On 9 May 2019, the Swedish Patent and Market Court of Appeal quashed the Swedish Patent and Market Court’s ruling to prohibit Booking.com from applying “narrow” parity clauses in its contracts with Swedish hotels. Booking.com is now free to maintain its practice and prevent contracted hotels from offering their rooms to better terms and prices on their own websites than what they offer via Booking.com.
In 2015, the Swedish Competition Authority accepted Booking.com’s (Booking.com B.V and Bookingdotcom Sverige AB) voluntary commitment to cease applying “wide” parity clauses. Hence, Booking.com stopped its practice where it required hotels to maintain at least as favorable terms on Booking.com as those offered on all other online and offline channels, e.g. other online travel agencies’ (“OTAs’”) websites or the hotels’ offline channels. The Swedish Competition Authority’s inquiry included the company’s application of “narrow” parity clauses too, but the authority did not challenge those as anti-competitive. On the contrary, the authority held that the clauses were in fact necessary for Booking.com to prevent the hotels from free riding on Booking.com’s investments.
However, in 2016 the Swedish hotel association Visita, filed a complaint against Booking.com with the Patent and Market Court. According to Visita, Booking.com’s “narrow” parity clauses violated Ch. 2, Sec. 1 Swedish Competition Act and Article 101 (1) TFEU. Visita asserted that the clauses negatively affected the market for OTAs as well as the market for hotel rooms and argued that hotels are less likely to offer better terms and prices to other OTAs thereby resulting in (a) weaker price competition, both on hotels’ room rates and on OTAs’ commission rates and (b) barriers for OTAs to enter or grow on the market.
Booking.com rejected the motion and argued that the clauses were necessary to avoid free riding on its investments and to assure that its service functioned as a reliable tool for price comparison of hotel rooms.
Anti-competitive by object?
Both the Patent and Market Court and the Patent and Market Court of Appeal concluded that the clauses did not have as their object to restrict competition. The Patent and Market Court of Appeal referred i.a. to the fact that there was no uniform approach regarding narrow parity clauses in the EU and that there is no generally accepted economic theory to support the assumption that narrow clauses are anti-competitive by object. However, when determining the effect of the clauses the two courts came to different conclusions.
Actual or potential anti-competitive effects?
The Patent and Market Court ruled in favor of Visita. That court held that the clauses implied potential anti-competitive effects. It stated that since the clauses prevented the hotels from applying lower prices on their own websites than on Booking.com’s website, there was reason to believe that this would deteriorate price competition on the market for hotel rooms. The court also stated that it was proved in the case that as an outset, hotels are less willing to offer lower prices via other OTAs if they are prevented from offering those prices on their own websites. Accordingly, the court found that the clauses made it more difficult for OTAs to compete with prices and created barriers to enter or grow on the market.
The Patent and Market Court of Appeal did not exclude that narrow parity clauses could have an anti-competitive effect. Nevertheless, as Visita had failed to sufficiently establish such effects, the appeal was upheld and the Patent and Market Court’s ruling overturned.
The Patent and Market Court of Appeal’s critique
In its ruling, the Patent and Market Court of Appeal outlined deficiencies in Visita’s evidence.
- Deficient surveys and conflicting conclusions
Visita had referred to a study based on a hotel survey carried out by Visita itself. According to Visita, the survey verified the clauses’ effect on hotels’ pricing behavior, e.g. that hotels bound by the clauses do not price differentiate among OTAs.
The court observed that the survey reflected only the larger hotel chains in Sweden and it could not find that it served to sufficiently verify Visita’s position on a market in a scenario without the clauses.
Further, the court noted that another survey, referred to by Booking.com, indicated that hotels in fact varied their prices among OTAs and that there was no significant difference in the pricing made by hotels bound by the clauses and hotels not bound by the clauses.
- Alternative explanations
The court also highlighted that the reasons why hotels’ do not price differentiate to a larger extent could have alternative explanations; e.g. digital pricing tools used by hotels.
The court also declared that the market for OTAs could be described as an oligopoly with significant barriers for new OTAs to enter the market. However, and according to the court, it was not established in the case that these barriers were created or preserved by the clauses. Instead, the court found that it is more likely that the construction of the digital platforms, was a more probable explanation since the demand is higher for platforms that can create positive network effects between hotels and consumers. The court noted that an OTA that has been active on the market for a long period of time naturally has a wider sphere of both contracted hotels and consumers visiting its websites.
- More thorough investigations could have been presented
The court observed that narrow parity clauses are in principle prohibited in Germany and France. A solid investigation of the development on those markets would have been important to assess the claims and the court noted that Visita had not provided any survey on the situation in France or Germany.
Finally, the court said that the hotels are free to decide what price to offer via Booking.com and that they are therefore relatively free in the pricing. The court admitted that it could be assumed that the hotels would offer lower prices on their own websites in a scenario without the clauses. However, that could not in itself be enough to conclude that price competition between hotels is impaired by the clauses. In order to find this, Visita would have had to submit additional evidence. As this had not been done, it was not sufficiently established that a prohibition for narrow parity clauses would result in lower prices for hotel rooms.
Summary and comments
In short, the court applied an effects-based approach with stringent requirements. As Visita fell short of establishing all the relevant circumstances no prohibition could be granted. The case settles the history of Booking.com’s narrow parity clauses in Sweden. But as stated by the court, the anti-competitive effect of the clauses cannot be excluded for other cases. It should be mentioned that the ruling in Sweden does not stand alone. A ruling by the Higher Regional Court of Düsseldorf, from 4 June 2019, that concerned Booking.com’s narrow parity clauses with German hotels points in the same direction. However, based on the diverse approach within the EU and the possibility for more thorough investigations, we assume that it is better to sum up the status of narrow parity clauses with “to be continued…” rather than having reached “the end”.
Swedish Patent and Market Court of Appeal’s ruling 9 May 2019, case no. PMT 7779-18.
Danowsky & Partners
Partner, Ulf Isaksson
Associate, Moa Nilsson