On August 23, 2024, the Department of Justice (DOJ) and eight states filed a lawsuit against the property management software company RealPage Inc. (“RealPage”), alleging an unlawful information sharing scheme that allowed property managers to increase apartment rental prices through the use of RealPage’s algorithmic pricing tools. The DOJ also alleges that RealPage maintains an illegal monopoly in commercial revenue management software by exploiting its access to competitor data and utilizing its scale to exclude rivals from the marketplace. In announcing the complaint, the DOJ made clear that it is targeting companies and practices that raise prices for consumers. Assistant Attorney General Jonathan Kanter of the DOJ’s Antitrust Division explained that this lawsuit is designed “to make housing more affordable for millions of people across the country.” Beyond the real estate industry, the lawsuit reminds companies of a sharper DOJ focus on the increasing use of algorithms and artificial intelligence throughout the economy. As stated by Deputy Attorney General Lisa Monaco: “Training a machine to break the law is still breaking the law. Today’s action makes clear that we will use all our legal tools to ensure accountability for technology-fueled anticompetitive conduct.”
The DOJ’s Lawsuit Accuses RealPage of Collusion and an Unlawful Monopoly
The DOJ’s lawsuit alleges RealPage violated Section 1 and Section 2 of the Sherman Act through an unlawful information sharing scheme in coordination with real estate management companies.
- Section 1 Claims. Principally, the DOJ’s lawsuit alleges that RealPage’s conduct amounts to a traditional hub-and-spoke conspiracy, with RealPage coordinating pricing decisions by managers of competing rental properties. According to the complaint, each participating property manager entered into a vertical agreement with RealPage to participate in the unlawful scheme by making the deliberate choice to input their nonpublic, competitively sensitive data into RealPage’s revenue management software models, with the understanding that the data would be shared with their competitors through the algorithm’s pricing recommendations. Although property managers could accept or reject those pricing recommendations, the DOJ contends RealPage’s goal is to ensure acceptance of its recommendations by actively monitoring landlords’ adherence to the suggested prices generated by its software. For example, RealPage’s software allegedly makes it easy for a landlord to accept pricing recommendations and more difficult and time-consuming to reject them. While the complaint alleges coordination by and among property managers and cites numerous examples of communications between and among property managers, it is noteworthy that the DOJ has not, as of yet, sued the property managers.
- Section 2 Claims. Although not as developed in the complaint, the DOJ also alleges that RealPage maintains an unlawful monopoly in the commercial revenue management software market. The DOJ contends RealPage wields unlawful monopoly power by using the data provided by the property managers in a way that excludes other commercial management software companies from competing on an equal playing field. With an alleged market share of at least 80%, RealPage’s extensive collection of nonpublic and competitively sensitive information allegedly makes its software especially attractive to landlords and prevents rival software providers from effectively competing with their own revenue management products because they lack access to this valuable transactional data at such a large scale.
- RealPage’s Response to the Lawsuit. RealPage (through outside counsel) responded to the lawsuit with a firm denial of the anticompetitive claims, stating that its business model is legally compliant. Because the DOJ case challenges the fundamentals of RealPage’s business model, RealPage appears poised to defend itself in a complex and potentially prolonged litigation. However, RealPage also suggested a willingness to discuss potential solutions with the government and address any concerns in order to continue competing in the marketplace.
Pricing Algorithms at the Center of Multiple, Ongoing Actions
DOJ’s lawsuit confirms that pricing algorithms will remain under increased scrutiny, but it is not the first challenge to this conduct or the government’s first public statement on the topic. Software companies and businesses in the real estate industry, the hotel industry, and the health insurance industry have faced numerous lawsuits or investigations related to algorithmic price fixing. The DOJ has filed statements of interest in many of these cases, demonstrating that the government has kept a watchful eye on this space and that RealPage may not be DOJ’s only target going forward.
- MDL Class Action Against RealPage. Since 2022, RealPage and various property managers have been named as defendants in more than 30 class action lawsuits alleging the RealPage software is used to unlawfully fix rental prices. While some cases have proceeded on their own, many have been consolidated into a multidistrict litigation (MDL) pending in the United States District Court for the Middle District of Tennessee. Like the DOJ’s case, the earlier-brought cases pending in Tennessee assert that RealPage and property management companies engaged in a hub-and-spoke conspiracy, whereby the property managers submitted proprietary rental data to RealPage with the knowledge that such data would be comingled with data from competing property owners and a recommended optimal price would be provided by RealPage. The DOJ filed a statement of interest in the Tennessee case arguing that the conduct of the parties could constitute a per se violation of Section 1.
- State AGs Actions Against RealPage. Independent of DOJ and private plaintiffs, state AGs are bringing their own actions against RealPage.
- DC Action. The District of Columbia Attorney General filed a parens patriae lawsuit against RealPage and various property owners in the Superior Court of the District of Columbia. As with the DOJ and Tennessee cases, the DC AG alleges that RealPage and the property managers participated in a hub-and-spoke conspiracy through the managers submitting their data to RealPage, knowing that the data would be shared with their competitors, to recommend the optimal price. One property manager has been dismissed from the DC case. The DC Superior Court found it significant that the property manager to which it granted dismissal allowed RealPage only to utilize their own data or publicly available data to generate pricing recommendations and did not agree to allow RealPage to commingle their data with competitor landlords.
