The Preventing Algorithmic Collusion Act: Strike two

Senator Amy Klobuchar (D-MN) and eight Senate co-sponsors reintroduced “The Preventing Algorithmic Collusion Act” – formerly Senate Bill 3686 – as Senate Bill 232 (S. 232) on January 23, 2025. S. 232 makes no substantive changes to the 2024 version, which aimed to bar the use of algorithms that may be used to engage in price fixing.

As we previously discussed, the bill remains a swing and a miss due to drafting misfires and conflicts with existing antitrust law. However, it is worth noting that the state of play has changed since the 2024 legislation was introduced.

In this alert, we provide some additional context surrounding S. 232 and discuss whether any such changes now justify passing the bill in 2025.

The issue with pricing algorithms

In her press release on February 2, 2024, Senator Klobuchar stated the bill would “strengthen antitrust law,” which isn’t entirely accurate. By changing the presumptions associated with the use of algorithms, this bill would indeed change antitrust law. In doing so, it would necessarily reduce the requirements for proving collusion under antitrust law. But such a reduction in proof is not necessary, as agreed by the US Department of Justice (DOJ). In three pending cases where the DOJ has filed Statements of Interest,[1] the DOJ has expressed its agreement that “[l]ongstanding legal principles apply with equal force” to claims of algorithmic price fixing.[2]

Recent literature on the subject pushes back on the assumption that use of a pricing algorithm is, without more, a tacit or explicit collusive agreement.[3] These scholars coalesce around the idea that one cannot simply assume collusion from the use of algorithms. Rather, scholars say there must be proof that either the algorithm is designed to set supra-competitive prices – and users understand and agree to that design – or proof that there is an agreement to allow the algorithm to act autonomously to fix prices, including a mechanism for overriding human input.

Certainly, the cry to address pricing algorithms has recently gained steam in the public domain, US Congress, regulatory agencies, and private litigation. The most prominent challenge to pricing algorithms arises out of the Real Page litigation.

The Real Page litigation

In April 2023, the US Judicial Panel on Multidistrict Litigation ordered more than 30 lawsuits from around the country to be centralized in the US District Court for the Middle District of Tennessee for pretrial purposes.[4] In connection with briefing by the parties on motions to dismiss, the US Department of Justice filed a Statement of Interest in the case on November 15, 2023, urging the court to apply a per se standard for determining liability and take a broad view of how concerted action may be shown in the cases.[5] The court, however, declined to apply the per se standard and granted the student defendants’ motion to dismiss, although it denied the multifamily defendants’ motion to dismiss. The case has now entered the discovery phase.

Related cases

In August 2024, the DOJ and a number of states filed their own action against RealPage in the Middle District of North Carolina.[6] The complaint there was recently amended to add six landlord defendants and two more state plaintiffs. RealPage and a number of landlords are also defending actions by enforcers in Arizona, Maryland, and Washington, DC.[7]

Other litigation has also targeted the use of pricing software. In Duffy v. Yardi Systems, Inc., much like in RealPage, the plaintiffs alleged that certain multifamily apartment complex owners and operators violated Section 1 of the Sherman Act by engaging in a conspiracy to share competitively sensitive information to set supra-competitive rental rates. The alleged conspiracy involved vertical agreements between defendant Yardi Systems and other lessor-defendants, and horizontal agreements among lessors to share information and use Yardi's software to fix rental prices, ie, a “hub-and-spoke conspiracy.”

On the defendant’s Rule 12(b)(6) motion to dismiss, the US District Court for the Western District of Washington determined that the plaintiffs had plausibly alleged a conspiracy based on the sharing of sensitive, nonpublic commercial data with Yardi and the subsequent use of its pricing recommendations. Notably, the court found that the alleged conduct could constitute a per se violation of the Sherman Act due to the alleged horizontal price-fixing nature of the agreements.

In similar actions, plaintiffs have also alleged algorithmic collusion between casinos hotels, although these actions did not survive motions to dismiss. In both Gibson v. Cendyn Group, LLC[8] and Cornish-Adebiyi v. Caesars Entertainment, Inc.,[9] the plaintiffs’ alleged a hub-and-spoke conspiracy by defendant Cendyn Group, LLC (similar to that alleged in RealPage and Yardi) to inflate and fix room rates in Las Vegas and Atlantic City, respectively.

