January 15, 2025

The Latest on RealPage Collusion-by-Algorithm Litigation

Amended Complaints from DOJ, DC AG Reveal Enforcers' Views of Limits on Permissible Use of Pricing Software
Holland & Knight Antitrust Blog
David C. Kully | Kenneth Racowski
Antitrust Blog

The new year brought significant new changes to the still-developing collusion-by-algorithm litigation landscape. On Jan. 7, 2025, the Antitrust Division of the U.S. Department of Justice (DOJ) amended its complaint against RealPage Inc. (filed originally on Aug. 23, 2024) to add several multifamily apartment owners and managers (which the DOJ refers to in its amended complaint as "landlords") as defendants. The following day, Jan. 8, 2025, the Office of the Attorney General of the District of Columbia (DC AG) also amended its complaint against RealPage and landlords operating in the District of Columbia.

RealPage offers a revenue management solution that assists landlords in managing their inventory and setting apartment rents. Since late 2022, RealPage and landlord users of its pricing software have been litigating private class action antitrust claims – and, with enforcement actions by the DOJ and DC AG, are now defending its software platform on three fronts.

Simultaneously with its amended complaint, the DOJ on Jan. 7 also filed a proposed consent decree settling its claims against one of the landlord defendants, Cortland Management LLC. The DOJ's proposed consent decree is quite revealing concerning the DOJ's views of the permissible use of pricing algorithms.

DOJ's Amendment Focuses on Old-Fashioned Information Sharing Between Landlords

The principal change between the DOJ's original complaint against just RealPage and its amended complaint against RealPage and six landlords is the addition of specific allegations that landlords exchanged competitively sensitive information with one another through methods unrelated to their common use of RealPage software. The DOJ's initial complaint included allegations of traditional information sharing, but without naming the specific entities involved. The amended complaint unmasks the identities of the landlords involved in the alleged exchanges and adds further allegations concerning meetings and other communications between landlords to ensure they stayed aligned on pricing and renewal strategies and on how they used RealPage products. These alleged interactions include, for instance:

  • directly communicating with competitors about rent, occupancy and other competitively sensitive topics
  • regularly conducting "call arounds"
  • participating in RealPage user groups
  • sharing with competitors whether landlords were employing RealPage's "auto-accept" settings to automatically adopt RealPage pricing recommendations

Beyond the new allegations of landlords exchanging sensitive information with one another, the complaint also includes additional details concerning how the DOJ believes the use of RealPage software results in inflated rents. For example, adding to allegations in the DOJ's original complaint about how RealPage deploys pricing advisors to impede efforts by landlord employees to reject pricing recommendations generated by RealPage's algorithm, the amended complaint alleges that RealPage requires landlords that want to use their own in-house pricing advisors to have those employees attend a multiday certification program on use of RealPage software.

The amended complaint, however, does not alter significant aspects of the DOJ's original complaint that will likely complicate the DOJ's ultimate ability to prove its case, most significantly its admission that landlords reject RealPage's pricing recommendations more often than they accept them. Courts in private cases evaluating collusion-by-algorithm claims have found the existence of significant pricing discretion on the part of users of the pricing software to undercut price-fixing allegations. The DOJ, however, has asserted in statements of interest and amicus filings that ultimate pricing discretion is immaterial when users of common pricing software have effectively agreed on the starting price, even if not on final prices. This issue is presently before the U.S. Court of Appeals for the Ninth Circuit on appeal of the dismissal of collusion-by-algorithm claims against Las Vegas hotel owners and the provider of their pricing software.

DC AG's Amendment Focuses on the Anticompetitive Potential of LRO, a RealPage Product the DOJ Describes as a "Less Restrictive Alternative"

The principal thrust of the DC AG's amendment is to lay out its views of how a RealPage software product called Lease Rent Options, or LRO, can reduce competition among landlord users, just like RealPage's other products. As to LRO, the DC AG's views depart significantly from those of the DOJ.

