STR files to dismiss class-action suit

NEW YORK CITY – CoStar's Smith Travel Research (STR) has filed a motion to dismiss a consumer class-action lawsuit brought in February that accuses it and luxury hotel operators, including Hilton, Hyatt and Marriott, of conspiring to make room rates artificially high. The suit is seeking damages for potentially hundreds of thousands of people who rented rooms from a defendant or alleged co-conspirator hotel from February 21, 2020, till today.

Seven residents of California, Florida, Illinois and other states filed the lawsuit in Seattle federal court on Tuesday, seeking damages under U.S. antitrust law for alleged room price overpayments.

The lawsuit accuses the hotel companies of sharing competitively sensitive information through STR reports that show “performance benchmarking and comparative analytics” for the industry.

A statement released on Wednesday said, “STR stands by its long-standing practice of providing the hotel industry with competition-enhancing analysis. Since its founding in 1985, STR has been committed to providing the industry with the highest-quality insights, while simultaneously protecting the confidentiality of client data through aggregation and anonymization. STR will therefore vigorously defend itself in the lawsuit.”

In its filing CoStar and STR stated, “This case is about hotel industry benchmarking reports that Smith Travel Research (STR) has been producing for over 35 years. Plaintiffs’ allegations, which in some ways attempt to mimic other recent lawsuits aimed at various forms of ‘algorithmic pricing,’ are misdirected at STR reports—which involve neither algorithms nor pricing recommendations. Instead, STR’s reports only provide customers with benchmarks against occupancy and historical revenue data aggregated and averaged from typically at least five, and often many more, other hotels. In addition to providing benchmarking information, STR’s reports are used for numerous additional procompetitive purposes, including hotel valuations and appraisals, hotel employee performance evaluations, hotel management agreements, bankruptcy debtor monitoring, and loan and debt covenant compliance.

“The Complaint is premised on the fanciful claim that STR’s benchmarking reports are vehicles for improper information exchanges among competitors and ‘price fixing in its modern form.’ But the reality is that STR’s reports have been around since the late 1980s, and have been described by courts as ‘highly regarded and widely used,’ In re Miami Beach Hotel Investors LLC, 304 B.R. 532, 534 (S.D. Fla. Jan. 22, 2004), and ‘an important publication if one wishes to obtain information about a hotel’s performance,’ In re Kinser Grp., 2020 WL 7633854, at *3 (Bankr. D. Ariz. Dec. 18, 2020).

“Rhetoric aside, the Complaint does not allege that Defendants entered into a price-fixing agreement. Plaintiffs instead claim that Defendants entered into a ‘conspiracy to exchange competitive information.’ But the Complaint does not allege facts sufficient to plausibly show that the Hotel Defendants actually agreed with one another to exchange information through their use of STR reports. And to Defendants’ knowledge, no court has ever found benchmarking activities like those at issue here (which are analyzed under the ‘rule of reason’) to constitute an improper information exchange that violates Section 1 of the Sherman Act. Such a finding would set new precedent that could upend numerous industries where benchmarking is a common and important market-intelligence tool.

“Plaintiffs’ claim is implausible and legally deficient and should be dismissed for at least four, independent reasons.

“First, the Complaint fails at the outset because it does not answer ‘basic questions’ regarding the alleged conspiracy, as required by the Ninth Circuit to plead a Sherman Act Section 1 claim. The Complaint fails to identify ‘who’ entered into the alleged conspiracy, ‘when’ the alleged conspiracy purportedly began, or ‘what’ the Hotel Defendants allegedly agreed to do. Instead, Plaintiffs rely on conclusory allegations of an “agreement,” which courts routinely dismiss as insufficient to state a claim.

“Second, Plaintiffs fail to allege any direct or circumstantial evidence of an agreement among the Hotel Defendants to exchange competitively sensitive information through STR. Plaintiffs do not even attempt to plead direct evidence of such an agreement. There is not a single alleged communication between any Hotel Defendants, let alone any communication that establishes an agreement between or among them to share competitively sensitive information through STR.

