On May 18, 2021, the FCJ annulled a 2019 decision of the Düsseldorf Court of Appeal (“DCA”) and found the “narrow” most favored nation (“MFN”) clauses used by the hotel booking platform operator Booking Holdings (“Booking.com”) to be incompatible with EU and German competition law.
MFN clauses, also known as “best price” or “price parity” clauses, are contractual clauses in agreements between, for instance, hotels and hotel booking platform operators, 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 is a Dutch hotel booking platform operator that brokers hotel rooms to end customers for a commission of 10-15% for bookings concluded over their platforms. If end customers book their rooms directly over the hotel’s website, the hotels do not pay a commission to Booking.com even if their customers initially found the hotel on their platform.
Following Booking.com’s decision to abandon the use of wide MFN clauses, the FCO, in 2015, also prohibited the use of narrow MFN clauses. Essentially, the FCO argued that narrow MFN clauses significantly reduce the attractiveness of the hotel’s own online distribution channel and limit the hotel’s pricing sovereignty. On appeal, the DCA overturned the FCO’s decision. While narrow MFN clauses are principally capable of restricting competition, they are to be considered necessary and ancillary restraints to Booking.com’s brokerage agreements to prevent free-riding of hotel operators on Booking.com’s services. The FCO appealed the decision and, in parallel, launched an investigation into the effect of narrow MFN clauses on online sales.
The FCJ Decision
The FCJ annulled the DCA’s decision and found that (i) narrow MFN clauses cannot be considered ancillary restraints, i.e., restrictions directly related and necessary to achieve the objectives of the brokerage agreement between Booking.com and the hotels, and (ii) narrow MFN clauses cannot benefit from an individual exemption.
No Ancillary Restraint
According to the ancillary restraints doctrine, certain restrictions should not be “restrictions of competition” within the meaning of Article 101(1) TFEU where, in consideration of the legal and economic context, they are demonstrably necessary for protecting the legitimate interests of the parties to the agreement. In the FCJ’s view, Booking.com failed in establishing that narrow MFN clauses are necessary to ensure a fair and balanced exchange of services between Booking.com as the platform operator and the hotels as its customers. This was illustrated, inter alia, by the fact that, according to the FCO’s investigation, Booking.com was able to further strengthen its market position in Germany—in terms of turnover, market share, booking volumes, number of hotel partners and number of hotel locations—even after Booking.com removed the narrow MFN clause from its contracts.
No Individual Exemption from the Ban On Agreements Restricting Competition
According to the FCJ, Booking.com’s narrow MFN clauses could also not be exempted from the ban on agreements restricting competition on a case-by-case basis. In the FCJ’s view, the clauses do not lead to an overall efficiency advantage by improving the production or distribution of goods or promoting technical or economic progress which outweighs the agreement’s anticompetitive effects:
- While the FCJ acknowledged that Booking.com’s search, compare and book functions offer consumers a convenient, unique and attractive service package and hotels an extended customer reach, these efficiency advantages do not presuppose the narrow MFN clauses.
- Further, the FCJ found that MFN clauses may have positive effects, such as securing an adequate remuneration for the platform service by solving the above-mentioned free-rider or increasing market transparency for consumers. However, based on the results of the FCO’s investigation as well as other submissions by com, the FCJ does not consider the free-rider problem to be such a big issue that it could jeopardize the efficiency of the brokerage agreement.
- Finally, narrow MFN clauses considerably hindered the platform-independent online sales of hotel operators by diminishing the attractiveness of the operators’ own online sales channels and restricting their pricing In particular, narrow MFN clauses deprive hotel operators of the opportunity to pass on the agency commission saved in the form of price reductions to attract customers.
The FCJ’s judgment puts an end to a years-long saga. However, across the EU, national competition authorities and courts have investigated MFN clauses with different results. It will be interesting to see whether the ongoing review of the EU Vertical Block Exemption Regulation, which is expected to come to a close in mid-2022, will provide more clarity to the treatment of MFN clauses under EU competition law.
 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.
 Booking (B9-121/13), FCO decision of December 22, 2015, available in German here and in English here, see also our article in the German Competition Law Newsletter May – June 2019, p. 4 et seq., available here.
 See “The effect of narrow price parity clauses on online sales – Investigation results from the Bundeskartellamt’s Booking proceeding” (“Investigation Results”) in the paper series “Competition and Consumer Protection in the Digital Economy” dated August 2020, available in English here, see also our article in the German Competition Law Newsletter – June 2019, p. 4 et seq., available here.