The DC AG and DOJ differ even on simple, verifiable facts about LRO. In its amended complaint, the DOJ alleges that "RealPage has stopped offering LRO to new clients and made plans to discontinue LRO for legacy clients by the end of 2024." The DC AG, in contrast, alleged specifically that RealPage has "no plans to sunset" LRO. The two amended complaints also differ materially on their views of the anticompetitive potential of LRO. Though the DOJ points to LRO as a "less restrictive alternative" to other RealPage products in that it "does not require the same type and quantity of nonpublic, transactional data pulled from competitors' property management software," the DC AG's amendment adds an extended discussion of how "LRO is programmed to be anticompetitive." The DOJ and DC AG agree that LRO generates pricing recommendations primarily from information about competitor prices users manually input into the system, but the DC AG focuses on how the manually submitted competitor rents serve as the floor for any future rent recommendations generated by LRO. And the DC AG also specifically alleges that LRO users in particular exchange nonpublic information about the rents they charge in regular email communications.

The Cortland Management Consent Decree Reveals DOJ's View That Pricing Algorithms Cannot Use Nonpublic, Competitively Sensitive Information in Any Way

On the same day that the DOJ filed its amended complaint, it also filed a proposed consent decree that would settle claims against Cortland Management LLC, one of the new landlord defendants that the DOJ named for the first time in its amended complaint. The DOJ alleges that Cortland uses RealPage both in connection with its own multifamily apartment buildings and to set apartment prices at buildings it manages for other owners. The DOJ will shortly file a Competitive Impact Statement in which it describes the relief to which Cortland committed in the consent decree and how that relief addresses the harm to competition the DOJ alleges in its amended complaint. But the DOJ's views regarding what might remedy competitive harm from the use of pricing algorithms are already revealed clearly in the consent decree.

The proposed settlement with Cortland forbids Cortland from using any revenue management product that relies on nonpublic information concerning a competitor's occupancy and rents to recommend rents for buildings owned or managed by Cortland. This applies both to a new revenue management product Cortland developed for its own use and any third-party revenue management product that Cortland might adopt in the future. Cortland must notify the DOJ before adopting a third-party revenue management product in the next four years and certify to the DOJ that, in addition to not basing pricing recommendations on information obtained from competitor properties, the product also would place no limits on price reductions or establish rental price floors – allegedly features of RealPage's pricing products that the DOJ challenges in its amended complaint. If Cortland were to elect to use a third-party pricing product, the consent decree would allow the DOJ to request court appointment of a compliance monitor to ensure that the new pricing product operated consistently with these restrictions.

The proposed consent decree would also prohibit Cortland from training its new pricing algorithm using any nonpublic information – or even from using pooled data for all properties owned or managed by Cortland to train its pricing algorithm, presumably because Cortland in some instances manages properties that compete for renters.

Cortland would also be prohibited under the proposed consent degree from agreeing with any other landlords to adopt a pricing algorithm or from disclosing to or soliciting from competitors any nonpublic rent or occupancy data.

Cortland also committed under the proposed consent decree to adopt, and submit to the DOJ for approval, an antitrust compliance policy and cooperate with the DOJ's continued pursuit of its case against RealPage and the other landlord defendants.

Under the Tunney Act, which governs DOJ antitrust settlements, the DOJ will invite public comment on the proposed consent decree, then submit the settlement to the court for a finding that it is in the public interest.

Overall, the settlement reveals the DOJ's views that it is likely anticompetitive for pricing software to either use nonpublic, competitively sensitive information in any way in connection with the generation of pricing recommendations or in the training of pricing algorithms. Significantly, the DOJ places no restrictions on Cortland's use in pricing software of information it collects from public sources.

Summary and Conclusion

Although collusion-by-algorithm litigation is still in relatively early days, the latest enforcement activities by the DOJ and DC AG reveal their expansive views as to how pricing algorithms might harm competition and violate the antitrust laws – as well as their commitment (subject to potential political shifts) to pursuing their parallel cases against RealPage and landlords.

Holland & Knight's Antitrust Team will continue to monitor this still-developing legal landscape and provide updates on significant events going forward.

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