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District Of Nevada Dismisses With Prejudice Price-Algorithm Suit Against Las Vegas Strip Hotel Operators And Software Company
05/23/2024On May 8, 2024, Judge Miranda M. Du of the United States District Court for the District of Nevada dismissed with prejudice a putative class action complaint alleging the unlawful restraint of trade via a hub-and-spoke conspiracy between and among an algorithmic pricing software company and multiple operators of hotels on the Las Vegas Strip in violation of Section 1 of the Sherman Antitrust Act. Gibson v. Cendyn Group, LLC, et al, No. 2:23-CV-00140-MMD-DJA, 2024 WL 2060260 (D. Nev. May 8, 2024).
Plaintiffs’ suit alleges Defendants conspired to artificially inflate the price of the operators’ hotel rooms by entering agreements to use Defendant software company’s pricing algorithm software.
Plaintiffs alleged that Defendants violated Section 1 through a series of vertical agreements between the software company and the hotel operators. Specifically, each of the hotel operator Defendants separately entered into independent agreements with the software company Defendant to use an algorithmic pricing software for their hotel rooms. Because each of the hotel operator Defendants used this software, Plaintiffs asserted that the software company acted as the hub of the alleged conspiracy while the hotel operators acted as the spokes “with a rim made from the tacit agreements between [the hotel operator defendants] to use [the software company defendant’s] products knowing that their competitors were as well.”
The Court dismissed the claims for three primary reasons:
First, it found Plaintiffs failed to establish that the hotel operator Defendants had any tacit agreement amongst themselves to fix the prices of hotel rooms by using the software company Defendant’s algorithm software. The Court relied on the fact that each hotel operator Defendant began to use the software at different times to conclude that a tacit agreement among them was implausible.
Second, the Court noted that Plaintiffs were unable to demonstrate that the hotel operator Defendants exchanged confidential information through the alleged hub’s algorithm. To the contrary, the Court found that the algorithm’s use of public sources expedited Defendants’ ability to look at their competitors’ pricing, and “[t]here is nothing unreasonable about consulting public sources to determine how to price your product.”
Finally, the Court emphasized that Plaintiffs failed to demonstrate the vertical agreements caused any actual agreement to fix prices because Plaintiffs did not allege that the hotel operator Defendants were required to accept the software’s pricing recommendations, and in fact, that they often did not. The Court opined that “[i]f [the hotel operator defendants] all agreed to outsource their pricing decisions to a third party, and all agreed to price according to the recommendations provided by that third party, it would be plausible to infer the existence of a collusive agreement to fix prices. But the allegations that could plausibly support that sort of inference do not exist in the [complaint].”
While the Court previously dismissed the complaint with leave to amend, it determined that Plaintiffs’ failure to demonstrate in their amended complaint the ability to remedy their pleading deficiencies warranted dismissal with prejudice.
