Artificial Intelligence (AI) is quickly evolving to be more capable and efficient in ways that defy even our own imaginations. It is then no surprise that businesses are increasingly looking to AI, including AI-driven pricing algorithms, to optimize their business operations and strategic decision making. Regulators, however, have expressed increasing concern that AI-driven algorithms may facilitate price-fixing agreements, even in the absence of direct human-to-human contact. In response, lawmakers have introduced new bills and taken aggressive new enforcement postures that could massively expand the scope of enforcement and potential antitrust liability for businesses that rely on pricing algorithms.

With respect to newly proposed legislation, Senator Amy Klobuchar has introduced a bill called the Preventing Algorithmic Collusion Act.[1] The Act would prohibit the use of pricing algorithms that rely on the use of nonpublic competitor data to set or recommend prices or commercial terms.[2] Representing a sharp break from decades of black letter antitrust doctrine, as Senator Klobuchar noted in the press release accompanying this proposal, the Act would impose liability even in absence of “proof of an explicit agreement to fix prices”[3] by presuming an unlawful agreement when a pricing algorithm is used by competitors to set or recommend prices.[4] The Act would also impose significant new disclosure and audit burdens on businesses. For example, it would require companies with an annual revenue of $5,000,000 or more to disclose to customers if they use pricing algorithms to set prices or commercial terms and what third party, if any, developed that algorithm.[5] The Act would also give the FTC and the DOJ the right to audit the pricing of a company’s algorithms.[6]

Senator Ron Wyden has also introduced a bill, called the Preventing the Algorithmic Facilitation of Rental Housing Cartels Act. This Act, responding to litigation alleging that landlords used pricing software from RealPage Inc. to fix prices of rental properties, would prohibit the use of algorithms that increase price or reduce the supply of rental housing.[7] Specifically, the Act would make it per se illegal for landlords to contract with “any person that operates software or data analytics service that performs a coordinating function for any rental property owner.”[8] Although this proposal, inspired, as it is, from the RealPage litigation, is limited to property rentals, businesses should be on alert for potential future legislation targeting similar use of pricing algorithms in other industries. For example, the hotel industry is already facing similar litigation based on competing hotels using a third party’s pricing algorithms. In one case, a company is being accused of providing its pricing algorithm services to competing Las Vegas hotel operators, allegedly resulting in artificially high room rates.[9]

These bills both have a long way to go before even possibly becoming law. But in the meantime, antitrust regulators are proceeding full speed ahead, taking aggressive enforcement action and positions targeted at what they view as problematic pricing algorithms. For example, within the past year, the DOJ and the FTC have:

• identified pricing algorithms as a factor that could show that a merger may meaningfully increase risk of coordination between competitors;[10]
• launched inquiries into companies for their “investments and partnerships involving generative AI companies and major cloud service providers”;[11]
• filed an antitrust lawsuit against a data and consulting company for allegedly enabling meat processors to restrict supplies and raise prices by sharing competitively sensitive information among them;[12]
• filed a statement of interest arguing that RealPage’s pricing algorithm constitutes per se price fixing under the Sherman Act;[13]
• launched an AI initiative to hire more data scientists and experts to better understand AI;[14] and
• hosted an AI roundtable discussion where FTC Chair Lina Khan asserted that “there’s no AI exemption to the laws on the books.”[15]

As this activity shows, a “whole of government” approach is now being deployed to ramp up enforcement and potentially expand liability in connection with use of AI-driven pricing algorithms. While they may have legitimate, procompetitive uses, and could potentially be used consistent with existing antitrust law, any businesses considering such tools should be cognizant of this increased scrutiny and seek guidance from outside antitrust counsel.

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[1] See S. 3686, 118th Cong. (2024). https://www.congress.gov/bill/118th-congress/senate-bill/3686/text.

[2] The proposed law defines pricing algorithm as “any computational process, including a computational process derived from machine learning or other artificial intelligence techniques, that processes data to recommend or set a price or commercial term that is in or affecting interstate or foreign commerce.” Id. Sec. 2(9).

[3] Press Release, U.S. Senator for Minnesota Amy Klobuchar, Klobuchar, Colleagues Introduce Antitrust Legislation to Prevent Algorithmic Price Fixing (Feb. 2, 2021), https://www.klobuchar.senate.gov/public/index.cfm/2024/2/klobuchar-colleagues-introduce-antitrust-legislation-to-prevent-algorithmic-price-fixing.

[4] S. 3686 Sec. 5(a).

[5] Id. Sec. 6(a)(1), 6(b)(2).

[6] Id. Sec. 3(a).

[7] See S. 3692, 118^th Cong. (2024). https://www.congress.gov/bill/118th-congress/senate-bill/3692/text.

[8] Coordinating function is defined as: “A) collecting historical or contemporaneous prices, supply levels, or lease or rental contract termination and renewal dates of residential dwelling units from 2 or more rental property owners”;

B) “analyzing or processing of the information described in subparagraph (A) using a system, software, or process that uses computation, including by using that information to train an algorithm”; and

C) “recommending rental prices, lease renewal terms, or ideal occupancy levels to a rental property owner.” Id. Sec. 2(4).

[9] See The National Law Review, Atlantic City Hotels Turn Attention to Vegas Courthouse in Pricing Algorithms Case (Oct. 30, 2023), https://www.natlawreview.com/node/260766/printable/pdf.

[10] U.S. Dep’t of Justice & Fed. Trade Comm’n, Merger Guidelines, at 9 (Dec. 18, 2023), https://www.justice.gov/d9/2023-12/2023%20Merger%20Guidelines.pdf.

[11] See Press Release, FTC, FTC Launches Inquiry into Generative AI Investments and Partnerships (Jan. 25, 2024), https://www.ftc.gov/news-events/news/press-releases/2024/01/ftc-launches-inquiry-generative-ai-investments-partnerships.

[12] See Press Release, DOJ, Justice Department Sues Agri Stats for Operating Extensive Information Exchanges Among Meat Processors (Sept. 28, 2023),https://www.justice.gov/opa/pr/justice-department-sues-agri-stats-operating-extensive-information-exchanges-among-meat.

[13] See Case Document, DOJ, Statement of Interest (Nov. 15, 2023), https://www.justice.gov/atr/case-document/statement-interest-united-states-0.

[14] See Ashley Gold, DOJ has eyes on AI, antitrust chief tells SXSW crowd, Axios (Mar. 13, 2023), https://www.axios.com/2023/03/13/doj-kanter-ai-artificial-intelligence-antitrust.

[15] See Events, FTC, Creative Economy and Generative AI, at 2 (Oct. 4, 2023), https://www.ftc.gov/system/files/ftc_gov/pdf/creative-economy-and-generative-ai-transcript-october-4-2023.pdf.