Federal Court Preliminarily Enjoins Enforcement of Section 3 of New York’s Algorithmic Rent-Setting Law

In October 2025, New York (the “State”) enacted Senate Bill S7882, adding Section 340-b to the New York General Business Law (the “Statute”), as outlined in our prior discussion of the legislation. On September 29, 2026, the U.S. District Court for the Southern District of New York preliminarily enjoined enforcement of Section 3 of the Statute (N.Y. Gen. Bus. Law § 340-b(3)) (“Section 3”), which provides that it is an unlawful agreement for residential rental property owners and managers to knowingly or with reckless disregard set or adjust rents or other lease terms based on recommendations from software that performs a “coordinating function.” The court did not enjoin Section 2 of the Statute (§ 340-b(2)) (“Section 2”), which prohibits facilitating agreements among residential rental property owners or managers not to compete, including through such software. The court concluded that Section 2 survives First Amendment scrutiny at this stage of the litigation because it targets conduct that is already unlawful. The court also denied the State’s motion to dismiss.

S7882: Key Provisions

As described in our prior alert, the Statute contains two operative prohibitions, referred to in the court’s decision as Section 2 and Section 3. Section 2 makes it unlawful for a person or entity to “knowingly or with reckless disregard facilitate an agreement between or among two or more residential rental property owners or managers to not compete with respect to residential rental dwelling units, including by operating or licensing a software, data analytics service, or algorithmic device that performs a coordinating function.” Section 3 provides that it “shall be considered an unlawful agreement” for an owner or manager to “knowingly or with reckless disregard set or adjust rental prices, lease renewal terms, occupancy levels, or other lease terms and conditions in one or more of their residential rental properties based on recommendations from a software, data analytics service, or algorithmic device performing a coordinating function.”

A tool performs a “coordinating function” if it does all three of the following: (i) collects historical or contemporaneous prices, supply levels, or lease termination and renewal dates from two or more owners or managers, provided that at least two of them are not wholly owned subsidiaries of the same parent entity or otherwise owned or managed by the same owner or manager; (ii) analyzes or processes that information computationally, including to train an algorithm; and (iii) recommends rental prices, renewal terms, ideal occupancy levels, or other lease terms and conditions to a residential rental property owner or manager. The definition excludes products used to establish rent or income limits in accordance with specified New York rent-regulation laws or government-administered affordable housing programs. The Statute was enacted as part of the Donnelly Act, New York’s antitrust law, and the State has described it as strengthening that law.

The Litigation

RealPage, which licenses revenue management software to New York residential property owners and managers, filed suit in November 2025, challenging the Statute on First Amendment grounds, both facially and as applied to itself and its customers. The State agreed to stay enforcement pending the court’s decision on RealPage’s motion for a preliminary injunction, and the New York Attorney General (“Attorney General”) moved to dismiss. On September 29, 2026, Judge Valerie Caproni granted RealPage’s motion to preliminarily enjoin the Attorney General from enforcing Section 3, without enjoining Section 2, and denied the State’s motion to dismiss.

The Court’s Analysis

The First Amendment Framework

The State argued that the Statute regulates conduct, not speech, and, in the alternative, that any speech it regulates is commercial speech that survives intermediate scrutiny. The court observed that Section 3 does not expressly prohibit communications; rather, it prohibits landlords from acting on pricing recommendations. Nevertheless, for purposes of evaluating RealPage’s motion, the court accepted its allegation that the Statute effectively prevents it from making such recommendations. The court concluded that algorithmically generated pricing recommendations constitute speech and, more specifically, commercial speech because both RealPage and its customers have an economic interest in them. The court reasoned that, although speech integral to price-fixing could fall outside First Amendment protection, RealPage is at least in part engaged in protected speech because pricing recommendations can be made separate and apart from any price-fixing scheme. Accordingly, the court applied intermediate scrutiny under Central Hudson, rejecting RealPage’s argument for strict scrutiny. In doing so, the court relied on Second Circuit precedent declining to apply strict scrutiny to commercial speech regulations even when they are assumed to be content-based. The court also noted that RealPage did not cite any case applying strict scrutiny to an antitrust statute.

The Supreme Court’s 1980 decision in Central Hudson Gas & Electric Corp. v. Public Service Commission of New York established the four-part test for evaluating restrictions on commercial speech. Courts ask: (1) whether the speech concerns lawful activity and is not misleading; (2) whether the government’s asserted interest is substantial; (3) whether the regulation directly advances that interest; and (4) whether the regulation is no more extensive than necessary to serve that interest. The final step does not require the government to choose the least restrictive alternative, but it must demonstrate a “reasonable fit” between its objectives and the means chosen. Speech concerning unlawful activity does not qualify for protection under this framework, and the analysis ends at the first step.

Section 2: The Court Declined to Enjoin the Prohibition on Facilitating Agreements Not to Compete

Applying the first step of Central Hudson, the court concluded that Section 2 withstands First Amendment scrutiny because it prohibits conduct already unlawful under antitrust law. RealPage conceded that price-fixing agreements are generally already illegal under state and federal law, and the bill’s sponsor explained in the New York State Assembly that the Statute clarifies that the Donnelly Act reaches AI and algorithmic collusion through a coordinating function. In the court’s view, Section 2 “does not make new conduct unlawful”; it clarifies that facilitating an agreement among horizontal competitors not to compete is illegal even when done through software. The court also noted in a footnote that it is unclear whether Section 2 reaches all uses of coordinating software, including where the provider requires its customers to agree to continue competing with other landlords in setting rent. The court made a similar observation about Section 3, noting that it is unclear whether that provision reaches only a landlord who sets or adjusts prices based solely on a recommendation from software performing a “coordinating function,” or also a landlord who relies on a range of information and recommendations, one of which comes from such software.

