Federal antitrust agencies are again interfering in the fight against price fixing in rental software.
The Department of Justice and Federal Trade Commission last week filed a joint brief outlining their interest in the class-action lawsuit against software company Yardi and more than a dozen property management companies.
The lawsuit, filed last September, accuses Yardi of colluding with property managers to hike rent prices through its algorithm, which recommends pricing based on rental and occupancy data collected from apartment owners.
In the brief, the agencies pushed back against the defendants’ December motion to dismiss, in which their attorneys claimed the firms couldn’t be liable for price fixing because landlords maintained some control over their rent prices.
However, the DOJ and FTC argued that even though the rents charged to tenants may differ from landlord to landlord, using the software to set prices’ starting point still violates antitrust law established in previous cases.
“[Defendants] are wrong on the law,” the brief states. “It is per se illegal for competing landlords to jointly delegate key aspects of their pricing to a common algorithm, even if the landlords retain some authority to deviate from the algorithm’s recommendations.”
Yardi is one of two major property management software companies facing allegations of price fixing. Texas-based software company, RealPage, is also fighting lawsuits consolidated in a Tennessee court last year over similar claims.
The DOJ previously stepped into the RealPage litigation, filing a statement of interest in November.
In the memorandum explaining its intervention, department attorneys argued against the defendants’ motion to dismiss, pushing back against their definition of a conspiracy.
DOJ attorneys wrote that under antitrust law, a conspiracy doesn’t require a formal agreement, but rather the “deprivation of independent centers of decisionmaking” which it said can happen “through delegation to a common entity or through tacit agreement, and it does not require simultaneous action.”
“You’ve got a bunch of competitors who are pooling their information at a third party location, that third party is then determining price, which then the competitors all enact,” said Parker Miller, an attorney with Alston & Bird’s antitrust team.
He added that if instead of an algorithm, property managers gave their information to a person who then determined a rent price, that would be considered price fixing under antitrust law.
“RealPage is saying, ‘Hey, we’re not a guy named Bob. We’re not a dude. It’s a computer program,” Miller said. “There is a gloss on this that makes it sound fancier, and the government is arguing ‘Don’t worry about the gloss.’”
Two of RealPage’s co-defendants, property managers Apartment Income REIT and Pinnacle Property Management Services, agreed to settle the cases last month, though the terms remain unclear.
A swell of antitrust action
The lawsuits against RealPage followed an investigation published by ProPublica in October 2022, which found that the company’s algorithm helped set rent prices across the country as housing costs skyrocketed.
At the start of this year, a group of senators vowed to propose legislation that would make it illegal for landlords to use algorithms to drive up prices or shrink the housing supply.
“Setting prices with an algorithm is no different from doing it over cigars and whiskey in a private club,” one of the bill’s co-sponsors, Oregon Sen. Ron Wyden, told Propublica in January. “I want the law to be painfully clear that algorithmic price fixing of rents is a crime.”
The DOJ and FTC’s involvement is part of a larger push for antitrust enforcement by the Biden Administration, which pledged to combat anti-competitive practices in real estate in July 2021.
The crackdown includes the DOJ’s investigation into the industry’s commission practices, which are at the center of several lawsuits across the country. The agency last month urged a federal court not to approve a proposed settlement in a case accusing a multiple listings service in the Northeast of colluding with major brokerages to inflate agents’ commissions.
Though rent pricing algorithms and broker commissions are now facing the most scrutiny, Miller said it’s likely other facets of the industry will soon enter the spotlight.
“When an industry that has escaped antitrust scrutiny for a long time turns over all of its documents and all of its data and has to go through this process with this level of scrutiny, there’s no telling what you’re going to find,” Miller said. “And that is causing so much anxiety.”
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