Hotel rate parity clauses – legal developments in France and Italy

Written on 7 Mar 2016

Hotel rate parity clauses – which guarantee that a hotel room will not be available more cheaply on competing price comparison sites (or on the hotel’s own website) – continue to be a key focus for competition authorities across Europe. In January 2016, we reported that the German competition authority had moved to prohibit all of these ‘most favoured nation’ (MFN) clauses, highlighting the difference in approach between Germany and the UK.

So what is happening in the rest of Europe? In the absence of a ruling from the European Commission, we are seeing increasing disparity in the approach taken. This causes real difficulties in trying to set pan-European terms and conditions. In this article, we look at the current position in Italy and France and what this means for MFNs across Europe.

Latest developments on hotel rate parity clauses in Italy

Following the adoption
of last year’s decision by the Italian Antitrust Authority (IAA) in which it
accepted legally binding commitments submitted by Booking.com concerning the
use of MFNs, the Italian Parliament is now set to approve a new law which
potentially takes a final position on the legality of such clauses.

Investigations into Booking.com and Expedia

In Italy, there is no
consolidated competition case law on the subject of hotel rate parity clauses.
The only case which has dealt with the issue is the IAA investigation in May
2014 into the leading online travel agencies (OTAs) – Booking.com and Expedia – examining their use of “wide” MFNs
in contracts with their hotel partners.

These wide MFN clauses had
the effect that hotel partners could not offer their services, either directly
or through other OTAs or any other booking channel (online or offline), at
lower prices or with better conditions than those offered on Booking.com and
Expedia’s platforms respectively.  The
investigation was conducted in collaboration with the national competition
authorities of France and Sweden, and was coordinated by the European
Commission.

In explaining its
rationale for the investigation, the IAA stated that MFN clauses may constitute
vertical restrictions in violation of Article 101(1) of the Treaty on the functioning
of the European Union (TFEU), as they are capable of significantly limiting
competition on prices and sale conditions among both online platforms and
different channels (OTAs, hotel websites, travel agencies), ultimately to the
detriment of consumers.

Booking.com’s commitments

Whilst the investigation
was still on-going, Booking.com submitted commitments to significantly reduce
the scope of its MFN clause. In particular, it stated that its newly proposed
“narrow” MFN clause “will only apply to
prices and other conditions publicly offered by hotels through their own direct
online sales channels, leaving them free to set prices and conditions on other
OTAs and on their direct offline channels, as well as in the context of their
loyalty programs
”.

The IAA considered the
suitability of the commitments offered by Booking.com in addressing its
competition concerns and subsequently made those commitments binding on Booking.com
on 21 April 2015. The IAA subsequently closed its investigation against
Booking.com without any finding of an infringement.

A favourable attitude towards “narrow” MFN clauses?

The IAA therefore seems
to have shown a favourable attitude towards “narrow” MFN clauses, i.e.
clauses which leave hotels free to offer lower rates on alternative online
portals and offline (by telephone, email, reception), but not on their own
websites. However, it appears that wide MFN clauses may give rise to
competition concerns, at least when they are used by OTAs with significant
market power in a concentrated market.

The current position is
that the IAA has not made any solid findings of infringement, nor has it
expressed any opinion as to the possible application of the Vertical Block
Exemption Regulation, to clauses of this kind included in contracts between
parties holding market shares below 30%.   A more precise
and complete indication of the attitude of the IAA towards wide MFN clauses
will come when it issues its final decision on the Expedia position, which is
expected by 31 March 2016.

The IAA’s decision on
Booking.com’s commitments has been recently challenged in the Italian competent
Administrative Court by Federalberghi – The Italian Federation of Hotel
Associations – which claims that even the narrow MFN clauses proposed by
Booking.com and accepted by the IAA should be considered a violation of Article
101 TFEU. This action is pending.

The Italian Parliament’s intervention on hotel parity clauses

The Italian Parliament
has also decided to examine MFN clauses.  In October 2015, the Italian Chamber of Deputies
(one of the two wings of the Parliament) approved a draft law (the annual bill
for market and competition) which, if ratified, would have the effect of
nullifying any agreement by which hotels “agree
not to offer to final consumers, by means of any methods or instruments, better
prices, terms and conditions than those made through third parties,
irrespective of the law governing the contract”.
The draft law is currently
under the examination of the Senate (the other wing of the Parliament) for
final approval.

The IAA’s views

As part of the
legislative procedure for the new bill, the Senate heard the President of the
IAA, Mr Pitruzzella, who expressed concerns about the MFN provision, believing
it to be excessively wide.  In
particular, he noted that the possible anti-competitiveness of such clauses in
the Booking.com and Expedia case was inextricably linked to the position of the
operators in the market, who collectively held a 75% share in the online
booking sphere. He expressed concern that, if rate parity clauses were deemed
to be “object” (hardcore) infringements, this would mean that the
competition authority would not have to carry out case-by-case evaluation of
the  actual effect on competition,
risking over-enforcement.

Mr Pitruzzella also considered
the reference made by the draft new law to “third parties” as
excessively broad as it included within the scope of the article traditional
physical intermediaries, such as travel agencies.

Finally, and importantly,
Mr Pitruzzella focused on the issue of compatibility with EU law. According to
Mr Pitruzzella, the uncoordinated national approach to this matter throughout
the EU (see also the France case, below) would lead to market fragmentation and
would excessively tighten the contractual autonomy of companies.

Following Mr Pitruzzella’s
hearing, the draft law on hotel rate parity clauses has been amended and is
currently under the scrutiny of the Senate. According to an unofficial source,
the Senate committee will soon vote on these amendments. The draft new law will
then need to be approved by the full Senate.

Meanwhile in France…

By legislating to make MFN
clauses in agreements between OTAs and hotels illegal, the Italian parliament
is following in the footsteps of the French legislator, which prohibited the
provision of MFN clauses in agreements between OTAs and hotels in the summer
2015 via the Macron Act.

As a result of the
Macron Act, the French Code of Tourism now provides that:

the hotel remains free to grant to the client any rebate or pricing
advantage whatever in nature, any clause to the contrary being deemed null and
void
“.

This effectively
prohibits all MFNs in any agreements entered into with respect to hotels
located in France, notwithstanding the location of the booking platform.  

Prohibition of all MFNs

To ensure compliance
with this new rule, the Macron Act provided that agreements entered between
hotels and booking platforms before the promulgation of this Act are deemed
null and void.  Non-compliance is
punishable by a 150,000 Euro fine.

Hotels and online
booking platforms were therefore required to negotiate and execute agreements
in the form of an ‘agency/ mandate agreement’ in the weeks and months after the
adoption of the Macron Law.

As is the case in Italy,
the decision to legislate in France arose after commitments submitted by
Booking.com on 21 April 2015 to change its commercial practices, with Booking.com
agreeing inter alia to amend the
price parity clause and remove any clause imposing parity obligations in terms
of the availability of rooms or commercial conditions.

Interestingly, at the
time of adoption of the Macron law, the Autorité de la Concurrence was in the
process of investigating the Expedia and Hotel Reservation Service platforms,
following complaints lodged by hotels. No decisions have been made public so
far regarding the potential restrictions to competition contained in these
platforms agreements with hotels.  As in
Italy, it remains to be seen what will happen next.

Impact in Europe

OTAs must now grapple
with the divergent approaches across Europe, making a pan-European policy
difficult.  We will continue to watch
this area closely – and can advise you on navigating MFNs in Europe.