COLUMN-Column: RealPage goes on the offense in lawsuit against city of Berkeley over AI rent pricing law

By Jenna Greene

April 9 (Reuters) - Is the best defense a strong offense?

Consider a move by U.S. property management software firm RealPage, which sued the city of Berkeley, California, in federal court last week, alleging that a new ordinance barring local landlords from using AI-driven pricing algorithms to set residential rents is an unconstitutional ban on free speech.

Given RealPage’s current lawsuit load, the move caught my eye. The Richardson, Texas-based company is already battling civil antitrust suits by the U.S. Justice Department and state enforcers over its revenue management software. Prosecutors say RealPage “subverts competition and the competitive process” by collecting a broad swath of nonpublic rental data from landlords, plugging the combined information into an algorithm and using the results to recommend what to charge for rent, according to the DOJ’s complaint pending in U.S. District Court for the Middle District of North Carolina.

RealPage also faces sprawling multidistrict litigation by tenants who accuse the company of conspiring with major residential property owners to artificially inflate rents. (How sprawling? In a status report filed in Nashville federal court last week, the signatures of the lawyers involved spanned 22 pages.)

You might think another lawsuit would be the last thing RealPage, which is owned by private equity firm Thoma Bravo, would want right now?

Then again, the 1st Amendment suit against Berkeley comes as California’s second-largest city is weighing a similar ordinance. San Diego city councilmember Sean Elo-Rivera plans to bring forward a policy banning "algorithmic price-fixing software" to the full council next week, his deputy chief Ben Mendoza told me. Elo-Rivera in a statement called his proposed ordinance “narrowly tailored, legally sound,” and said, “We won’t be intimidated by meritless legal threats.”

A spokesperson for RealPage confirmed the suit against Berkeley was the company’s first challenge to a local ordinance but did not respond to additional questions, instead referring me to a company website rebutting “false and misleading claims” about RealPage.

Per the website and court papers, RealPage argues that its technology benefits both housing providers and residents by making the rental market more efficient. The purpose of RealPage’s software “is to optimize revenue — not to maximize rents. It makes rental price recommendations in all directions: higher, lower, or at the current rent price,” RealPage says.

The real culprit driving high housing costs across multiple markets, RealPage says, is lack of supply, not its rent pricing recommendations, which landlords are free to accept or reject.

Will the argument carry the day? It’s too soon to tell. Based on the latest docket filings, none of the antitrust cases appears to be near a resolution on the merits.

This is where municipal actions come into play.

San Francisco was first out of the gate, enacting an ordinance in September 2024. “Instead of waiting for court processes which may take years to resolve,” the measure states, San Francisco preemptively prohibited “the sale or use of algorithmic devices for the purpose of setting rents on residential dwelling units” in the city.

Philadelphia followed with a similar law a month later, and Berkeley city council members in March approved an ordinance that’s slated to go into effect on April 24.

It strikes me that there’s a certain “sentence first, verdict afterwards” quality to the moves, as the Queen of Hearts in “Alice in Wonderland” might say. A judge or jury may find RealPage's conduct doesn't violate any antitrust laws.

Berkeley City Attorney Farimah Faiz Brown in an email defended the city’s ordinance, arguing that the 118,000-person municipality — home to the University of California’s unofficial flagship campus and center of the free speech movement in the 1960s — is within its rights to protect its residents from “unlawful, predatory conduct.”

“RealPage has no First Amendment right to engage in, or facilitate, unlawful pricing alignment, coordination or fixing,” Brown said via email, adding that the city, represented by Keker, Van Nest & Peters, “intends to vigorously oppose RealPage’s lawsuit.”

In its April 2 complaint against Berkeley now pending before U.S. District Judge Jacqueline Scott Corley in San Francisco, RealPage and its lawyers from Gibson, Dunn & Crutcher argue that the ordinance wrongly targets lawful speech about the residential rental market.

“As enacted, the Berkeley Ordinance purports to ban rental advice based on computer analysis of any kind of information,” RealPage said in its complaint, hypothesizing that putting publicly available data into an Excel spreadsheet to calculate a rent would even be prohibited.

Even accepting the premise that preventing collusion among competitors and constraining the rate of rent hikes is a compelling government interest, RealPage says, “there is no evidence that the speech sought to be prohibited by the Ordinance (as opposed to other factors) causes either of these perceived harms.”

Corley has scheduled an April 16 hearing on RealPage's motion for a temporary restraining order to stop Berkeley's law from taking effect later this month.