Lawmakers in Washington state are the latest to take a shot at algorithmic pricing as an anticompetitive business practice with a bill to ban landlords from using software that compiles data from their operations and other sources to get automated recommendations on what rental rates to charge.

“It’s outrageous and illegal to collude to raise the prices of rent,” said Jesse Salomon, a Seattle-area state senator who introduced the bill. “It should be plainly illegal to use software that facilitates unlawful price fixing.”

Salomon’s bill calls it a deceptive and unfair business practice and a restraint of trade for landlords to use software that recommends what rent they charge based on supply levels, occupancy rates, lease renewal, termination dates, and other data that they feed into it. 

In announcing the bill, Salomon pointed to his state’s participation in a lawsuit that the Department of Justice filed last year against RealPage, the country’s largest seller of algorithmic software for rental housing. In that lawsuit, DOJ accuses the company of turning landlords into price-fixing collaborators by enabling them to set prices in tandem with one another.

Texas-based RealPage has called the lawsuit without merit and said housing affordability is the problem, not rent-setting software. “DOJ … seeks to scapegoat pro-competitive technology,” the company said. 

On Salomon’s bill, RealPage said in a statement to Legal Dive that the use of algorithmic software to estimate market value for rentals isn’t rent fixing.

“RealPage has never facilitated collusion between property management companies,” says the statement, provided after the piece was published. “Our customers accept our price suggestions less than half the time, and they have always had 100% discretion to accept or reject our recommendations, which are individualized to each property’s unique parameters. High rents in Seattle, for example, are primarily due to the city’s well-documented undersupply of housing. The state of Washington estimates that the Puget Sound’s four counties need about 640,000 new homes by 2044 to meet population growth, but the Urban Institute projects that the region will come up short by about 140,000 units. This bill will do nothing to make rentals more affordable and will actually have the opposite effect, discouraging the housing development needed to meet high demand. The unintended consequences of stifling innovation and negatively impacting every industry utilizing algorithmic software is not worth the perceived value of touting a faux solution for the housing affordability crisis.”

Mixed rulings

Courts have diverged on whether the software violates competition laws.

Last year, a Nevada federal district court rejected claims of price-fixing through the use of algorithmic tools when it ruled in favor of hotels on the Las Vegas strip that used software to set their room rates. The court found the hotels never entered into an agreement to follow the software’s pricing recommendations, started using the software at different times, never exchanged confidential information and were free to use or not use the recommendations.  

“If they 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,” the judge, Miranda Du, said in her ruling in Gibson v. Cendyn Grp. “But the allegations that could plausibly support that sort of inference do not exist in the [complaint].”

A few months later a federal court in Washington state denied a motion to dismiss a similar lawsuit, opening the door for the case to go to discovery. The court found that landlords’ use of the software could amount to a hub-and-spoke conspiracy. 

The “outside [software] vendor now has confidential price strategy information from multiple competitors, [and] it can program its algorithm to maximize industry-wide pricing even if the firms themselves don’t directly share their pricing strategies with each other,” the judge, Robert Lasnik, said in his ruling in Duffy v. Yardi. 

Like Lasnik, DOJ in its lawsuit against RealPage said it’s not necessary for the software company to compel landlords to participate for it to be making collusion possible; it’s enough that the landlords agreed to use the software knowing they’ll be leveraging the information that others provide. 

“RealPage has found a modern way to violate a century-old law,” then-Deputy Attorney General Lisa Monaco said when the lawsuit was filed.  

A hearing on Salomon’s bill has been scheduled for next week in the Washington legislature’s housing committee. 

Editor’s note: This piece has been updated with a statement from RealPage on the Washington state bill.