The anti-competitive effects of price parity 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 above story and our June 2014 edition of the EU & Competition Law Bulletin).
Price parity clauses – or most favored nation clauses – stipulate that contracting hotels must provide the OTA with prices equal or better than those charged by the hotel directly to their clients (the so-called “direct booking channels”) or to other OTAs (the so-called “indirect booking channels”).
This practice frustrates the EU competition law position that aims to ensure effective price competition to the benefit of consumers. In the absence of price parity clauses, the thinking goes, OTAs would compete to attract hotels, therefore OTA commissions, and, ultimately, room rates, would drop.
For this reason, French hotel trade unions have challenged these OTA practices in court, with particular emphasis on OTA leader Booking.com, and have brought their concerns to the French Competition Authority (“FCA”) back in 2013.
The FCA launched a preliminary investigation and found there were potential infringements of the Treaty on the Functioning of the European Union (“TFEU”).
In fact, it can be argued that a price parity clause meets the criterion of having “as its object or effect” a restriction of competition, thereby infringing Article 101(1) TFEU. For instance, Booking.com’s competitors are de facto prevented from offering lower prices, or better booking conditions. Furthermore, Booking.com’s price parity clauses may drive new OTAs out of the market, even though they may charge lower commissions than Booking.com to contracting hotels.
In light of its market position, Booking.com’s practices may also qualify as an abuse of a dominant position, thereby infringing Article 102 TFEU.
In response to the FCA’s concerns, Booking.com has tried to benefit from the so-called “commitment procedure” (“procédure d’engagements”), whereby a company under investigation commits to put an end to abusive practices in order to avoid or alleviate a finding of liability and the corresponding fines and penalties, by issuing a series of proposed undertakings. On December 11, 2014, Booking.com notably proposed to eliminate price parity clauses from its contracts, not only in France, but throughout the European Economic Area (“EEA”). However, if these proposed commitments are accepted by the FCA, Booking.com has specified that they would only be implemented within 6 months following the FCA’s acceptance thereof, and would only apply for three years from such date.
These proposed commitments are limited to indirect booking channels, i.e. all booking means, such as OTAs or physical travel agencies, that are not directly operated by the contracting hotels themselves. In fact, Booking.com expressly reserved the right to require contracting hotels not to offer more attractive rates or packages to consumers contacting these hotels directly, e.g. by telephone, email, or through the hotel website.
In application of Article L.464-2 (I) of the French Commercial Code, the FCA accepted to evaluate the potential effectiveness of Booking.com’s proposed commitments by conducting so-called “market tests” – through the consultation of market operators focused on the following three EU jurisdictions: France, Sweden, and Italy – through January 31, 2015.
Once completed, the tests will enable the FCA to hear the parties and examine any observations formulated by third parties, at which point the FCA may decide to accept Booking.com’s proposed undertakings and close its proceedings as far as Booking.com is concerned. If, however, the FCA is not satisfied with the outcome of the market tests, it may require further commitments from Booking.com, failing which the standard FCA investigation and disciplinary procedures would resume.