Civil litigation continues against RealPage and other algorithmic pricing services.
RealPage Inc., a leading provider of AI-enabled software platforms to the real estate industry, is breathing easier today now that the Department of Justice Antitrust Division has dropped it from its criminal antitrust investigation. Although not named as a target of the probe of pricing practices in the rental housing industry, this is significant for RealPage which steadfastly maintains it is not violating antitrust laws.
Considerable civil litigation brought by the DOJ, several state attorneys general, and numerous private plaintiffs in multiple jurisdictions continue to stalk RealPage, however. The suits generally claim the company facilitates the improper sharing among competitors of nonpublic, competitively sensitive information about rates and terms to set prices in violation of the Sherman Act and other state and federal laws.
U.S. v. RealPage
The DOJ and state AGs maintain in their complaint, pending in federal court in North Carolina, that RealPage deprives millions of renters the benefits of competition in apartment leasing terms. Not only has the company participated in an unlawful scheme to decrease competition among landlords in apartment pricing, the suit says the company seeks to monopolize the market for commercial revenue management software. RealPage has used its alleged scheme and its substantial data trove to command 80% of the market, according to the suit.
Attorneys general from North Carolina, California, Colorado, Connecticut, Minnesota, Oregon, Tennessee, and Washington joined DOJ in bringing the case, asserting violations of Sections 1 and 2 of the Sherman Act (U.S. v. RealPage, Inc., 1:24-cv-00710, M.D. N.C.).
Promising to defend itself against such claims, the company maintains its revenue management software is designed to be legally compliant and that it enhances competition in the rental housing ecosystem. It says the software is highly configurable, allowing customers to accept or reject pricing recommendations at their discretion—a practice the company says is regularly exercised by its users.
RealPage MDL
Numerous private actions have been filed throughout the country against RealPage and other providers of algorithmic pricing platforms. Cases against RealPage have been consolidated into multidistrict litigation (MDL) in U.S. District Court for the Middle District of Tennessee (In re RealPage, Inc., Rental Software Antitrust Litigation, No. 3:23-md-03071, MDL No. 3071, M.D. Tenn., Nashville Div.).
In December 2023, plaintiffs in the MDL survived a motion to dismiss. The “most persuasive evidence of horizontal agreement,” the court wrote, “is the simple undisputed fact” that via the [RealPage program] clients provided RealPage their “proprietary commercial data, knowing that RealPage would require the same from its horizontal competitors and use all of that data to recommend rental prices to its competitors.”
However, the court found that the allegations did not justify the application of the per se standard for antitrust violations. The court explained that the per se standard is reserved for conduct that is “so obviously anticompetitive that it has no plausibly procompetitive features,” such as straightforward horizontal price-fixing agreements. The allegations should be analyzed under the rule-of-reason standard instead, the court held.
Duffy v. Yardi
This month, plaintiffs in federal court in Seattle also defeated a motion to dismiss. This time it was in a proposed class action brought against another real estate software vendor, Yardi Systems, Inc., and a group of property management companies (Duffy v. Yardi Systems, Inc., No. 2:23-cv-01391, W.D. Wash.). Defendants argued, first, that the plaintiffs failed to plausibly allege an agreement to restrain trade and, second, that “antitrust claims premised on the use of a revenue management product” are non-traditional and therefore “do not fall within the limited category of claims meriting per se treatment.”
[The defendants cited In re RealPage, Inc., Rental Software Antitrust Litig. (No. II), No. 3:23-MD-03071, 2023 WL 9004806 (M.D. Tenn. Dec. 28, 2023) — discussed above — and Gibson v. MGM Resorts Int’l, No. 2:23-cv-00140-MMD-DJA , 2023 WL 7025996 (D. Nev. Oct. 24, 2023) — discussed below.]
The court called the defendants’ restraint of trade argument a “non-starter,” writing that the plaintiffs had raised a “plausible inference of an unlawful agreement to restrain trade,” so the court must presume an agreement existed. “For over a century, courts have found that horizontal agreements among competitors with regards to pricing structures have predictable and pernicious anticompetitive effects and are therefore a classic example of a per se antitrust violation … That plaintiffs may ultimately have difficulty proving the existence of a horizontal price-fixing conspiracy is not the relevant inquiry regarding reasonableness or an appropriate consideration on a motion to dismiss,” the court determined.
The defendants argued that the new and novel use of algorithms to set or suggest prices has not been fully studied by economists to determine if they are per se anticompetitive. The court was not swayed. “When a conspiracy consists of a horizontal price-fixing agreement, no further testing or study is needed.” Per se analysis is warranted, the court held, because “a collective’s power to fix price structures is unreasonable and prohibited by the Sherman Act regardless whether the prices agreed upon are reasonable or unreasonable.”
In denying a separate motion filed by one of the management firm defendants, HNN Associates LLC, the court wrote, “The who, what, with whom, where, and when of the scheme are adequately alleged.”
Gibson v. Cendyn Appeal
The DOJ has intervened and submitted arguments in several cases brought by private litigants against RealPage and other algorithmic pricing companies.
One of those is on appeal to the Ninth Circuit from federal court in Las Vegas (Gibson v. Cendyn Group LLC, No. 24-3576, 9th Cir.). In this case, hotel customers argue that certain Las Vegas hotels colluded by using the same algorithms provided by the Rainmaker Group, a subsidiary of Cendyn Group LLC, to inflate room rates artificially.
Their suit was dismissed by the District Court which determined that the plaintiffs had not provided sufficient evidence to demonstrate a tacit agreement between the hotel operators to use the Rainmaker algorithm for anticompetitive 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. Further, the court noted that vertical agreements, like those alleged between Cendyn and the hotel defendants, are analyzed under the rule of reason rather than being considered per se illegal.
Given Gibson v. Cendyn is the first algorithmic pricing case to reach a federal court of appeals, it is one to watch. Cendyn’s appellee brief is due Dec. 18.