Renters Revel as Federal Judge Rules Against Algorithmic Pricing Service

Report from Reuters

In Brief – US District Judge Robert Lasnik has ruled that a class action lawsuit brought by renters alleging that software maker Yardi Systems and a group of its landlord customers engaged in illegal price fixing can proceed. In his thorough rejection of the defendants’ motion to dismiss, Judge Lasnik sided with the plaintiffs’ arguments that competitors did not need to be bound to, or even often implement, the software company’s recommendations to be illegal. And on the key question of the legal standard to judge the pricing services, Lasnick's order also rejected the defense argument that the digital services were innovations with unclear effects so the court should weigh the case based on the evidence of economic impact using the “rule of reason” that is more friendly to antitrust defendants. He instead ruled that he should apply Supreme Court precedents that direct horizontal price fixing to be considered “per se” illegal under the Sherman Act. The attorneys for the renters called it “a total victory”.

Context – The case is one of a growing number alleging so-called “algorithmic price fixing” where business competitors share confidential information one-on-one with a third-party service provider who then uses digital processes to determine what it believes is each customer’s optimum pricing based on the collective data. Services for apartment landlords and hoteliers have been operating for more than a decade and are major targets of tech-focused price-fixing lawsuits. RealPage, another apartment pricing service, is the lead defendant in several such suits. A federal district court in Tennessee found in the opposite direction on the rule of reason question in 2023 so there is an emerging circuit split. The US Department of Justice (DoJ) joined the RealPage litigation parade in August at the height of the presidential campaign where rising rents was an issue along with general price inflation. Unlike earlier legal challenges to RealPage, the DoJ complaint did not focus on the setting of higher rents, but instead targeted the sharing of non-public business data with a service used by competitors as itself illegal anti-competitive conduct, very much in line with Lasnik’s broad ruling.

Character.ai Sued by Parents Claiming Egregious Harms to Kids

Report from the Washington Post

In Brief – Character.ai, a popular Generative AI service that allows users to create so-called “companion” chatbots that have personalities and mimic human interactions, is facing a growing number of lawsuits from parents alleging that the service, which is increasingly popular with teens, was instrumental in leading their kids to engage in very harmful conduct. A recent lawsuit from a mother in Texas accuses the chatbots of encouraging her child to engage in self-harm, as well as criticizing the parents, leading to a mental health crisis. A second plaintiff alleges that the company’s chatbots engaged in sexualized interactions with their 11-year-old daughter for two years before her parents discovered the communications. In October, a mother in Florida filed a separate lawsuit alleging that Character.ai chatbot companions encouraged her depressed teen son to kill himself to relieve his pain, which he did.

Context – Alleged harm to young users from engaging with AI “companions” seems to be an AI version of the worst of social media. Most objectionable content on those platforms is created by other users and therefore the companies are often protected by Sec. 230. Critics have therefore been resorting to legislation and lawsuits targeting platform characteristics like auto-play that they allege addict and harm young users. The state laws are facing skeptical federal judges, but the lawsuits are having more luck. The application of Sec. 230 to AI services is a huge open question. During the Supreme Court’s oral arguments on Gonzalez v Google in early 2023, just months after the bombshell release of ChatGPT, Justice Gorsuch raised Sec. 230 and indicated that he thought AI-created content was probably not covered. That early view was reiterated by Sec. 230’s congressional authors. However, a strong argument can be made that everything created by a generative AI chatbot is just an advanced algorithmic re-ordering of existing third-party content. Then add in the seemingly inherent AI “hallucinations” and how, try as they might, AI creators and operators don’t fully understand why their models do what they do.

European Commission DSA Probe of TikTok and Romanian Election Activity

Report from Euro News

In Brief – The European Commission has opened a formal investigation of TikTok under the Digital Services Act (DSA) over concerns that foreign actors used the social media platform to influence the Romanian presidential elections. Commission President Ursula von der Leyen said protecting “our democracies from any kind of foreign interference” was a top DSA priority. When insurgent ultranationalist candidate Călin Georgescu won the most votes in the first round of the presidential campaign, putting the euro-skeptic into the final run-off, Romanian government officials claimed the shock result was due to a dramatic increase in videos on TikTok praising the previously low-profile candidate and alleged a campaign engineered abroad, likely by Russia. The country’s top constitutional court subsequently cancelled the run-off, voided the initial balloting, and prdered a rescheduled election. The commission announcement said its investigation would focus on the ability of TikTok’s content recommender systems to deal with “coordinated inauthentic manipulation or automated exploitation of the service,” along with policies on paid-for political content. A TikTok statement said, “We do not accept paid political advertisements, we proactively remove content for violating our policies on misinformation, harassment and hate speech, and continue to work with the European Commission” to discuss concerns.

Context – The DSA sets out the general online risks that the law is intended to address, including “any actual or foreseeable negative effects on civic discourse and electoral processes,” and then directs platforms to put in place effective mitigation measures. TikTok was apparently full of content praising Georgescu’s nationalism and euro-skepticism, and while the platform likely claims that it was enforcing policies to stop misinformation, harassment and hate speech, the pro-nationalist material may not have triggered those filters. Politically relevant material posted by foreign-based sources that could impact voters may now be part of the commission’s standard for objectionable electoral content.

Supreme Court Sets Rapid Review of Challenges to Federal TikTok Ban

Report from CNN

In Brief – Not unexpectedly, the Supreme Court has agreed to hear arguments over the constitutional challenges filed by TikTok and a group of content creators against the federal law that requires the business to be sold to new owners not based in an “adversarial country”. If there were any surprises, it is the tight schedule. A three-judge panel of the US Court of Appeals for the District of Columbia issued a ruling on December 6 that comprehensively rejected the arguments that the law violated the First Amendment, ruling that the measure satisfied “strict scrutiny” based on the national security concerns that led the Congress to enact a law dealing with digital services operated by companies based in “adversarial countries” such as China and Russia. The same judges rejected the company’s request to delay implementation of the law until the Supreme Court ruled on the matter, saying that the appeals panel adhered to a schedule requested by the litigants designed to give the High Court time to address the matter if it chose to do so. The Supreme Court has stepped in and set an extremely compact briefing and hearing schedule, ordering opening briefs, including from amicus curiae, to be filed by December 27th, reply briefs by January 3^rd, and setting oral arguments for January 10th. The justices indicated that they would defer consideration of whether to temporarily block the law until the day of oral arguments.

Context – The Court of Appeals opinion was written by Judge Douglas Ginsburg, a nominee of Ronald Reagan, and Judge Neomi Rao, a Trump nominee, fully joined. Chief Judge Sri Srinivasan, an Obama nominee, wrote a concurring opinion agreeing with the result but argued that intermediate scrutiny was the appropriate legal standard, that the law met that standard, and that judging based on strict scrutiny was not appropriate. There has never been a communications platform like TikTok operating at such scale in the US. It will get its day in the highest court. Next questions include whether a ruling will be out by January 19 and how incoming President Trump will respond, both before the 27th and after a decision?