Following the French Economy Minister’s claim against Expedia in 2013, the Paris Court of Appeals, by decision dated 21 June 2017, heavily fined this Online Travel Agency (OTA), considering that certain provisions in the contracts between Expedia and its hotel partners created a “significant imbalance” between the parties under Article L. 442-6, I, 2° of the French Commercial Code.
The dispute originates from 2011 when Expedia was subject to an inquiry by the DGCCRF (the French competition and consumer frauds authority). The contracts entered into between Expedia and hoteliers in 2008-2011 that were reviewed by the authorities all included two types of contentious clauses that were considered unlawful by the French Government: the parity clause and the “last available room” clause.
The parity clause required the hotelier to grant Expedia conditions that were at least as favorable as those granted via other platforms (competing websites, hotel’s own direct sales, etc.) in terms of prices and promotional or non-promotional offers. The “last available room” clause provided that no matter how many rooms were available for booking, the hotelier was required to save the last available one to Expedia.
The Paris Court of Appeals ruled on several matters in this case:
- Public order law nature of the provisions on restrictive practices
While the Paris Commercial Court had considered in its first instance decision that English law, the law specified as applicable in the contracts in question, applied to this case, the Court of Appeals ruled that French law applied to the matters at hand. What is interesting to note is that the Court of Appeals specified that even if foreign law were generally applicable between the parties, the relevant provisions of article L. 442-6 of the French Commercial Code on restrictive practices were nonetheless applicable, because they constitute public order law insofar as they are critical for the safeguard of equality and loyalty between business partners.
- No double jeopardy
Expedia is currently facing pending proceedings before the French Competition Authority (FCA) following a complaint in 2013 from hotel unions against several OTAs. The FCA has already ruled in such case in regard to Booking.com, which was not sanctioned in return for its commitment to end the use of the parity clause (see the June 2015 edition of the Bryan Cave EU & Competition Law Bulletin).
In the proceedings before the Court of Appeals, Expedia argued that the Court was required to stay its proceedings and await the decision of the FCA as it concerns the same contractual relationships and that under the non bis in idem principle, Expedia cannot be sanctioned twice for the same use of the litigious clauses.
The Court of Appeals rejected Expedia’s claims in this regard. Its rationale for doing so was that the concomitant proceedings are based on different grounds. Thus, while the FCA proceeding is based on the provisions of the TFUE regarding anti-competitive practices which are meant to safeguard competition on the market, Art. L. 442-6 of the French Commercial Code concerns restrictive practices and aims at protecting competitors, not the market itself. Therefore, the Court of Appeals concluded that the non bis in idem argument was groundless, and that even if the FCA were to rule on restrictive practices matters, the Court would not be bound by the FCA’s findings.
- The invalidity of the parity and the “last available room” clauses
The Paris Court of Appeals found that the parity and the “last available room” clauses breached both Art. L. 442-6 II, d) and. Art. L. 442-6 I, 2° of the French Commercial Code.
Indeed, Art. L. 442-6 II, d), which entered into effect in August 2008, prohibits provisions that enable businesses to automatically benefit from the most favorable clauses granted to competing contractual partners. Thus, both the parity and the “last available room” clauses were found to have breached that Article as they allowed Expedia to benefit from the best conditions in terms of prices and of room availability.
Furthermore, both types of clauses were also found to breach Art. L. 442-6 I, 2° which prohibits the fact of subjecting or trying to subject a contracting partner to contractual provisions that create a significant imbalance between parties. The Court of Appeals ruled that the breach was evidenced by the inability of the hoteliers to negotiate the contractual provisions, the fact that the competitive and tariff advantages that Expedia benefits from is borne solely by the hotelier, and that there is no counterpart for the hoteliers.
Therefore, both clauses were declared null and void and, notwithstanding that OTA parity clauses with hoteliers were already prohibited as of August 6, 2015 by the creation of Article L. 311-5-1 of the French Tourism Code, Expedia was required to remove them from its contracts.
- Expedia France and Expedia Inc.’s liability
In its first decision, the Paris Commercial Court had considered that Expedia France and Expedia Inc. could not be found liable for the litigious clauses as they were not the actual signatories of the contracts (the signatories were subsidiaries belonging to the same group).
The Paris Court of Appeals approved that decision as regards breach of Art. L. 442-6 II, d) of the French Commercial Code. Indeed, this Article specifically refers to the provisions of an agreement, while Expedia France and Expedia Inc. were technically third parties in relation to the agreements signed with the hoteliers.
However, Art. L. 442-6 I, 2° holds liable a party who subjects or tries to subject a business partner to obligations that create a “significant imbalance” between the parties. Therefore, this article was found to sanction a behavior, which may embrace more than the sole signature of an unbalanced agreement.
Thus, Expedia Inc. and Expedia France were found to have been directly involved in the wrongful behavior in light of the following evidence:
- Expedia Inc. was advertising a “price alignment guarantee” on its website, which evidenced its involvement in the implementation of the parity clauses;
- Expedia France’s own sales teams were soliciting hoteliers to invite them to enter into Expedia-operated websites’ sales programs;
- Expedia France’s staff would monitor the hoteliers to try to ensure that they complied with the parity clauses;
- The general terms of the agreements specified that the term “Expedia” referred to several companies depending on the location, including Expedia Inc.
Therefore, with regard to its influence on the market, its income and the persistence of the breach, the Expedia group was fined 1 million euros for having subjected its business partners to obligations that created a significant contractual imbalance between the parties.
Expedia had already been ordered by the Paris Commercial Court to pay 430,000 euros in damages to hoteliers and trade associations for unfair competition acts in 2011 and it still facing pending proceedings before the FCA. The French jurisdictions seem determined to make their case with Expedia.
Decision : Paris Court of Appeals June 21, 2017 no. 15/18784