RealPage Antitrust Case Poses AI Price-Setting Collusion Test

A proposed class action alleging a cartel among apartment landlords highlights the question of whether collective use of an artificial intelligence tool can amount to illegal collusion.

Renter plaintiffs claim dozens of landlords gave price-setting authority to RealPage Inc., a Texas-based revenue-management software company. The tool analyzes landlord-supplied data on pricing and leasing for apartments and then comes up with a price to charge for renting units in a specific area.

The case will show how decades-old antitrust laws might govern price-fixing suits involving algorithmic databases that crunch massive amounts of competitive information far faster than a group of humans ever could.

Companies across industries are increasingly embracing artificial intelligence-powered information systems while regulators and lawmakers are grappling with the risks associated with the technology.

“Information-sharing has increased dramatically through digital platforms that will result potentially in more scrutiny of alleged collusive agreements,” said Diana Moss, vice president and director of competition policy for the Progressive Policy Institute, a Washington, DC-based organization advocating for pro-competition policies .

The case may also become a roadmap for plaintiffs who allege price-fixing in other industries that use similar databases, such as Agri Stats, a provider of meat industry data, or Datacomp, a data provider for the manufactured housing industry.

Should the case survive, it eventually could help show what it takes for plaintiffs to prove that the use of such databases is tantamount to price-fixing, said Jonathan Rubin, a partner at MoginRubin LLP.

“Have they alleged enough facts that if true would support an inference of conspiracy?” Rubin said. “Are the companies setting their prices in a way that is individually profit-maximizing or are they joint profit-maximizing so they are colluding? “

Plaintiffs claim RealPage’s tool essentially helps landlords raise rents in a way that avoids price competition. The parties are set to argue Monday in a Tennessee federal court whether the case should be dismissed.

Dueling Claims

RealPage didn’t respond to requests for comment. But it said in court filings that the plaintiffs didn’t plausibly allege the defendants entered into a horizontal agreement—one between competitors at the same level—as a violation of Section 1 of the Sherman Act that prohibits agreements that restrain trade.

The apartment company defendants say the complaint also fails because it didn’t show facts that they made a “conscious commitment” to fix prices as “opposed to simply agreeing (individually and vertically) with RealPage to use its products.”

There is a set of new and difficult issues involving the role that machine learning might play in coordinating prices among competitors, said William Kovacic, a former Federal Trade Commission chair and current George Washington University law professor.

“A question posed in this case is at what point is the kind of interaction among companies, even interaction that might be facilitated by these information systems, considered an agreement in violation of the antitrust law?” he said.

The bigger concern, in the future, is that “machines will ultimately learn to talk to each other without human intervention and will figure out how to set prices,” Kovacic said.

Renter plaintiffs alleged in a 2022 suit that the defendants each contractually agreed to share their own non-public pricing and leasing information with RealPage in exchange for daily pricing suggestions for each their apartment units. Defendants include Bell Partners, Equity Residential and Mid-America Apartment Communities Inc.

“They want 100% compliance with those price recommendations,” so that all industry players rely on the software instead of the old paradigm of using occupancy rates to set prices, said Patrick Coughlin, an attorney with Scott & Scott and co-lead counsel to the plaintiffs.

“What they say is, ‘If you conform to the recommendation, you are going to get a 3-7% hike in revenue’” above competitive levels, Coughlin said. “The pitch is, ‘You are going to know exactly what your competitors are doing down the street.”

Similar suits followed, including one filed by District of Columbia Attorney General Brian Schwalb alleging RealPage and 14 of the District’s largest landlords unlawfully inflated rents for tens of thousands of apartments across the nation’s capital.

‘Conscious Commitment’

A key question is whether the defendants were acting in concert toward a “conscious commitment” in a scheme that would achieve an unlawful objective, said Maurice Stucke, a law professor at the University of Tennessee College of Law and a former Department of Justice prosecutor.

Stucke said the DOJ’s statement of interest in the RealPage case increases the odds of the plaintiffs surviving a motion to dismiss, because it tells the court why the per se legal standard—in which conduct is deemed so anticompetitive that few questions into its market impact are necessary—should be applied.

The per se rule gives a leg up to plaintiffs as opposed to the “rule of reason” standard requiring them to prove anticompetitive effects in a defined market, Stucke said.

The DOJ statement also indicates that the landlords can be liable for price-fixing “even though they never directly communicated with one another,” Stucke said.

“The fact that [RealPage] recommends the price does not absolve the [other] defendants from liability,” Stucke said.

In the past, collusion could take the form of a handshake between rivals in a back room, Moss said.

It will be up to the plaintiffs to convince the courts that algorithmic databases are simply another way for businesses to collude, Moss said.

“We could learn a lot from the outcome of this case, and it could potentially affect Section 1 cases in the future,” Moss said. “It’s part of the development of case law.”

The plaintiffs’ co-counsel law firms are Scott+Scott, Hausfeld LLP and Robins Kaplan LLP. The defendants are represented by law firms including Baker & Hostetler LLP, Maynard Nexsen PC and Cozen O’Connor PC.

The case is RealPage Inc., Rental Software Antitrust Litigation, M.D. Tenn., No. 3:23-md-03071.