Justice Department Should Not Rewrite Antitrust Law Over AI Concerns

The Justice Department recently launched an investigation into software companies that provide algorithms to landlords to inform their pricing strategies, which critics say contribute to inflation in the rental market. While these investigations have garnered significant attention because of how politically charged the housing industry has become in this inflationary environment, they are not the only example of the Justice Department targeting algorithmic AI.

The Justice Department apparently believes that AI-based services, now used in nearly every sector of the economy, could be used to coordinate collusion and anticompetitive behavior in violation of the nation’s antitrust laws.

To help the Justice Department, the Senate is considering the Preventing the Algorithmic Facilitation of Rental Housing Cartels Act. The bill would change the procedures and substantive rules of antitrust law to make it easier for law enforcement to crack down on algorithms.

The national economy would suffer from these special provisions, which sharply undermine legal precedent. Moreover, such well-intended policies would have a negative impact on innovation in the United States. To address potential anticompetitive conduct, the attention of the DOJ and Congress should focus on behavior, not technology.

Antitrust law focuses on the behavior

A fundamental principle of antitrust law is that collusion is unlawful anti-competitive conduct.

In a landmark case from 1940 United States v. Socony-Vacuum Oil Co.The Supreme Court considered whether major oil companies that conspired to artificially raise and fix gasoline prices violated the Sherman Antitrust Act. It found that by purchasing large quantities of gasoline in spot transactions to keep prices artificially high, they violated Section 1 of the act — because “any combination that interferes with the pricing structure is engaged in an unlawful activity” and “price-fixing agreements are per se unlawful under the Sherman Act, regardless of the means used to fix such prices.”

However, the court drew a distinction between unlawful conduct, which it defined as any “agreements or plans to raise and maintain prices” between competitors, and the proper mechanisms or devices used to achieve and maintain such price levels.

With respect to price fixing, the Court emphasized that regardless of the pricing methods used—whether by eliminating surplus products or by establishing purchasing programs—the fundamental legal question is whether the entities’ actions constitute a direct interference with the free play of market forces. In other words, the Department of Justice must show a physical price-fixing agreement between two or more parties in order to prove a violation of the Sherman Act,

The current DOJ investigation and proposed congressional bill against algorithmic rentals would potentially bypass this essential requirement by creating a contract application for the use of an algorithm. This change would undermine traditional antitrust protections for competition.

In the context of residential AI, there must be evidence that the AI ​​or the parties controlling the AI ​​engaged in an anticompetitive agreement to fix prices. Mere allegations of collusion or parallel conduct are not sufficient to establish liability. A court would require evidence of communication, coordination, or other evidence of agreement between the parties involved.

Without such evidence, a court would not have drawn an inference of agreement solely based on AI’s conduct or the similarity of AI’s prices. Allowing plaintiffs to obtain Sherman Act violations by mere allegations would have destroyed key doctrine protections requiring agreement.

An obstacle to innovation

The Justice Department investigation and proposed antitrust regulations for AI are designed to target emerging technology, which is expected to deliver short-term benefits at best at the expense of long-term innovation.

The newly proposed test that the DOJ apparently intends to create would aim to allow courts to attribute harm based on the technical capabilities of AI rather than the intent of each tool. If the DOJ decides to go down that route, courts should overturn its actions before a dangerous precedent is set.

AI and the algorithms that implement it are still in their infancy. They are far from the capabilities of human intelligence, especially in their ability to facilitate collusion. The Justice Department should not penalize AI at this early stage of innovation.

Application

A price-fixing agreement requires a meeting of human minds intent on anticompetitive action. AI and algorithms cannot enter into any such agreement or create such intent.

Existing antitrust law requires proof of a price-fixing agreement to establish a cartel. The proposed approach overturns this well-established requirement by allowing AI technologies to be used as evidence of an agreement. This sweeping change would penalize the use of new technologies and bypass the need to prove anticompetitive conduct.

The focus should be on the wrongful behavior, not on tools such as those based on AI. AI tools are still developing and have beneficial applications in data analysis and communication. Perhaps they can also be used to coordinate a cartel, but this applies to all traditional and emerging technologies.

If the investigation continues, DOJ should focus on identifiable conduct, not tools that can be used to conduct unlawful activity. There is also no need for special legislation pending in Congress. Traditional antitrust rules can be applied without interfering with AI developments.