Section 3: The Court Preliminarily Enjoined the Prohibition on Setting Lease Terms Based on Software Recommendations

The court described the question whether RealPage is likely to succeed on the merits as “a close call.” At the first step of Central Hudson, the court concluded that Section 3 implicates protected commercial speech because the pricing recommendations it restricts are not necessarily unlawful. In particular, the court noted that RealPage’s recommendations, which are formulated using almost exclusively publicly available data, are not per se illegal. At the second step, the court recognized the State’s substantial interest in preventing restraints on competition and protecting consumers in light of concerns about rising rents and housing affordability. At the third step, the court assumed for purposes of the motion that Section 3 directly advances those interests, noting the legislature’s reliance on ProPublica’s 2022 reporting and economic literature on the anticompetitive effects of algorithmic pricing. The court also observed that many of the documented harms the legislation seeks to address would be mitigated by eliminating reliance on non-public data from competitors, and stated that, as currently pled, the support for the legislation is relatively thin when considered in the context of RealPage’s current product. According to the court, the State should be prepared to explain the harm of pricing recommendations based on algorithms that rely almost entirely on public data.

The decision turned on the fourth and final step, which requires a “reasonable fit” between the restriction and the State’s objectives. The court found the State’s affirmative argument regarding reasonable fit to be “bare bones” and insufficient at this stage of the litigation, and identified an obvious less-restrictive alternative: limiting the prohibition to software performing a coordinating function based on non-public data from horizontal competitors. As the court put it, “under the rubric of preventing price fixing, the Statute prohibits normal commercial conduct just because it is facilitated by software,” adding that “there is nothing untoward about considering prices charged by competitors when deciding how to price one’s own product.” Section 3, the court concluded, is “undiscerning in targeting software without regard to its use of public versus non-public data,” and RealPage is “marginally” likely to succeed on its facial challenge, reasoning that the Statute likely “prohibits a substantial amount of protected speech” relative to its legitimate sweep. The court also observed that Section 3 reaches some conduct that is not normal commercial conduct, such as a landlord’s acceptance of a recommendation from a consultant hired to collect public and non-public rent data (including from horizontal competitors), evaluate it using software, and recommend optimal rents, which the court described as functionally no different from price fixing achieved by bringing horizontal competitors together to discuss pricing. The court stated that the State could conceivably establish a sufficient regulatory fit with a more developed explanation of how restricting pricing recommendations based primarily on publicly available data advances its interest in preventing price-fixing agreements.

Standing, Irreparable Harm, and the Remaining Injunction Factors

The court concluded that RealPage adequately alleged standing on its own behalf and, under the First Amendment exception to the general rule against third-party standing, on behalf of its customers. Because it found the facial challenge likely to succeed, the court did not resolve whether third-party standing extends to as-applied challenges. In a footnote, the court observed that RealPage’s support for its assertion that customers are refraining from receiving its advice was a declaration from its own employee, found that showing sufficient at this stage “albeit barely,” and stated that RealPage would be wise to substantiate the assertion as the case progresses. The court found irreparable harm based on the likely loss of First Amendment freedoms, while noting that RealPage’s loss of business alone would not have been sufficient. It concluded that the balance of equities and the public interest favor an injunction. Finally, the court denied the State’s motion to dismiss under Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6), concluding that it has subject-matter jurisdiction and that RealPage stated a claim.

Key Takeaways

• Section 2’s prohibition on facilitating anticompetitive agreements remains in effect. The court did not enjoin Section 2, which it characterized as clarifying that facilitating an agreement among horizontal competitors not to compete is unlawful even when done through software.
• Section 3’s prohibition on setting lease terms based on software recommendations is on hold, not eliminated. The preliminary injunction prevents the Attorney General (and those acting in concert with the Attorney General or at the Attorney General’s direction) from enforcing the prohibition on landlords setting or adjusting rents and other lease terms based on recommendations generated by software performing a “coordinating function.” The order enjoins enforcement of N.Y. Gen. Bus. Law § 340-b(3) and, by its terms, is not limited to RealPage or its customers. However, the court left open the possibility that the State could ultimately prevail with a stronger showing that the prohibition is appropriately tailored to its objectives. The injunction is preliminary and does not resolve the merits of the First Amendment challenge.
• The court’s analysis distinguished between public and non-public data. The court’s reasoning highlights the distinction between pricing recommendations based on publicly available information and those relying on non-public data from horizontal competitors. Owners and managers may wish to understand what data their pricing tools collect and process, how that information is used to generate recommendations, and what contractual restrictions govern its use.

What’s Next

The State may appeal the preliminary injunction to the Second Circuit without awaiting a final judgment under 28 U.S.C. § 1292(a)(1); as of October 20, 2026, however, it had not filed a notice of appeal. On October 13, 2026, the Attorney General asked the district court to reconsider the injunction, asserting that the order overlooked the State’s submissions regarding the Statute’s application to both public and non-public data and that those submissions establish a reasonable fit between Section 3 and the State’s interest in preventing price-fixing under Central Hudson. On that same day, the State answered the complaint, denying that RealPage is entitled to relief and seeking dismissal of its claims. Whatever the outcome of the reconsideration motion, the State’s filings signal that it intends to defend Section 3 through a final judgment on the merits. The court has set an initial pretrial conference for October 30, 2026, with the parties’ joint submission due October 22, 2026.

Please contact your Vinson & Elkins team to discuss these developments and their potential effects on your business.

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.