RealPage Antitrust Cases Face Significant Hurdles

25 September 2024

The RealPage antitrust cases are key battlegrounds for resolving whether the use of algorithmic pricing software violates the Sherman Act, but the DOJ and private plaintiffs will face many hurdles.

On August 23, 2024, the U.S. Department of Justice ("DOJ") filed a civil antitrust lawsuit against RealPage Inc., alleging that its use of algorithmic pricing software violated Sections 1 and 2 of the Sherman Act, marking a significant shift in the agency's approach to algorithmic price-fixing. The DOJ's lawsuit follows private cases consolidated in multidistrict litigation in Tennessee (MDL).

Rather than alleging a per se price-fixing—that RealPage and its property owner subscribers agreed to fix rental rates—the DOJ opted for a rule-of-reason theory, targeting agreed-upon information sharing as the unlawful conduct. This move is likely strategic, perhaps reacting to a court opinion rejecting per se theories in private RealPage litigation. The DOJ also brought creative Section 2 claims to seemingly bolster its case. However, this seems self-defeating and perhaps shows the case's inherent weakness. On one hand, the DOJ claims that RealPage has a monopoly in a purported market; on the other, it suggests that the entire market is illegal. But how can RealPage have a monopoly in a market that the DOJ says is inherently illegal?

This blog post addresses some additional obstacles that may frustrate the DOJ and private class action plaintiffs’ cases.

(1) Is an agreement to share information illegal when each recipient is allegedly free to make its own pricing decisions?

A key question there is whether a vertical hub, RealPage, can be liable for conspiring with the spokes, or whether a rim of agreement must be established among the competitor spokes.

In the MDL, the DOJ advocated for a per se standard, but the court found that because of the vertical aspects involving RealPage, the allegations should be analyzed under the rule of reason. The DOJ's complaint appears to acknowledge that this vertical arrangement likely fails to support a hub-and-spoke horizontal conspiracy, recognizing that mere data sharing is not necessarily an unlawful conspiracy. This may explain why the DOJ decided against a criminal case with a higher burden of proof.

Importantly, the DOJ's complaint does not expressly allege an agreement on price between RealPage and any landlord, nor an overarching agreement among landlords—a central flaw in the Section 1 claim. The complaint acknowledges that RealPage provides only "recommendations," and that property managers "choose whether to accept the price floor recommendations, keep the previous day's rent, or override the recommendation."

The only "agreement" alleged is the bilateral agreement between RealPage and each subscriber to provide nonpublic data and, to some extent, to "use" that data when making rental decisions. But without an explicit agreement to fix prices, and with each property owner making independent daily pricing decisions, the DOJ has left room for a significant defense on the merits.

(2) Being big isn't illegal.

Regarding Section 2, being big isn't illegal. The DOJ's complaint alleges monopolization and attempted monopolization but seems to fall short of alleging the required willful and wrongful conduct. The DOJ fails to identify clear exclusionary or predatory behavior that foreclosed other companies from offering alternative revenue management software or severely hampered their market participation.

RealPage's purported dominance appears more like having a superior product, falling short of the anticompetitive conduct the DOJ needs to prove. The DOJ alleges that RealPage has acquired 80% of the alleged market and "amassed a reservoir of competitively sensitive data" from landlords that rivals cannot easily match. But simply having an 80% share isn't illegal; there must be willful or wrongful conduct that led them there.

As Justice Scalia stated in Verizon Communications Inc. v. Law Offices of Curtis V. Trinko LLP: "The mere possession of monopoly power, and the concomitant charging of monopoly prices, is not only not unlawful; it is an important element of the free-market system."

The DOJ seems to have added these claims to portray RealPage as a big, bad actor but does not allege a boycott, that RealPage is an essential facility, or that it engaged in predatory pricing or exclusive dealing. Additionally, the DOJ effectively argues that RealPage's entire business is illegal because of its software—an odd, potentially self-defeating allegation. A company cannot monopolize a market that is illegal; if the product market itself is illegal, the Section 2 claim collapses.

(3) The DOJ and private litigants will likely struggle to show injury and classwide injury.

Finally, these allegations also present a causation issue because it is unclear who is harmed, as RealPage is allegedly the only player in this niche market. The DOJ seems to assume a Section 1 violation to support its Section 2 claim—alleging that RealPage has a monopoly in an illegal market, which is why a competitor cannot challenge them.

The DOJ and private litigants will likely struggle to show injury and classwide injury, especially in the fragmented and localized real estate market. Rental conditions vary greatly by location, and the frequency and use of RealPage likely vary based on location. Proving injury would require meeting the elements of a hub-and-spoke conspiracy, which demands a hub (RealPage), spokes (agreements between RealPage and each landlord), and a rim (agreements among the landlords).

RealPage provides recommendations to the landlords, so the only agreements alleged are the bilateral ones between RealPage and each subscriber, with subscribers knowing competitors also participate. But the required “rim” is missing: even if some evidence of communications between landlords exists, evidence of a widespread conspiracy is thin. Without more, this vertical arrangement seems insufficient, and the DOJ's claim appears stretched.

In the MDL, the plaintiffs seem to allege many small, localized conspiracies between local landlords, which will add a level of difficulty to plaintiffs' burden of proving class action requirements during the class certification phase. Individualized issues of proof will likely predominate, as participants in each localized conspiracy vary, and each class member may have to show it suffered antitrust injury due to the alleged cartel, which could prove to be very difficult for these plaintiffs even assuming the Court certifies the class. In any event, the defense will undoubtedly argue that these complexities prevent a finding of classwide harm.