocation Of Any Database Software Reprogramming Costs. If providing the MLS data to the licensee in the required or preferred format necessitates any reprogramming of the MLS’s database software, the costs of this reprogramming is to be borne by the licensee.

K. Term And Bases For Termination. The length of the license should be defined as well as any rights to premature termination and the bases, if any, for such premature termination. These can be matters of intense negotiations. Parties can agree upon unqualified termination rights upon a specified notice period, or, alternatively, provide that premature termination can occur only upon a contract breach that is not cured within a specified "cure period." With respect to MLS databases licenses, the best approach would be to retain as much flexibility as possible by allowing the MLS to terminate without cause after a specified period upon a minimal notice of thirty (30) to sixty (60) days.

L.    Dispute Resolution. It is typical in commercial transactions for parties to agree that, in the event of a dispute that the parties themselves cannot resolve by bilateral negotiation, the dispute will be referred to a prearranged arbitration forum. There are a variety of arbitration providers in nearly every major metropolitan area. These providers usually have their own procedural rules for the conduct of the arbitration and the selection of arbitrators, which can be drafted into the license agreement or incorporated by reference. The MLS should also decide if it wants to include a provision requiring the prevailing party to pay the non-prevailing party’s attorney fees. This is an obvious two-edged sword that should be given careful consideration before it is included in any contract.

M. License Fees. This is the provision that defines the economics of the transaction for both parties. There are numerous formulas for determining the amount of fees to be paid for the right to use the MLS data. These include fees based upon the number of "hits" by consumers, advertising revenue sharing, or number of persons or computers that can access the data. Whenever the MLS’s fees are based upon calculations made by the licensee, the MLS should retain the right to audit the licensee’s records to be sure that the fees owed to the MLS are being properly calculated.

MLSs should also consider charging different fees to different classes of licensees. For example, the fees charged to a lending institution that uses the MLS data to prepare automated appraisals on thousands of real estate parcels should be higher than the fees paid by a sole practitioner appraiser. The MLS would also logically charge higher license fees to non-real estate institutional users such as insurance companies and credit bureaus than it would to real estate businesses.

N. Assignment. MLS database licenses typically will not allow assignment of the license by the licensee without the MLS’s consent. The license was presumably negotiated with a particular user in mind. The MLS may wish to renegotiate or terminate the license depending upon the entity to whom the licensee wishes to assign the license. The MLS should, however, retain the right to assign its rights under the license to a subsidiary or parent corporation of the MLS.

O. Choice Of Law: Choice Of Forum. The MLS may wish to specify that the law of the state where it is headquartered shall govern the interpretation of the license agreement, assuming of course that the state’s law is favorable to the MLS. The MLS should also include a provision in which the licensee agrees that any suit to enforce or declare the rights of the parties under the license agreement shall be brought in the state and county where the MLS is headquartered.

III. Antitrust Considerations

A. "Market Power." MLSs are often the most comprehensive single source of residential listing data in the marketplaces in which they operate. As such, they can be considered to possess "market power," and even "monopoly power," as those terms are used in antitrust jurisprudence.

B. Group Boycotts. Because an MLS will be construed to have "market" or monopoly" power, it must be exceedingly careful about agreeing to exclusivity provisions with any MLS database licensee. These exclusivity arrangements could be deemed to be agreements to refuse to deal or "boycott" competitors of the licensee. Those potential licensees with whom the MLS will not contract could plausibly argue that they do not have any reasonable competitive alternative to a license with the MLS.

C. Price-fixing. Price-fixing is a per se illegal antitrust violation, and can result in criminal penalties that include prison sentences. MLSs must not agree among themselves on uniform license fees to be charged for access to their databases, or on any other economic term of their license agreements with MLS database licensees.

IV. Conclusion

        MLS databases are potential sources of significant economic benefits to those who own or control them. Effective license agreements will allow the economic value of the databases to be exploited to their maximum extent while at the same time protecting the MLS from unreasonable risk of liability. Agreements of this type shoujld be negotiated and drafted with the aid of competent legal counsel.


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Robert D..Butters. All right reserved. For information contact Frog Pond at 800.704.FROG(3764) or email susie@frogpond.com.