Nevada District Court Dismisses Las Vegas Hotel Antitrust Case

On May 8, 2024, Chief Judge Miranda Du of the United States District Court for the District of Nevada granted defendants’ motion to immediately dismiss the complaint in Gibson v. Cendyn Group, LLCDocket No. 2:23-cv-00140-MMD-DJA, an antitrust case alleging that Las Vegas Strip hotel operators used algorithms to inflate room rates in violation of Section 1 of the Sherman Act. The court’s reasoning provides litigants on both sides with a framework for future cases.

Plaintiffs alleged that Caesars Entertainment, Inc., Treasure Island, LLC, and Wynn Resorts Holdings, LLC (the “Hotel Operators”) charged hyper-competitive room rates through GuestRev (individual rooms) and GroupRev (group rooms), which are shared revenue management systems licensed by Cendyn Group. Cendyn allegedly led a hub-and-spoke(1) conspiracy through an algorithm that used price and occupancy data to recommend room rates. The algorithm’s “optimal” rate was visible to individual hotel operators, who were discouraged by the system’s prompts to reject the recommendations. To establish anticompetitive effects in the relevant market, Plaintiffs relied on third-party economic analyses of revenue and pricing trends, as well as circumstantial evidence known as “additional factors”—e.g.motive and opportunity for conspiracy, market structure, fungibility of hotel rooms, and inelastic demand.

Before the court ruled in favor of the defendants, Judge Du carefully examined the plaintiffs’ claims. In an order dated October 23, 2023, dismissing the plaintiffs’ original complaint with an opportunity to amend it, the court asked the plaintiffs to address the following issues: (i) when the conspiracy began and who participated in it; (ii) whether the hotel operators conspired to adopt a common set of pricing algorithms; (iii) whether the hotel operators must accept the pricing recommendations; and (iv) whether the algorithm facilitated the exchange of non-public information.(2)

In its 2024 decision, the court held that plaintiffs’ amended complaint did not meet these threshold requirements. First, the court disagreed with plaintiffs’ contention that the initial timing of the collusion was immaterial because the Hotel Operators renewed their license agreements each year. Because defendants began using Cendyn’s technology at different times over a 10-year period, “there was no existing pricing agreement to which the latecomer could have joined,” and “a tacit understanding among (the Hotel Operators) was improbable.”(3)

Nor did Plaintiffs allege that the Hotel Operators “agreed to be bound by (Cendyn’s) recommendations, much less that they all agreed to charge the same prices.” (4) On the contrary, Plaintiffs alleged that Cendyn had difficulty in persuading customers to accept the recommendations. Even drawing all inferences in Plaintiff’s favor, the court found that the Hotel Operators were independently responding to similar pressures in an interdependent market, consistent with legal deliberate parallelism.

Finally, the court rejected plaintiffs’ claim that the Hotel Operators used Cendyn to exchange confidential information or, alternatively, that Cendyn used machine learning and algorithms to facilitate the exchange of confidential information. The court reasoned that, without additional evidence, “using all customer data for research does not credibly suggest that one customer has access to another customer’s confidential information—instead, it credibly suggests that Cendyn uses data from different customers to improve its products.”(5) Cendyn The dismissal of the case will not be the final word on the “relatively new antitrust theory based on algorithmic pricing.”(6) Pricing algorithms are the subject of three pending class action lawsuits in various jurisdictions.(7) As algorithms become a mainstream pricing tool, more are sure to emerge.

(1) A hub-and-spoke antitrust conspiracy consists of (i) a lead party (the “hub”); (ii) co-conspirators (the “spokes”); and (iii) connecting arrangements (the “ring”).

(2) View in general Order, Gibson v. Cendyn Group, Inc.2:23-cv-00140-MMD-DJA (D. Nev. Oct. 23, 2023).

(3) Order, Gibson v. Cendyn Group, Inc.2:23-cv-00140-MMD-DJA at 4 (D. Nev. May 8, 2024).

(4) ID. on 6.

(5) ID. At 10 o’clock.

(6) ID. at 5.

(7) See Cornish-Adebiyi v. Caesars Entertainment, Inc.1:23-cv-02536-KMW-EAP (D.N.J. filed March 28, 2024); Duffy v. Yardi Sys. Inc.2:23-cv-01391-RSL (W.D. Washington filed Mar 1, 2024); In the Re: RealPage, an antitrust dispute involving rental software.3:23-md-03071 (M.D. Tenn. filed Nov. 15, 2023).