Antitrust, housing lawyers doubt RealPage's algorithm defense

Property management conglomerate RealPage Inc., the U.S. Department of Justice's latest target in its crackdown on alleged price-fixing monopolists, has insisted that the company's algorithmic software plays fair in the rental market. Antitrust and housing lawyers say this defense may not hold up in court. 

RealPage manages millions of rental properties and uses a software called YieldStar, which the company says provides price recommendations that landlords are free to reject. 

"I don't think it's a powerful argument to say landlords didn't have to take the algorithm's suggestions because everyone took it," commented Abiel Garcia, a partner at antitrust firm Kesselman Brantly & Stockinger LLP in Manhattan Beach. "The question then becomes: Why did they take it? Did they understand what was happening?" 

Texas-based RealPage trains its algorithmic pricing software with nonpublic data obtained by landlords to artificially inflate rental rates, the DOJ and the attorneys general for eight states, including California, wrote in the 115-page complaint filed last week. USA et al. v. RealPage Inc., 1:24-cv-00710 (N.C. Mid. Dist., filed Aug. 23, 2024). 

"We are disappointed that, after multiple years of education and cooperation on the antitrust matters concerning RealPage, the DOJ has chosen this moment to pursue a lawsuit that seeks to scapegoat pro-competitive technology that has been used responsibly for years," the company said in a statement. 

"RealPage's revenue management software is purposely built to be legally compliant, and we have a long history of working constructively with the DOJ to show that," the statement continued, adding that the federal lawsuit was a "distraction" from fundamental economic and political issues driving inflation. 

Facing several class actions and lawsuits by various states, RealPage has tapped several law firms to defend these claims. Gibson Dunn & Crutcher LLP partner Stephen Weissman denied to news outlets this week that the company violated antitrust policies by colluding with landlords. 

However, Weissman told USA Today that his client was receptiveto fixing its software to stay on the right side of the law. 

"We want to comply with the law," he said. "We believe strongly in the legality of our product, but if there are solutions here that allow us to continue innovating and competing in the market, we're open to those solutions."

"That kind of tells the story," Daniel L. Karon of Karon LLC said about Weissman's comments. The Cleveland-based antitrust and class action lawyer added that RealPage's attorneys will likely walk a fine line because the DOJ usually pursues behavioral remedies rather than monetary damages. 

Karon said Weissman's statement indicated that RealPage would almost assuredly settle the case, "which is going to really walk it into a firestorm" concerning the damages the plaintiffs would exact in the numerous private civil cases the company is defending. 

Attorneys at Hausfeld LLP, Berger Montague PC, Lieff Cabraser Heimann & Bernstein LLP, and Justice Catalyst Law filed a putative class action against RealPage two years ago in federal court in San Diego. This case and dozens of others have been transferred into consolidated litigation in the Middle District of Tennessee. 

"I don't buy for one second that RealPage can pawn it off on some software manufacturer," said Karon. "If it wants to bring in a third party or the software manufacturer to help ameliorate some of the damages ... that's neither the DOJ nor the plaintiffs' problem."

The DOJ's complaint contained particularized accusations about landlord communications and YieldStar user group meetings, including one landlord review that said, "I always liked this product because your algorithm uses proprietary data from other subscribers to suggest rents and terms. That's classic price fixing ...." 

Garcia said the level of detail in the complaint and the alleged manpower used by RealPage to coordinate pricing was striking to him. Garcia, part of an expert panel to recommend antitrust rules to the California Law Revision Commission, said the panel was grappling with the issue of ensuring that technology platforms and AI-powered systems complied with applicable regulations. 

"This sets the tone moving forward because RealPage is not the only company using this kind of software, even in other industries," Garcia said. 

Gary W. Rhoades, a recently retired Santa Monica deputy city attorney, said the DOJ's case was significant because it was the first time the government has gone after an algorithm as the method of subverting free market competition in a civil case. 

"It's happening in the middle of an affordable housing crisis across the country where rent is going up in a lot of places and no one understood why," said Rhoades, who prosecuted many housing rights cases during his time with the city attorney's office. 

While all involved parties may not have known about any price-fixing scheme, the DOJ only named RealPage as a defendant, Rhoades continued. "That's where we get to the idea of an algorithm ... and RealPage helping its clients collude, whether the clients know it or not," he said. 

Federal lawmakers have taken small steps to enact AI policies, including those aimed at algorithmic software, but no meaningful regulations have been implemented. Introduced last year by U.S. Representatives Anna Eshoo, D-Calif., and Don Beyer, D-VA., the AI Foundation Model Transparency Act would direct the Federal Trade Commission to work with other agencies to set disclosure requirements for how training data is used. 

Garcia said there may be some bipartisan cooperation in this area, noting a legislative framework introduced last fall by U.S. Senators Richard Blumenthal, D-CT., and Josh Hawley, R-MO., to establish AI guardrails, including an independent oversight body with the power to audit companies. 

But Garcia said he had "zero faith" that any major laws would be passed anytime soon. "We've had several bills in the past few years that had bipartisan support by some of the most prolific congressmen and congresswomen and they haven't even made it out of the floor or the committees," the attorney said. 

However, Karon had a more optimistic view, saying Congress may present a more united front on technology and consumer protection issues. "Just look at TikTok," he said, referring to the proposed ban on the social media app that saw support from both sides of the aisle. After President Joe Biden signed the bill in April, TikTok brought an ongoing First Amendment lawsuit against the government.

"Congress can't agree on anything, but as it concerns consumer safety, everybody seems to be on board and partisan distinctions seem to fall away," said Karon.