Since its establishment in 1996 Booking.com has rapidly grown from a small Dutch startup into one of the world's largest online travel companies.
The company, which acts as an intermediary between customers and hotels around the world, advertises that it offers more than 28 million accommodation listings across 227 countries worldwide. However, Booking.com's practice of including "price parity" clauses in its contracts with hotels has recently come under scrutiny.
After facing legal challenges, Booking.com raised an action in the District Court of Amsterdam seeking a declaration that the narrow price parity clauses contained in its contracts did not infringe Article 101(1) of the Treaty on the Functioning of the European Union (TFEU).
Article 101(1) of the TFEU prohibits agreements which restrict competition. The District Court of Amsterdam in turn sought a preliminary ruling from the European Court of Justice (ECJ) on the interpretation of such clauses.
What are price parity clauses?
Price parity clauses are clauses contained within contracts which limit the price at which suppliers can offer goods or services to the public through alternative outlets.
Historically, several online travel companies, including Booking.com, included wide price parity clauses in their contracts with hotels. These clauses prohibited hotels from offering rooms to customers at lower rates than those offered through such online travel companies.
In 2013, the German competition authority concluded an investigation into the use of price parity clauses by online travel companies. It found that such clauses were anticompetitive and infringed the provisions of national and EU law as they restricted competition on the market for the provision of hotel accommodation services.
Following this finding, Booking.com, alongside other online travel companies, updated its contracts to move away from these wide price parity provisions.
In their place, Booking.com introduced new narrow price parity provisions which prohibited hotels from offering rooms to customers at lower rates through the hotel's own website. Booking.com argued that the inclusion of such provisions was necessary to avoid the risk of hotels "free-riding" on its platform.
What did the European Court of Justice say?
The ECJ were asked to consider whether narrow price parity clauses constituted "ancillary requirements" in the context of Article 101(1) of the TFEU.
Under EU law "ancillary requirements", which are requirements directly related and necessary to the implementation of a legitimate interest, may still be enforceable even if the impact of such ancillary requirements is restrictive to competition.
In considering this question, the ECJ considered it necessary to establish first whether the provision of online hotel reservation platforms, a practice which was seen to be beneficial to competition, was possible without the inclusion of price parity clauses.
On this the ECJ held that wide price parity clauses, such as those seen prior to 2013, could not be considered necessary or proportionate for the provision of such platforms. There was no clear link between the inclusion of such clauses and the continued existence of online booking platforms. These clauses were also considered to have a clear negative impact on competition.
The ECJ acknowledged that narrow price parity clauses were of less negative impact to competition. However, despite the fact such clauses were intended to avoid the risk of "free-riding" the ECJ did not consider these clauses to be objectively necessary to ensure the economic viability of platforms such as Booking.com.
As a result, the ECJ found that narrow price parity clauses were not "ancillary requirements".
What does this mean for Booking.com?
The impact of this judgment is still to be fully determined.
While the ECJ stated that narrow price parity clauses were not ancillary requirements, this does not necessarily mean that such clauses are restrictive to competition. The District Court of Amsterdam are still to determine that point. However, The ECJ's decision leaves open the possibility that such clauses could be considered restrictive to competition and as such unenforceable.
Key takeaways
If the District Court of Amsterdam decide that Booking.com's price parity clauses are restrictive to competition, Booking.com may find that they are left with obligations in their contracts which they cannot enforce. Companies operating in the UK and EU should beware of the restrictions imposed by law on what can be agreed in a contract.
While the starting point will always be to consider what has been agreed between the parties, the courts may, in certain circumstances, step in to set aside and disapply provisions of contracts which are deemed unfair, anticompetitive, or contrary to policy.
If you require any assistance with commercial contracts, please get in touch with Alison Rochester, Roddy Forgie, or Andrew Buchan in our trade and commerce team, or your usual Shepherd and Wedderburn contact.