The United States filed a lawsuit against RealPage today, accusing the software maker of distorting competition in the rental housing market by helping landlords jointly set prices.

“To ensure they get the best value for their needs, renters rely on strong and fierce competition among landlords. RealPage distorts that competition,” the lawsuit filed by the U.S. government and the attorneys general of eight states said. In a press release, the Justice Department said that “RealPage’s pricing algorithm violates antitrust laws.”

Attorney General Merrick Garland commented on the lawsuit. “When the Sherman Act was passed, an anti-competitive scheme might have looked like robber barons shaking hands at a secret meeting,” he said. “Today, it looks like landlords using mathematical algorithms to adjust their rents. But antitrust law doesn’t become obsolete just because competitors find new ways to act together to violate the law.”

RealPage’s commercial revenue management software “enables landlords to circumvent fierce competition and attract tenants as customers,” the lawsuit says. “Landlords who would otherwise compete with each other submit their competitively sensitive information to RealPage on a daily basis. This nonpublic, material and detailed rental data includes, among other things, a landlord’s rental rates from signed leases, lease terms and future occupancy. RealPage collects a wide range of such data from competing landlords, combines it and feeds it to an algorithm.”

Using this sensitive data, “RealPage provides daily, near real-time, price recommendations to competing landlords,” according to the U.S. government. The U.S. government claims that these are “more than mere ‘recommendations'” and that “RealPage monitors landlords’ compliance with its recommendations.”

AG: Landlords “outsource their pricing decisions”

The U.S. sought an injunction finding “that RealPage has acted unlawfully to restrain trade in conventional multifamily housing markets throughout the United States.” The injunction sought would prohibit RealPage from continuing its allegedly anticompetitive practices and “take necessary and appropriate measures to restore competitive conditions in the markets affected by RealPage’s unlawful conduct.”

RealPage recently argued that its software “benefits both housing providers and residents” and “makes pricing recommendations in any direction – up, down, or no change – to match the property-specific goals of the housing providers using the software.” Landlords do not have to follow the recommendations, the company says.

According to US, RealPage plays a more direct role in pricing. RealPage “reviews and weighs landlords’ other policies, including attempting – and often succeeding – to eliminate tenant-friendly concessions (such as a free month’s rent or fee waivers) to attract or retain tenants,” the suit says. Garland alleged that “a large number of landlords effectively agree to outsource their pricing decisions to RealPage by using an ‘Automatic Acceptance’ setting that effectively allows RealPage to determine the price a tenant will pay.”

The RealPage algorithm “can serve as a communication mechanism,” Diana Moss, director of competition policy at the Progressive Policy Institute, a public policy think tank, was quoted as saying by the New York Times. “It’s just as accessible and punishable under U.S. antitrust law as any other form of communication we’ve seen in previous cases in the non-digital age.”

The lawsuit was filed in the U.S. District Court for the Middle District of North Carolina. Six North Carolina landlords submitted information to the Justice Department. The states that joined the lawsuit are North Carolina, California, Colorado, Connecticut, Minnesota, Oregon, Tennessee and Washington.

Software makes price guessing games unnecessary

Garland said the investigation leading up to the lawsuit lasted nearly two years. The lawsuit quoted landlords describing how they use RealPage:

One landlord noted that RealPage’s software can “eliminate the guesswork” in landlords’ pricing decisions. Another landlord said of another RealPage product, “I’ve always liked this product because your algorithm uses proprietary data from other subscribers to suggest rents and terms. That’s classic price fixing.” A third landlord explained, “Our very first goal that we set right at the beginning is that we’re not going to be the reason for a price crash in any particular submarket. So our strategy has been to stay stable and keep an eye on the communities around us and our competitors.”

The lawsuit states: “RealPage frequently tells prospective and current customers that ‘a rising tide lifts all ships.’ A vice president of revenue management at RealPage explained that this phrase means that ‘it’s better for everyone to succeed than for us to try to essentially compete with each other in a way that actually holds the industry down.'”

The United States and the states allege that RealPage violated Section 1 of the Sherman Act by improperly sharing information to help competitors set their prices and entering into vertical agreements with landlords to match prices. RealPage is also accused of violating Section 2 of the Sherman Act by monopolizing the commercial revenue management software market.

RealPage, whose software is also facing a ban in San Francisco, said the lawsuit was “meritless and will do nothing to make housing more affordable.”

“We are disappointed that after many years of research and cooperation on the antitrust issues surrounding RealPage, the Department of Justice is now bringing a lawsuit that seeks to scapegoat pro-competitive technology that has been used responsibly for years,” RealPage said.

The White House issued a statement saying it had no comment on the lawsuit against RealPage, but the Biden-Harris administration “continues to support fair and vigorous enforcement of antitrust laws to prevent illegal collusion.”