Gibson Decision Hands Atlantic City Casino-Hotels Dismissal of Price-Fixing Claims

As Holland & Knight's Antitrust Team previously reported, the U.S. District Court for the District of Nevada in May 2024 dismissed with prejudice a putative class action alleging that a handful of Las Vegas hotel operators and a software provider broke antitrust laws by licensing and using a software program that made hotel room pricing recommendations. On Sept. 30, 2024, a New Jersey federal court dismissed with prejudice a nearly identical putative class action making the same allegations against Atlantic City hotel operators.

Summary of the Court's Ruling

U.S. District Judge Karen M. Williams dismissed the plaintiffs' amended complaint with prejudice, finding that it suffered from the same pleading deficiencies identified in Gibson under the Sherman Antitrust Act, 15 U.S.C. § 1 et seq., and Twombly pleading standards. See Cornish-Adebiyi, et al. v. Caesars Entertainment, Inc., et al., No. 1:23-CV-02536-KMW-EAP (D. N.J. Sept. 30, 2024).

Factual Background

The proposed class comprised "all persons who directly rented hotel rooms from any Casino-Hotel Defendant or co-conspirator in Atlantic City" from June 28, 2018, to the present. Am. Compl. at ¶ 26. The plaintiffs alleged one count in their amended complaint against nine hotel entities (collectively referred to by the court as the Casino-Hotel Defendants) and a software provider for the hotel management industry called Cendyn Group LLC. Id. at ¶ 1, n. 2.

As in the Gibson case, the court discussed the two Cendyn software products that were licensed and used by all the Casino Hotels – GuestREV and GroupREV – each of which uses pricing algorithms to offer individualized recommendations to each Casino-Hotel as to how it should optimally price its hotel rooms. Mem. Op. at 2. The court referred to these as the "Rainmaker products" as the relevant software was first developed and sold by The Rainmaker Group until it was acquired by Cendyn. Id. More recently, the Rainmaker products started incorporating a feature called REVCaster. Id. REVCaster is a "price comparison tool" that utilizes publicly available room prices for competing hotels. Id. The plaintiffs' Amended Complaint asserted that the Casino Hotel Defendants began using the Rainmaker products "at various points in time" over a 14-year period. Id. at 2-3.

The plaintiffs' alleged hub-and-spoke conspiracy mirrored the allegations in Gibson. The plaintiffs' sole claim alleged that Cendyn and its Rainmaker products are the central "hub" and the individual Casino-Hotels are the "spokes." Id. at 6. The proposed "rim" was the alleged horizontal agreement among the Casino-Hotels to fix the prices of their hotel rooms. Id. The plaintiffs alleged that each Casino-Hotel agrees to give the Rainmaker products access to certain data, at least some of which is nonpublic proprietary data, relating to pricing and occupancy. Id. at 3.

The Court's Holding

The court observed that the purported hub-and-spoke conspiracy in this case was nearly identical to that pleaded in Gibson and found it indisputable that the same pleading deficiencies identified in Gibson were present in the plaintiffs' Amended Complaint. Thus, the court concluded that the plaintiffs similarly failed to establish a plausible price-fixing conspiracy among the Casino-Hotels in Atlantic City and dismissed the case, with prejudice.

The court addressed numerous pleading deficiencies that mirrored those in Gibson.

First, the court highlighted that the Casino-Hotels' subscriptions to the Rainmaker products occurred over a 14-year period beginning as early as 2004 and ending in 2018. Id. at 9. The court stated that to survive dismissal, the plaintiffs needed to raise an inference that the Casino-Hotels' use of the software originated from a preceding agreement. Id. However, here, the court found that the 14-year gap, coupled with the pricing authority retained by the Casino-Hotels, made it improbable that the Casino-Hotels tacitly made an agreement, let alone an agreement to fix the prices of their hotel rooms. Id. at 10.

Further, the court noted that the plaintiffs alleged only that the Casino-Hotel Defendants had provided nonpublic pricing and occupancy data for their hotel rooms to the Rainmaker products. Id. The court paid particular attention to the fact that the plaintiffs could not explain how that nonpublic data was used by Cendyn once it was handed over. The court stated that deficit made the plaintiffs' antitrust theory "factually and legally incomplete." Id. at 10.

The court pointed to the fact that the plaintiffs had not alleged that the Casino-Hotels' proprietary data was pooled or otherwise commingled into a common dataset and, thus, the pricing recommendations offered to each Casino-Hotel were not based on a pool of confidential competitor data. Id. at 10. In fact, the sources the plaintiffs' quoted in the Amended Complaint appeared to confirm the exact opposite – that the pricing recommendations at issue were never based on the confidential, propriety data of their competitors, but rather were based on publicly available information. Id. at 10-11.

The court distinguished these claims from those successfully made in the In re RealPage, Rental Software Antitrust Litigation (RealPage), emphasizing that in RealPage, the plaintiffs had explicitly alleged that the defendants agreed to set prices based on a pool of their horizontal competitors' confidential, proprietary data and that the relevant algorithm providing pricing recommendations that were based on private competitor data. Id. at 11-13. However, here, just as in Gibson, the plaintiffs failed to plausibly allege the exchange of confidential information and failed to allege that the pricing recommendations offered to each Casino-Hotel were based on confidential competitor data. Id.

Takeaways and Practical Implications

The Cornish-Adebiyi decision demonstrates a successful invocation of the roadmap laid out in Gibson for algorithmic price-fixing cases. This line of cases distinguishes itself from the RealPage case because, while the legal theory and framework are largely the same, the plaintiffs in Gibson and Cornish-Adebiyi alleged only the mere use of the same pricing software, but without adding the necessary allegation that the Casino-Hotel Defendants shared confidential information through that software and received pricing recommendations based on that confidential information.

The Cornish-Adebiyi decision demonstrates that in order to survive a motion to dismiss in a case alleging algorithmic collusion, plaintiffs might need to allege that confidential information is used directly to make pricing recommendations to competitors

The Cornish-Adebiyi decision suggests that courts evaluating claims in algorithmic collusion cases might demand more than allegations of mere use of a common pricing platform. Where a pricing algorithm does not rely for pricing recommendations on a pool of nonpublic information and users of the software are not required to accept – and often do not accept – pricing recommendations generated by pricing software, plaintiffs should struggle in related cases to survive motions to dismiss.

Holland & Knight's Antitrust Team will continue to monitor developments in the evolving legal landscape applicable to algorithmic collusion cases.