“Indeed, a court recently granted a motion to dismiss a complaint that alleged a huband-spoke conspiracy among hotel defendants in violation of Section 1 where plaintiffs failed to ‘plausibly allege the exchange of confidential information from one of the spokes to the other.’ Gibson v. Cendyn Grp., LLC, 2024 WL 2060260, at *9 (D. Nev. May 8, 2024).

“Plaintiffs similarly fail to plead circumstantial evidence of an agreement among the Hotel Defendants. Plaintiffs do not plead facts demonstrating that the Hotel Defendants acted in parallel—i.e., that they adopted the same conduct at the same time such that an agreement can be inferred. Specifically, Plaintiffs do not allege that the Hotel Defendants began subscribing to STR around the same time, that the Hotel Defendants even receive the same STR reports, at the same cadence, or that the Hotel Defendants utilize the benchmarking reports in a similar way. Nor do Plaintiffs allege that the Hotel Defendants’ prices moved in parallel. Plaintiffs also have not alleged any “plus factors” that make an agreement among the Hotel Defendants plausible.

“To the contrary, Plaintiffs allege only facts that are equally consistent with rational, unilateral business behavior by each of the Hotel Defendants. Providing occupancy and revenue information to STR, and receiving aggregated and anonymized industry-level or peer-group data in return, is not against any Hotel Defendant’s economic self-interest. And allegations that participating hotels are aware of which other hotels also subscribe to STR are insufficient to infer an agreement among the Hotel Defendants, as are the allegations that STR has hosted industry conferences that some executives from the Hotel Defendants have attended.

(The ‘Hotel Defendants’ are Accor Management US Inc (Accor), Hilton Domestic Operating Company, Inc. (Hilton), Hyatt Hotels Corporation (Hyatt), Loews Hotels Holding Corporation (Loews), Marriott International, Inc. (Marriott), and Six Continents Hotels, Inc. (Six Continents)).

“Third, Plaintiffs have failed to plead any anticompetitive effects from the alleged conspiracy to exchange competitively sensitive information through STR. The Complaint presents no direct evidence of supracompetitive prices over the four-year class period. And the aggregated, anonymized, and historical non-pricing data that STR has provided in its benchmarking reports for decades is the type of data that courts, including the Supreme Court, have recognized can be procompetitive. Nor have Plaintiffs plausibly alleged that the structure of the ‘luxury hotel industry makes it more likely that the exchange of competitively sensitive information would lead to anticompetitive effects. The industry is not plausibly alleged to be highly concentrated, and common sense dictates that luxury hotel rooms are not ‘fungible’ and are not purchased for only immediate, short-term use.

“Fourth, Plaintiffs fail to plead a sufficient causal connection between Plaintiffs’ alleged injury—increased prices for luxury hotel rooms—and the alleged conspiracy to exchange competitively sensitive information through STR. Plaintiffs do not allege that STR is involved in the Hotel Defendants’ pricing decisions. Instead, they claim that the Hotel Defendants use revenue management software that considers ‘vast’ amounts of data (of which STR reports are but one purported input), to recommend or set their own prices. Thus, even if Plaintiffs paid higher prices (which the facts alleged do not show), it is implausible and entirely speculative to connect those prices to any alleged agreement among the Hotel Defendants to exchange information through STR. As a result, Plaintiffs have not alleged the causation required to show antitrust injury.

“Plaintiffs purport to bring this case as a class action. The Hotel Defendants continue to investigate whether and to what extent Plaintiffs’ class allegations may be barred by class action waivers the named Plaintiffs made in purchasing these rooms either directly from the Hotel Defendants or from third parties. Furthermore, no named Plaintiff is alleged to have stayed at a hotel of Defendants Accor, Loews, or Six Continents during the class period."