On August 23, 2024, the U.S. Department of Justice (DOJ) and eight states filed a complaint in federal court in North Carolina alleging that RealPage, a software analytics company, coordinated rental prices in the real estate market. According to the DOJ, RealPage did this by collecting nonpublic competitively sensitive pricing and other data from owners, using that data to determine a “recommended” market price through various algorithms, and then sending that “recommended” price back to owners that subscribed to certain software. The DOJ claims RealPage’s service harms the competitive process and ultimately renters in violation of the Sherman Act.

The DOJ’s complaint follows a number of recent DOJ public statements voicing concern over algorithmic pricing.¹ The DOJ recently began filing “statements of interest” in private cases encouraging courts to find certain algorithmic pricing conduct illegal per se under the Sherman Act.² Despite prior advocacy for per se liability, the DOJ claims RealPage’s conduct is illegal under a rule of reason standard, which requires the court to consider any pro-competitive benefits. Regardless of the standard, the DOJ has made clear that as the use of algorithmic pricing increases, so will its enforcement. RealPage, in turn, has signaled its intent to push back on what it views as allegations “devoid of merit.”³

DOJ’s Complaint Summarized

The DOJ’s core allegations included the following:

• The exchange of competitively sensitive nonpublic information with competitors indirectly (through certain (but not all) of RealPage's algorithmic pricing software services) removed uncertainty and competitive pressure from the rental market, violating Section 1 of the Sherman Act.
• Owners that subscribed to certain software agreed with RealPage to give their nonpublic information in return for a price recommendation that most landlords followed (effectively “outsourcing” their independent pricing decision), knowing the recommended price was based on their rivals’ information.
• RealPage instituted a number of “guardrails” in the algorithm that increased the “recommended” prices and resisted downward pricing pressures. These “guardrails” included:
  • hard floors: an inability to recommend a floor plan price below a certain minimum rent;
  • revenue protection mode: a feature that reduced the target number of leases if the algorithm predicted that the landlord could not meet its occupancy goal without lowering prices;
  • “sold-out” mode: once a landlord reached their occupancy goal, the algorithm considered the apartment building “sold-out” and recommended the maximum price for the remaining unoccupied units; and
  • the governor: a feature that recommended an average of prices between the current day and the day prior, when it calculated that the current day’s prices will be lower than the prices of the day prior.

The DOJ also claimed that RealPage monopolized the market for commercial revenue management software for multifamily housing rentals in violation of Section 2 of the Sherman Act (a “monopolization” claim). The DOJ’s core allegations of this claim include:

• RealPage maintained a monopoly position (at 80 percent share) in commercial revenue management software through exclusionary conduct.
• RealPage protected its monopoly position because access to the RealPage information created a feedback loop that further entrenched RealPage’s dominance.

DOJ’s Previous Messaging on Pricing Algorithms

In recent years, the DOJ has stressed to courts and the public that information sharing via algorithms is a top enforcement priority. Indeed, the DOJ has filed “statements of interest” in a number of cases, emphasizing that price coordination aided by algorithms runs afoul of the antitrust laws. The DOJ filed one such statement in a pending private damages action against RealPage and several landlords/owners, which alleges that the landlords/owners coordinated pricing using RealPage’s algorithms.⁴ The DOJ urged the court in that case to deny the defendants’ motion to dismiss and find that the alleged coordination could be illegal per se. The DOJ argued that a per se violation occurs when competitors “knowingly combin[e] their sensitive, nonpublic pricing and supply information in an algorithm that they rely upon in making pricing decisions, with the knowledge and expectation that other competitors will do the same.”⁵

The DOJ’s statement of interest in Duffy v. Yardi held the same message.⁶ In Duffy, the plaintiffs alleged competing landlords agreed to use Yardi’s pricing algorithms to artificially increase prices for multifamily rental properties.⁷ The DOJ stated that whether there is full adherence to the price fixing scheme does not affect the analysis; what matters is the existence of an agreement to fix the price, as that agreement distorts the competitive process whether binding or not.⁸ In the same month, the DOJ filed yet another statement in Cornish-Adebiyi v. Caesars Entertainment, a case alleging that casino-hotels used an algorithm to collude on room rates.⁹ The DOJ reiterated its position that prices need not be binding, and argued that illegal coordination (“concerted action”) can include jointly delegating certain pricing decisions to a common entity, i.e., it need not include direct communications between competitors.¹⁰

Yet, these arguments have met little success thus far in civil litigation. In RealPage, the court noted that the multifamily plaintiffs had not pled a “straightforward conspiracy justifying application of the per se standard” because “they also allege that as much as 10-20% of the time, RealPage’s clients deviate or override those pricing recommendations.”¹¹ Thus, they had not shown “an absolute delegation of their price-setting to RealPage” and the court declined to apply the per se standard to the conduct.¹² The court noted the student plaintiffs’ complaint was similarly defective.¹³ The court’s reasoning in RealPage comports with that of the court in Gibson v. MGM Resorts International, an algorithmic hotel pricing litigation, in which the court granted the defendant’s motion to dismiss because it could not “plausibly infer from the allegations in the Complaint that Hotel Operators [were] required to accept the recommendations provided by a particular software pricing algorithm.”¹⁴

Key Takeaways

The DOJ’s complaint comes on the heels of enforcers’ increasing interest in information sharing among competitors.¹⁵ Any company developing or using pricing algorithms (or algorithms for other competitive decisions) should take note. The DOJ’s complaint against RealPage, its recent “statements of interests” in algorithm pricing cases, and other recent DOJ statements around AI and algorithms demonstrate the DOJ’s eagerness to find and bring new cases.

