Issues for MLSs to Consider Before Licensing Their Data to Third Party Vendors

Recently, some major players in the industry, including CoreLogic (formerly First American), Move, Inc., and NAR’s subsidiary RPR, have offered an exchange to MLSs: access to software/interface tools for MLS data. These three companies (and others like IMAPP) want to be licensees of your MLS’s data.

Remember, though, that whatever you think you are getting in a deal with any of these players, the contract between MLS and licensee determines what the obligations of each are. If the things you were offered during demonstrations and negotiations are not in the contract, then you cannot demand them later. The fact that a contract might be only one page long does not diminish its binding effect on your MLS.

I want to urge you to get legal advice before signing any of these contracts. This post identifies some issues your legal counsel should address with you.

(I do not intend this post as a comprehensive treatment of this subject or as legal advice. Earlier in the spring, I wrote one or two posts about the RPR contract. RPR has since revised its license agreement for MLSs. Of course, you don’t need to hire my firm to get good advice; so feel free to share these thoughts with your lawyer. This post is also not the only checklist out there: WAVGroup did one and John Rees did another, both useful tools for legal counsel.)

Before entering into an agreement with any licensee, we recommend that each MLS consider all the options. The terms of a partner’s proposed agreement can take various forms.

What are the MLS’s principal benefits and costs from the agreement?

Prior to signing an agreement, the MLS should ensure that it understands and weighs the benefits and costs of the deal. Some are asking for data in exchange for access to their software, while others are offering monetary compensation or a combination of both. We have seen a few common trends in these agreements that are worth highlighting.

One reason your MLS might agree to share its data is the benefit of the software/interface tools being offered. For example, some consider the “Find” software developed by Move, Inc. to be an impressive interface providing real estate agents access to real property information, demographics, and public records all on the same system. One specific feature that is exciting (for areas like south Minneapolis) is the availability of airplane flight pattern noise.

If the MLS subscribers use these software features, this benefit is potentially highly valuable. Therefore, you may want the agreement to contain a mechanism to quantify the usage, typically in the form of periodic usage reports provided by the licensee. For example, if quarterly usage reports from the licensee show that only 3% of your MLS subscribers are using the tool regularly, you might hesitate to renew the agreement, especially if the software tool is the only thing of value your MLSs is getting from the deal.

If the software or interface your MLS gets is the most important value, make sure you know what you are getting. Are there specifications or a description somewhere? Do your subscribers automatically get the newest version at no charge to your MLS or subscribers? It seems the licensees here want to be able to change the software at their will – if they diminish the software’s capabilities, can your MLS terminate the agreement?
Another possible benefit to MLSs and their brokers is the increased consumer exposure and greater market efficiency by connecting consumers to more data. (Not everyone sees this as valuable – we’ll save that for another discussion.) How will your MLS measure whether it is receiving that benefit? Can the licensee help with measurement?

One potential cost associated with sharing data is the broker notification process. (As I posted earlier, NAR policy requires NAR-affiliated MLSs to give listing brokers the choice to opt out of licensing their own listings in these deals) Your agreement with any licensee should make it clear that you will not supply data of brokers who opt out.

What is the scope/limit of the data license?

Agreements licensees draft will likely have broad language defining the scope of the data license. MLSs often limit the scope in a number of ways: An MLS will not be willing or able to share third-party data that is not located on its servers; an MLS may not want to share off-market listing data for the periods preceding the agreement formation; an MLS may desire to limit where the data can be displayed (i.e. only specific web sites); and others. A clearly drafted agreement should reflect the MLS’s elections.

If the licensee will use the MLS data in data products and on web sites, will the licensee provide periodic reports indicating where and how it is using the MLS data? This could be important if the MLS wants to assess later how valuable the listing information really is. It will also be important in assessing and negotiating future opportunities with other potential business partners.

What is the MLS’s exposure to liability/damages?

It is imperative that any agreement an MLS enters has sufficient protection for liability or damages resulting from sharing its data and using the licensee’s software. Each of these provisions is one that you should discuss with your lawyer – if you do not understand the risks the MLS is assuming in the deal, how can you make an informed business decision about it?

Often, an MLS will prefer to strictly limit its liability, include specific indemnification language for potential agreement breaches, disclaim all or most warranties associated with its data, and protect itself from any claims of infringement of third parties’ rights. An MLS may also elect to specify what types and amounts of damages are available to the contracting parties in case of a breach.

Conclusion

Whether you choose to license MLS data to these players is a strategic decision. But once you’ve decided to move ahead, make sure you address these and the other legal issues before you sign on the dotted line.

-Brian