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When is an algorithm an antitrust violation?

Washington, DC Attorney General Brian Schwalb filed a lawsuit Tuesday against property management software maker RealPage, along with 14 commercial landlords, alleging they colluded together to raise rents artificially using RealPage software. That's not the only area where the real estate industry might be risking some major legal smackdowns, either.

Big Data Equals Big Rent

What's at issue is whether software like RealPage's, which allows algorithms to crunch reams of real estate data across buildings owned by different landlords, gives those landlords an unfair advantage over renters by essentially cross-pollinating confidential data. It's an antitrust debate around Big, Unbridled Data that's unfurling in more arenas than just real estate; last month, the Federal Trade Commission and 17 state AGs accused Amazon of misusing its data piles to artificially inflate the prices of goods in its store. In the DC real estate case, per The Wall Street Journal, algorithmic rent calculation allegedly led some landlords to realize they don't need to fill an entire building to maximize their profits, raising rents on a curated collection of occupied apartments could do the trick.

This isn't the first lawsuit filed against RealPage, which faces similar accusations of rent-fixing from tenants in Washington state and Tennessee, and sources told The Wall Street Journal that the Department of Justice has been investigating the company's practices. With the new DC suit, the pressure has been ratcheted up just a bit more:

  • The attorney general's lawsuit argues that the defendants "inflated rents by agreeing to delegate their price-setting authority to a centralized entity -- RealPage -- rather than competing on price."
  • Last year four senators, including Elizabeth Warren and Bernie Sanders, wrote to RealPage's CEO Dana Jones requesting more information on what data its software pools. The same senators wrote to the DOJ's antitrust division in March, saying that while RealPage had not furnished them with all the requested information, what it had told them was "alarming."

Not Just In Kansas Anymore: While legal action against rent-setting software mounts, a major legal upheaval has already landed in the home-buying corner of the real estate market. On Tuesday, a federal jury in Kansas declared the National Association of Realtors (NAR) was guilty of conspiring with real estate brokers to artificially fatten commissions. The verdict could still be overturned on appeal, but if it remains intact it could pave the way for more successful lawsuits.