DOJ Targets Algorithmic Price-Fixing in Landmark Lawsuit Against RealPage

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A DOJ Lawsuit Claims the Apartment Rental Market Is Manipulated by Algorithms

Feeling like rental prices are unfairly coordinated across the board in the US? Your intuition might not be off. The US Department of Justice has filed a civil lawsuit asserting that this is indeed the case, pointing fingers at a specific company's algorithm for artificially inflating rental prices.

RealPage, a company rooted in Texas, specializes in offering software solutions for revenue management to property owners. Essentially, it assists in determining rental prices. However, according to a lawsuit filed by the DOJ, the company is accused of facilitating unfair practices. By having landlords input details about rental rates and lease conditions, RealPage's algorithm then generates a recommended price, which allegedly promotes collusion and stifles market competition.

"RealPage has innovated a method to breach a law that has been in place for over a hundred years by utilizing a complex algorithm driven by artificial intelligence to process confidential information and manipulate rental housing prices," Lisa Monaco, the deputy attorney general, announced in a press release.

RealPage dominates its sector, holding an 80% market share in its specific software category. This software plays a critical role in determining the rental prices for approximately 3 million properties nationwide, as stated by the Department of Justice (DOJ). The company is currently entangled in several legal battles, including lawsuits filed by the state of Arizona and in Washington, DC. In these areas, it's claimed that RealPage's software sets the rental rates for over 90% of large apartment complexes. The spotlight turned to RealPage's pricing algorithms after a ProPublica report in 2022 exposed the workings of its YieldStar software.

The civil lawsuit brought forth by the Department of Justice (DOJ), alongside the alliance of eight state attorneys general, marks a notable increase in the intensity of legal proceedings against the firm. This case represents a new venture for the DOJ, as highlighted by officials in a briefing about the lawsuit. Although there have been past instances where the government pressed criminal charges against an Amazon vendor for engaging in price-fixing through the use of an algorithm, this lawsuit is unprecedented in that it targets the algorithm as the direct instrument of the alleged infraction, according to a DOJ representative.

The grievance cites statements from RealPage officials purportedly admitting to the anti-competitive nature of their service. An executive from RealPage is claimed to have written, “It’s better for everyone to prosper rather than engaging in competition with each other that ultimately holds the whole industry back.”

RealPage has consistently refuted claims of breaking antitrust laws, even releasing a detailed six-page online brochure titled “the Real Story,” which defends its product offerings, in addition to a comprehensive FAQ section on a specially created public policy site. The company has yet to reply to requests for a statement. One part of the website states, “Criticism of the industry’s revenue management stems from clearly incorrect data,” and asserts, “RealPage’s revenue management software offers advantages to both those offering housing and the people living in them.”

"Jennifer Bowcock, the senior vice president of communications and creative at RealPage, expressed her disappointment in an emailed statement, noting that despite years of educational efforts and collaboration on antitrust issues related to RealPage, the Department of Justice (DOJ) has now decided to file a lawsuit. She criticized the move as an attempt to wrongfully blame technology that enhances competition and has been used appropriately for a considerable period. Bowcock emphasized that RealPage's revenue management software is designed with legal compliance in mind, highlighting the company's extensive record of productive engagement with the DOJ."

The Department of Justice holds a different view. "Algorithms are not exempt from legal regulations," Monaco stated during a press briefing about the case. "Instructing a machine to act unlawfully is, in itself, a violation of the law."

According to the lawsuit, it's claimed that the algorithms in question invariably pushed rent prices higher. The Department of Justice stated in a press release, “The software from RealPage is designed to escalate rent hikes, reduce the frequency of rent reductions, and bolster the pricing authority of property owners.” Moreover, RealPage's role isn't limited to merely suggesting rates; it often directly establishes them.

"US Attorney General Merrick Garland stated in a press conference held today that RealPage rigorously monitors whether landlords are adhering to its guidelines. He mentioned that a significant portion of landlords essentially delegate their pricing strategies to RealPage by opting for an 'auto-accept' feature, which essentially allows RealPage to set the rental prices."

The Department of Justice (DOJ) further alleges that RealPage has established a cyclical mechanism through its data collection and pricing suggestion system, which purportedly grants it a monopolistic position in the market for apartment revenue management software. According to the DOJ, this setup places any law-abiding competitor at a significant competitive disadvantage.

Over the last few years, the Justice Department has been actively hiring technologists and data scientists to enhance their ability to analyze and understand software, a process which officials have referred to as "interrogating the code." Although this marks the department's initial significant case of algorithmic collusion, officials from the DOJ indicated that this case is just the beginning, with more expected to follow.

Latest Revision 8/23/24 4:34pm ET: RealPage has provided a statement, leading to an update of this article.

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