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Impact On The Internet & Electronic Commerce On The Real Estate Brokerage Busines

by Robert  D.  Butters    

Use of the Internet is not optional for real estate brokers and salespeople. Real estate is the second largest category of information available on the World Wide Web. Buyers are searching the Internet for available listings before they ever visit a real estate agent. Sellers are insisting that their agent advertise their property on the Web, often at multiple national and local web sites (See Realtor.com, HomeAdvisor.com, Homes.com, Homeseekers.com) web sites. Buyers and sellers can research the sales price of comparable properties on the Web (see Inpho.com). Mortgage loan, homeowner*s insurance, and title insurance applications can be submitted over the Web (See HomeShark.com, Insweb.com). Using automated valuation model (AVM) software linked to electronic real estate databases, lenders, insurance companies, Fannie Mae, and Freddie Mac can perform the equivalent of a real property appraisal totally online in a matter of seconds. It is predicted that by the year 2002, fifty percent (50%) of American households will be online. Commerce transacted on the Internet is projected to be $70 billion in the year 2000. Competition is intense for the patronage of the electronically sophisticated consumer. Sellers of products and services on the Internet are rapidly developing *data mining* and other techniques to *target* consumers who are most likely to buy their products and services based on the consumer*s web surfing habits and purchasing history.

Real estate brokers cannot ignore these developments. The Internet and E-commerce must be incorporated into every broker*s strategic business plan. To sell real estate without using the Internet today is the equivalent of doing business without a fax machine or photocopier ten or twenty years ago.

Not surprisingly, the law has not kept pace with advances in technology. Applying legal concepts developed before the invention of the touchtone telephone to electronic commerce creates confusing and numerous traps for the unwary. Examples of legal issues raised by the impact of the Internet on the real estate brokerage business are set forth below.

II. PERSONAL JURISDICTION OR *WHERE CAN WEBSITE OPERATORS BE SUED?* (HINT:            EVERYWHERE.)

Long-arm statutes. Illinois and every other state has a *long arm statute.* These statutes provide that a company *doing business* in a state can be required to defend itself in the courts of that state. Long-arm statutes are constitutional so long as the defendant has *mimimal contacts* in the forum state.

Long-arm statutes can be used to sue foreign website operators where sites are accessible to web surfers in that state.

1.If a w1ebsi*pasetsive, jurisdiction probably will not result. If the website simply displays information to a surfer, it probably will not be viewed as being *present* in a forum state. See Zippo Mfrg. Co. v. Zippo Dot Com, Inc., 952 F.Supp. 1119,1124 (W.D. Pa. 1997). Courts analogized to advertisements in magazines, which generally do not, alone, confer jurisdiction wherever the magazine is sold or distributed.

2. Advertising *plus* may well confer jurisdiction. In Minnesota v. Granite Gate Resorts, 1997 Minn.App. Lexis 1053 (Minn.App. Sept. 5, 1997), Minnesota courts asserted jurisdiction over the Nevada corporation that solicited sports bets over the Internet when 248 Minnesota residents placed such bets.

3.Sales of products or services via the Internet to residents of a state will probably confer jurisdiction. See CompuServe, Inc. v. Patterson, 89 F.3d 1257 (6th Cir. 1996) (When Texas defendant entered into agreement with CompuServe to distribute defendant*s software through the Internet, $650.00 of sales to Ohio residents conferred jurisdiction in Ohio courts.)

                    4.How much *plus* is enough to confer jurisdiction?

Advertisement of toll free telephone number on the Internet. Inset Systems v. Instruction Set, 937 F.Supp. 161 (D. Conn. 1996).

Compiling a mailing list of interested users, Maritz v.Cybergold, Inc., 947 F.Supp. 1328 (E.D. Mo. 1996).

C. Practice Pointer: The more interactive the website, the more likely it will create jurisdiction in the surfer*s home state.III. ADVERTISING REAL ESTATE ON THE WORLD WIDE WEB: ALL OF THE OLD RULES APPLY.

Using the Internet to advertise real estate for sale is not treated under the law any differently than advertising in any other format. All of the basic rules still apply.

Advertising may not be false or misleading. 225 ILCS 455/18(h)1

Broker or agent may not advertise property for sale or lease without permission of owner or owner*s agent. 225 ILCS 455/18(h)17

Laws of defamation and invasion of privacy apply to Internet communications.

Intellectual property rights can be infringed on the Internet. See Religious Technology Center v. Lerma, 1996 WL 633131 (E.D. Va. 1996) (Summary judgment granted on copyright infringement claim in favor of Church of Scientology whose copyrighted texts were posted on the Internet by infringer without permission).

Operators of websites not vicariously liable for defamation or copyright infringement unless operators actively control content on site. See Religious Technology Center v. Netcom On-Line Communications Services, Inc., 907 F.Supp. 1361 (N.D. Col. 1995) (Computer bulletin board not liable for copyright infringement resulting from posting of infringing material on system bulletin board because operator did not control conduct of infringer and did not receive economic benefit from infringement).

IV. WHO OWNS REAL ESTATE DATA GATHERED BY REAL ESTATE AGENTS AND POSTED ON            THE INTERNET?

Raw facts are not *owned* by anyone. See Feist Publications v. Rural Telephone Service Co., 499 U.S. 340 (1991) (Alphabetical list of names, addresses and telephone numbers are not entitled to copyright protection.) As a result of Feist, a person who compiles data cannot claim copyright rights in the data simply by reason of having compiled it in the first place (*sweat of the brow* basis for copyright acquisition is repudiated).

Ownership of *data* is separate from ownership of real estate or ownership of listing agreement. While listing broker *owns* the listing and the owner *owns* the house, neither *own* factual data about the house, even if both have gathered some or all of the data.

