The Hospitality Sector and dealing withCompetition Challenges to On-lineBooking Platforms

Robert BellDan Larkin

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20 January 2016

Speakers: Robert Bell

Robert Bell is head of the EU & UK competition team at Bryan Cave with over 20 years of experienceadvising on complex competition and regulatory matters involving some of the leading cases beforeThe Office of Fair Trading (OFT), the European Commission and UK and European Courts.

He advises clients on a range of competition law issues including merger control, cartels, restrictivepractices, competition litigation and public procurement law.

Mr. Bell has a particular sector specialism in advising international technology and media clients onthe application of competition law and new media, telecommunications regulation, and oncompetition litigation.

He is currently Chair of the City of London Law Society's Competition Law Committee, which liaiseswith the UK Government and the EU & UK competition regulators in connection with the reform ofcompetition law and practice.

Mr. Bell is ranked in Chambers UK 2016 for Competition Law. "Robert Bell is head of department atBryan Cave LLP. His practice encompasses mergers, cartels, litigation and public procurement. Hehas sector expertise within the TMT sector." Mr. Bell is also recognised in The Legal 500 UK 2014 forEU & Competition Law.

Contact: Robert.Bell@bryancave.com

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Speakers: Dan Larkin

Dan Larkin is a corporate partner in the London office who specialises in asset-backedtransactions and financings and has experience advising on structured financings, public-private partnerships, capital sourcing, mergers and acquisitions, private equity, jointventures, privatisations, development projects, securitisations and restructurings. Dan hasparticular experience with transactions in the hospitality and leisure, real estate, transport,energy, construction, consumer products and retail, and media and entertainmentindustries.

Mr. Larkin’s career also includes positions as Global Head of Hospitality at a largeinternational law firm along with other senior management positions in real estate capitalmarkets and finance, as managing director (and Head of the European Global Hospitality &Leisure Group) with PricewaterhouseCoopers’ Financial Advisory Group in London, and insenior executive roles with Hyatt International Corporation and Ameritech during which heprovided legal counsel and business advice on matters throughout Europe, the Middle Eastand Africa, as well as Asia-Pacific and the Americas.

Among professional associations, he has served as an officer of the International BarAssociation and as an officer of the American Bar Association’s Section of International Law.

Mr. Larkin is recognised as a specialist in Commercial Contracts by Chambers UK 2016.

Contact: Dan.Larkin@bryancave.com

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Agenda1. Commercial introduction to price parity clauses

2. U.S. antitrust perspective

3. EU perspective

a) French/Italian/Swedish approach

b) German approach

c) UK approach

d) Legislative approach

4. Conclusions

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Hotels and online booking

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• Historical context

• Emergence and importance of online travel agencies

• Contractual dynamics

• Why is this topic important to you?

Price Parity Clauses

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• Price parity clauses (also known as ‘most favoured nation’ or ‘bestprice’ clauses) are clauses in agreements whereby one party promisesanother to always offer its best rates or terms for a product or service.

• ‘Wide’ price parity clauses typically state that the online travel agent(OTA) is guaranteed the best price clause in any situation by the hotel,meaning no one else can make a better offer to consumers.

• Narrow’ price parity clauses dictate that the hotel will guarantee thebest price for that hotel on the OTA website in comparison with thehotel’s own website. However, other OTA’s will still be able to strikedeals with hotels to better the deal made.

US Antitrust Perspective

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U.S. antitrust regulators have sofar not taken a public interest inprice parity clauses used byonline travel agents and hotels.

U.S. class action plaintiffs havefiled suit, but their unsuccessfulaction focused on an allegedconspiracy between OTAs andhotels. The plaintiffs onlyalleged vertical restraints thatviolated the antitrust laws afterseeing their conspiracy claimsdismissed.

In re Online Travel Co. (OTC) HotelBooking Antitrust Litigation, 997 F.Supp. 2d 526, (N.D. Tex. Feb. 18,2014).

US Antitrust Perspective

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Why did the U.S. plaintiffs notallege that the vertical restraints(MNF and RPM clauses) violatethe antitrust laws at the start oftheir suit?• Vertical restraints on trade such as MNF

and RPM clauses are analysed under the“rule of reason” in the U.S. rather thanbeing treated as per se illegal.

• This means that plaintiffs are less likely toget easy victories in vertical restraintcases—potentially having to proveanticompetitive effects in excess of therestraints procompetitive benefits.

• Such cases much less attractive to theplaintiffs’ bar.

In re Online Travel Co. (OTC) HotelBooking Antitrust Litigation, 997 F.Supp. 2d 526, (N.D. Tex. Feb. 18,2014).

EU perspective: Overview

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European competition authorities are concernedthat the use of price parity clauses may infringe:1. Article 101 of the TFEU (which prohibits

restrictive agreements);2. Article 102 of the TFEU (which prohibits the

abuse of a dominant position); and3. national competition rules.

Price parity clauses have the potential to:• Reduce competition between online travel agencies.• Lead to higher prices for hotel rooms.• Have an adverse effect on the ability of smaller online travel agencies to compete or

new firms to enter the online booking market.• Barriers to entry for small players (e.g. hotel groups).

EU perspective: French/Italian/Swedish approach

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• French/Italian/Swedish competition authorities,together and assisted by the EuropeanCommission, investigated “best price” clausescontained in agreements between online travelagencies and hotels.

