The Düsseldorf Court of Appeals (“Oberlandesgericht” or “OLG Düsseldorf”) has confirmed the injunction awarded by the German Federal Cartel Office (“Bundeskartellamt”, “BKartA”)on 20 December 2013 which prohibited one of the leading online hotel booking portals, HRS, from employing “best-price clauses” in its commercial dealings with hotels.[1] The Oberlandesgericht ruled that such clauses are in violation of competition law, stating that while such “best-price” or “most-favoured nation” clauses might benefit from the Vertical Agreements Block Exemption subject to the market share threshold, above that threshold, they will very rarely meet the conditions for exemption under Art. 101(3) TFEU. HRS may still file a further appeal to the Federal Court of Justice (“Bundesgerichtshof”, “BGH”).

  1. In its agreements, HRS required that hotels must always provide HRS with the lowest rates for rooms, the highest number of available rooms and the most favourable terms for reserving and cancelling rooms on the internet, whether on other booking or reservation platforms or on their own homepages (“best-price” or “most-favoured nation” clauses). In 2012, HRS extended the best-price clause to “all own” distribution channels of hotels, including offline channels. Other internet portal operators, like Booking or Expedia, use similar clauses in their contracts with hotels.
  2. In its injunction of 20 December 2013, the BKartA held that the best-price clauses of HRS restricted competition on the domestic market for hotel booking portal services.  It argued that these clauses prevented other portal operators from offering lower commission rates to hotels in exchange for better rates or terms for rooms, and that they barred market entry of new portal operators.

The BKartA also found that best-price clauses had as their effect the restriction of competition between hotels, as they could not offer lower rates on other portals or distribution channels without considerable effects on their overall marketing strategy. The restrictive effects of the best-price clauses used by HRS were further enhanced by the parallel behaviour of its competitors. The BKartA left open the issue of whether best-price clauses could even be restrictions of competition by object.

  1. According to the BKartA, the best-price clauses were not covered by the Vertical Block Exemption Regulation (Reg. 330/2010) since HRS has always had a market share of more than 30% on the relevant market. The best-price clauses also do not qualify for a single exemption under Article 101(3) TFEU and (equivalent) § 2 of the German Act against Restraints of Competition (“Gesetz gegen Wettbewerbsbeschränkungen”, “GWB”). The BKartA rejected the arguments of HRS regarding the efficiencies of best-price clauses.  HRS argued that portal users might book the same hotel as discovered on the HRS portal on a different portal at a lower rate and that this could deter HRS from further investing in the quality of its portal.

The BKartA did not see a true free-riding problem and referred to alternative pricing models, e.g. a fixed fee or “cost per click” fees which hotels could pay HRS. It also argued that consumers would not be allowed a fair share of possible efficiencies, since best-price clauses which were adhered to by hotels did not result in lower rates, nor did they enhance the transparency of hotel room rates, which was already provided by price comparison websites.

  1. Lastly, the BKartA found that the best-price clauses unfairly hindered small and medium-sized hotels, which depended on HRS and its services, within the meaning of §§ 20 and 19 of the GWB. This prohibition against unfairly hindering or discriminating against “dependent” small and medium-sized companies is a rule of German law prohibiting or sanctioning unilateral conduct. It is stricter than Art. 102 TFEU as it applies even to companies which are not dominant on the relevant market.
  2. The OLG, whose complete reasoning has not yet been published, agreed with the BKartA regarding market definition, the assessment of the restrictive effects of best-price clauses, the market shares of HRS and a rejection of efficiency claims.  Apparently however, the OLG has not expressed a view on §§ 20 and 19 GWB.

The Oberlandesgericht has granted HRS leave to file an appeal to the BGH (“Rechtsbeschwerde”). That appeal is only for a review of the application of the law.  The OLG refers to further investigations of the BKartA for review of best-price clauses used by other hotel portal operators and likewise to competition law proceedings in other European countries relating to best-price clauses.

Comment

In the HRS case, both the BKartA and the OLG have defined narrow relevant markets for hotel booking portals on the internet. They have also both considered best-price or most-favoured nation clauses as a vertical restraint to competition whilst exhibiting a reluctance to assume efficiencies which may result in an individual exemption of otherwise anti-competitive behaviour. It remains to be seen whether the BGH deviates from this point of view, and whether the reasoning of the OLG and possibly the BGH provide further guidance on “most-favoured nation” clauses in other contexts.

The judgment is an extremely interesting one given the recent decision by the UK’s Competition Appeal Tribunal (“CAT”) to disagree and reverse the OFT’s decision to accept commitments from the parent company of Expedia in relation to similar issues.[2]  In the wake of the CAT’s decision the Expedia case has been remitted back to the CMA and the  investigation into hotel online booking practices has been reopened. We wait with interest to see what decision the CMA (which replaced the OFT from 1 April 2014), will take and how it will compare to the OLG judgment in Germany.