By Gabriele Accardo
On April 21, 2015 the French, Swedish and Italian competition authorities jointly announced they have accepted—and made legally binding—the commitments (see FRA, ITA, SWE) offered by Booking.com, thus closing their respective investigations into the online hotel booking platform. The three authorities had also opened proceedings against Expedia. These proceedings are still pending.
The investigations concerned the clauses in the contracts between Booking.com and hotels that obliged hotels to offer Booking.com the same or better room prices and conditions as the hotels made available on all online and offline distribution channels (so-called “Most Favored Nation” or “MFN” clauses), including, for instance other Online Travel Agencies (“OTAs”) as well as hotels’ direct sales channels (see, Newsletter 1/2015, p. 17 Newsletter 3/2014, p.12 Newsletter 1/2014, p.15, Newsletter 5-6/2013, p.9 and 11, Newsletter No. 4-5/2012, p. 15, for additional background).
Such MFN clauses were deemed in breach of both national and EU competition rules, by restricting competition between Booking.com and other OTAs and hindering new booking platforms from entering the market.
The commitments offered by Booking.com consist of reductions in the scope of the MFN clauses.
Price parity vis-à-vis other OTAs. First, Booking.com committed to abandon the parity requirement in respect of prices which hotel make available to other OTAs. This would enable hotels to offer different room prices and/or better commercial conditions to different OTAs, and allocate them larger quotas of rooms.
Price parity vis-à-vis hotels direct sales. Secondly, hotels may also offer prices at a lower rate than those displayed on the Booking.com website via their offline sales channels (on-site bookings, by telephone, fax, email, instant messaging, physical sales outlets of travel agencies, etc.) as long as these prices are not published on the hotel’s website. They may also offer prices at a lower rate than those displayed on the Booking.com website to customers who are members of loyalty programs.
However, hotels would still have to offer the same or better room prices to Booking.com as are offered to the general public on the hotel’s own online booking channels. Nonetheless, hotels’ websites accessible by the general public may display qualitative information regarding the prices offered via their offline channels, such as “attractive prices”, “good prices”, etc. Furthermore, hotels will be allowed to send emails and SMS messages to consumers informing them of the prices offered via their offline channels, as well as to reach out to previous customers and offer them special discounts.
Other conditions. In addition, hotels may reserve a greater number of rooms to their direct online or offline sales channels than are allocated to Booking.com. Hotels will also be completely free to offer consumers more favourable conditions than those offered on Booking.com via other platforms and via their own offline channels. This includes breakfast or any other service (e.g. gym, spa, Internet access, etc.) as well as booking conditions (e.g. cancellation).
In essence, the commitments accepted by the competition authorities increase the hotels’ margin for maneuver, while acknowledging that price parity may be important in preventing free-riding on Booking.com’s investments and thus ensuring the continued offering of user-friendly search and comparison services free of charge.
In this respect, the three NCAs appear to have acknowledged that MFN clauses may bring about some efficiency. That is somewhat surprising given that during the market tests, stakeholders pointed to the fact that OTAs—not hotels—are the free-riders, notably on the investments made by hotels (e.g., brand, hotel facilities, quality of services provided to customers etc.), e.g. by purchasing hotels brands as keywords for online search. Also, hotels and other stakeholders actually expressed concerns that even a “narrow MFN” clause would produce the same effects as the fully-fletched MFN clause, since hotels would have basically no incentives to grant other OTAs lower prices than the price displayed on their own online sales channel (due to the risk of cannibalizing their direct sales).
It is not clear whether, in the light of their concerns, the intervening parties will decide the appeal the commitment decision(s).
Investigations in Germany…
While the French, Italian and Swedish competition authorities cheered the outcome of their cooperation and the coordination of the European Commission, the Federal Cartel Authority (“FCA”) in Germany was actually heading in the opposite direction on the very same issues in an ongoing investigation against Booking.com.
In fact, on April 2, 2015, the FCA sent formal charges to Booking.com regarding the use of “best price” clauses in its contracts with hotels in Germany.
In so doing, the FCA followed the same path it had already walked against HRS, another online booking portal once dominant in Germany.
In fact, according to the FCA, the statement of objections against Booking.com was necessary because the hotel booking portal had continued to use its best price clauses despite the fact that the FCA had prohibited similar clauses with a decision in the parallel proceedings against HRS.
The FCA’s decision was recently upheld by the Düsseldorf Higher Regional Court, which confirmed that HRS’s “best price” clauses restricted competition to such a degree that they could not be exempted under the EU Block Exemption Regulation (HRS’s market share was higher than 30%) or with an individual exemption (arguably, because the FCA found that such clauses brought about no efficiencies).
…and in the UK
These recent developments are particularly relevant in the context of the new investigation that the UK Competition and Markets Authority (“CMA”) has to carry out into Booking.com’s MFN clauses (the CMA replaced the Office of Fair Trading or “OFT” on April 1, 2014).
On September 26, 2014 the UK’s Competition Appeal Tribunal (“CAT”) reversed the OFT’s January 20th decision to accept commitments from online travel agents Booking.com B.V. (“Booking.com”, and its ultimate parent company Priceline.com Incorporated) and Expedia Inc. (“Expedia”), together with InterContinental Hotels Group plc. (“IHG”) (see Newsletter 4-5/2014, Newsletter 1/2014, Newsletter 5-6/2013 and Newsletter No. 4-5/2012 for additional background).
In the wake of the CAT’s decision, the case has been sent back to the CMA, which has been ordered to reopen the investigation into hotel online booking practices.
In its ruling the CAT noted that “by pursuing its investigation on the basis that it had identified restrictions ‘by object’ the OFT may have deprived itself of the ability properly to appreciate the significance of the role of operators such as Skyscanner, even though it had initially acknowledged the importance of price transparency as a force for competition and was aware, at least, that meta-search operators existed.”
It is worth recalling that in November 2013, the FCA and the OFT closed their respective investigations into Amazon’s price parity policy on its Marketplace platform following Amazon’s decision in August 2013 to end its Marketplace price parity policy across the European Union (see Newsletter 5-6/2013, p. 12, for additional background). The policy prohibited third party retailers from offering products through other online sales platforms cheaper than on Marketplace.
While it is hard to predict the outcome of the new investigation by the CMA, third parties and complainants may point to the recent developments illustrated above to call for a stricter approach by the CMA. In turn, the businesses under investigation may arguably prefer to settle the case once and for all by offering improved commitments in line with the French, Italian and Swedish cases. If that occurs, the German approach will be “singled out” as the stricter one in the European competition arena.
The issues assessed by several national competition authorities in Europe in the online booking sector were the perfect candidate for an EC investigation, which would have provided greater legal certainty at a faster speed. The reasons why this did not happen are unclear to most, and certainly the coordination efforts recently undertaken are no substitute for clear-cut enforcement. Historians of EU competition law may find the issue interesting to investigate