In the wake of the DOJ’s pending antitrust lawsuits, CRE companies should include several protections in their vendor agreements that involve the use of revenue management software. This article provides tips to mitigate risks and avoid potential legal violations.

In today's rapidly evolving commercial real estate market, it is crucial that CRE companies include protective provisions in their agreements with vendors that utilize revenue management software (RMS). Legal actions, including a U.S. Department of Justice's (DOJ) antitrust lawsuit against a prominent RMS provider, highlight the potential risks associated with the use of these RMS systems. 

The DOJ lawsuit alleges that the provider’s RMS product enabled multifamily landlords “to share their competitively sensitive data … in return for pricing recommendations and decisions that are the result of combining and analyzing competitors’ sensitive data”. The landlords allegedly funneled their sensitive, confidential data into the RMS algorithm, which also uses other CRE companies’ proprietary, non-public data (including occupancy and rental rates), and received rental pricing recommendations for their apartment communities. The DOJ asserts that this practice resulted in increased rents and decreased market competition in rental pricing across the numerous apartment communities owned by CRE companies that use the RMS platform. 

The DOJ’s antitrust lawsuit follows a 2022 investigation by ProPublica into the provider’s use of its RMS algorithm in setting rents. That investigation launched a series of lawsuits filed against the provider on behalf of apartment residents in several cities seeking class-action status. In 2023, the-then District of Columbia Attorney General filed a lawsuit against the provider and fourteen of the largest apartment landlords operating in DC. That suit accused the defendants of “colluding to illegally raise rents for tens of thousands of DC residents by collectively delegating price-setting authority to [the RMS provider], which used a centralized pricing algorithm to inflate prices, costing renters millions of dollars”.

While the provider has denied that its RMS “facilitates collusion” and has stated that it “is willing to make changes to its system to ease antitrust concerns”, CRE companies that continue to use these types of RMS risk facing similar claims by residents, the DOJ and other public agencies. According to a recent Washington Post article, in the past week, the DOJ “expanded its suit to sue six large landlords, which it says operate in 43 states and D.C.” 

Here are some protective provisions that CRE owners and managers should consider including in their contracts with vendors that use RMS products similar to those that are the subject of the DOJ lawsuit:

1. Compliance with Laws: Have the vendor agree that in using the RMS and providing pricing recommendations, it will do so in compliance with all current and future laws. This should include court orders issued in any pending or future litigation involving any RMS.
2. Confidentiality: Require the vendor to keep strictly confidential all non-public information and data about the CRE company and its operations. This includes information about the CRE company’s rental rates and methods for pricing rents. The point is to have the vendor agree to not share or use any of the CRE company’s data with any competitor, including through the implementation of its RMS algorithm. 
3. Non-Use of Confidential Information: Forbid the vendor from using any confidential or nonpublic information or data from any other CRE company in using the RMS (or implementing its algorithm) other than the information and data the vendor obtains from the CRE company that is a party to the agreement. 
4. No Collusion: Prohibit the vendor from colluding or collaborating with the CRE company or any other CRE business in its use, application or operation of the RMS in any manner (including in setting or raising rents) that might give rise to a claim of price-fixing or other violation of any antitrust or other laws.
5. Documentation: Require the vendor to maintain a record documenting each action and decision concerning rental and other pricing determinations for the properties covered by the agreement, including how the RMS and its algorithm is utilized and the source of information used for each action and decision.
6. Antitrust Policy: Have the vendor represent in the agreement that it maintains and updates an antitrust policy and compliance program to ensure its adherence with all laws, including in the use of the RMS. The vendor should also have a continuing obligation to modify the RMS and how it is used at the CRE company’s properties to avoid any violation of antitrust or other laws.
7. Indemnification: The vendor should broadly indemnify the CRE company against all losses and claims resulting from the use of the RMS or otherwise from the agreement, including the vendor’s breach of the agreement or the failure of its RMS to comply with antitrust or other laws.

Vendors may push back on requests for many of these provisions. However, given the current litigious environment involving RMS systems, CRE companies may have increasing leverage in their contract negotiations to insist that vendors accept them. The RMS provider that is the subject of the DOJ lawsuit publicly acknowledged that its customers “are starting to worry about the legal threats”, which is a signal that RMS vendors may be more accommodating in negotiating their agreements in order to retain their existing customers and attract new ones.

These practical tips are intended to protect CRE companies from being inadvertently caught up in the current antitrust scrutiny involving RMS systems. Antitrust claims based on information sharing are easier to allege than prove. Proof requires specific economic analysis of the specific practice and its impact on the market, which is often difficult to determine when initially entering into seemingly benign agreements. Once entangled in an antitrust case, however, a CRE company faces significant costs and disruption of its business, regardless of the ultimate outcome of the case. 

The lawsuits against the RMS provider (and now the landlords that are using the RMS) underscore the importance of safeguarding the interests of CRE companies. By ensuring that contracts with vendors using RMS include provisions that protect against potential antitrust and other legal violations, CRE companies can mitigate risks and avoid becoming embroiled in this type of lengthy and expensive litigation.