The UK Office of Fair Trading (OFT) today announced that it has reached the provisional view that online travel agents Expedia and Booking.com and International Hotels Group (IHG) have infringed UK competition law by agreeing to restrict the online travel agents' discount levels.
The OFT alleges that:
- Booking.com and Expedia each agreed separately with IHG not to discount the price of room-only hotel accommodation on their websites;
- these agreements therefore limited price competition between online travel agents in the sale of room-only (i.e. not including other travel components such as flights or car hire) accommodation and made it harder for smaller online travel agents to compete; and
- the agreement between Expedia and IHG lasted from 2007 to 2010 and the Booking.com agreement with IHG began in 2007 and is ongoing.
The OFT’s findings are at this stage only provisional and it has not published detailed information on its evidence. Expedia, Booking.com and IHG now have the chance to respond to the allegations before the OFT makes its final decision. IHG and Booking.com have denied any wrongdoing and Expedia has stressed that the OFT has not reached a final decision, at this stage.
The OFT deliberately targeted its investigation at only a small number of large travel companies as it wants a swift outcome to the case. However, the OFT has warned that the alleged practices are potentially widespread in the industry and so the investigation is likely to have wider implications within the online travel agency sector.
Resale Price Maintenance
Under UK and EU competition law, dictating a minimum price at which a reseller must sell a product is generally prohibited (other than in cases where it can be justified on the grounds of efficiency) and has resulted in fines across various industries. However, where the relationship is one of ‘genuine agency’, the supplier can legally stipulate minimum resale prices or maximum discounts. The concept of agency is interpreted narrowly in the EU and requires that the agent bears limited risk - a travel agent is not necessarily a ‘genuine agent’ for antitrust purposes. The outcome of this OFT investigation may well turn on the precise terms of the contracts in question and the contentious issue of whether Booking.com and Expedia are genuine agents for these purposes.
In the U.S., there continues to be a lack of clarity on the legality of resale price maintenance. Despite the Supreme Court’s 2007 decision in Leegin – holding that under federal antitrust law resale price maintenance cases are to be judged by a rule-of-reason analysis, rather than declaring the practice per se illegal – some states continue to ban manufacturers from demanding that retailers sell their products at certain prices. Such a gap between federal and state law in the U.S. has created misunderstanding and confusion for some businesses. Last week, however, William Baer, President Obama’s nominee to lead the U.S. DoJ’s antitrust division said at his nomination hearing before the Senate Judiciary Committee that he supports legislation that would repeal the decision in Leegin, restoring an outright ban on resale price maintenance under federal antitrust law.