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New Jersey District Court Dismisses Algorithmic Room-Rate-Fixing Case Alleging Use Of Room Pricing Software By Atlantic City Casino-Hotels Violates Antitrust Law
10/08/2024On September 30, 2024, Judge Karen M. Williams of the United States District Court for the District of New Jersey dismissed with prejudice a complaint, lodged by a putative class of consumers, that alleged various casino-hotels conspired to inflate and fix the price of their hotel rooms by means of pricing software used by each defendant. The Court held that plaintiffs failed to establish a plausible price-fixing conspiracy in violation of antitrust law because plaintiffs: (i) failed to demonstrate parallel conduct; and (ii) did not allege that the algorithm pricing was based on pooled proprietary data. Cornish-Adebiyi, et al. v. Caesars Entertainment, Inc., et al., No. 1:23-CV-02536-KMW-EAP, 2024 WL 4356188 (D.N.J. Sept. 30, 2024).
Plaintiffs, individuals who purchased hotel room stays from defendants, brought this action against several casino-hotels and a pricing software company. In the complaint, plaintiffs alleged defendants entered into an anticompetitive scheme that caused plaintiffs and class members to pay supra-competitive prices for guest rooms, in violation of prohibitions on conspiracies in restraint of trade under Section 1 of the Sherman Act. To successfully establish a Section 1 claim, a plaintiff must demonstrate: (1) the existence of a contract, combination, or conspiracy; and (2) that the conspiracy imposed an unreasonable restraint on trade.
Plaintiffs alleged that defendants conspired to inflate and fix hotel room prices through the use of Cendyn’s pricing software. Cendyn’s pricing software (GuestREV and GroupREV) leverages both non-public proprietary data and publicly available room prices from competing hotels to form pricing algorithms to recommend optimal room prices. Plaintiffs claimed that the casino-hotels’ use of this software constituted a hub-and-spoke conspiracy, with Cendyn as the hub and the casino-hotels as the spokes. Taken together, plaintiffs asserted the conduct amounted to an unlawful restraint of trade in violation of Section 1 of the Sherman Act.
The Court noted marked similarities between Cornish-Adebiyi and the recent decision in Gibson v. MGM Resorts Int’l, in which a price-fixing conspiracy was also alleged to have been achieved through a group of casino-hotels’ common use of the same Cendyn software. In Gibson, the case was dismissed due to insufficient evidence of a horizontal agreement among the casino-hotels.
Here, the Court’s analysis focused on whether plaintiffs sufficiently alleged a plausible agreement among defendants. Crucially, the Court noted that plaintiffs failed to provide direct evidence of an agreement and instead relied on circumstantial evidence of parallel conduct. The Court highlighted that the complaint did not allege that the Casino-Hotels’ proprietary data are pooled or otherwise comingled into a common dataset against which an algorithm runs and returns to each Casino-Hotel individually with recommended prices. As such, the Court determined it could not plausibly infer that defendants had entered into a price-fixing agreement between the Casino-Hotels from the mere fact that they all use the same pricing software. Rather, the Court found that “the hub-and-spoke conspiracy they articulate lacks a rim.”
The reliance on circumstantial evidence in the Cornish-Adebiyi complaint is in contrast with the direct evidence offered by the DOJ in their recent complaint raised against RealPage Inc, a contrast noted by the Cornish-Adebiyi Court. In RealPage, the DOJ asserts that the use of competitively sensitive data acquired from competing landlords was critical to RealPage’s revenue management software. Moreover, the DOJ asserts that landlords shared data with RealPage understanding that their data would be pooled with data from rivals and pooled to generate recommendations for all subscribers.
Next, the Court found that plaintiffs failed to sufficiently establish parallel conduct, noting significant gaps in the timing of the casino-hotels’ adoption of the software at issue—adoption of the software took place over a span of fourteen years.
Consequently, the Court held that plaintiffs did not plausibly allege a price-fixing conspiracy. As a result, the Court granted defendants’ motion to dismiss with prejudice.
