The Competition Appeal Tribunal (CAT) has quashed the OFT's decision in which it accepted commitments from InterContinental Hotels, Expedia and Booking.com in an investigation into discounting restrictions in the online hotel booking sector.

The CAT found that the OFT had failed properly to consider or conscientiously take into account the objections to the proposed commitments raised by the meta-search business Skyscanner. The CAT also found that the OFT had acted irrationally by failing to inform itself about the impact on price transparency (and hence competition) of an obvious and clear restriction on the disclosure of price information contained in the commitments.

Background

On 31 January 2014, the Competition and Markets Authority's (CMA) predecessor, the OFT, issued a decision accepting commitments from Booking.com, Expedia and InterContinental Hotels (IHG) to resolve the concerns it had raised following an investigation into the online supply of room-only hotel accommodation by online travel agents (OTAs).

The OFT had been investigating potential infringements of EU and UK competition law arising from certain vertical agreements in the online hotel booking sector.  In particular, the OFT had focused on agreements between IHG and each of Expedia and Booking.com (both OTAs) under which the OTAs agreed to offer IHG's rooms at a rate set by the hotel and not to offer rooms at a lower rate by, for example, funding a promotion or discount from the OTA's own margins or commission. The OFT's provisional view was that these agreements were object restrictions of competition, in breach of the UK Chapter I and Article 101 TFEU prohibitions on anti-competitive agreements. 

In order to address the OFT's concerns, the parties entered into commitments which allowed them to retain the existing arrangements, so long as both the OTAs and IHG were free to offer hotel room discounts to a "closed group" (up to the maximum of their commission revenue or margins in the case of the OTAs, and without limit in the case of IHG).  Consumers could join closed groups to see the level of discount available to members of that specific group, but would have to have made a previous full price booking with the relevant hotel or OTA in order to have access to the discounts. 

The appeal

The decision of the OFT was appealed by Skyscanner (which operates a price comparison or meta-search website) to the CAT. Skoosh, the original complainant before the OFT, intervened in support of Skyscanner.  Expedia, Booking.com and IHG intervened in support of the CMA which had in the interim taken over the functions of the OFT and was therefore called upon to defend the decision.  

This was the first appeal of a commitments decision adopted under section 31A of the Competition Act 1998. Skyscanner appealed on three grounds:

  • The OFT's Decision was ultra vires because the commitments had the effect of requiring third parties to act in line with them, even though those third parties had not offered commitments and the OFT had not accepted commitments from those third parties.
  • In making the decision, the OFT failed to take into account properly or at all the representations that Skyscanner made to it on the impact the decision would have on the meta-search sector and/or on inter-brand competition.
  • By putting in place the commitments without considering the potential anti-competitive consequences that they may have, the OFT acted contrary to the policy and objects of the Competition Act 1998.

The CAT's ruling

In its judgment, the CAT referred to the three theories of harm set out in the OFT's statement of objections:

  • Restrictions on discounting limit price competition and increase barriers to entry;
  • Rate parity obligations are capable of reinforcing and exacerbating any prevention, restriction or distortion of competition arising from discounting restrictions; and
  • To the extent that similar discounting restrictions and rate parity obligations are replicated in the market, then any prevention, restriction or distortion of competition is further reinforced and exacerbated.

The CAT noted that the OFT's statement of objections identified rate parity obligations as a distinct competition concern, whereas the OFT's decision focussed mainly on the potential competition distortions arising from discounting restrictions. 

The Standard of Review

The CAT considered the statutory framework underlying the commitments process, noting that this allows the CMA to resolve cases quickly and efficiently, avoiding the need for a full investigation and enabling the CMA to use its limited resources for a broader range of enforcement purposes.  Commitments decisions adopted under the Competition Act 1998 are subject to judicial review rather than a full merits appeal.

The CAT noted that given that the commitments process is meant to provide a rapid solution and to look forward rather than condemn past conduct, the CMA must be allowed a fair degree of discretion in its assessment of the appropriateness of the commitments to meet the concerns expressed.  Too heavy a degree of judicial scrutiny would have the effect of making the commitments process no more rapid and advantageous than a normal infringement decision, which would be inconsistent with the purpose of the commitments process. 

OFT's failure to take proper account of Skyscanner's representations

The CAT found that the OFT's consultation process was defective in that it failed conscientiously to address the objections raised Skyscanner and others to the consultations.   These responses had highlighted the potential negative impact of the restriction on the disclosure of specific price information outside the closed groups on price transparency and hence competition.  

In particular, the CAT noted that although the OFT seemed to have generally been aware of the importance of the internet and price transparency in generating competition in the market, little attention was given to the role of meta-search sites such as Skyscanner.

The CAT rejected the CMA's arguments based on the failure of Skyscanner to produce evidence to support its submissions.  It concluded that this was irrelevant, noting that if a consultation response raises an important and obvious point of principle, it is for the authority to examine further.  

The CAT therefore found the OFT's approach to be unsatisfactory as they had failed properly to consider or conscientiously take into account the objections to the proposed commitments raised by Skyscanner and others.  In failing to investigate a plausible point further, the OFT had acted unfairly and the process by which it subsequently reached its decision was procedurally improper.

OFT's failure to consider the potential anti-competitive consequences of the commitments

The CAT also found that the OFT had acted irrationally in coming to its decision by failing to inform itself about the possible impact on price transparency (and hence competition) of an obvious and clear restriction on the disclosure of price information.  It had therefore failed to take account of a matter of which it ought to have taken account and acted as no reasonable authority should act. 

The CAT did not however uphold Skyscanner's illegality challenge which had alleged that the OFT had acted contrary to the policy and objectives of the Competition Act 1998.  The CAT also disagreed with Skyscanner's arguments that the commitments were binding on third parties and therefore that particular ground of appeal failed.

Conclusion

The matter will now be remitted to the CMA to reconsider. Since the adoption of the original OFT decision, the number of European competition authorities investigating the online hotel booking sector has increased and regular efforts are now being made to coordinate the authorities' approaches in the different investigations.