Yardi Ruling Boosts DOJ’s Legal Theory in AI Price-Fixing Cases

A federal judge’s ruling that collusion by algorithm can be considered classic price-fixing bolsters the “per se” theory, embraced by the Justice Department, that the use of AI to collude is inherently unlawful.

Judge Robert S. Lasnik of the US District Court for the Western District of Washington last week allowed a case by private plaintiffs to proceed alleging that software firm Yardi Systems Inc. conspired with property managers to inflate rent prices. In the order, Lasnik said the plaintiffs plausibly alleged a per se violation of antitrust law that presumes anticompetitive effects.

The ruling is a shift from judges’ decisions in two similar cases involving hotel-casinos, where judges tossed allegations of algorithmic collusion. It also contrasts with a Tennessee federal judge, who held late last year that a price-fixing conspiracy alleged against property management software firm RealPage Inc. must surpass a higher standard of review.

“What the court is doing in Yardi is holding the line and refusing to read a heightened pleading standard into the law around price-fixing,” Lee Hepner, senior legal counsel at American Economic Liberties Project, said. “And that is important for plaintiffs seeking to bring these cases. This is really about getting your foot in the door.”

Lasnik’s ruling highlights arguments made by the DOJ that it is per se illegal for competing landlords to jointly delegate key aspects of their pricing to an algorithm, even if the landlords retain some authority to deviate from its recommendations.

The allegations center on whether a group of property management companies collectively used Yardi’s “RENTmaximizer” algorithmic tool that calculates a price recommendation to inflate rents.

The Dec. 4 ruling “bolsters plaintiffs’ theories that even if ultimately the landlords retain some authority to disregard the recommendations, the court still says that is sufficient to state a claim and get beyond the pleading stage,” said Dylan Carson, a partner with Manatt, Phelps & Phillips LLP in Washington and a former trial attorney at the DOJ’s antitrust division.

Legal Tactics

The ruling is the latest turn in a group of cases targeting the use of price-setting software in industries, including hotel and home rental markets.

Exactly how it influences litigants’ tactics depends on a variety of factors, including how the Ninth Circuit rules in a case alleging hotel-casinos on the Las Vegas strip used Cendyn’s pricing software to inflate hotel prices, Carson said. Those plaintiffs appealed after a judge dismissed the case in May.

Litigants will have to consider whether other judges will buy into the per se theory.

The DOJ and Federal Trade Commission have pushed courts to adopt many plaintiffs’ position that a group of competitors’ use of the same price algorithm can amount to a per se unlawful price-fixing agreement.

But until the Dec. 4 Yardi decision, the per se theory had yet to be adopted in an algorithmic collusion case, said Joshua Goodman, an antitrust partner with Morgan, Lewis & Bockius LLP.

“There are several arguments for applying rule of reason to these types of cases,” Goodman said, referring to what the Tennessee federal court used. “I would expect defendants to keep making those arguments.”

Another factor to consider is some judges will be more “comfortable, more savvy” when evaluating cases involving newer technology, said Christine Bartholomew, a professor at University at Buffalo School of Law.

That tension among trial courts also shows how “nuanced the issues are,” Joseph Ostoyich, the head of Clifford Chance’s US antitrust litigation practice, said. “It’s going to take a while before it all gets sorted out.”

DOJ v. RealPage

Alongside the private actions, the DOJ in August sued RealPage, alleging it facilitated an information-sharing scheme that distorted competition and raised rent prices.

Courts use the rule of reason framework to analyze whether information-sharing schemes cause anticompetitive harms.

RealPage’s Dec. 3 dismissal motion argued that the DOJ’s lawsuit marked a pivot from its earlier “per se” positions.

“We believe the DOJ has backtracked significantly on the theory it embraced and supported” that using RealPage was per se illegal under antitrust laws, Stephen Weissman, a Gibson Dunn & Crutcher LLP partner and counsel to RealPage, said in a Dec. 4 call with reporters. The case is a “watered-down version of what one would consider to be an antitrust violation,” he added.

Weissman didn’t respond to a request for updated comment after the Yardi ruling. The FTC declined to comment on the Yardi ruling. The DOJ declined to comment.

Questions of Factual Proof

Lasnik’s opinion recognized that there is plenty of fact-finding left in the case.

Defendants “may ultimately be able to show that Yardi’s services were advertised differently than as alleged, that they provided no commercially sensitive, non-public information, or that they ignored Yardi’s pricing recommendations to such an extent as to make the allegations of concerted action unlikely,” he said in his ruling.

“It’s all just allegations,” Carson said. “If it turns out that they didn’t adopt the algorithm pricing recommendations as often as the plaintiffs’ allege, that may undercut the argument or the theory that they were colluding. That would beg the question of why are you paying for the service?”

Even so, the Yardi case will be seen as a win for plaintiffs pushing this type of price-fixing case.

“One district court’s opinion on the pleadings doesn’t change the law broadly,” Ostoyich said. “But it will certainly be cited in other algorithmic pricing cases.”

Plaintiffs’ counsel is Hagens Berman Sobol Shapiro LLP.

The case is Duffy v. Yardi Sys. Inc., W.D. Wash., No. 2:23-cv-01391, 12/4/24.