Late on Wednesday, the U.S. Department of Justice intervened in a significant antitrust lawsuit brought forth by numerous tenants. These tenants have accused a technology company’s apartment software of aiding landlords in colluding to raise rental prices.
The DOJ’s involvement follows an investigation conducted by ProPublica in the previous year. The investigation revealed that RealPage, a software provider based in Texas, utilized algorithms to suggest rental prices to landlords nationwide, with the aim of maximizing their profits. Experts have raised concerns that this practice could potentially violate antitrust laws.
The Justice Department’s support for the plaintiffs in the price-fixing case has brought attention to a complex area of federal antitrust law. This move could potentially have significant implications for both businesses utilizing technology for profit and the marketplace that consumers navigate. According to experts, collusion used to occur through secretive meetings with formal handshakes.
Federal prosecutors emphasized that algorithms are the new frontier and pose a greater anticompetitive threat than before due to their ability to access and process vast amounts of information. RealPage, in response to the lawsuit, strongly denied the allegations and expressed their determination to vigorously defend against it. The company has yet to comment on the justice department’s filing opposing their efforts to dismiss the case. Antitrust enforcers have faced challenges in applying existing laws to innovative technologies like RealPage’s rent-setting software, which has transformed the way competitors and customers interact. However, prosecutors argued that whether a scheme is created through a software algorithm or human interactions should hold no legal significance.
The Department of Justice (DOJ) emphasized that automating an anticompetitive scheme does not diminish its anticompetitive nature. According to federal lawsuits filed by tenants, RealPage facilitated coordinated efforts among landlords, including the sharing of confidential data through their software, in order to increase rents. Prosecutors stated in their memorandum that this arrangement still constitutes price-fixing, regardless of whether competing landlords directly communicated about prices.
In simpler terms, RealPage allegedly replaces independent decision-making on prices, which often results in lower prices for tenants, with a price-fixing scheme that violates federal antitrust law, prosecutors explained.
Prosecutors also pointed out that not every use of an algorithm to determine prices violates federal law. However, it becomes unlawful when, as alleged in this case, competitors knowingly combine their sensitive and nonpublic pricing and supply information in an algorithm that they rely on for pricing decisions, with the understanding and expectation that other competitors will do the same.
RealPage, a private equity-owned venture, is now facing increased legal pressure due to the intervention of the Department of Justice (DOJ). This comes after numerous tenants across the country filed federal lawsuits, accusing big landlords, including those providing student housing, of antitrust law violations. These lawsuits were prompted by ProPublica’s investigation into RealPage in October 2022, which exposed how landlords share confidential data with the company. Legal experts have expressed concerns that this arrangement could potentially enable cartel-like behavior among landlords if they utilize the software to coordinate pricing.
To address these legal matters, the lawsuits have been consolidated in federal court in Nashville, Tennessee. Additionally, another lawsuit was filed in the District of Columbia Superior Court in early November 2023. These legal actions collectively shed light on the intricate system established by RealPage to encourage landlords’ employees to follow the software’s suggestions.
The federal lawsuit claims that witness accounts, rental data, economic evidence, and investigations all confirm anticompetitive behavior in the rental housing market. Realpage, a property management company, offered its clients the option to outsource rent-setting and revenue oversight, claiming to oversee properties as if they were their own. However, the lawsuit quotes an unnamed witness who says that some pricing advisors told property management employees to follow the software’s recommendations, even if they were too high. The software even tracked which staff members requested a deviation from RealPage’s prices, and some property management personnel were compensated for compliance with the company’s recommendations.
RealPage’s system allegedly raised rent prices above competitors, with a former executive expressing concern about the company’s practice of collectively increasing rents. After acquiring its main competitor, RealPage’s influence expanded, accounting for over two-thirds of revenue management use nationwide. The federal lawsuit names around 50 major landlords as defendants. RealPage and the other defendants’ lawyers dismissed the claim of a conspiracy, arguing that the complaint lacks direct evidence. The response stated that the plaintiffs have not presented a credible case of a price-fixing conspiracy.
RealPage lawyers deny accusations by tenants’ lawyers that users must obtain approval before rejecting the software’s recommendations. The company’s FAQ states that output from the software may be followed, modified, or ignored. The lawyers also refute collusion allegations, pointing out that meetings and participation in user groups and trade associations do not imply collusion. The DOJ filing follows the District of Columbia’s attorney general’s announcement of a lawsuit against RealPage and 14 landlords for illegally raising rents. Over 90% of large apartment buildings in the Washington, D.C., metropolitan area use RealPage’s revenue management software.
The Washington lawsuit involves Greystar, a major US apartment owner, and claims that the use of RealPage software goes against the traditional competitive rental market by allowing landlords to collude and raise rental prices. RealPage denies the allegations and says the lawsuit is based on inaccuracies from previous cases. The software is said to have been designed to monitor compliance with the cartel, with training documents encouraging clients to follow its pricing suggestions. Lawmakers have called on the Justice Department to intervene in the dispute.
“The question at hand is whether the antitrust laws can effectively address and prevent this supposed anti-competitive conduct,” he stated before the subcommittee. “In short, the answer is affirmative, provided that individuals conspire to manipulate prices and RealPage’s pricing algorithm is utilized to aid their collusion.”
According to Stucke, the evolving opportunities for competitors to collude with new technology call for reform to address gaps in the law. He suggested changes to the way the Federal Trade Commission handles antitrust claims and government reviews of mergers that could limit competition. Additionally, he recommended that Congress consider enhancing privacy laws to better protect renters whose landlords are utilizing new technology.
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