Latest ruling on Booking.com’s ‘best price’ clauses: Is Narrow the new Wide?

Written on 13 Jan 2016

Just before Christmas 2015, the German competition authority (Bundeskartellamt, or “BKartA”) prohibited Booking.com from continuing to apply, in all circumstances, its ‘best price’ clauses – also called “price parity” or most favoured nation (MFN) clauses.

In particular, the BKartA prohibited clauses which sought to prevent hotels from offering lower room prices on competing hotel bookings platforms (so-called wide MFNs). This is consistent with the position adopted by many other European competition authorities. However, the BKartA also prohibited Booking.com from including clauses to prevent a hotel from offering its own rooms more cheaply on the hotel’s own booking portal (so-called narrow MFNs). This is a novel step and appears to contradict the approach taken elsewhere in Europe, where competition authorities have been generally relaxed about narrow MFNs.

The BKartA’s road from wide to narrow

At the outset, the BKartA’s investigation appeared to be directed against wide MFNs. On the basis of such clauses, hotels were obliged to always provide Booking.com with the lowest room price, maximum room capacity and most favorable booking and cancellation conditions available on all sales channels. Back in 2013, the BKartA had found that similar clauses applied by Booking.com’s competitor HRS to be illegal. This was ultimately confirmed by the Higher Regional Court in Düsseldorf.

In the course of these proceedings, Booking.com offered to limit its MFN clauses to the hotels’ own sales channel, thereby allowing hotels to market their rooms cheaper at least on other hotel booking portals. However, the BKartA now concludes that even such a restriction of the hotels’ own sales channel (i.e. a narrow MFN) infringes competition law, as it is only beneficial to the consumer at first glance.

According to Andreas Mundt, President of the BKartA, “narrow best price clauses restrict both competition between the existing portals and competition between the hotels themselves. Firstly they infringe the hotels’ freedom to set prices on their own online sales channels. There is little incentive for a hotel to reduce its prices on a hotel booking portal if at the same time it has to display higher prices for its own online sales. Secondly, it still makes the market entry of new platform providers considerably difficult. The ‘best price’ clauses barely provide an incentive for the hotels to offer their rooms on a new portal cheaper if they cannot implement these price reductions on their own websites as well. There is no apparent benefit for the consumer.”

Booking.com has announced to appeal the BKartA’ decision. The portal argues that online travel brands like Booking.com bring great benefits to both consumers and accommodation providers that would be difficult to obtain without narrow best price clauses. Aggregating information for a high number of hotels saves consumers time and money and serves as a highly cost-efficient marketing channel for most hotels that could not otherwise afford to market their brand to domestic and international consumers. Without narrow MFNs, these advantages would be at stake.

Germany’s hotel decision disturbs rest of Europe

In addition, Booking.com points to other European competition authorities that allow narrow best price clauses in agreements between online travel companies and hotels. In the UK, the view of the Competition and Market Authority (CMA) to date has been that narrow MFNs do not have an appreciable effect on competition and are likely to be necessary to ensure the benefits that online platforms offer to consumers. The CMA has expressed this opinion not only in the context of hotel bookings cases, but also as part of its market investigation into private motor vehicle insurance, where price comparison websites are increasingly important to enable consumers to compare and switch between insurance providers.

Similarly, the Polish Competition Authority recently raised concerns only with regard to the wide MFNs of Booking.com and various other providers, whereas it had no comparable objections in respect of narrow MFNs.

Businesses must exercise caution in the absence of an EU-wide position

Given that national competition law regimes within the EU are harmonised to a significant extent, this deviation in approach to narrow MFNs is concerning, particularly for multinational companies.

The next opportunity to align the existing differences will be with the Higher Regional Court in Düsseldorf when deciding on Booking.com’s appeal. Given that this court has already confirmed the BKartA’s HRS decision (see above), the prospects of a successful appeal appear limited. It is not clear whether the European Commission intends to use its powers to issue authoritative guidance on this point, which would then establish a common position across the EU. It is possible that the Commission will do so as one of the outcomes of its ongoing e-commerce sector enquiry, but there are no guarantees.

For the time being, in order to ensure competition law compliance across the EU, businesses contemplating the use of MFNs may need to adopt customised terms to reflect the relevant national rules (e.g. no narrow MFNs in Germany). Alternatively, a more efficient, albeit cautious, approach would be to accept the latest ruling in Germany and apply that as a guiding principle for the use of MFNs in all EU Member States.

In any event, given the serious penalties that can be imposed for breaches of competition law anywhere in Europe, businesses should take legal advice before proposing, or accepting, best price, price parity or MFN clauses as part of their commercial agreements.