On June 4, 2019, the Düsseldorf Court of Appeals (“DCA”) annulled the FCO’s 2015 decision prohibiting hotel booking platform operator Booking Holdings (“Booking.com”) from using narrow most favored nation (“MFN”) clauses. The DCA’s decision aligns the German position with that of other European national competition authorities (“NCAs”). However, new causes of divergence—stemming from legislative interventions—are already emerging.
MFN clauses, also known as “best price” or “price parity” clauses, are provisions in agreements between, for instance, hotels and hotel booking platform operators, such as Booking.com, whereby the hotels guarantee to offer the same—or better—rates and conditions for hotel rooms than those offered either: (i) on any other offline or online sales channel, e.g., on other booking platforms (wide MFN clauses) or (ii) on the hotels’ own website (narrow MFN clauses). Booking. com and other platforms broker hotel rooms to end customers and receive a commission of 10-15% for bookings made via its platform. However, hotels do not pay any commission for direct bookings, even if the end customers had only become aware of the hotel in question via Booking.com.
Starting in 2010, several NCAs have investigated MFN clauses in agreements between hotels and hotel booking platform operators and taken different approaches:
In 2013, the FCO prohibited German online hotel booking platform operator HRS GmbH (“HRS”)’s wide MFN clauses because they reduced competition between existing booking platforms and prevented new market entries by other platforms. The DCA confirmed the FCO’s decision.
In April 2015, the French, Italian and Swedish NCAs (coordinated by the European Commission) similarly found Booking.com’s wide MFN clauses to be anticompetitive. The three NCAs accepted commitments from Booking.com to replace wide with narrow MFNs.
Already in 2013, i.e., shortly after concluding its proceedings against HRS, the FCO had initiated proceedings against Booking.com. During the course of the FCO’s investigation, Booking.com extended the commitments it had previously made to the French, Italian and Swedish NCAs to Germany, also replacing its wide MFN clauses with narrow MFN clauses. The FCO, nonetheless, continued its proceedings against Booking.com and ultimately prohibited the use of narrow MFNs.
The DCA Decision
The DCA annulled the FCO’s decision, finding that narrow MFN clauses are to be considered ancillary restraints, i.e., restrictions directly related and necessary to achieve the objectives of the contracts between Booking.com and the hotels. Narrow MFN clauses therefore do not constitute an infringement of Art. 101 TFEU or Section 1 ARC.
In the DCA’s view, the narrow MFNs are necessary to ensure a fair and balanced business relationship between Booking.com and hotels that use its services. Hotels pay a commission only when a guest actually books a hotel via Booking.com. By contrast, Booking.com provides its services in advance, i.e., without any immediate return from the hotels. The balance between these mutual obligations would be significantly impaired if hotels were allowed to avoid paying commission by diverting customers that initially found the hotels on Booking.com away from Booking.com to the hotels’ own websites (by offering cheaper prices on their own website than on Booking.com). The DCA found that such a behavior exploited Booking.com’s efforts in breach of good faith.
In addition, the DCA identified an evident and genuine risk that hotels would actually follow this approach without the restrictions imposed by narrow MFN clauses: First, the DCA considered that cheaper prices have a significant pulling effect with respect to the customers’ choice of where to book a hotel room. Even if a customer searched for accommodations via Booking.com and decided for a specific hotel on that basis, the customer is likely to conduct the actual booking through the channel that offers the best price and booking conditions—at least, if the alternative channel is easily accessible. Given that booking platforms provide hyperlinks to hotels’ websites, customers can easily access the hotels’ own offers, and would likely book via the hotels’ own websites if prices there are lower than on the platform.
Second, the DCA found that hotels have an incentive to divert bookings to their own websites by offering lower prices there. Although the large majority of hotels in Germany considered the services of booking platforms—and in particular Booking.com—to be essential for their business, the FCO’s market test (conducted at the DCA’s request) showed that a significant number of hotels already offer prices and booking conditions on their websites that are more favorable than those offered on Booking.com.
Against this background, the DCA confirmed that Booking.com was entitled to avoid the illicit diversion of bookings from its own platform by establishing contractual countermeasures to prevent “free-riding” by hotels. The DCA held that the use of narrow MFN clauses was not only necessary to ensure a balance between the contractual parties (Booking.com and the hotels), but also proportionate. The FCO was not able to indicate an alternative, similarly effective contractual measure to the DCA that would restrict competition to a lesser extent and be less burdensome for the hotels. In particular, the DCA found that fixed listing or click-based fees would restrict competition more significantly than narrow MFN clauses. In addition, the DCA held that Booking.com’s use of narrow MFN clauses did not result in disproportionate disadvantages for hotels.
The DCA denied leave for appeal on points of law. The FCO, however, has lodged an appeal with the German Federal Court of Justice against the DCA’s denial of leave to appeal.
The DCA’s decision is consistent with the 2015 decisions of the French, Italian and Swedish NCAs. However, new laws in several EU Member States, including France and Italy, now specifically prohibit booking platforms from interfering with a hotel’s pricing at all. This means that the approach to narrow MFN clauses in the EU remains inconsistent.
While the abovementioned decisions deal with MFN clauses in the hotel booking sector, other online platforms are closely following the legal development. For example, after the FCO’s decision against HRS, German price comparison website Verivox GmbH (“Verivox”) removed all MFN clauses from its contracts to avoid further investigation by the FCO. Following the DCA’s latest decision, Verivox, as well as other price comparison websites or platform providers, may reconsider the use of narrow MFN clauses.
 Hotels may still offer cheaper rates offline, i.e., at their receptions, or if contacted directly by customers, as long as these cheaper rates are not advertised or promoted online.
 Prices on the hotels’ own websites are often 5%-15% lower than the prices of identical offers on Booking.com.
 See Art. L311-5-1 et seq. of the French Tourism Code (2015); Austria’s Section 1a of the Law on Unfair Competition as well as their Price Marking Act (2017); Italy’s Art. 1 (166) of the Annual Competition Law (2017); and Belgium’s Law relating to freedom of pricing by operators of touristic accommodation in contracts concluded with platform operators for online reservation (2018); see also the final report of the UK competition authority on their digital comparison tools market study from September 26, 2017, available in English here.