The U.S. Department of Justice has stepped in to support a group of Las Vegas hotel customers who allege that prominent hotel operators, including Caesars Entertainment Inc., manipulated room prices through the use of pricing algorithms.
The DOJ’s amicus brief, filed in the U.S. Court of Appeals for the Ninth Circuit, argues that pricing algorithms “can process more information more rapidly than humans aided by prior communications technologies,” allowing algorithms to potentially amplify and expedite collusion among competitors. This case, the first of its kind to reach a federal appeals court, could set a precedent affecting similar lawsuits across the U.S. (Gibson v. Cendyn Group LLC, No. 24-3576, 9th Cir.).
The plaintiffs in the appeal argue that certain Las Vegas hotels colluded by using the same algorithms created by the Rainmaker Group, a subsidiary of Cendyn Group LLC, to inflate room rates artificially. However, their initial lawsuit was dismissed by the U.S. District Court for the District of Nevada in May. The court determined that the plaintiffs had not provided sufficient evidence to demonstrate a tacit agreement between the hotel operators to use the Rainmaker algorithm for anti-competitive purposes. The District Court noted that the hotels joined the pricing service at various times and were not obligated to follow the software’s pricing suggestions.
The DOJ contests the District Court’s interpretation, arguing that even if hotels retained the option to deviate from algorithm-generated prices, this freedom does not absolve them of potential collusion. “To the extent the district court’s decision turned on a distinction between starting-point prices and final prices, it was wrong,” the DOJ stated. The department emphasized that agreements on starting prices, even with the freedom to adjust, can violate antitrust laws, particularly under the Sherman Act.
Additionally, the DOJ’s brief points to various forms of concerted action, which could encompass coordination between competitors or arrangements between the algorithm provider, Cendyn, and its hotel clients. For example, the DOJ suggested that if Cendyn pitched its product by indicating that it was used by competing hotels to manage room rates, this could serve as an implicit invitation to avoid price competition.
DOJ has filed multiple statements of interest in cases addressing the proper legal framework for algorithmic price-fixing claims, including in:
- In re RealPage, Inc., Rental Software Antitrust Litig. (No. II), 709 F. Supp. 3d 478 (M.D. Tenn. 2023) (No. 3:23-md-3071)
- Duffy v. Yardi Sys., Inc., No. 2:23-cv-1391 (W.D. Wash. Mar. 1, 2024)
- Cornish-Adebiyi v. Caesar’s Ent., Inc., No. 1:23-cv-2536 (D.N.J. Mar. 28, 2024)