(Karen Cornish-Adebiyi, et al. v. Caesars Entertainment Inc., et al., No. 24-3006, 3rd Cir.).
(Open Markets’ amicus brief available. Document #46-250205-055B. AAI’s amicus brief available. Document #46-250205-056B.)
The two amicus briefs were filed Jan. 28.
Karen Cornish-Adebiyi, Luis Santiago, Monica Blair-Smith and Jacob Fabel filed a class action against various Atlantic City casinos and hotel operators and a software company, contending that the defendants violated the Sherman Act, 15 U.S.C. § 1. The casino defendants are Caesars Entertainment Inc., Boardwalk Regency LLC, Harrah’s Atlantic City Operating Co. LLC, Tropicana Atlantic City Corp., MGM Resorts International, Marina District Development Co. LLC, Cendyn Group LLC, Hard Rock International Inc., Seminole Hard Rock Support Services LLC and Boardwalk 1000 LLC.
Casinos
The plaintiffs claimed that the casino defendants, which operate Hard Rock Atlantic City, Borgata Hotel Casino & Spa and three Caesars properties, conspired with software company Cendyn Group to inflate and fix the price of hotel rooms. According to the plaintiffs, Cendyn and The Rainmaker Group before it offered the casino defendants two products: Guest REV and GroupREV. Both products use an algorithm and REVcaster to make individualized recommendations about room pricing.
By providing certain nonpublic and proprietary data, the casinos can rely on the program’s algorithm to set and artificially raise and fix prices for rooms, the plaintiffs claim.
U.S. Judge Karen M. Williams of the District of New Jersey granted a motion to dismiss an amended complaint on Sept. 30.
The plaintiffs allege a hub-and-spoke conspiracy where there is a central actor at the hub with multiple competitors forming the “spokes” of the conspiracy and those competitors connecting to each other at the rim, Judge Williams said. The motion targets this rim connection, which is the horizontal connections among the casino defendants that allegedly fix the prices of rooms. But to plead a claim based on this type of conspiracy, the plaintiffs must allege that an agreement exists, Judge Williams said. Circumstantial evidence can meet the standard but requires parallel conduct in a context that suggests more than just independent action. There is no evidence of a direct agreement between the casinos, Judge Williams said.
“The Court reiterates that the Amended Complaint does not allege that the Casino-Hotels’ proprietary data are pooled or otherwise comingled into a common dataset against which the algorithm runs. Stated differently, the pricing recommendations offered to each Casino-Hotel individually are not based on a pool of confidential competitor data. The Amended Complaint goes to rather extraordinary lengths to dance around that allegation with linguistic equivocation in an obvious attempt to imply it, but it never unambiguously alleges as much. What is more, the specific sources quoted by the Amended Complaint seem to confirm that the pricing recommendations at issue were never based on the confidential, proprietary data of their competitors. And the Casino-Hotels’ ‘supply and demand data’ to which Plaintiffs allude appears to be publicly available information,” Judge Williams said.
The plaintiffs appealed.
Trade Restraint
In their opening brief filed Jan. 21, the appellants argue that the allegation that the defendants unreasonably restrained trade through the use of the Rainmaker program to fix the price of hotel rooms satisfies the standard for alleging a horizontal price fixing scheme.
(Cornish-Adebiyi, et al. opening brief with attachments available. Document #46-250205-054B.)
The appellants also argue that they do not need to point to direct evidence of wrongdoing, only plausible allegations of an unlawful agreement. In the case of hub-and-spoke schemes, plaintiffs are not required to plead direct communication between defendants. Instead, the case can be based on simultaneous action or agreements. The defendants successfully muddied the waters about when certain programs were available and, thus, when individual defendants began using those products. But the allegation that all the defendants began using Rainmaker around the time of its release satisfies the standard in this case, the appellants tell the court.
In finding otherwise, the District Court ignored the Third Circuit’s “settled framework for analyzing a complaint’s sufficiency in antitrust cases,” the appellants argue.