Database compilation of facts can be copyrighted if *creativity* is shown in selection and categorization of data. See Key Publications v. Chinatown Today Publishing Enters., Inc., 945 F.2d 509 (2d Cir. 1991) (Directory of Chinese-American businesses is copyrightable because editor exercised creativity in deciding what businesses to include); Bell South Advertising and Publishing Corp. v. Donnelley Information Publishing Co., 933 F.2d 952 (11th Cir. 1991) (Yellow pages are copyrightable because of creativity in organization of telephone listings); West Publications Co. v. Mead Data Central, Inc., 616 F.Supp. 1571 (D. Minn. 1985) (Legal reporter publisher can claim copyright in arrangement and pagination of public court opinions).D. Conclusion: To claim intellectual property rights in real estate data, claimant must *add value* to the data by arranging and categorizing the data in a *creative* manner.V. *LINKING* OR *FRAMING* OTHER WEBSITES CAN CREATE LIABILITY RISKS.

Web site software permits an operator of one site to create a hypertext *link* to another web site. When a surfer *clicks* on the highlighted terms, he or she is transported to the *linked* site. While there are not any cases on point, *linking* to another web site is not viewed as a copyright infringement or unfair competition because web sites themselves are *public* displays, and most web site operators welcome the referral of surfers to their sites.

*Framing* occurs when one web site operator displays another web site within a border or *frame* of the original web site. *Framing* another entity*s web site can lead to claims of copyright and trademark infringement, or unfair competition, when the *framing* site permits a surfer to avoid the *framed* site*s home page, or blocks banner advertisements appearing on the *framed* site*s pages. See Washington Post v. Total News, Inc., 97 Civ. 1190 (S.D.N.Y.).

Web site *courtesy* suggests that permission should be secured before *linking* to, or *framing,* another web site.

VI. CONSUMER *PRIVACY* BREACHES CAN LEAD TO LIABILITY.

Display of real estate data on a web site rarely leads to claims of *privacy* breaches. On the other hand, gathering data about people who visit a real estate web site can lead to *privacy* issues depending upon how the data is used.

Web site technology permits operators to gather data on those who visit their sites, including visitors* e-mail address, frequency of visits to the site, and the pages visited within the site. This capability allows web site operators to gather data for targeted marketing, or for sale to other entities. The Federal Trade Commission (FTC) is becoming increasingly aggressive in attacking perceived breaches of consumers* right to privacy on the World Wide Web. Major FTC concerns are (1) gathering data from or about children; and (2) use of consumer data for uses other than those approved by the consumer. See FTC v. GeoCities.

One key to avoiding an FTC privacy investigation is to establish a *privacy policy* that informs visitors to your web site about any data you gather on visitors to your site, and, if you are going to gather information about visitors to your site, disclose your intention, and, if possible, allow a visitor to *opt out* of your data gathering system.

VII. EXTERRITORIAL REACH OF STATE REAL ESTATE LICENSE LAWS.

The Internet and e-mail allows real estate brokers to solicit buyers and transmit offers to buy or sell real estate worldwide. This technology arguably allows a real estate broker or agent to engage *in the business of real estate brokerage* in all fifty (50) states. Some state regulators (California) have taken the position that the if a broker or agent disseminates electronic real estate advertising to consumers in the state, the broker becomes subject to the advertising regulations of the state*s license law. See implications of jurisdictional issues, supra at Section II.

VIII.  E-MAIL LIABILITY

E-mail can be used to commit fraud, infringe upon copyright rights, violate federal laws governing interstate commerce, (anti-gambling and anti-obscenity laws) and engage in common law defamation. E-mail can also be used to reveal trade secrets and to sabotage corporate records. To avoid company liability for misuse of e-mail by employees or agents, and to create a basis to sue a disgruntled employee or agent who uses e-mail to undermine the company, a company should adopt an e-mail policy. Before addressing the content of such policies, certain features of e-mail communications must be recognized. First, e-mail is permanent. E-mail is more permanent than paper records. Paper can be shredded or burned. E-mail messages exist on a computer hard drive and are not removed when the *delete* key is tapped on a keyboard. Hence, one of the first *evidence* seized in a civil or criminal investigation is a company*s computers to search for incriminating e-mail messages.

Second, e-mail is public. E-mail messages can be forwarded to hundreds of recipients with the tap of a key on a keyboard. E-mail is the electronic equivalent of a postcard.

Companies should make clear to employees and agents the rules that apply to use of the company e-mail system. Companies have very broad latitude in developing an e-mail policy.

Examples of e-mail policy provisions are:

1. E-mail may be used only for business purposes.

2. E-mail messages may be shared only with other p persons in the company.

3. Company reserves the right to monitor all employees* or agents* e-mail messages.

4. Unless necessary for business purposes, attachments of photographs are not permitted on the company system.

5. All e-mail messages are the property of the company.

6. The e-mail system may not be used to transmit obscenity or profanity, threats, abusive language, or message containing racist, sexist, or bigoted references.

IX. CONCLUSION: IMPLICATIONS FOR THE FUTURE.

The Internet is here to stay, but courts and state regulators have yet to come to grips with the breadth, speed, and interactivity of the Internet. Consequently there is little definitive case law upon which to rely when counseling your clients. One can assume, however, that traditional rules prohibiting fraud, defamation, and protecting intellectual property rights, will apply with equal force to Internet communications.

The Internet will almost certainly lead to a more efficient and less time consumptive real estate transaction, with the likely advent of a *paperless transaction* in the next ten years. The challenge for real estate brokers is to harness the power of the Internet to allow them to better serve their clients, or risk being rendered obsolete.


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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.