Pricing algorithms, which use data and artificial intelligence to help businesses make pricing decisions, have sparked public curiosity and are becoming increasingly popular business tools.  But businesses considering implementing pricing algorithm software must consider the potential antitrust risk the software poses.  RealPage, Inc. (“RealPage”)—which offers a pricing algorithm intended for use by landlords—and landlords who use that algorithm are now being targeted by both private plaintiffs and government regulators for purported antitrust violations.  The RealPage litigation, discussed below, serves as a case study of the risks involved for businesses considering the use of this software to make competitive decisions.

By way of background, RealPage’s rent-setting and revenue-management products facilitate the aggregation and exchange of nonpublic information, such as rent pricing decisions. RealPage’s clients include some of the country’s largest real estate management firms, who have substantial holdings within their respective housing submarkets.^[1]  For example, a report by ProPublica found that 70% of apartments in one neighborhood in Seattle were managed by just ten landlords—all of whom were using RealPage’s algorithmic pricing software.^[2]

RealPage’s alleged antitrust violations have led to multi-district antitrust class action litigation against it and dozens of its clients. Putative classes of tenants accuse RealPage and the other defendants of conspiring in violation of federal and state antitrust laws.^[3]The plaintiff-tenants allege that the market participants who used RealPage’s products had entered into a collusive agreement to inflate and maintain rents above competitive levels without regard to market forces.^[4]

On November 15, 2023, the Antitrust Division of the U.S. Department of Justice (“DOJ”) filed a Statement of Interest in the litigation firmly in support of the plaintiffs.^[5]  The DOJ argued that “software algorithms can be employed to fix prices—and this modern machinery may be easier and more effective than past methods of price fixing.”^[6]  The DOJ even argued that the allegations amount to a per se violation of the antitrust laws, meaning essentially that no defenses of the conduct are permitted: “although not every use of an algorithm to set price qualifies as a per se violation . . . it is per se unlawful when, as alleged here, competitors knowingly combine 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.”^[7] In addition, state attorneys general are also taking action.  On November 1, 2023, the attorney general of Washington, D.C. joined the extensive list of lawsuits by filing its own complaint against RealPage and fourteen of D.C.’s biggest landlords for colluding to raise rents.^[8]

This is not the first time that the use of algorithmic pricing software in consumer-facing industries has generated class action lawsuits, or that regulators have expressed concerns about the anticompetitive effects of such software.  For example, the DOJ successfully charged two executives and an e-commerce retailer for conspiracy in restraint of trade, where they utilized pricing algorithms to fix the price of posters sold on the Amazon Marketplace.^[9] Similarly, the DOJ previously accused Alaska Airlines and competitor airlines of using common software to share confidential competitive information about planned routes and to coordinate ticket prices.^[10]

While the means of alleged coordination in the RealPage case may be fairly new, the underlying antitrust issues are not new at all.  Section 1 of the Sherman Act prohibits “conspiracies” or “agreements” in restraint of trade. Price-fixing between horizontal competitors is perhaps the quintessential restraint of trade in violation of Section 1 and information exchange cases also go back over a century. Conversely, unilateral conduct is beyond the reach of Section 1.  The RealPage case is still in the pleading stage and the defendants all deny that they “agreed” with each other on pricing.  The case will likely turn on whether the software is determined to be merely a tool to inform independent decisions or a mechanism for coordinated decision making. 

The issues raised in the RealPage case are not limited to the real estate industry.  Any company considering using interactive software to assist in business decisions should scrutinize the software for antitrust risk.  There are two features, in particular, that raise red flags.  First, businesses should thoroughly evaluate any software that asks customers to share nonpublic competitive information, such as pricing or output, with the promise that the software will provide market intelligence.  As the RealPage litigation demonstrates, by subscribing into a commonly used software program, a market participant could indirectly share information with competitors, which regulators warn could create antitrust liability.  Second, businesses should be cautious of software that analyzes collective data and makes competitive decisions for its customers, as they could make their users susceptible to claims of collusion.

Given the expansion of software relying on data collection and artificial intelligence and the ever-evolving regulatory landscape, companies should look before they leap when considering new software touting its ability to use AI or algorithms for pricing.