Both district courts, however, found that the plaintiffs had failed to adequately allege a conspiracy because (1) the hotel defendants were not required to accept Cendyn’s pricing recommendations, (2) the timing of the hotel defendants’ adoption of Cendyn’s products undermined the plausibility of a conspiracy, and, most importantly, (3) the plaintiffs failed to allege the exchange of nonpublic information between the hotel defendants.

The reason for these diverging lines of precedent appears to center on the plaintiff’s ability to allege the contribution of commercially sensitive information for use with the suspect pricing algorithm. Thus, as it stands now, alleging the improper sharing of certain nonpublic competitive information is most likely an essential feature of any algorithmic collusion claim.

State legislative activity

By our count, 16 states have proposed legislation to regulate pricing algorithms in the rental and property management industries. A few more states have enacted more expansive or additional legislation that mimics S. 232. However, more targeted legislation addressing the specific concerns related to the use of algorithmic pricing tools in the property management and rental industries would likely be a more appropriate means of addressing the perceived problem with the use of pricing algorithms, rather than the current blunderbuss approach reflected in S. 232.

Conclusion

These developments do not make a case for passing S. 232 now. We believe that the current approach of S. 232 is far too broad and fails to recognize the potential procompetitive effects of pricing algorithms – strike two. Instead, we think that the existing structures of antitrust law provide adequate guardrails to govern the use of pricing algorithms, and that more targeted legislation – as enacted by many states – better addresses outcry over the use of pricing algorithms in the property management and rental industries.

For more information, please contact any of the authors.

 

^{[1] DOJ Statement of Interest, Cornish-Adebiyi v. Caesars Entertainment, Inc., Case No. 1:23-cv-02536-KMW-EAP; Memorandum of Law in Support of DOJ Statement of Interest, In re: RealPage, Rental Software Antitrust Litig. (No. II), Case No. 3:23-md-3071; DOJ Statement of Interest, Duffy v. Yardi Systems, Inc., Case No. 2:23-cv-01391-RSL.}

^{[2] Memorandum of Law in Support of DOJ Statement of Interest at 2, In re: RealPage, Rental Software Antitrust Litig. (No. II), Case No. 3:23-md-3071}

^{[3] See, eg, Daniel A. Crane, Antitrust After the Coming Wave, 99 NYU L Rev 1187 (2024); Robert Clark et al., Pricing Algorithms as Third-Party Facilitator of Collusion, AMERICAN BAR ASSOCIATION: THE ANTITRUST SOURCE (Dec. 20, 2024), https://www.americanbar.org/content/dam/aba/publications/antitrust/source/2024/december/pricing-algorithms-third-party-facilitators-collusion.pdf; Antitrust Magazine Interview with Emma Burnham, Director, Criminal Enforcement, Antitrust Division, Department of Justice – October 8, 2024, 39 ANTITRUST L. J. 1, 9, (2024); Claire Xie et al, Can the Use of Pricing Algorithms Lead to Collusive Outcomes? Insights and Practical Approaches from the Economic Literature, 39 ANTITRUST L. J. 1, 18-21, (2024).}

^{[4] See In re: RealPage, Rental Software Antitrust Litig. (No. II), Case No. 3:23-md-3071.}

^{[5] Id. at Doc. #628.}

^{[6] See US, et al. v. RealPage, Inc., Case No. 1:24-cv-00710.}

^{[7] See State of Arizona ex rel. Kristin K. Mayes v. RealPage Inc. et al., Case No. CV2024-003889 (AZ Super. Ct. for Maricopa Cty.); State of Maryland, et al. vs. RealPage, Inc., et al., Case No. C16CV25000241 (MD Cir. Ct. for P.G. Cty.); District of Columbia v. RealPage, Inc. et al., Case No. 2023-CAB-006762 (D.C. Super. Ct.).}

^{[8] 2024 WL 2060260 (D. Nev. May 8, 2024).}

^{[9] 2024 WL 4356188 (D.N.J. Sept. 30, 2024).}