DOJ Backs Suit Accusing Vegas Hotels of Algorithmic Price-Fixing

The Justice Department filed an amicus brief supporting customers who accused Ceasars Entertainment Inc. and other Las Vegas hotel companies of using algorithms to fix prices.

“Pricing algorithms can process more information more rapidly than humans aided by prior communications technologies,” the DOJ said in a brief filed Thursday in the US Court of Appeals for the Ninth Circuit. “For this reason, such algorithms can increase the means and opportunities for collusion among competitors.”

The Vegas case is the first of its kind to reach a federal appeals court and is expected to impact similar suits going forward.

A group of consumer plaintiffs who stayed at various Vegas hotels filed an appeal to the Ninth Circuit after Judge Miranda Du of the US District Court for the District of Nevada dismissed the case in May, saying they failed to plausibly allege a tacit agreement between the hotels to inflate room prices using algorithms built by the Rainmaker Group, a Cendyn Group LLC subsidiary.

In her ruling, Du said she reached her decision because the hotel-casinos signed up for the pricing software services at different times and the hotels weren’t bound by the software’s recommendations. A nearly identical suit accusing Atlantic City hotel-casinos was dismissed late last month on similar grounds.

The DOJ rejected Du’s notion that the freedom to reject the software’s pricing recommendations meant no collusion took place.

“To the extent the district court’s decision turned on a distinction between starting-point prices and final prices, it was wrong,” the department said in its brief. “The per se rule also prohibits a horizontal agreement on default or starting-point prices, even if the competitors retain the freedom to depart from those prices.”

The DOJ also said that concerted action—conduct that joins together separate decision-makers—can indeed violate Section 1 of the Sherman Act, which prohibits agreement that restrain trade.

Various methods of concerted action apply to the joint use of pricing algorithms, the DOJ said in its brief. There could be evidence of an express agreement—either among competitors, or between an algorithm provider and a user—such as a deal between Cendyn and each hotel to use Cendyn’s products, the DOJ said.

“Alternatively, an algorithm provider’s ‘pitch’ could constitute an invitation for collective action among competitors—for example, by indicating to users that the same pitch was made to their competitors and that using the algorithm could help them avoid competition—and subsequent joint use of the algorithm could demonstrate acceptance of that invitation,” the DOJ said.

The plaintiffs are represented by firms including Hagens Berman Sobol Shapiro LLP. Firms including Skadden, Arps, Slate, Meagher & Flom LLP and Kirkland & Ellis LLP have represented the hotels. Latham & Watkins has represented Cendyn.

The case is Gibson v. Cendyn Group LLC, 9th Cir., No. 24-3576, amicus brief 10/24/24.