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California District Court Grants Software Company’s Motion To Dismiss In Algorithmic Price Fixing Case
04/01/2025On March 21, 2025, Judge Jeffrey S. White of the United States District Court for the Northern District of California granted defendant software company’s motion to dismiss plaintiffs’ claims of price-fixing under the Sherman Act, finding that plaintiffs failed to state a plausible claim on their alleged algorithm-based hub-and-spoke conspiracy. Hanson Dai, et al. v. SAS Inst. Inc., et al., 4:24-cv-02537-JSW, (N. D. Cal.). Plaintiffs, a group of hotel customers, alleged that defendants—the aforementioned software company, a hotel revenue management systems company, and five hotel chains—colluded to set supra-competitive prices using a revenue management system that relied on analytics software developed by the prevailing defendant. The court found that plaintiffs failed to plead sufficient facts to show that the software company was part of the alleged conspiracy.
The named plaintiffs had booked hotel rooms at properties owned by the various hotel chain defendants and alleged they paid higher prices for their room rentals because of the purported antitrust violations. In addition to the five hotel chains, defendants were SAS Institute, Inc. (“SAS”) and IDeaS, Inc. (“IDeaS”). Plaintiffs alleged IDeaS provided the hotel chains with revenue management systems (“RMS”) “powered by” SAS’s analytics. According to plaintiffs, the hotel chains then used these RMS services to exchange confidential pricing and occupancy information, analyze market conditions, and set prices for hotel room rentals. Plaintiffs claimed this amounted to a hub-and-spoke conspiracy to fix prices in violation of Section 1 of the Sherman Act.
To survive a motion to dismiss, plaintiffs must plead factual allegations that raise their entitlement to relief above the speculative level. This means that the facts alleged must allow the court to draw a plausible inference that a defendant is liable for the alleged misconduct. A hub-and-spoke conspiracy requires showing of a “hub” that coordinates an agreement among the “spokes,” who typically are other participants in the market, usually at different levels of the supply chain. Plaintiffs must plead facts showing that participants at the “rim” of the wheel have entered into a horizontal agreement to allegedly participate in a conspiracy facilitated by the hub. Here, plaintiffs argued that use of IDeaS’ RMS services was an agreement between the hub (IDeaS) and each spoke (the hotels). Plaintiffs argued SAS was part of the conspiracy because it built the analytics software that “powered” the RMS services and because it was the parent company of IDeaS.
The court found that plaintiffs did not allege sufficient facts to plausibly suggest that SAS was part of the alleged conspiracy. The court noted plaintiffs did not allege SAS had any involvement in providing the RMS products to the hotel defendants and that the court could not “reasonably infer SAS had any other connection or contact” with the hotel defendants. The court further noted that plaintiffs did not make “any allegations that the corporate form should be ignored” to justify holding SAS liable for the acts of IDeaS. The court concluded plaintiffs’ bare assertion of a conspiracy was not sufficient to state a claim against SAS and granted SAS’s motion to dismiss but gave plaintiffs leave to amend. Plaintiffs’ claims against the hotel chains and IDeaS remain.
As algorithm-related antitrust cases proliferate, this decision highlights that to meet their pleading burden, plaintiffs must allege a sufficient factual basis to support a conspiracy claim as to each and every defendant to survive a motion to dismiss.
