Booking.com (KVR 54/20)

1. CASE SUMMARY

A. Summary of facts

Booking.com, the leading hotel booking platform in Germany and Europe under the Internet address "www.booking.com", enables hotel customers to make direct bookings. Booking.com receives a commission from the hotel companies for its mediation services.

No. 2.2 of Booking.com's general terms and conditions contained a "narrow best price clause". According to this clause, the hotels were not allowed to offer their rooms on their own website at lower prices or better conditions than on Booking.com's platform. The hotel rooms could however be offered at lower rates on other online reservation portals or, provided there was no advertising or publication online, also "offline". A violation of this parity of rates and conditions entitled Booking.com to terminate the contract with the hotel company without notice.

In its decision of 22 December 2015, the Bundeskartellamt (the German Federal Cartel Office, ‘FCO’) found that the narrow best price clauses in breach of antitrust law and prohibited their further implementation as of 1 February 2016. On appeal by Booking.com, the Oberlandesgericht (the Higher Regional Court) of Düsseldorf annulled the FCO’s decision. However, the Bundesgerichtshof (the German Federal Court of Justice, the ‘FCJ’) reinstated the FCO’s decision.

B. Notes on case history

The Higher Regional Court of Düsseldorf found that a narrow best price clause restricts competition within the meaning of Article 101 (1) TFEU and Section 1 Act against Restraints of Competition (‘ARC’), both on the hotel portal market and on the market for hotel rooms. However, as a necessary ancillary restraint to the antitrust-neutral platform service, it is exempted from the prohibition of Article 101(1) TFEU and Section 1 ARC. The Higher Regional Court took the view that a narrow best price clause guarantees a fair and balanced exchange of services between Booking.com as portal operator and the contractually bound hotels as customers of the agency service. In the view of the Higher Regional Court, such a clause also does not go beyond what is necessary to achieve this objective, neither in terms of time, nor in terms of territory or subject matter. Since Booking.com only receives a commission if the hotel room is also booked via booking.com, the balanced exchange of services between the parties to the portal contract would be disturbed in the long term if the hotels could divert customers to their own hotel booking options by offering lower room prices or better contract conditions.

C. Legal analysis

The FCJ found that narrow best price clauses as used by Booking.com constitute a violation of Article 101(1) TFEU. According to the FCJ, such clauses may not be regarded as ancillary restraints, since only restrictions that are objectively necessary and indispensable for the performance of the main activity are exempted from the prohibition of Article 101(1) TFEU. It is not sufficient that the main activity would only be more difficult to carry out or less profitable without the ancillary agreement.

2. QUOTES

"Only restrictions that are objectively necessary and indispensable for the performance of the main activity are exempted from the ban on cartels as ancillary agreements. It was not sufficient that the main activity would only be more difficult to carry out or less profitable without the ancillary agreement. In particular, the suitability or necessity of a contractual provision to ensure a fair and balanced exchange of services was not sufficient. The narrow best price clause combats a free-rider problem through a clause which regulates the most important competition parameter, the price, to a not inconsiderable extent. The clause was therefore not comparable in quality with any of the exceptional cases recognized to date. Any pro-competitive aspects had to be carefully weighed against their restrictive aspects. This weighing could only take place within the framework of Article 101(3) TFEU.

The narrow best price clause was also not exempted. An exemption under the Vertical Block Exemption Regulation was ruled out due to Booking.com's market share. For an individual exemption under Article 101(3) TFEU, the first condition for exemption, the improvement of the production or distribution of goods or the promotion of technical or economic progress, was already missing. The solution or limitation of a possible free-rider problem is not an efficiency advantage pursuant to Article 101(3) TFEU. Contractual fairness as such is not an efficiency advantage in this sense. Agreements that merely enable the undertakings concerned to increase their profits or keep them stable also do not produce any objective advantages that could constitute an efficiency gain." (free translation)

"A comparison with the narrowly defined groups of cases in which ancillary restraints have been exempted from the prohibition of Article 101(1) TFEU in exceptional cases confirms this result. The narrow best price clause aims to combat a free-rider problem by means of a clause regulating the most important competition parameter, the price, to a not inconsiderable extent. In view of this alone, this clause is not qualitatively comparable with any of the examples cited by the complainant." (free translation)

3. RELEVANT LEGISLATION

• Article 101 TFEU
• Sections 1 and 2 ARC
• Regulation 330/2010

4. PRACTICAL SIGNIFICANCE

The use of “wide best price clauses”, prohibiting hotels from offering lower prices not only on their own website or offline, but also on competing platforms was qualified as an illegal restriction of competition by a previous ruling.

With this ruling, the FCJ confirmed that the conditions to apply the ancillary restraints doctrine are only met in exceptional cases. The FCJ did not identify a justification to extend the ancillary restraints doctrine to narrow best price clauses used by online platforms.