By Mike Scarcella
WASHINGTON, Oct 8 (Reuters) - A federal antitrust lawsuit against McDonald's this week claims the fast-food giant is using AI-powered tools to fix menu prices, marking the latest case to allege companies are relying on new technologies to collude and harm consumers.
Plaintiffs have sued companies in industries ranging from hotels and real estate to health insurance, and now, hamburgers. The claims are pending in class action lawsuits around the country, with mixed outcomes so far.
The McDonald's case hinges in part on the company's franchise model, in which most of its 14,000 US restaurants are independently owned. It says restaurant owners should be competing freely but are pressured by McDonald's to use its "pricing engine" or risk losing their franchise status, driving up the cost of Big Macs, fries and other menu items for millions of customers.
McDonald’s told Reuters that its franchisees set prices individually, and that "AI does not set the price of a Big Mac or any other menu item.”
The lawsuit followed a Reuters report detailing how McDonald's is using AI to guide menu prices. The proposed class action in Chicago federal court says the company leverages its technology “to nickel-and-dime consumers down to the last French fry."
NEW TECHNOLOGY, OLD LAWS
Courts are still grappling with how to apply decades-old antitrust laws to AI and other modern software tools that can help companies instantly share and adjust pricing decisions.
There's nothing inherently illegal about using computer algorithms to make business decisions on matters like pricing, courts have said. However, antitrust law can bar businesses that compete against each other from using such tools to coordinate their decision-making when it raises consumer costs.
New technologies are giving competing companies access and insight into each other's pricing decisions, opening them up to claims that they are coordinating illegally, said antitrust expert Maurice Stucke, who teaches at the University of Tennessee's law school. In many of the pending cases, companies allegedly pooled pricing data using a shared third-party vendor.
“As more companies outsource pricing to an algorithm, you can expect them to have more instances of collusion,” Stucke said.
The results have been mixed in the lawsuits filed so far. In an opinion in July, a federal appeals court sided with plaintiffs by reinstating a lawsuit claiming Atlantic City casino-hotels used shared pricing software to push up room rates.
The Philadelphia-based 3rd US Circuit Court of Appeals said technical limits on communication in the past made collusion more difficult. "Today, these algorithms have the capacity to bridge any such gaps,” the court said.
Other courts have been less receptive to similar claims. The San Francisco-based 9th US Circuit Court of Appeals last year rejected a lawsuit against major Las Vegas hotels, finding their use of shared price-recommendation software amid a rise in room costs wasn't enough to sustain an antitrust claim.
One of the longest-running sets of cases, involving software company Realpage, has resulted in partial settlements but is still ongoing. Realpage, owned by private equity firm Thoma Bravo, has settled some lawsuits claiming apartment complex owners used its tools to artificially inflate rental prices, including a case lodged by the US Justice Department.
The company, which denies violating antitrust law, notched a victory in another case last month when it convinced a federal judge in New York to block a new state law barring landlords from using algorithmic pricing tools.
The judge ruled that the state cannot prohibit "normal commercial conduct just because it is facilitated by software."
PRICING MCDONALD'S MENUS
The lawsuit against McDonald's appears to be the first to argue that franchises operating under the same brand are misusing shared pricing technology to overcharge customers. Most other cases have claimed anticompetitive price collusion among companies that operate under completely separate brands.
Daniel Francis, who teaches antitrust law at New York University’s law school, said the scope of franchisees' independence to set prices will be a key question in the case. The restaurants may be separately owned, he said, but their franchise status means they naturally coordinate on their menus and how their food is sold.
"These branches are just not competing with each other in any plausible sense: they are competing against other chains," he said. "The presence of an algorithm changes none of that."
The lawsuit says 95% of the company's US restaurants are independently owned, and McDonald's polices them to make sure they adhere to recommendations by its "pricing engine." It seeks unspecified monetary damages for a proposed class of millions of customers.
McDonald’s said in a statement that its technology does "not automate, coordinate or fix pricing in any way,” but allows franchisees to “make the best decisions for their businesses and customers.”
Jeffrey Shinder, an antitrust lawyer who is not involved in the McDonald's case, said cases over algorithmic pricing are testing the law's ability to keep pace with technological change, and could multiply amid a public backlash against AI.
"I would expect to see more of them," he said.
(Reporting by Mike Scarcella; Editing by David Bario and Nick Zieminski)
