The Biden-Harris Administration’s Unintelligent Attack on AI

Artificial intelligence (AI) has been used for many years but as it becomes more ubiquitous it is turning into a target for greater government intervention and control. The Biden-Harris administration took the first step to get the government involved in AI with its October 23, 2023, executive order on Safe, Secure, and Trustworthy Artificial Intelligence and its October 30, 2023, "Blueprint for an AI Bill of Rights." The executive order included language that the administration should give "clear guidance to landlords" and federal programs and contractors to prevent AI algorithms from being used to increase discrimination. There was no explanation or example of how the algorithms were then being used for such purposes.

Rather than providing a framework that would let the private sector continue to innovate, the administration has taken these instructions too far by attacking companies working on innovative new tools to accomplish various tasks, including recommendations on the appropriate rental value for various communities across the country. This is unfortunately the effort by the administration to stifle innovation and control industries from the top down.

On August 23, 2024, the Biden-Harris administration's Department of Justice (DOJ) filed an antitrust suit against RealPage, a software product that uses algorithms to gather and analyze information about consumer demand, comparable housing unit supply, rents, and vacancy rates to recommend rental pricing to help property managers optimize rental prices to maximize occupancy rates and manage normal seasonal fluctuations. The DOJ was joined by the attorneys general of California, Colorado, Connecticut, Minnesota, North Carolina, Oregon, Tennessee, and Washington.

Claiming that the software would harm rentals through a price fixing scheme, the DOJ suit alleges that RealPage's product enables collusion with landlords and property managers that unfairly increases rents. Specifically, the lawsuit contends that the software compiles nonpublic, competitive information about property rental rates and establishes a monopoly in the market. However, the agency will undeniably face a high burden of proof on market-power assertions given that RealPage's tools are applied to only 3 million rental units out of a pool of approximately 50 million total units nationally, and property managers can choose not to use this tool to determine rental prices.

Establishing the "correct" price for rent is a function of supply and demand, housing stock, local market fluctuations, and what a renter will pay for a specific property. For example, Washington, D.C. has more turnover of rentals in an election year than a non-election year, and the highest amount occurs after a presidential election. The rental demand also increases two months before local colleges and universities begin classes. That means prices will be higher in January after an election and during the summer, and lower when demand eases during other months. But if occupancy is high throughout the year, prices will not drop as much as they might otherwise. If the government determines what tools can be used to help set prices, the government itself would be setting prices.

Legal scholars are concerned that accusing companies of colluding, even if they have had no contact with each other, sets a exceptionally low bar for antitrust activity by the federal government. This could make pricing models or software algorithms in any industry a possible target for enforcement, ultimately discouraging the development of new innovative programs that utilize data analytics and artificial intelligence tools to help solve real world problems and provide better outcomes for consumers.

The DOJ claims that prices are "fixed" by jointly using an algorithm, even if the companies that submit their data to RealPage have not had contact with each other and have no agreement to set prices, restrict output, or otherwise control the marketplace. They know nothing about which companies are using RealPage and they are not obligated to use the information provided to them after they submit their data. The use of algorithms to set pricing occurs across the economy, and the DOJ lawsuit could be the first of dozens to go after this established practice and become the federal government's most extensive attempt to set prices throughout the U.S. economy.

In addition to the DOJ's misguided allegations, some big city officials are in the process of prohibiting algorithms to be used in rental decisions. Just recently, San Francisco became the first to do so, and now new jurisdictions like San Jose, Los Angeles, and Philadelphia are following suit. This creates a difficult patchwork for property managers and technology companies to follow - ultimately spending more resources on compliance and less time on innovating.

Antitrust collusion requires a "meeting of the minds" and does not include the independent submission of data to a computer in which none of the companies providing the information has any communications with each other. The Biden-Harris administration continues to abuse the antitrust laws to expand its control over the economy. The lawsuit against RealPage epitomizes how far they will go to undermine longstanding principles that protect consumer welfare and impose their own standards, which will stifle innovation and interfere with the progress needed to keep the United States at the forefront of the AI industry.

• FTC
• Antitrust
• Housing
• DOJ
• innovation
• Software