- Arizona Action. On February 28, 2024, Arizona Attorney General Kris Mayes announced a lawsuit against RealPage and major residential landlords for conspiring to artificially raise rents in the Phoenix and Tucson metro areas. Among other state claims, the allegations are similar to the ones in the Tennessee and DC cases. On May 13, 2024, RealPage and several defendants filed a partial motion to dismiss the consumer fraud claims and the state antitrust claims that are time-barred.
- Similar Case in the Real Estate Industry. A proposed class of renters alleges that software company Yardi and 18 property managers/owners colluded to coordinate rental prices using Yardi’s Revenue IQ (formerly RENTmaximizer) software. The defendants filed a joint motion to dismiss on December 15, 2023. The DOJ and the FTC submitted a joint statement of interest on March 1, 2024 to state their position that pricing discretion alone does not defeat a price fixing claim.
- Similar Cases in the Health Insurance Industry. MultiPlan, a provider of out-of-network cost-management services and data analytics, faces over two dozen lawsuits alleging that the technology company is the ringleader of an alleged price-fixing scheme with private health insurers. The lawsuits generally claim that MultiPlan and major health insurance companies unlawfully coordinate to reduce reimbursement rates for out-of-network claims and that MultiPlan uses its proprietary pricing algorithm to coordinate the nationwide price-fixing conspiracy. Several of the federal complaints have been consolidated and transferred to the United States District Court for the Northern District of Illinois. MultiPlan has denied the allegations, expressing its commitment to reducing healthcare costs. Amid these lawsuits, lawmakers have called on health insurance regulators to investigate MultiPlan, and legislators also specifically urged the Federal Trade Commission and the Department of Justice to look into potential anticompetitive conduct carried on by MultiPlan.
- Similar Cases in the Hotel Industry. In Gibson v. Cendyn Group LLC, a proposed class of hotel guests alleged that Wynn Resorts, Caesars, Treasure Island and other Las Vegas hotel operators made an agreement to share pricing information and unlawfully coordinate on room prices, using a revenue platform created by the technology company Cendyn. The judge found that the allegations in the complaint were insufficient to support an inference that the hotels agreed to fix room prices and dismissed the case in May 2024. Plaintiffs filed an appeal with the Ninth Circuit Court of Appeals on June 7, 2024. Similarly, in Cornish-Adebiyi v. Caesars Entertainment, another proposed class of hotel guests alleged that MGM Resorts, Caesars, and other hotel operators in the Atlantic City area used an algorithm to fix prices. The defendants have moved to dismiss the case. The DOJ and the FTC filed a joint statement of interest to emphasize two principles: (1) direct communications among competitors are not necessary to establish an agreement; and (2) an agreement to fix a starting price point is enough to be considered per se unlawful, regardless of what the competitors charge customers. Lastly, in Portillo v. CoStar Group, Inc., a proposed consumer class filed a federal lawsuit against CoStar Group and luxury hotel operators alleging the luxury hotel operators conspired to raise room prices in multiple cities across the country by sharing competitively sensitive information through CoStar’s Smith Travel Research (STR) reports. The defendants filed a motion to dismiss in May 2024.
Practical Ways to Protect Against this High-Stakes Litigation
Looking ahead, antitrust enforcers and private plaintiffs undoubtedly will be bringing more cases challenging pricing algorithms as companies in more industries incorporate this technology into their daily operations. Fortunately, there are practical steps that companies can take to help minimize the chances of being dragged into this kind of litigation.
- Carefully manage competitively sensitive data. Big data, sophisticated algorithms, and AI tools allow for pricing analyses that go well beyond traditional benchmarking exercises. In this evolving environment, companies and software service providers should protect against sharing competitively sensitive data in ways that create antitrust risks.
- Adopt independent decision-making about whether to follow pricing recommendations. At all times, companies must maintain their pricing independence. As the DOJ’s case against RealPage exemplifies, the antitrust enforcement agencies and private plaintiffs can interpret adherence to pricing recommendations as evidence of an illegal agreement, so companies that receive similar recommendations should ensure that their final pricing decisions are made independently.
- Due diligence on communications. Companies should pay careful attention to internal and external communications. RealPage internal documents were used by the DOJ to illustrate that its software model is designed to generate pricing recommendations based on competitor data with the purpose of “driving every possible opportunity to increase price”, and RealPage affirmatively advertises how its algorithm will commingle nonpublic data. In the RealPage complaint, the DOJ relied heavily on internal communications to highlight the impact of the pricing software, including a landlord statement that described the effect of RealPage’s pricing model as “classic price fixing.” Regular compliance training is critical to help employees stay abreast of how antitrust law can come into play in a dynamic and ever-changing marketplace that now includes pricing algorithms and other AI tools.
