Booking.com Judgment in Germany: Another Piece in the Price Parity Puzzle
On 4 June 2019, the Higher Regional Court of Düsseldorf (Oberlandesgerichtor OLG) annulled the 22 December 2015 decision by the German Federal Cartel Office (FCO) that prohibited Booking.com from applying so-called ‘narrow’ best price clauses in its contracts with hotels in Germany.
Best price clauses, also known as ‘parity’ or ‘most favoured nation’ (MFN) clauses, are provisions in agreements between hotels and online travel agents (OTAs) whereby the hotels guarantee to offer the same or better rates and conditions for hotel rooms than those offered either: (i) on any other offline or online sales channel, e.g. on other OTAs’ websites (‘wide’ parity clauses) or (ii) on the hotels’ own website (‘narrow’ parity clauses).
Competition authorities in Europe – especially in Germany – have tried to tackle the use of parity clauses since at least 2010. In fact, that year marks the beginning of a long saga against parity clauses in Europe which resulted in a patchwork of national investigations and regulatory interventions that concluded in parity clauses being completely banned, allowed only partially as ‘narrow’ parity clauses or not being regulated at all.
The OLG Düsseldorf’s judgment of 4 June 2019 is the latest significant development in this debate. What is ‘unusual’ about this case is not so much the conclusion reached by the German Court that Booking.com’s ‘narrow’ parity provisions are permissible – which actually puts Germany in line with prior decisions adopted by national competition authorities (NCAs), e.g. in France, Italy and Sweden – but the way it reached that conclusion. The Court’s press release suggests that the Court relies on the ‘ancillary restraints’ doctrine to justify Booking’s ‘narrow’ parity provisions. Assuming this is the case – which will be confirmed upon publication of the full judgment – it would constitute a rather unconventional method to assess the effect of parity clauses on competition.
Where it All Began: The HRS Prohibition Decision in Germany
To get a better grasp of this latest development and to understand where we are in terms of regulating parity clauses in Europe, it is worth starting from the beginning: the 2013 HRS prohibition decision in Germany.
In early February 2012, the FCO announced that it had issued a statement of objections against the online booking portal HRS-Hotel Reservation Service (HRS) – at the time the leading OTA in Germany – for a possible breach of §1 and §20 of the German Competition Act (Gesetz gegen Wettbewerbsbeschränkungen or GWB); which are the equivalent to Articles 101 and 102 of the Treaty on the Functioning of the EU (TFEU). According to the FCO, HRS applied parity clauses in its agreements with hotels whereby they would always grant HRS the best room price, highest room availability and most favourable booking and cancellation conditions than those offered on any other sales channel (i.e. ‘wide’ parity clauses).
One year and a half later, on 20 December 2013, the FCO reached the conclusion that HRS’ practices should be prohibited and ordered the company to delete all parity provisions from its terms and conditions and contracts with hotels. What followed was an industry-wide domino effect. In parallel to the FCO’s prohibition decision, investigations were initiated by national competition authorities in Sweden, Italy and France, among others. In January 2015, the OLG Düsseldorf upheld the HRS decision. Subsequently, the major OTAs committed to delete all parity clauses from their contracts with hotels. However, Booking decided to take a more ‘creative’ approach: instead of completely deleting its parity clauses with hotels, Booking decided in July 2015 to ‘narrow’ its ‘wide’ parity clauses. According to this new arrangement, hotels would be able to offer better deals on other sales channels (e.g. offline and on other OTAs’ online platforms) but not on the hotels’ own websites – unless they offer the same or better conditions on Booking.com.
The Booking.com Saga in Germany
The FCO immediately took offense with Booking’s new strategy. On 23 December 2015 – almost exactly two years after the HRS prohibition decision – it decided to prohibit Booking.com’s ‘narrow’ parity clauses and ordered Booking.com to completely delete such provisions from its terms and conditions and contracts with hotels.
In its decision, the FCO held that such ‘narrow’ parity provisions reduce the incentives of hotels to offer better deals on other OTAs’ websites, even if this was formally allowed under the new Booking scheme. The FCO’s reasoning was that hotels that have offered better deals on other OTAs’ booking platforms would only be able to match those better conditions on their own website if they also match those better deals on Booking.com. According to the FCO, this would have a chilling effect on the market for OTA online platforms and would also reduce the attractiveness of the hotels’ own websites, therefore also negatively impacting the market for hotels in Germany.