On August 15, the Ninth Circuit Court of Appeals affirmed the dismissal of a class action complaint in Gibson v. Cendyn Group, No. 24-3576, rejecting plaintiffs’ arguments that Las Vegas hotels violated Section 1 of the Sherman Act through their common use of revenue management software. The decision follows two previous orders by a Nevada federal court that dismissed plaintiffs’ arguments that the hotels engaged in a per se illegal “horizontal” conspiracy with each other to fix their prices at levels recommended by the software vendor (Gibson I) and plaintiffs’ alternative theory that their separate “vertical” licensing agreements with the software vendor unreasonably restrained trade in violation of the Rule of Reason (Gibson II).
Although the plaintiffs initially appealed both decisions, they abandoned their “horizontal” conspiracy claim and focused instead on their theory that the hotels’ separate “vertical” licensing agreements with the same software vendor caused prices to rise “in the aggregate,” allegedly harming competition in the market for Las Vegas hotel room rentals. The Ninth Circuit, however, disagreed that the hotels’ licensing agreements with the software provider were even “vertical” agreements at all. As the court explained, revenue management software was “not an input that goes into the production of hotel rooms for rentals”; instead, the licenses between the hotels and the software vendor were nothing more than “ordinary sales contracts” that did not necessarily affect competition in the market for hotel room rentals.
The Ninth Circuit then determined that, as alleged, the software licenses did not restrain competition in the relevant market for hotel room rentals for two reasons. First, the court concluded that the hotels’ common use of the same revenue management software did not affect their incentives to compete. Each hotel independently had the same incentives to set prices at profit-maximizing levels, regardless of whether each hotel used the same revenue management software or not. And, as the court explained, the antitrust laws do not “require businesses to decline to take advantage of a service because its competitors already use that service.” Second, the court found that the licensing agreements did not limit the hotels’ ability to compete in the market for hotel room rentals because the agreements “provide[d] for the payment for and provision of software products, not the rental price of the hotel rooms.” Without a horizontal agreement among the hotels or vertical agreements between the hotels and the vendor requiring that they adopt the software’s price recommendations, the licensing agreements did not restrain the hotels’ ability to price or sell hotel rooms “in accordance with their own judgment.”
The Ninth Circuit is the first federal appeals court to address allegations of antitrust violations arising from so-called “algorithmic pricing” software, which have proliferated in class actions across multiple industries in recent years. The Gibson decision suggests that, absent evidence of a horizontal price-fixing conspiracy, courts may be skeptical that competitors’ common use of the same revenue management software suffices to state an claim under the antitrust laws, even if it is accompanied by allegations of higher market prices.