On 4 June 2019, the Düsseldorf Higher Regional Court overturned a 2015 decision of the German national competition authority (the ‘Bundeskartellamt’) to ban Booking.com from imposing ‘narrow’ price parity clauses in contracts with German hotels.
Price parity clauses (also known as ‘most-favoured nation’ clauses) have been a topic of debate among competition regulators across Europe. A number of national competition authorities have concluded that ‘narrow’ price parity clauses are compatible with competition law, whereas ‘wide’ price parity is likely to infringe competition law. The German Bundeskartellamt has, in contrast, found that all types of price parity may infringe competition law.
The decision of the German court, along with Booking.com’s successful appeal in Sweden last month, suggests a more unified approach to price parity clauses from European competition authorities and courts.
Price parity clauses generally oblige a supplier to provide a product or service to a customer at a price no higher and/or at terms no less agreeable than offered to other customers.
In the context of the hotel bookings sector, a ‘wide’ price parity clause would require a hotel to provide rooms to an online booking portal on terms at least as favourable as those offered on all other online and offline distribution channels. On the other hand, a ‘narrow’ price parity clause would allow a hotel to offer better terms and prices to other online and offline sales channels but would prevent the hotel from advertising lower prices on their own website.
While there is a broad consensus that ‘wide’ price parity clauses are troubling from a competition point of view, the position on ‘narrow’ clauses is less clear-cut – some view them as anti-competitive (certain jurisdictions, like France, have imposed legislative bans on all forms of price parity clauses) while others consider them to be a necessary measure to prevent ‘freeriding’ behaviour.
In 2013, the German competition authority began investigating booking platforms Expedia and Booking.com for their use of ‘best-price’ clauses in contracts with hotels. In a judgement on 9 January 2015, the Düsseldorf Higher Regional Court confirmed that imposing ‘wide’ price parity clauses was in breach of competition law but, in December of the same year, the Bundeskartellamt also banned Booking.com from including ‘narrow’ price parity clauses in its contracts with German hotels. Booking.com appealed the Bundeskartellamt’s decision in January 2016. This appeal has been successful.
According to the Court’s announcement on 4 June, its decision to overturn the Bundeskartellamt’s ban was informed by the results of a hotel and customer survey. The Court found that, unlike ‘wide’ price parity clauses, ‘narrow’ provisions do not restrict competition and indeed are necessary to ensure a fair and balanced relationship between platform operators like Booking.com and contracting hotels. It was noted that such clauses prevent hotels from taking unfair advantage of the publicity that comes with being listed on an online booking portal while at the same time ensuring that transactions ultimately take place on their own websites, where the prices are lower – behaviour that the court described in its announcement as ‘improper redirection of customer bookings’.
There are limited grounds on which the Bundeskartellamt can appeal the decision. The competition authority has indicated on twitter that it regrets its failure to convince the court of its approach and that it will decide on next steps once the full text of the judgement becomes available.
On 9 May 2019, Booking.com overturned a ruling of the first instance Swedish Patent and Market Court which had required Booking.com to remove ‘narrow’ price parity clauses from its contract terms with hotels. The case stemmed from complaints made by Swedish hotels association Visita.
The second instance court ruled that Booking.com was not in breach of competition rules, finding that Visita had failed to sufficiently substantiate its case that the ‘narrow’ price parity obligations in question negatively affected the online travel agency market or the market for hotel rooms. The decision cannot be appealed further.
Hotel owners should be aware of the broader implications of the Swedish and German appeal decisions. These cases may suggest a European consensus is developing on the effects of ‘narrow’ price parity clauses, but it also serves as a reminder that the divergence of opinions in this area is not just to be found between hoteliers and booking platforms, or even between jurisdictions, but also between competition authorities and courts in the same country.
Given the cross-border nature of the hotel bookings sector, a joined-up approach to price parity clauses would offer hotel owners important certainty when negotiating with platform providers. However, the debate remains live as to what the actual effects of such clauses are. Any appeal by the Bundeskartellamt could provide further clarity in this area.
This article was co-authored with Trainee Solicitor Doran Boyle.