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German regulator clamps down on 'best price' clause applied by online hotel booking platform

Germany's competition regulator has ordered an online hotel booking platform to delete a clause from its contracts that stopped hotels in Germany offering rooms for lower prices on their own websites than on the booking platform.11 Jan 2016

The Federal Cartel Office (FCO) said the 'best price' clause used by Booking.com was anti-competitive. Booking.com told Out-Law.com that it "strongly contests" the decision and will appeal.

Munich-based competition law expert Michael Reich of Pinsent Masons, the law firm behind Out-Law.com, said that other national competition authorities (NCAs) in the EU have addressed the competition concerns they raised about Booking.com's best price clauses differently from the FCO.

Best price clauses are a type of 'most favoured nation' (MFN) clause. MFNs clauses are contractual provisions that commit sellers to offering the best terms, not necessarily restricted to price, to specified buyers.

Booking.com used to use what the FCO referred to as a "wide best price clause" which meant that hotels it partnered with had to offer it "their lowest room prices, maximum room capacity and most favourable booking and cancellation conditions available on all online and offline booking channels".

When the FCO challenged the use of that wide clause Booking.com modified it to allow hotels to advertise cheaper rooms on other hotel booking websites. However, the revised clause, which the FCO referred to as the 'narrow best price clause', prevented the hotels from offering lower priced deals on their own websites than on Booking.com. It is the narrow best price clause that the FCO has now taken issue with.

Andreas Mundt, president of the FCO, said the 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," Mundt said. "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's best price clauses have drawn attention from competition authorities in France, Italy, Sweden, Ireland, the UK, Poland, Greece, Denmark, Hungary, the Netherlands and Switzerland as well as Germany. In a statement the company said that the modification of its best price clauses last year addressed the concerns those other authorities had raised.

Booking.com president Gillian Tans said that the company used the narrow clauses to "ensure that consumers don’t have to check hundreds of hotel websites in order to get the best price". She said such clauses allow Booking.com and other websites like it to "achieve advertising efficiencies on behalf of hotels".

"The [FCO] has simply ignored, without any justification, the substantial body of evidence submitted by Booking.com which shows that the narrow MFN does not restrict competition and is actually pro-competitive by bringing about substantial efficiency benefits for hotels and consumers," Booking.com said. "Moreover, [the FCO] has failed to coordinate with other NCAs and failed to ensure uniform application of competition law across the EU."

The company said, though, that it will remove the narrow best price clauses from its contracts with German hotels pending the outcome of its appeal, and will "waive enforcement of its existing narrow parity provisions with German accommodations with immediate effect". It said it also intends to "amend its standard terms and other agreements with German accommodations" before the end of January in line with the FCO's decision, but that the "narrow MFN for prices and booking conditions" it uses in contracts with hotels elsewhere in Europe remain in place.

Reich of Pinsent Masons said that Booking.com is not the only online hotel booking platform to be the subject of enforcement action by the FCO in respect of best price clauses.

Rival platform HRS was forced to change the best price clauses it previously used too after finding that they restricted competition on both the market for the services offered by online travel agents and the market for hotel rooms. The FCO's decision against HRS had been appealed by the company but was upheld by the Düsseldorf Court of Appeals in January last year.

"Booking.com's narrow best price clause may have addressed the FCO’s concerns relating to the market for hotel reservations via online travel agents but in the regulator's eyes it failed to address the concerns it had raised relating to the market for hotel rooms itself," Reich said. "Consequently, and with the decision of the Düsseldorf Court of Appeals still fresh, the FCO ruled that this narrow best price clause is an insufficient remedy and, like the wider clause, falls foul of competition rules."

Reich said the FCO's latest decision "sends out a specific signal" as it has adopted a "harsher line" on the use of best price clauses than other NCAs in the EU have done, including the now defunct Office of Fair Trading in the UK.

"The UK's previous competition authority only requested commitments from online travel agents (OTAs) that allow hotels and other OTAs to offer discounted room prices to loyalty scheme members," Reich said. "Its decision meant that OTAs could require hotels to prevent the level of these discounts being published outside of the respective loyalty scheme."

"The European Commission has established a working group to monitor the different practices of the national competition authorities. The FCO says that it has coordinated its new ruling with the European Commission. However, the different rulings from the national competition authorities make it difficult for OTAs to offer one consistent and identical service throughout all EU countries. That cannot be in the interest of the Commission. The FCO's latest decision puts itself in the driver seat on this issue and sets the tone for the decisions of other national competition authorities," he said.

Reich said that, as the German media had reported, the case against Booking.com was originally prompted after the FCO's president Andreas Mundt was charged a higher rate for an extra night's stay in a hotel in Bavaria than had applied under his original booking made via the HRS online hotel booking platform.