The Justice Department filed an antitrust lawsuit Friday against real estate software company RealPage, saying its software enabled landlords to collude to raise rents across the United States.

The suit, joined by North Carolina, California, Colorado, Connecticut, Minnesota, Oregon, Tennessee and Washington, accuses RealPage of facilitating a price-fixing conspiracy that boosted rents beyond market forces for millions of people. It’s the first major civil antitrust lawsuit where the role of an algorithm in pricing manipulation is central to the case, Justice Department officials said.

“Americans should not have to pay more in rent because a company has found a new way to scheme with landlords to break the law,” Attorney General Merrick Garland said in a statement.

A RealPage spokesperson, Jennifer Bowcock, said the company would “vigorously” defend itself against the suit and that its revenue management software was “purposely built to be legally compliant.”

The suit escalates the government’s efforts to regulate what it says is misuse of technology. Officials have sued Google, Amazon, Meta and Apple over what they said were monopolistic behaviors that harm consumers.

RealPage’s software, YieldStar, gathers confidential real estate information and is at the heart of the government’s concerns. Landlords, who pay to use the software, share information about rents and occupancy rates that is otherwise confidential. Based on that data, an algorithm generates suggestions for what landlords should charge renters, and those figures are often higher than they would be in a competitive market, according to allegations in the legal complaint.

The government’s suit, filed in the Middle District of North Carolina, also accuses RealPage of monopolizing the market for software that landlords use to set prices for apartments. Properties containing about 3 million rental housing units use RealPage’s software, and the company has access to confidential information from over 16 million units across the country, according to the complaint.

Owned by the private equity firm Thoma Bravo, RealPage has advertised its software to landlords as a tool that can help them earn 3% to 7% more than they would otherwise, and says its software is used in metro areas around the country. The government’s complaint cites comments from RealPage executives, who have described the company’s software as a tool for landlords to raise prices and avoid competition.

RealPage’s software ensures landlords are “driving every possible opportunity to increase price even in the most downward trending or unexpected conditions,” the company said, according to the government’s complaint. In another instance, a landlord called the tool “classic price fixing,” according to the complaint.

RealPage has previously denied allegations of illegal collusion, arguing that landlords are not obliged to accept its software’s suggestions when setting rents. Other economic factors, like an undersupply of housing units, are to blame for driving up rents nationwide, the company has said.

RealPage has “a history of working constructively with the DOJ” to show the software complies with the law, Bowcock said. In 2017, RealPage acquired a rival software provider, which the Justice Department had scrutinized at the time and ultimately approved.

A spokesperson for Thoma Bravo declined to comment.

Beyond typical investigative tools like reviewing internal documents, the government commissioned data scientists to analyze the code RealPage relies on to set rents, Jonathan Kanter, the head of the Justice Department’s antitrust division, said at a news conference Friday.

“The modern machinery of algorithms and AI can be even more effective than the smoke-filled rooms of the past,” he said.

The cost of housing has become a political issue in the lead-up to the presidential election in November. Rent increases have been a driver of unusually strong inflation. Annual rent growth nationally peaked at nearly 16% in early 2022, according to data from real estate site Zillow.

“We’ve had multiple years of high growth in housing prices,” said Sandeep Vaheesan, legal director at the Open Markets Institute, a research and advocacy group focused on antitrust issues. “There’s no single factor accounting for the rise in rents, but I think RealPage is an underrated contributor.”

In a speech this month, Vice President Kamala Harris, the Democratic nominee for president, cited collusion among corporate landlords, including via price-setting software, as an anticompetitive practice that drives up rental costs.

In November, Attorney General Brian Schwalb of the District of Columbia sued RealPage and 14 of the largest landlords in the district, the first such lawsuit by a public agency. The Arizona attorney general, Kris Mayes, followed in February, accusing RealPage and nine landlords of illegally conspiring to raise rents for hundreds of thousands of renters in the Phoenix and Tucson areas.

Regulators have been more broadly examining the impact of algorithms on prices throughout the economy. Algorithms are used to help effectively set prices by ride hailing companies that deploy “surge pricing” during high demand, and by colleges, where administrators calculate how much money to offer applicants in financial aid.

In addition to the lawsuit against RealPage, the Justice Department and the Federal Trade Commission have weighed in on private lawsuits over whether hotel companies colluded by using algorithms to help determine room rates.

But it can be difficult for regulators to build these cases, experts said.

“The algorithm itself can serve as a mechanism for communication,” said Diana Moss, director of competition policy at the Progressive Policy Institute. “That is as approachable and actionable under U.S. antitrust as any form of communication we’ve seen in past cases in the nondigital era.”

The Federal Trade Commission began a study in July of how companies use data from customers to set prices. It asked eight firms about their practices, including Mastercard, JPMorganChase and the consulting giants McKinsey & Co. and Accenture.

Algorithms do not operate in a law-free zone, U.S. Deputy Attorney General Lisa Monaco said at the news conference.

“After all, humans create them,” Monaco said. “Our laws will always apply to the people behind the machines and the companies behind the algorithms.”

This article originally appeared in The New York Times.

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