• In April 2015, they accepted commitments fromthe market leader Booking.com under which itagreed not to use ‘wide’ best price clauses.

• The settlement permits Booking.com to use only‘narrow’ best price clauses.

• The commitments are binding in theserespective jurisdictions.

EU perspective: German approach

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Bundeskartellamt vs HRS

- In January 2015, the Bundeskartellamt prohibited the Company’sbest price clauses as an infringement of Section 1 of the GermanAct against Restraints of Competition and Art 101.

- The finding was appealed to the Dusseldorf Higher Regional Courtwho upheld the regulator’s finding. The court were persuaded ofthe verdict by the market power of HRS as together with Expediaand Booking.com, the companies held around 90% of the Germanonline market. HRS were also excluding non-abiding hotels, whichwas considered exclusionary behaviour by the court.

Bundeskartellamt vs Booking.com

- In December 2015, the Bundeskartellamt prohibited both ‘wide’best price clauses and ‘narrow’ best price clauses and orderedthe portal to delete all such clauses from its contracts and generalterms and conditions by 31 January 2016.

- Again the case seems to be based on Booking.com’s market power.

- Possibility for Booking.com to appeal the decision to the Dusseldorf Higher Regional Court and apply for interimrelief against the immediate enforceability of the order.

EU perspective: German approach

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The Prevailing Attitude

• Uncertainty of application of Vertical Agreements Block ExemptionRegulation 2010 Article 4(a) – Is it a restriction on the buyer’sability to determine their sale price?

• Both wide and narrow price parity clauses are likely to be heldillegal where the benefiting party hold a powerful market position(e.g. over 30%, but not necessarily dominance)

• Uncertainty over the position where the website holds less than30% market share and the application of the Block Emption.

Bundeskartellamt vs Expedia

- Proceedings have also been initiated against Expedia for applying similar clauses in theircontracts with their hotel partners.

- Current proceedings are ongoing.

EU perspective: UK approach

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• September 2010: the OFT (now the CMA) openedinvestigations into suspected breaches of the Chapter Iprohibition of the Competition Act 1998 and Article 101 ofthe TFEU in the online hotel booking sector.

• July 2012: the OFT sent a statement of objections toBooking.com and Expedia. The OFT did not base theirobjection on price parity clauses but rather that there was aprohibition on discounting below the price parity rate on theOTA, meaning that the rate in effect became a minimumprice.

• February 2014: the OFT accepted binding commitments from Booking.com, Expedia and the Intercontinental HotelGroup to change their online booking practices.

• September 2014: the commitments were struck down for the failure of the OFT to follow due process in considering theeffects of the commitments on third parties.

• June 2015: the CMA re-opened the investigation.

• July 2015: two of the three online travel agencies subsequently removed their wide rate parity restrictions.

• September 2015: the CMA closed its investigation on grounds of administrative priority.

EU perspective: UK approach

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Prevailing Attitude

• Not all price parity clauses are illegal

• Price parity clauses not a concern in absence of market power

• But, market power intensifies effects and authorities will ban wide priceparity clauses if implemented.

• Car insurance price comparison websites restricted to the use of narrowclauses in a UK market investigation inquiry.

EU perspective: Legislative approach

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• In August 2015, law-makers in Franceamended the French Code of Tourism,putting an end to price parity clauses incontracts between hotels and onlinetravel agencies and calling for animmediate re-drafting of these contracts.

• Under the new law, contracts in Francebetween hotels and online travel agenciesmust take the form of a contrat demandat – an agreement whereby thetravel agencies acts as agents of thehotel.

• Contracting hotels are now legally entitledto offer to the public better rates orbooking conditions compared to thoseoffered by online travel agencies.

EU perspective: Legislative approach

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Prevailing Attitude

• Clear and effective (but draconian) step to ban all price parityclauses.

• Most regulated EU market as a result

Overall EU perspective

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• The European Commission co-ordinated and consultedwith the French, Italian and Swedish nationalauthorities during their investigations into price parityclauses with the aim of preventing wildly disparateanalysis and rules being implemented across the EU.

• This has not been achieved. Germanauthorities/Courts have absolutely opposed the use ofall forms of price parity clauses.

• As national competition authorities continue toinvestigate and approach price parity clausesdomestically, the potential for uniform treatment ofprice parity clauses across the EU is diminished.

• Hoteliers are lobbying EU governments and theCommission to create a uniform approach.

Conclusion

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• Confused EU Picture

• Price parity clauses are controversial and susceptible to attack if parties have market power

• Most effective solution in absence of EU harmonized approach is to adopt only ‘narrow’ priceparity clauses, except in Germany, France or other countries which have or may prohibit suchclauses.

• Potential for the issue to creep into other sectors, e.g. online insurance comparison websites,flight booking portals, e-retail, etc.

• Traditional hotel groups responding to OTA challenge (e.g. by buying OTAs)

• Upstream vertical integration (such as Expedia’s acquisition of HomeAway – OTAs combiningwith the sharing economy)

• Shutting the stable door after the horse has bolted? – Is it too late, have hotel websites withmarket power already tipped the market in the long term and consumers will not shop aroundagain?

eu-competitionlaw.com

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CPD points and CLE credit are available for this webinarand may be collected by emailing:Europe.marketing@bryancave.com

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The material used in relation to the presentation and any non-publicinformation conveyed during the presentation is confidential and no partof that material or information may be disclosed or provided to any thirdparty without the prior written permission of Bryan Cave.