Fixed Prices
In its amicus brief in support of the appellants, Open Markets Institute says that price fixing has rightly been illegal for centuries and that new technology like AI should not change that. “As an ever growing number of firms turn to technology like algorithms and Artificial Intelligence to optimize their operations, the ability of firms to work together to fix prices and take other coordinated actions is rapidly becoming more sophisticated and more difficult to detect. Courts must apply longstanding law against such collusive conduct and put firms on notice that this type of business behavior will not be tolerated regardless of the technology used,” Open Markets argues.
The allegations that the hotels used Cendyn’s Rainmaker program to “raise hotel rates to supercompetitive level” satisfies the requirement for a hub-and-spoke conspiracy, Open Markets tells the court. When all the participants in the conspiracy raised their rates, they all benefited despite higher vacancy rates. But none of them would have individually benefited from raising rates while occupancy rates inevitably declined. “This change in strategy works only if there was a prior understanding that their competitors would likewise change strategy,” Open Markets says.
It does not matter that no confidential information was provided to Rainmaker or that Rainmaker didn’t pool the proprietary information it was provided, Open Markets says.
Economic Transformation
In its amicus brief in support of the appellants, the American Antitrust Institute (AAI) says, “We are in the early days of a transformation of our economy driven by the widespread use of cutting-edge software powered by machine learning and artificial intelligence. . . . AI can speed up innovation, lower entry barriers, maximize production, and facilitate price competition. . . . But it can also create or enhance market power, thwart new entrants, raise prices, and reduce output. . . . Specifically, there is a consensus among researchers and antitrust enforcers that AI can enable firms to coordinate pricing and output decisions without expressly agreeing with each other to do so.”
Antitrust tools are adaptable enough to distinguish between anticompetitive conduct and conduct that benefits competition, AAI says. “But for those tools to be effective, courts must not shoehorn AI into legal frameworks designed for outdated technologies. They must focus on ‘competitive reality’ rather than ‘formalistic distinctions,’ AAI says, quoting Am. Needle, Inc. v. Nat’l Football League, 560 U.S. 183, 191, 196 (2010).
But the District Court failed to do that by ignoring the concerted activity of the hotels and the impact that conduct had on prices, AAI argues.
“By requiring that algorithmic collusion demonstrate the hallmarks of human collusion, the district court erred. Its opinion provides a roadmap for evading antitrust scrutiny and effectively immunizes cartels that fix prices using AI. That is a dangerous precedent to set, particularly as AI increasingly pervades our economy. . . . This Court should reverse,” AAI says.
Counsel
The appellants are represented by Christopher J. Cormier and Matt Strauser of Burns Charest LLP, Shawn L. Raymond of Suman Godfrey LLP in Houston and Zach Fields of the firm’s New York office and Mindee J. Reuben of Lite DePalma Greenberg & Afanador LLC in Philadelphia.
The Caesar casino defendants are represented by Boris Bershteyn, Ken Schwartz, Tansy Woan, Andrew Muscato and Sam Auld of Skadden, Arps, Slate, Meagher & Flom LLP in New York.
Borgata is represented by Harry H. Rimm of Womble Bond Dickison in New York, Bethany W. Kristovich of Munger, Tolles & Olson LLP in Los Angeles and Justin R. Raphael and Juliana M. Yee of the firm’s San Francisco office.
Boardwalk 1000 is represented by Craig Carpenito, Thomas J. Scrivo, David S. Lesser and Jamie Dycus of King & Spalding LLP in New York.
Hard Rock is represented by Jennifer L. Del Medico and Laura W. Sawyer of Jones Day in New York.
Cendyn is represented by Gregory Mortenson of Latham & Watkins LLP in New York, Sadik Huseny, Tim O’Mara and Brendan McShane of the firm’s San Francisco office and Anna M. Rathburn and Christopher J. Brown of its Washington, D.C., office.
Counsel For Amici
Open Markets is represented by Tara Pincock and Sandeep Vaheesan of Open Markets Institute and Jason Rathod of Migliaccio & Rathold LLP, all in Washington.
AAI is represented by Joshua P. Davis and Matthew Summers of Berger Montague PC in San Francisco and David O. Fisher and Randy Stutz of AAI in Washington.
(Additional documents available: District Court opinion. Document #46-241113-011Z. Amended complaint. Document #46-241113-015C.)