In light of increasing scrutiny of pricing algorithms and information sharing, companies should continue to:

• make all pricing and competitive decisions independently, not in coordination with others and not “knowing,” nor depending on, whether other companies are using the same algorithm;
• avoid providing or receiving competitively sensitive information directly or indirectly (e.g., via a third-party service or software) unless it is fully vetted and approved by legal counsel; and
• train employees to recognize potential antitrust risks and establish protocols for raising issues with legal counsel, particularly around what does and does not constitute “concerted action” according to the DOJ (as it might not be so obvious).

The DOJ has projected that algorithmic pricing is the “new frontier” of illegal coordination. True or not, as algorithms increase in popularity, the DOJ has signaled it intends to step up its scrutiny.

For more information about this matter or about algorithmic considerations in antitrust generally, please contact Maureen Ohlhausen, Taylor Owings, Jeff VanHooreweghe, or any attorney in the firm’s antitrust and competition practice.

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[1] See e.g., DOJ, “Assistant Attorney General Kanter Delivers Keynote at the University of Chicago Stigler Center (Apr. 21, 2022), available at https://www.justice.gov/opa/speech/assistant-attorney-general-jonathan-kanter-delivers-keynote-university-chicago-stigler.

[2] See United States’ Statement of Interest and accompanying Memorandum of Law, In re RealPage, Inc., Rental Software Antitrust Litig., No. 3:23-MD3071 (M.D. Tenn. Nov. 15, 2023), ECF No. 627, available at https://www.justice.gov/d9/2023-11/418053.pdf; United States’ Statement of Interest, Duffy v. Yardi Systems, Inc., No. 2:23-cv-01391 (W.D. Wa. March 1, 2024), ECF No. 149, available at https://www.justice.gov/d9/2024-03/420301.pdf; United States’ Statement of Interest, Cornish-Adebiyi v. Caesars Entertainment, Inc., No. 1:23-cv-02536 (D.NJ March 28, 2024), ECF No. 96, available at https://www.justice.gov/d9/2024-04/420931.pdf.

[3] See PYMNTS, “Property Management Software Company RealPage Vows to Fight DOJ Lawsuit,” (Aug. 23, 2024), available at https://www.pymnts.com/legal/2024/property-management-software-company-realpage-vows-to-fight-doj-lawsuit/.

[4] United States’ Statement of Interest at 1-2, In re RealPage, Inc., Rental Software Antitrust Litig., No. 3:23-MD3071 (M.D. Tenn. Nov. 15, 2023), ECF No. 627, available at https://www.justice.gov/d9/2023-11/418053.pdf. The court denied the motion to dismiss but did not mention the DOJ’s statement of interest in its order. The defendants in that action, including RealPage and dozens of landlords/owners, have denied the claims, and discovery is ongoing. Wilson Sonsini represents one of the landlord/owner defendants in the action.

[5] Id. at 2.

[6] United States’ Statement of Interest at 2, Duffy v. Yardi Systems, Inc., No. 2:23-cv-01391 (W.D. Wa. March 1, 2024), ECF No. 149, available at https://www.justice.gov/d9/2024-03/420301.pdf.

[7] Id. at 1-2.

[8] Id. at 3-4.

[9] United States’ Statement of Interest at 2, Cornish-Adebiyi v. Caesars Entertainment, Inc., No. 1:23-cv-02536 (D.NJ March 28, 2024), ECF No. 96, available at https://www.justice.gov/d9/2024-04/420931.pdf.

[10] Id. at 4-5.

[11] Memorandum Opinion at 45-46, In re: RealPage, Inc. Rental Software Antitrust Litigation (No. II), 3:23-md-03071 (M.D. Tenn. Nov. 15, 2023), ECF No. 690.

[12] Id. (cleaned up).

[13] Id. at 58.

[14] Gibson v. MGM Resorts International, No. 2:23-CV-00140-MMDDJA, 2023 WL 7025996 at *3 (D. Nev. Oct. 24, 2023).

[15] DOJ Withdraws Support for Healthcare Policy Statements and Increases Information Exchange Scrutiny, available at https://www.wsgr.com/en/insights/doj-withdraws-support-for-healthcare-policy-statements-and-increases-information-exchange-scrutiny.html.