On 21 April 2015, the French Competition Authority (“FCA”) issued its decision on Booking.com’s revised commitments regarding price parity clauses (decision n°15-D-06).
The anti-competitive effects of price parity clauses – or most favored nation clauses – used by online travel agencies (“OTAs”) in their contracts with hoteliers have been under increasing scrutiny by both national courts and EU regulators over the past two years (see the first two articles of the February 2015 edition of the EU & Competition Law Bulletin).
The French price parity clauses in question stipulated that contracting hotels must provide OTAs with prices equal or better than those charged by the hotel through “direct booking channels” (i.e. directly to their clients) or through “indirect booking channels” (i.e. to other OTAs or physical travel agencies).
Competition authorities such as the FCA hold that, in the absence of such price parity clauses, OTAs would compete to attract hotels. This would result in a drop in OTA commissions, and, ultimately, room rates, and would enable clients to benefit from lower prices and/or better booking conditions.
The FCA launched an investigation regarding three OTAs back in 2013, in response to which Booking.com has tried to benefit from the so-called “commitment procedure” (“procédure d’engagements”) laid out in the French Commercial Code, whereby a company under investigation commits to put an end to abusive practices in order to avoid or alleviate a finding of liability, by issuing a series of proposed undertakings.
In December 2014, Booking.com proposed to eliminate price parity clauses from its contracts throughout the European Economic Area. However, Booking.com’s commitments were limited to indirect booking channels, meaning that the OTA planned to continue to require contracting hotels not to offer better booking conditions to those clients contacting the hotel directly by telephone, email or through the hotel website. Moreover, Booking.com intended to limit the commitments to a period of 3 years.
In accordance with the commitment procedure, the FCA assessed the effectiveness of Booking.com’s proposed commitments by conducting market tests, through the consultation of market operators and the examination of observations formulated by third parties.
- These market tests convinced the FCA to require further commitments from Booking.com. The revised, commitments of 7 April 2015 can be summarized as follows:
- The elimination of price parity clauses now applies to any offline booking channels (e.g. by telephone, at the hotel reception desk directly, through physical travel agencies).
- This means that Booking.com now also commits not to prevent contracting hotels from offering lower prices than those offered on Booking.com through direct booking channels. However, contracting hotels will not be allowed to publish these lower rates on their own website, or through mobile applications. Direct email communication with clients regarding these lower prices are nevertheless permissible.
- The elimination of the booking conditions parity clauses, which applies to both direct and indirect booking channels.
- Originally, not only were contracting hotels prevented from offering lower prices than those charged by Booking.com, they were also prevented from offering better booking conditions (e.g. free spa access, free breakfast, free wifi, no cancellation fees).
- The elimination of room availability constraints.
- Contracting hotels are now free to offer fewer rooms to Booking.com than to other OTAs. Furthermore, Booking.com now commits to explicitly indicate that the room availability displayed on its website applies only to this particular website (and therefore does not reflect the real vacancies at the hotels). This will avoid clients believing there is limited availability, or no availability at all, on other websites, including other OTAs, or the hotel’s own website.
- The commitment period was extended from 3 years to 5 years, and will be effective as from 1 July 2015 at the latest.
The FCA has accepted these revised commitments. A mutual intermediary report on implementation is expected to be released by the end of 2016.