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On June 4, the Düsseldorf Higher Regional Court of Appeals ruled that German competition law allows Booking.com to apply “narrow” most-favored-nation (MFN) clauses. It held that Booking.com can lawfully prevent the hotels it works with from offering prices lower than those offered on its platform.
MFN clauses, or parity provisions, are contractual terms under which companies agree to set the conditions for buying or selling their products equal to those offered by their competitors; there are two types of MFN clauses, “wide” and “narrow”:
- “Narrow” MFN clauses prohibit hotels (in the case that concerns us here) from offering better terms on channels where the provider controls prices, e.g., hotel agrees not to offer a lower price on its own website.
- “Wide” MFN clauses prohibit hotels from offering anyone else a lower price than the one offered to the contracting party using any channel, e.g., compelling hotels to offer a better price on Booking.com than on its own website or on other metasearch websites.
The court upheld the appeal the company had lodged against the decision by Germany’s Federal Cartel Office dated 23 December 2015, prohibiting Booking.com from using wide and narrow MFN clauses.
The court argued that narrow MFN clauses are needed to prevent free-riding by customers and hotels. Without this type of clause, customers could use Booking.com to find the hotel that best suits their purposes (and hotels could use it to advertise) and then book their reservation on the hotel’s own website, depriving the company of its brokering fee of 10-15 %. However, the court upheld the bar against wide clauses, so that other metasearch platforms would be able to enter the market and grow, thus contributing to competition in the sector.
Competition authorities have come to diverse conclusions about the lawfulness of MFN clauses. Regulators in France, Italy, and Sweden, assisted by the European Commission (EC), started to conduct concerted probes into MFN clauses in the online travel agent sector in 2010, and in 2015, they issued three parallel decisions barring wide clauses but allowing narrow clauses and accepting commitments made by Booking.com, the industry leader. After this, the company and its chief competitor, Expedia, removed wide clauses and added narrow clauses in all their contractual relationships in EU countries.
The German competition authority, however, took a tougher position. It had initially prohibited wide MFN clauses by its decision against HRS-Hotel Reservation Service in December 2013.In contrast, in its Booking.com decision in December 2015, it distanced itself from the position taken by the other competition regulators and also barred narrow MFN clauses.
Given this discrepancy, it was decided to create a working group with the participation of 11 national competition authorities and the EC. In April 2017, the group released its report assessing the effects of the use of MFN clauses by metasearch platforms in their contracts with hotels and the impact of these clauses on competition. The report concluded that replacing wide MFN clauses by narrow clauses had not in fact changed the conduct of metasearch websites, which continued to match the lowest price offered by other search platforms. In the specific cases of France and Germany, hotels did not differentiate between metasearch platforms more than in the other countries where narrow MFN clauses were not prohibited. Therefore, there was little justification for restricting these clauses.
In addition to the Booking.com matter, the EC has taken on MFN clauses in the ebook sector (decision from 2012 and decision from 2017), as reported earlier in our blog, with the EC accepting commitments made by companies. Also in 2017, it started an investigation into the main European tour operators (Kuoni, REWE, Thomas Cook, TUI) and Meliá Hoteles on grounds that they had allegedly discriminated against customers based on nationality and residence. In those cases it did not distinguish between narrow and wide MNF clauses. To date, no such proceedings have been opened in Spain, though the Spanish National Markets and Competition Commission issued a study on regulating holiday apartment rentals in Spain in 2018 that did consider the impact of this type of clause.
The German court’s decision would appear to enhance legal certainty in the sector by bringing German case law into line with the practice concerning MNF clauses by the majority of other EU countries. However, it remains to be seen whether the German regulator will decide to take the matter further by appealing the decision.
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