RealPage Antitrust Suit Shows Importance of Vetting AI Tools

The civil antitrust suit brought in August by the Department of Justice and eight state attorneys general against property management technology company RealPage Inc. and several landlords using the software is yet another example of federal antitrust regulators taking an aggressive enforcement approach on new artificial intelligence technologies.

The DOJ alleges that Texas-based RealPage’s revenue management software—dominant in the multifamily rental market—enabled landlords to fix rental prices across the country. RealPage combines competitively sensitive data from landlords to make pricing recommendations based on proprietary algorithms, and those recommendations enable collusion on pricing decisions, the DOJ claims.

In light of the DOJ’s aggressive approach, companies using pricing algorithms should review how those algorithms operate, document all procompetitive benefits, and assess whether they are in fact indemnified or insured against an investigation.

Gone are the safe harbor guidelines that helped competitors engage in good faith information-sharing and benchmarking efforts. Instead, the DOJ seems to contend that any algorithm using nonpublic information to make recommendations is inherently anticompetitive.

But in a surprising shift, the DOJ isn’t pursuing a per se theory in its case against RealPage, despite its arguments in previous private antitrust class actions that the use of pricing algorithms among competitors can be a per se violation of Section 1 of the Sherman Antitrust Act. Instead, the DOJ is proceeding under the rule of reason.

This shift is likely pragmatic. The DOJ’s recent efforts to push per se liability in another area, “no-poach” labor litigation, haven’t succeeded in court. Although courts allowed the DOJ to proceed in those cases under a per se theory, defendants also could present evidence of procompetitive benefits, prevailing at trial every time.

It appears the DOJ has learned from its prior mistakes and is taking a more fact-intensive approach under the rule of reason in the RealPage litigation.

Earlier this year, we discussed how to avoid antitrust problems when using AI solutions based on the government’s initial interest in RealPage. We stand by our recommendations, but more specific advice is warranted given the DOJ’s complaint.

Consider Other Users

The DOJ’s case hinges on whether using software that collects competitors’ sensitive nonpublic data to make pricing recommendations is an antitrust violation. Essentially, the DOJ argues that your use of a pricing software can be anticompetitive based on data that is shared and how others use the tool.

Providing competitively sensitive pricing information and taking the algorithm’s recommendation, even if you aren’t talking or coordinating with other users, could be enough to implicate you.

This underscores the importance of properly vetting an AI solution before adopting it. You need to understand not only what the tool does for your company but also how its recommendations will be used in the marketplace. If the licensing agreement requires you to share proprietary information to use a product, you should assume its algorithm is using sensitive information in a manner that may trigger regulatory scrutiny.

Avoid Red Flags

What if you plan to use a software product to undercut the competition? A company theoretically could use algorithmic decision-making software to price their products lower than the recommendation and undercut competitors. That would be a procompetitive use of the software.

But here, the DOJ alleges that RealPage’s software only increased rents. According to the complaint, more than 85% of final floor plan prices are within 5% of RealPage’s recommendations. A company boasting that 85% of users take their recommendations is a red flag for an antitrust conspiracy.

Another red flag is if the software makes it hard to ignore a recommendation. For example, per the complaint against RealPage, a landlord had to provide “specific business commentary” on why they chose to override the software’s pricing recommendation.

When using an AI solution, companies should document any use of the software to undercut the competition as well as other procompetitive benefits and how they are passed on to customers. Rental management software such as RealPage saves landlords time and money by analyzing market trends and providing research tools that would otherwise be too expensive to create. A key question will be whether landlords passed on cost saving to tenants through upgrades or amenities.

Protect Yourself

The enforcement action against RealPage signals that regulators will take on information sharing as an antitrust violation, which may cause fewer AI providers to extend indemnification to their clients. Companies should carefully review current software licensing agreements to understand their financial obligations in a government inquiry or private litigation. They also should be prepared for changes to these clauses at their next renewal.

Some software solutions include products for end users. Apart from providing pricing recommendations, RealPage also offers a tenant portal for paying rent and requesting services. A change in terms of service for end users could change your risk profile, so you need to pay attention.

AI tools still offer considerable benefits. But companies should document their procompetitive decision-making at every step—from licensing the software to choosing whether to take its recommendations—and be ready to defend their actions if necessary.

The case is United States v. RealPage, Inc., M.D.N.C., No. 1:24-cv-00710, complaint filed 8/23/24.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Jeetander T. Dulani is partner at Stinson and focuses on merger control, antitrust litigation (including class actions), and civil and criminal government investigations.

J. Nicci Warr is partner at Stinson, where she focuses on antitrust and competition-related litigation and counseling.

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