On October 24, a Nevada federal court dismissed a class action complaint against operators of hotels on the Las Vegas Strip alleging that defendants’ use of similar room-pricing algorithms constituted a per se illegal price-fixing agreement under Section 1 of the Sherman Act.  The decision, Gibson v. MGM Resorts International, No. 2:23-cv-00140 (D. Nev. 2023), rejected plaintiffs’ allegations of a per se illegal agreement among competitors or a hub and spoke conspiracy but granted leave to amend to plead a Rule of Reason theory. 

Algorithmic pricing refers to the use of software tools, typically offered by vendors, that include historical and/or contemporaneous data to dynamically propose prices to businesses.  In Gibson, plaintiffs alleged that Las Vegas hotel operators Caesars, Treasure Island, Wynn, and MGM violated Section 1 by “agreeing to all use pricing software marketed by the same company” resulting in “higher prices for hotel rooms than the market could otherwise support.”  

The court, however, declined to infer a per se illegal agreement for several reasons.  First, plaintiffs’ pleadings of parallel conduct were deficient: they failed to allege that the hotels all used the same pricing algorithms or that they adopted those algorithms at the same time.  Furthermore, although plaintiffs alleged the hotels accepted the algorithms’ recommendations 90% of the time, the court determined their 10% rejection rate alone was a “fatal deficiency” in pleading parallelism.

Second, the court rejected plaintiffs’ theory that license agreements between the software vendor and the hotels evidenced a “hub and spoke” conspiracy to inflate prices by exchanging competitively sensitive nonpublic information.  Plaintiffs, the court noted, had not pleaded that either defendants’ data inputs to or the vendor’s outputs from the price recommendation algorithm were based on nonpublic data.  As the court noted, data on the hotels’ room rates were already widely available on the hotels’ and third-party websites, and “[c]onsulting public sources to determine how to price a hotel room … does not violate the Sherman Act.” 

Despite dismissing the complaint, the court granted plaintiffs leave to amend based on their alternative theory that vertical agreements between the hotels and the algorithm vendor violated the Rule of Reason.