DOJ Pushes AI Price-Fixing Argument in Vegas Hotel Case Appeal

The Justice Department is promoting a legal theory that mere use of price-setting algorithms among competitors should be considered unlawful, even if places like Las Vegas hotels don’t actually use them to set final prices.

Late last week, the DOJ filed an amicus brief backing consumer plaintiffs at the US Court of Appeals for the Ninth Circuit. They are appealing a federal district judge’s dismissal of claims that Caesars Entertainment Inc. and other Vegas hotel companies used algorithms to fix room prices.

The Ninth Circuit will be the first appellate court to consider how antitrust law applies to algorithmic price-fixing arrangements and put the DOJ’s theory to the test. The appellate court will consider whether the use of a software provider’s pricing recommendations can still be unlawful if the allegedly colluding companies used the software at different times and didn’t adhere to the machine-suggested prices.

“It’s a way for DOJ to put a stake down,” said Kathleen Bradish, vice president and director of legal advocacy for the American Antitrust Institute, which also filed a brief supporting plaintiffs in the Las Vegas case. “Judges know there is something new going on in terms of what this kind of software does and what information-sharing looks like in this era, but they also have to understand how that relates to the existing precedent.”

The DOJ has made similar arguments in a nearly identical case against Atlantic City hotel-casinos that was tossed by a federal judge last month and appealed to the Third Circuit. The DOJ also filed a brief in a case against property management software company Yardi Systems Inc., which is accused of colluding with multifamily property owners to inflate rental rates.

The DOJ wants to guide courts to look at these algorithms differently than they would other software, said Mary Kaiser, a Washington partner in Goodwin Procter LLP’s antitrust and competition practice.

“They are saying these tools are so powerful, that we need to be thinking about them in a different way,” Kaiser said. “They are trying to position this as a technical shift that is allowing competitors to communicate and exchange information in ways they couldn’t before.”

Starting Points

The DOJ’s position is more expansive than what the district judges held in the Vegas and Atlantic City hotel-casino cases. Both held that plaintiffs failed to allege collusion because the hotels used Cendyn’s software at various times and didn’t have to follow the software’s pricing recommendation.

But the agency argues that if the algorithm’s pricing recommendations were mere starting points, there could still be an illegal agreement even if the eventual prices varied.

If competitors are “agreeing where to start, and the computer software spits out the optimal price for you to consider, and you as a competitor decide to use a different price than that, is that still sufficient to be a horizontal price-fixing agreement?” said Dylan Carson, partner with Manatt, Phelps & Phillips LLP in Washington and a former trial attorney at the DOJ’s antitrust division. “That’s a key question in the appeal.”

Actually using the prices “is not necessary for illegality, as an agreement among competitors to use certain pricing algorithms to generate default or starting-point prices is per se illegal even if there is no further agreement on final prices,” DOJ said in its amicus brief.

The DOJ also posits that algorithm providers’ marketing materials are an invitation to collude, “by indicating to users that the same pitch was made to their competitors and that using the algorithm could help them avoid competition.”

“The marketing is ‘use this because your competitors will too and you’ll all be charging the same profit-maximizing prices, so don’t worry, you won’t be undercut, you won’t be hamstrung by using our software to set your pricing,’” Carson said.

The Las Vegas 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 Grp., 9th Cir., No. 24-3576.