After more than a year of scrutiny and commenting on lawsuits brought by others, the Department of Justice (“DOJ”) finally entered the algorithmic price-fixing fray in its own right. On August 23, 2024, DOJ, along with eight states,[1] filed a civil lawsuit in a North Carolina federal court claiming that RealPage, Inc. uses its revenue management software to coordinate multifamily rental prices. DOJ alleges that RealPage’s pricing algorithms enable landlords to share proprietary information for the purpose of coordinating and artificially raising rental rates. The Complaint also accuses RealPage of monopolizing the commercial revenue management software market.

DOJ’s Complaint, which comes after Congressional demands to investigate RealPage, widespread reports of an ongoing criminal investigation, and statements of interest filed by DOJ in related civil litigation,[2] was accompanied by press releases from President Biden’s National Economic Advisor and Attorney General Merrick Garland, among others, highlighting concerns about RealPage’s pricing algorithm.[3] According to Deputy Attorney General Lisa Monaco, “RealPage has found a modern way to violate a century-old law through systematic coordination of rental housing prices . . . [t]raining a machine to break the law is still breaking the law.”[4]

The significant amount of attention that algorithmic pricing has received from the highest levels of the government underscores that DOJ’s scrutiny of information exchanges and pricing algorithms, especially when it comes to pocketbook issues like rent, is here to stay.

DOJ’s Claims in a Nutshell: Realpage as Alleged Facilitator, Coordinator, and Monopolist?

The Complaint targets the algorithmic technology behind RealPage’s revenue management products and their use by various competing landlords around the country. Notably, the complaint also highlights how RealPage uses both technical (auto-accept functions) and human means (pricing advisors) to ensure that the pricing recommendations from its algorithms are followed. The DOJ claims that this conduct violates antitrust laws in several ways:

• Information Sharing: RealPage allegedly collects and shares pricing and vacancy information, which it then feeds into the algorithm that generates pricing recommendations for or otherwise makes the information available to competing landlords.
• Rent Coordination: DOJ also claims that RealPage’s products allegedly “align” landlords’ pricing decisions through pricing recommendations. Specifically, DOJ claims that RealPage’s pricing recommendations are overwhelmingly accepted by landlords and that RealPage uses a variety of tools to make it harder to depart from its recommendations. The Complaint also points to alleged landlord-to-landlord communications, including RealPage-sponsored monthly user group meetings, that allow for further rent coordination.
• Monopolization: RealPage allegedly commands 80% of the market for commercial revenue management software for conventional multifamily housing rentals in the United States and uses this alleged power to obstruct rival software providers. However, the Complaint does not include much detail about what specific conduct RealPage has taken to exclude others and allegedly diminish competition.

DOJ claims that this conduct amounts to several different antitrust violations: information sharing among competing landlords (horizontal), agreements between landlords and RealPage (vertical) to align rental prices, and monopolization of the market for commercial revenue management software for conventional multifamily housing rentals.

At bottom, DOJ alleges, but RealPage publicly denies, that RealPage’s agreements with landlords and its use of competitively sensitive data has contributed to a significant rise in rental prices since 2016. Based on the nature of DOJ’s claims, the court will have to consider the extent of any procompetitive benefits from RealPage’s products and whether these benefits outweigh any competitive harm DOJ is able to prove as the case progresses.

Key Takeaways

The RealPage Complaint may be the first DOJ enforcement action specifically focused on an algorithm, but it will likely not be the last. DOJ has become increasingly skeptical of information exchanges, as reflected in its February 2023 withdrawal of policy statements providing safe harbors for such exchanges and subsequent lawsuit against Agri Stats alleging the exchange of non-public information in the agriculture industry. Algorithmic pricing is the next frontier in that effort.

This scrutiny is likely to continue regardless of the outcome of the 2024 Presidential election, as politicians on both sides of the aisle challenge conduct that allegedly harms consumers on pocketbook issues, especially when it involves algorithms and other forms of artificial intelligence.

Against this backdrop, companies should take steps to mitigate risk, including:

• Know how algorithms are being used in your business and for what purpose: Algorithms can greatly improve pricing and inventory decisions, but they should be used as a tool to inform independent decision-making, not outsource it.
• Understand the data sources included in an algorithm: Algorithms that pool current or future non-public information from competitors pose particular risk of scrutiny, even if the data are aggregated.
• Ensure employees know the risks and avoid any appearance of coordination: Every part of a business that relies on or interacts with algorithms related to pricing should receive appropriate antitrust training.

[1] North Carolina, California, Colorado Connecticut, Minnesota, Oregon, Tennessee, and Washington.

[2] Statement of Interest of the United States, In Re: RealPage, Rental Software Antitrust Litigation (No. II), Case No. 3:23-MD-3071 (M.D. Tenn. Nov. 15, 2023); Statement of Interest of the United States, McKenna Duffy v. Yardi Systems, Inc. et al., Case No. 2:23-cv-01391-RSL (W.D. Wash Mar. 1, 2024); Statement of Interest of the United States and the Federal Trade Commission, Karen Cornish-Adebiyi et al. v. Caesars Entertainment Inc. et. al., Case No. 1:23-cv-02536 (D.N.J. Mar. 28, 2024).

[3] DOJ Press Release, Justice Department Sues RealPage for Algorithmic Pricing Scheme that Harms Millions of American Renters, (Aug. 23, 2024); Following Suit against RealPage, White House Advisor Says Corporate Lawbreaking Shouldn’t Spur Higher Rents, Statement from National Economic Advisor Lael Brainard, MLex (Aug. 23, 2024).

[4] Id.

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